BEC REVIEW 11

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BEC REVIEW 11
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BEC REVIEW 11
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  1. MFC Corporation has 100,000 shares of stock outstanding. Following is part of MFC's Statement of Financial Position for the last fiscal year.                              

    MFC Corporation             Statement of Financial Position - Selected Items

    December 31, 2006

    Cash                                                   $455,000
    Accounts receivable                                900,000
    Inventory                                               650,000      
    Prepaid assets                                           45,000      
    Accrued liabilities                                     285,000      
    Accounts payable                                        550,000      

    Current portion, long-term notes payable                   65,000


    What is the maximum amount MFC can pay in cash dividends per share and maintain a minimum current ratio of 2 to 1? (Assume that all accounts other than cash remain unchanged.)
    $2.50 per share

    To determine the maximum amount that MFC can pay in cash dividends per share and maintain a minimum current ratio of at least 2 to 1, you must set up an algebraic problem based on the current ratio formula:


    Total Current Assets ÷ Total Current Liabilities = Current Ratio

    We know Total Current Liabilities equals $900,000 and our desired minimum current ratio is 2.0.

    We also know cash dividends reduce cash, which reduces Current Assets, and have no affect on Current Liabilities.

    Replace these terms with these values and solve for Total Current Assets.If Total Current Assets ÷ $900,000 = 2.0, then Total Current Assets = $1,800,000

    If Total Current Assets are now $2,050,000, a maximum of $250,000 may be paid out in cash dividends to keep Total Current Assets from dropping below $1,800,000 ($2,050,000 - $1,800,000 = $250,000).

    $250,000 of cash dividends divided by 100,000 of stock outstanding equals $2.50 per share ($250,000 ÷ 100,000 = $2.50).
  2. The ----------------------- is a liquidity ratio that measures a firm's ability to discharge currently maturing obligations from existing current assets that are expected to be converted into cash within the maturing period of the claims.
    The current ratio is a liquidity ratio that measures a firm's ability to discharge currently maturing obligations from existing current assets that are expected to be converted into cash within the maturing period of the claims.
  3. what is current ratio?
    The current ratio is a liquidity ratio that measures a firm's ability to discharge currently maturing obligations from existing current assets that are expected to be converted into cash within the maturing period of the claims.
  4. Current ratio is a measure of ------------------------------
    Current ratio is a measure of short-term solvency;
  5. what is the formula for the current ratio?
    current ratio = Current assets ÷ Current liabilities
  6. ------------------------------ are those obligations whose liquidation is reasonably expected to require either the use of existing resources properly classified as current assets or the creation of other current liabilities
    Short-term obligations are those obligations whose liquidation is reasonably expected to require either the use of existing resources properly classified as current assets or the creation of other current liabilities
  7. what are short term obligations?
    Short-term obligations are those obligations whose liquidation is reasonably expected to require either the use of existing resources properly classified as current assets or the creation of other current liabilities
  8. Maturity is within one year for a -----------------------------------, or the operating cycle, if it is longer.
    Maturity is within one year for a short-term obligation, or the operating cycle, if it is longer.
  9. what is the maturity timeline for short term obligations
    Maturity is within one year for a short-term obligation, or the operating cycle, if it is longer.
  10. Interest on debt is ----------------------- by a corporation,
    Interest on debt is tax deductible by a corporation,
  11. A firm's dividend policy may treat dividends either as the residual part of a financing decision or as an active policy strategy.Treating dividends as the residual part of a financing decision assumes that:
    earnings should be retained and reinvested as long as profitable projects are available.
  12. Treating -----------------------as the residual part of a financing decision assumes that earnings should be retained and reinvested as long as profitable projects are available.
    Treating dividends as the residual part of a financing decision assumes that earnings should be retained and reinvested as long as profitable projects are available.
  13. Treating dividends as the residual part of a financing decision assumes what?
    Treating dividends as the residual part of a financing decision assumes that earnings should be retained and reinvested as long as profitable projects are available.
  14. A delivery company is implementing a system to compare the costs of purchasing and operating different vehicles in its fleet. Truck 415 is driven 125,000 miles per year at a variable cost of $0.13 per mile. Truck 415 has a capacity of 28,000 pounds and delivers 250 full loads per year. What amount is the truck’s delivery cost per pound?
    .00232

    The truck has a variable cost of $0.13 per mile × 125,000 miles, or $16,250 per year. It delivers 28,000 pounds × 250 loads, or 7,000,000 pounds a year.


    Dividing the annual cost of $16,250 by 7,000,000 pounds delivered each year gives a cost of $0.00232 per pound delivered.
  15. A company employing an online computer system has CRT terminals located in all operating departments for inquiry and updating purposes. Many of the company's employees have access to and are required to use the CRT terminals. A control the company would incorporate to prevent an employee from making an unauthorized change to computer records unrelated to that employee's job would be to:
    apply a compatibility test to transactions or inquiries entered by the user.
  16. A ---------------------------------------is a procedure for checking a password to determine if its user is authorized to initiate the type of transaction or inquiry he or she is attempting to initiate.
    A compatibility check (or compatibility test) is a procedure for checking a password to determine if its user is authorized to initiate the type of transaction or inquiry he or she is attempting to initiate.
  17. what is a compatibility check (or compatibility test)
    A compatibility check (or compatibility test) is a procedure for checking a password to determine if its user is authorized to initiate the type of transaction or inquiry he or she is attempting to initiate.
  18. For the current-period production levels, Woodwork Co. budgeted 11,000 board feet of production and purchased 15,000 board feet. The material cost was budgeted at $7 per foot. The actual cost for the period was $8.50 per foot. What was Woodwork's material price variance for the period?
    unfavorable  22,500

    The material price variance is the comparison of what was actually spent with what was expected to have been spent for the actual amount purchased—comparison shopping, so to speak.


    Spending variance = (Actual price - Standard price) × Actual quantity 







    = ($8.50 - $7.00) × 15,000 ft.  = $22,500 U


    -->Spending variance = (Actual price - Standard price) x Actual quantity          


    = ($8.50 - $7.00) x 15,000 ft.


    = $22,500 U


    The variance is unfavorable (U) since the price per foot was more than expected.


    Since it is best to isolate variance as soon as possible, the material price variance is calculated at the time of purchase as opposed to when the materials are added in the production process
  19. When the Federal Reserve buys federal securities, they --------------- the money supply.
    When the Federal Reserve buys federal securities, they expand the money supply.
  20. When the Federal Reserve --------------- federal securities, they expand the money supply.
    When the Federal Reserve buys federal securities, they expand the money supply.

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