FIN 461 FINAL EXAM QUESTIONS WITH 100%
VERIFIED ANSWERS!!
With respect to statement 4 and exhibit A, if AMRC had used its old classification method for
its leases instead of its new classification method, the most likely effect on its 2009 ratios
would be a:
A. higher net profit margin
B. higher fixed asset turnover
C. higher total liabilities to total assets ratio
C. higher total liabilities to total assets ratio
Jordan's response about the financial impact of Alpha's decision to capitalize the cost of its
new computer system is most likely correct with respect for
A. lower net income
B. lower total assets
C. higher cash flow from operating activities
C. higher cash flow from operating activities
Jordan's response about the ratio impact of Alpha's decision to capitalize interest costs is
most likely correct with respect to the
A. interest coverage ratio
B. fixed asset turnover ratio
C. interest coverage and fixed asset turnover ratios
B. fixed asset turnover ratio
Jordan's response about the impact of Alpha's decision to classify its lease as an operating
lease instead of finance lease is most likely incorrect with respect to:
A. net income
B. solvency and activity ratios
C. cash flows from operating activities
,C. cash flows from operating activities
Jordan's response about the impact of the different depreciation methods on net profit
margin is most likely incorrect with respect to
A. accelerated depreciation
B. straight-line depreciation
C. units-of-production depreciation
A. accelerated depreciation
Jordan's response about his approach to estimating a company's need to reinvest in its
productive capacity is most likely correct regarding
A. estimating the average age of the asset base
B. estimating the total useful life of the asset base
C. estimating the average remaining useful life of the asset base
B. estimating the total useful life of the asset base
Jordan's response about the effect of Beta's impairment loss is most likely incorrect with
respect to the impact on its
A. debt to total assets
B. fixed asset turnover
C. cash flow from operating activities
C. cash flow from operating activities
Jordan's response about the effect of Alpha's revaluation is most likely correct with respect to
the impact on its:
A. return on equity
B. return on assets
C. debt to capital ratio
A. return on equity
, A company issues 1 million of bonds at face value. When the bonds are issued, the company
will record a:
A. cash inflow from investing activities
B. cash inflow from financing activities
C. cash inflow from operating activities
B. cash inflow from financing activities
At the time of issue of 4.5% coupon bonds, the effective interest rate was 5.0%. The bonds
were most likely issued at:
A. par
B. a discount
C. a premium
B. a discount
Oil Exploration LLC paid $45,000 in printing, legal fees, commissions, and other costs
associated with its recent bond issue. It is most likely to record these costs on its financial
statements as:
A. an asset under US GAAP and reduction of the carrying value of the debt under IFRS
B. a liability under US GAAP and reduction of the carrying value of the debt under IFRS
C. a cash outflow from investing activities under both US GAAP and IFRS
A. an asset under US GAAP and reduction of the carrying value of the debt under IFRS
On 1 January 2010, Elegant Fragrances Company issues 1,000,000 face value, five-year bonds
with annual interest payments of 55,000 to be paid each 31 December. The market interest
rate is 6.0%. Using effective interest rate method of amortization, Elegant Fragrances is most
likely to record:
A. an interest expense of 55000 on its 2010 income statement
B. a liability of 982,674 on the 31 December 2010 balance sheet
C. a 58,736 cash outflow from operating activity on the 2010 statement of cash flows
B. a liability of 982,674 on the 31 December 2010 balance sheet
VERIFIED ANSWERS!!
With respect to statement 4 and exhibit A, if AMRC had used its old classification method for
its leases instead of its new classification method, the most likely effect on its 2009 ratios
would be a:
A. higher net profit margin
B. higher fixed asset turnover
C. higher total liabilities to total assets ratio
C. higher total liabilities to total assets ratio
Jordan's response about the financial impact of Alpha's decision to capitalize the cost of its
new computer system is most likely correct with respect for
A. lower net income
B. lower total assets
C. higher cash flow from operating activities
C. higher cash flow from operating activities
Jordan's response about the ratio impact of Alpha's decision to capitalize interest costs is
most likely correct with respect to the
A. interest coverage ratio
B. fixed asset turnover ratio
C. interest coverage and fixed asset turnover ratios
B. fixed asset turnover ratio
Jordan's response about the impact of Alpha's decision to classify its lease as an operating
lease instead of finance lease is most likely incorrect with respect to:
A. net income
B. solvency and activity ratios
C. cash flows from operating activities
,C. cash flows from operating activities
Jordan's response about the impact of the different depreciation methods on net profit
margin is most likely incorrect with respect to
A. accelerated depreciation
B. straight-line depreciation
C. units-of-production depreciation
A. accelerated depreciation
Jordan's response about his approach to estimating a company's need to reinvest in its
productive capacity is most likely correct regarding
A. estimating the average age of the asset base
B. estimating the total useful life of the asset base
C. estimating the average remaining useful life of the asset base
B. estimating the total useful life of the asset base
Jordan's response about the effect of Beta's impairment loss is most likely incorrect with
respect to the impact on its
A. debt to total assets
B. fixed asset turnover
C. cash flow from operating activities
C. cash flow from operating activities
Jordan's response about the effect of Alpha's revaluation is most likely correct with respect to
the impact on its:
A. return on equity
B. return on assets
C. debt to capital ratio
A. return on equity
, A company issues 1 million of bonds at face value. When the bonds are issued, the company
will record a:
A. cash inflow from investing activities
B. cash inflow from financing activities
C. cash inflow from operating activities
B. cash inflow from financing activities
At the time of issue of 4.5% coupon bonds, the effective interest rate was 5.0%. The bonds
were most likely issued at:
A. par
B. a discount
C. a premium
B. a discount
Oil Exploration LLC paid $45,000 in printing, legal fees, commissions, and other costs
associated with its recent bond issue. It is most likely to record these costs on its financial
statements as:
A. an asset under US GAAP and reduction of the carrying value of the debt under IFRS
B. a liability under US GAAP and reduction of the carrying value of the debt under IFRS
C. a cash outflow from investing activities under both US GAAP and IFRS
A. an asset under US GAAP and reduction of the carrying value of the debt under IFRS
On 1 January 2010, Elegant Fragrances Company issues 1,000,000 face value, five-year bonds
with annual interest payments of 55,000 to be paid each 31 December. The market interest
rate is 6.0%. Using effective interest rate method of amortization, Elegant Fragrances is most
likely to record:
A. an interest expense of 55000 on its 2010 income statement
B. a liability of 982,674 on the 31 December 2010 balance sheet
C. a 58,736 cash outflow from operating activity on the 2010 statement of cash flows
B. a liability of 982,674 on the 31 December 2010 balance sheet
