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

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

• Question 381:

  Berry, Drake, and Flanigan are partners in a general partnership. The partners made capital contributions as follows: Berry, $150,000; Drake, $100,000; and Flanigan, $50,000. Drake made a loan of $50,000 to the partnership. The partnership agreement specifies that Flanigan will receive a 50% share of profits, and Drake and Berry each will receive a 25% share of profits. Under the Revised Uniform Partnership Act and in the absence of any partnership agreement to the contrary, which of the following statements is correct regarding the sharing of losses?

  A. The partners will share equally in any partnership losses.
  B. The partners will share in losses on a pro rata basis according to the capital contributions.
  C. The partners will share in losses on a pro rata basis according to the capital contributions and loans made to the partnership.
  D. The partners will share in losses according to the allocation of profits specified in the partnership agreement.
  D. The partners will share in losses according to the allocation of profits specified in the partnership agreement.

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  Choice "d" is correct. Under the Revised Uniform Partnership Act, unless agreed otherwise, partners share losses in the same manner that they share profits. Choice "a" is incorrect. Under the Revised Uniform Partnership Act, unless agreed

  otherwise, partners share losses in the same manner that they share profits. Here, the partners agreed to share profits in a 2:1:1 ratio. Thus, losses will be shared in that manner rather than equally.

  Choice "b" is incorrect. Under the Revised Uniform Partnership Act, unless agreed otherwise, partners share losses in the same manner that they share profits. They are not shared in accordance with the partners' capital contributions. Choice

  "c" is incorrect. Under the Revised Uniform Partnership Act, unless agreed otherwise, partners share losses in the same manner that they share profits. They are not shared in accordance with the partners' capital contributions or loans.

• Question 382:

  Why would a firm generally choose to finance temporary assets with short-term debt?

  A. Matching the maturities of assets and liabilities reduces risk.
  B. Short-term interest rates have traditionally been more stable than long-term interest rates.
  C. A firm that borrows heavily long term is more apt to be unable to repay the debt than a firm that borrows heavily short term.
  D. Financing requirements remain constant.
  A. Matching the maturities of assets and liabilities reduces risk.

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  Choice "a" is correct. Matching the maturities of current assets with liabilities as they come due is designed to ensure liquidity and reduce risk of cash shortages. Temporary assets (such as inventories, generally, and seasonal inventories,

  specifically) might be financed with short term debt such that the earnings from the sales of those temporary assets could be used to liquidate the related obligations as they come due and ensure that cash is available to meet cash flow

  requirements.

  Choice "b" is incorrect. Interest rate risks would likely motivate a firm to use longer term financing than short-term financing. Choice "c" is incorrect. Matching cash inflows with cash outflows are more influential in determining a firm's ability to

  repay debt rather than the length of the obligation. Choice "d" is incorrect. Long-term rather than short-term debt promotes consistent finance charges. The requirements for financing itself are driven by business practice, not by the maturity of

  financial instruments used.

• Question 383:

  Foster Inc. is considering implementing a lock-box collection system at a cost of $80,000 per year. Annual sales are $90 million, and the lock-box system will reduce collection time by 3 days. If Foster can invest funds at 8 percent, should it use the lock-box system? Assume a 360-day year.

  A. Yes, producing savings of $60,000 per year.
  B. No, producing a loss of $20,000 per year.
  C. No, producing a loss of $60,000 per year.
  D. No, producing a loss of $140,000 per year.
  B. No, producing a loss of $20,000 per year.

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  Choice "b" is correct. No, do not use the lock-box system, which produces a loss of $20,000 per year.

  

• Question 384:

  If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be:

  A. Risk indifferent.
  B. Risk averse.
  C. Risk seeking.
  D. Cautious.
  C. Risk seeking.

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  Choice "c" is correct. If an investor's certainty equivalent, the point at which they are indifferent to risk, exceeds the expected return on an investment, then the investor is actually seeking lower return for higher risk. This behavior represents

  risk seeking behavior.

  Choice "a" is incorrect. Risk indifferent behavior occurs when an investor's certainty equivalent is equal to the expected return on the investment. Choice "b" is incorrect. Risk averse behavior occurs when an investor's certainty equivalent is

  less than the expected rate of return. The investor seeks higher returns for more risk.

  Choice "d" is incorrect. Cautious is not a technical term used in risk behavior classifications.

• Question 385:

  When markets are perfectly competitive, consumers:

  A. Have goods and services produced at the lowest cost in the long run.
  B. Must choose the brands they buy solely on the basis of informational advertising.
  C. Do not receive any consumer surplus unless producers choose to overproduce.
  D. Must search for the lowest price for the products they buy.
  A. Have goods and services produced at the lowest cost in the long run.

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  Choice "a" is correct. Since price is barely sufficient to give a firm a normal profit and stay in business, the consumer obtains the product at as low a price as is economically feasible. In addition, every firm is forced to produce at the most

  efficient output rate.

  Choice "b" is incorrect. Brand differentiation is present in monopolistic competition, not perfect competition.

  Choice "c" is incorrect. This is a far-out distractor.

  Choice "d" is incorrect. Also far out. Individual consumers are also price takers at the market equilibrium price.

• Question 386:

  An increase in the money supply leads to:

  A. A decline in interest rates, an increase in investment and an increase in aggregate demand.
  B. A decline in interest rates, a decrease in investment and an increase in aggregate demand.
  C. An increase in interest rates, a decrease in investment and a decrease in aggregate demand.
  D. An increase in the money supply has no effect on interest rates or investment.
  A. A decline in interest rates, an increase in investment and an increase in aggregate demand.

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  Choice "a" is correct. Expansionary monetary policy results when the Fed increases the money supply. Expansionary monetary policy affects the economy through the following chain of events: (1) an increase in the money supply causes

  interest rates to fall, (2) falling interest rates stimulate the desired levels of firm investment and household consumption, (3) increases in desired investment and consumption cause an increase in aggregate demand, and (4) aggregate

  demand shifts to the right causing real GDP and the price level to rise.

  Choice "b" is incorrect. An increase in the money supply causes investment to increase, not decrease.

  Choice "c" is incorrect. An increase in the money supply causes interest rates to decrease, not increase, investment to increase, not decrease and aggregate demand to increase, not decrease.

  Choice "d" is incorrect per above Explanation.

• Question 387:

  All of the following actions are valid tools that the Federal Reserve Bank uses to control the supply of money, except:

  A. Selling government securities.
  B. Changing the reserve ratio.
  C. Raising or lowering the discount rate.
  D. Printing money when the money supply appears low.
  D. Printing money when the money supply appears low.

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  Choice "d" is correct. The treasury prints money. The Fed must increase the money supply through:

  1.

  Federal open market committee (FOMC) purchasing or selling government securities,

  2.

  Raising or lowering the discount rate, or

  3.

  Changing the reserve ratio.

  Choices "a", "b", and "c" are incorrect because they are all valid tools to control the supply of money.

• Question 388:

  An increase in the minimum wage will benefit specific economic wage groups as outlined below:

  I. Employees at the minimum wage rate who remain employed will benefit, since they will receive more money.

  II.

  Many of the unskilled could lose their jobs. There would be fewer jobs for the currently unemployed such as less educated and untrained personnel (e.g., teenagers) who will have more difficulty finding work as firms reduce their labor force and pursue more efficiency.

  A. Only I.
  B. Only II.
  C. Both I and II.
  D. Neither I nor II.
  I. Employees at the minimum wage rate who remain employed will benefit, since they will receive more money. II. Many of the unskilled could lose their jobs. There would be fewer jobs for the currently unemployed such as less educated and untrained personnel (e.g., teenagers) who will have more difficulty finding work as firms reduce their labor force and pursue more efficiency.
  A. Only I.

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  Choice "a" is correct. Only I.

  Choices "b", "c", and "d" are incorrect, since II is a disadvantage - not a benefit.

• Question 389:

  Which of the following would lead to a reduction in inflation?

  A. Increasing aggregate demand and increasing aggregate supply.
  B. Decreasing aggregate demand and increasing aggregate supply.
  C. Decreasing aggregate demand and decreasing aggregate supply.
  D. Increasing aggregate demand and decreasing aggregate supply.
  B. Decreasing aggregate demand and increasing aggregate supply.

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  Choice "b" is correct. Decreasing aggregate demand and increasing aggregate supply will reduce the inflationary pressures.

  Choice "a" is incorrect. Increasing aggregate demand causes the price level to rise.

  Choice "c" is incorrect. Decreasing aggregate supply causes the price level to rise.

  Choice "d" is incorrect. Both of these would cause the price level to rise.

• Question 390:

  Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was

  also agreed that the partnership would not terminate for five years.

  After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000.

  Which of the following statements about the form of the DFV partnership agreement is correct?

  A. It must be in writing because the partnership was to last for longer than one year.
  B. It must be in writing because partnership profits would not be equally divided.
  C. It could be oral because the partners had explicitly agreed to do business together.
  D. It could be oral because the partnership did not deal in real estate.
  A. It must be in writing because the partnership was to last for longer than one year.

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  Choice "a" is correct. Under the statute of frauds, an agreement, which by its terms cannot be performed within a year, must be evidenced by a writing containing the material terms and signed by the parties to be charged. Absent a writing,

  the partnership will be treated as a partnership at will.

  Choice "b" is incorrect. There is no requirement that partnership agreements be in writing merely because profits will be divided unequally. Choice "c" is incorrect. The statute of frauds requires contracts that cannot by their terms be performed

  within one year to be evidenced by a writing containing the material terms and signed by the parties to be charged. Choice "d" is incorrect. Whether or not a partnership is to deal in real estate is irrelevant to whether the partnership agreement

  must be in writing.