Test Prep BUSINESS-ENVIRONMENT-AND-CONCEPTS Online Practice Questions and Exam Preparation

Test Prep BUSINESS-ENVIRONMENT-AND-CONCEPTS Online Questions & Answers

• Question 141:

  In 1990, Amber Corp., a closely held corporation, was formed by Adams, Frank, and Berg as incorporators and stockholders. Adams, Frank, and Berg executed a written voting agreement which provided that they would vote for each other as

  directors and officers. In 1994, stock in the corporation was offered to the public. This resulted in an additional 300 stockholders. After the offering, Adams holds 25%, Frank holds 15%, and Berg holds 15% of all issued and outstanding stock.

  Adams, Frank, and Berg have been directors and officers of the corporation since the corporation was formed. Regular meetings of the board of directors and annual stockholders meetings have been held.

  For this question refer to the formation of Amber Corp. and the rights and duties of its stockholders, directors, and officers.

  A. Amber Corp. must be formed under a state's general corporation statute.
  B. Amber Corp.'s articles of incorporation must include the names of all stockholders.
  C. Amber Corp. must include its corporate bylaws in the incorporation documents filed with the state.
  A. Amber Corp. must be formed under a state's general corporation statute.

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  Choice "a" is correct. A corporation must be formed by compliance with the state's corporation statute.

  Choice "b" is incorrect. The articles need not contain the names of the stockholders.

  Choice "c" is incorrect. Bylaws do not have to be in the articles; they are usually adopted at the first directors' meeting.

• Question 142:

  Which of the following statements describes the same characteristic for both an S corporation and a C corporation?

  A. Both corporations can have more than 100 shareholders.
  B. Both corporations have the disadvantage of double taxation.
  C. Shareholders can contribute property into a corporation without being taxed.
  D. Shareholders can be either citizens of the United States or foreign countries.
  C. Shareholders can contribute property into a corporation without being taxed.

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  Choice "c" is correct. Either entity's shareholders may contribute property to the corporations without being taxed and may contribute such property as an exchange for stock as appraised by the directors. Choice "a" is incorrect. An S

  corporation may not have more than 100 shareholders, although a C corporation may have as many shareholders as desired.

  Choice "b" is incorrect. Only the C corporation is subject to the double taxation disadvantage.

  Choice "d" is incorrect. Only an S corporation is prohibited from having foreign country shareholders.

• Question 143:

  When determining net present value in an inflationary environment, adjustments should be made to:

  A. Increase the discount rate, only.
  B. Increase the estimated cash inflows and increase the discount rate.
  C. Increase the estimated cash inflows but not the discount rate.
  D. Decrease the estimated cash inflows and increase the discount rate.
  B. Increase the estimated cash inflows and increase the discount rate.

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  Choice "b" is correct.

  Rule: In an inflationary environment, future cash flows (except for cash flows generated from the tax effect of depreciation) should be increased to the extent of predicted inflation. For internal consistency, an inflationary factor should also be

  added to the discount rate.

  Choices "a", "c", and "d" are incorrect, per the above Explanation.

• Question 144:

  To address the problem of a recession, the Federal Reserve Bank most likely would take which of the following actions?

  A. Lower the discount rate it charges to banks for loans.
  B. Sell U.S. government bonds in open-market transactions.
  C. Increase the federal funds rate charged by banks when they borrow from one another.
  D. Increase the level of funds a bank is legally required to hold in reserve.
  A. Lower the discount rate it charges to banks for loans.

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  Choice "a" is correct. During a recession, real GDP has fallen and unemployment has risen. To stimulate the economy, the Fed can lower the discount rate. This causes the money supply to increase, which, in turn, causes aggregate demand

  to shift right. As a result, real GDP would increase and unemployment would decrease.

  Choice "b" is incorrect. If the Fed sells U.S. government bonds in the open market, the money supply will decrease. This causes aggregate demand to shift left. As a result, real GDP would decrease and unemployment would increase. Choice

  "c" is incorrect. Increasing the federal funds rate would increase interest rates. Higher interest rates cause the aggregate demand curve to shift left. As a result, real GDP would decrease and unemployment would increase.

  Choice "d" is incorrect. An increase in the required reserve ratio causes the money supply to decrease.

  This causes aggregate demand to shift left. As a result, real GDP would decrease and unemployment would increase.

• Question 145:

  Which one of the following represents methods for converting accounts receivable to cash?

  A. Trade discounts, collection agencies, and credit approval.
  B. Factoring, pledging, and electronic funds transfers.
  C. Cash discounts, collection agencies, and electronic funds transfers.
  D. Trade discounts, cash discounts, and electronic funds transfers.
  C. Cash discounts, collection agencies, and electronic funds transfers.

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  Choice "c" is correct. The following are methods of converting accounts receivable (AR) into cash:

  1.

  Collection agencies - used to collect overdue AR.

  2.

  Factoring AR - selling AR to a factor for cash.

  3.

  Cash discounts - offering cash discounts to customers for paying AR quickly (or paying at all). For example: 2/10, net 30.

  4.

  Electronic fund transfers - a method of payment, which electronically transfers funds between banks.

  Therefore, only choice "c" matches the above list.

  Choice "a" is incorrect. Trade discounts offer discounts on future merchandise purchases offered to trade customers. These discounts do not turn AR into cash.

  Choice "b" is incorrect. Pledging AR as collateral on a loan does not convert AR into cash.

  Choice "d" is incorrect, per choice for "a" above.

• Question 146:

  Which of the following statements is true regarding the payback method?

  A. It does not consider the time value of money.
  B. It is the time required to recover the investment and earn a profit.
  C. It is a measure of how profitable one investment project is compared to another.
  D. The salvage value of old equipment is ignored in the event of equipment replacement.
  A. It does not consider the time value of money.

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  Choice "a" is correct. The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. The payback method does not consider the time value of money. Choice "b" is incorrect. The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. Although the payback method focuses on liquidity and measures risk, project cash flows after the initial

  investment are not considered; thus, profitability is ignored.

  Choice "c" is incorrect. The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. Although the payback method focuses on liquidity and measures risk, project cash flows

  after the initial investment are not considered; thus, profitability is ignored.

  Choice "d" is incorrect. Salvage value is specifically considered as part of payback computations because it contributes to the incoming cash flow when the asset is sold.

• Question 147:

  When parties intend to create a partnership that will be recognized under the Revised Uniform Partnership Act, they must agree to:

  

  A. Option A
  B. Option B
  C. Option C
  D. Option D
  B. Option B

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  Choice "b" is correct. "Yes - No."

  Rule: A partnership is an agreement between two or more persons to carry on, as co-owners, a business for profit; partners share management and profits and losses, not gross receipts.

  Choices "a", "c", and "d" are incorrect, per the above rule.

• Question 148:

  In any competitive market, an equal increase in both demand and supply can be expected to always:

  A. Increase both price and market-clearing quantity.
  B. Increase market-clearing quantity.
  C. Increase price.
  D. Decrease price.
  B. Increase market-clearing quantity.

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  Choice "b" is correct. As illustrated above, a shift outward (increase) in supply increases quantity supplied at equilibrium. As illustrated, this is true even when demand increases.

  Choice "a" is incorrect. As illustrated, price may stay the same but quantity will increase. Draw the graph!

  Choices "c" and "d" are incorrect. Price may remain the same, but quantity will "always" increase.

• Question 149:

  In 1992, Anchor, Chain, and Hook created ACH Associates, a general partnership. The partners orally agreed that they would work full time for the partnership and would distribute profits based on their capital contributions. Anchor

  contributed $5,000; Chain $10,000; and Hook $15,000.

  For the year ended December 31, 1993, ACH Associates had profits of $60,000 that were distributed to the partners. During 1994, ACH Associates was operating at a loss. In September 1994, the partnership dissolved.

  In October 1994, Hook contracted in writing with Ace Automobile Co. to purchase a car for the

  partnership. Hook had previously purchased cars from Ace Automobile Co. for use by ACH Associates partners. ACH Associates did not honor the contract with Ace Automobile Co. and Ace Automobile Co. sued the partnership and the

  individual partners.

  A. Anchor's capital account would be reduced by 1/3 of any 1994 losses.
  B. Hook's capital account would be reduced by 1/2 of any 1994 losses.
  B. Hook's capital account would be reduced by 1/2 of any 1994 losses.

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  Choice "b" is correct. If the partnership agreement is silent on how losses will be shared, they are shared in the same manner as profits. Here, the partners agreed to share profits on the basis of their contributions, which were in a ratio of

  1:2:3 respectively for Anchor, Chain, and Hook. Thus, Anchor is liable for one-sixth of the loss, Chain is liable for 1/3 of the loss, and Hook is liable for 1/2 of the loss.

• Question 150:

  The basic objective of the residual income approach of performance measurement and evaluation is to have a division maximize its:

  A. Return on investment rate.
  B. Imputed interest rate charge.
  C. Cash flows in excess of a desired minimum amount.
  D. Income in excess of a desired minimum amount.
  D. Income in excess of a desired minimum amount.

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  Choice "d" is correct. Residual income is defined as income in excess of a desired minimum return. Choices "a" and "b" are incorrect, as residual income is not a "rate" of return; it is a dollar amount. Choice "c" is incorrect, as residual income is an accrual method.