Bec Flash Cards

Q001.
- 7 Principles of Control Environment

A001.
- Philosophy
- Human resources
- Reporting competencies
- Authority and responsibility
- Structure
- Ethical Values
- Directors
Q002.
- Objectives of ERM
A002.
- Strategic- High level goals designed to achieve the
mission
- Operations- Achievement objectives through the effective
and efficient use of resources
- Reporting- Reliable reporting
- Compliance- Ensuring compliance with laws and
regulations
Q003.
- Components of ERM
- Hint: IS EAR AIM
A003.
- Internal environment
- Setting objectives
- Event identification
- Assessment of risk
- Risk response
- Activities (control)
- Information and communication
- Monitoring
Q004.
- The Internal Control Framework applies to _______;
whereas ERM Framework applies to _________.
A004.
- Financial Reporting
- Entity-wide Management
Q005.
- Internal Control Framework: Board of Directors principle
attributes
A005.
- a. Operates independently
- b. Monitors risk
- c. Appoints audit committee
- d. Oversees quality and reliability
Q006.
- Internal Control Framework: Organizational Structure
principle attributes
A006.
- a. Management designs appropriate financial reporting
structures that proves relevant information at appropriate
functional and business unit levels
- b. Management maintains an organizational structure that
facilitates reporting and other communications regarding
internal control over financial reporting
Q007.
- Internal Control Framework: Authority and Responsibility
principle attributes
A007.
- a. Responsibilities are defined as follows:
- 1) Audit committee oversees the process for defining
responsibility for key financial reporting roles
- 2) Executive management is responsible for solid internal
control
- 3) Management is responsible for ensuring all employees
understand their responsibilities and adhere to internal
control policies
- b. Authority is properly limited by position
Q008.
- Four components of balanced scorecard
A008.
- a. Learning and Growth
- b. Customer
- c. Business process (efficiency and effectiveness
- d. Financial
Q009.
- What do Total Productivity Ratios (TPRs) show?
A009.
- Value of all output relative to the value of all input
Q010.
- Total Productivity is calculated:
A010.
- Quantity of output produced / costs of inputs
Q011.
- Partial Productivity Ratios (PPRs) reflect...
A011.
- the value of all outputs as compared to the value of major
categories of input
- PPRs are only concerned with the quantity of a single
input and not its price
- PPR is calculated as the quantity of of output produced
divided by the quantity of the single input used
Q012.
- PPR is calculated:
A012.
- quantity of output produced / quantity of the single input
used
Q013.
- What is a use of a Pareto Diagram in respect to internal
control issues?
A013.
- Pareto Diagrams are used to determine the quality control
issues that are most frequent and demand the greatest
attention
Q014.
- Five elements of the Marketing Mix
A014.
- Product
- Market segment
- Method of Delivery
- Communication strategy
- Price
Q015.
- Theoretical Cost Drivers:
- Executional vs Structural cost drivers
A015.
- Executional- short term
- Structural- long term
Q016.
- Prime cost vs Conversion cost
A016.
- Prime cost= DL+DM
- Conversion cost= DL+MOH
Q017.
- Methods to allocate joint costs of joint products
A017.
- 1. Allocation by unit volume
- 2. Relative net realizable values at split-off point. NRV=
sales value less cost of completion and disposal
Q018.
- Equivalent Units under FIFO (3 steps)
A018.
- Beginning WIP x % to be completed
- Units completed - Beg WIP
- Ending WIP x % completed
Q019.
- Equivalent Units under Weighted Average (2 steps)
A019.
- Units completed
- Ending WIP x % completed
Q020.
- Cost per Equivalent unit calculation under FIFO
A020.
- FIFO = Current costs only/EU
Q021.
- Nominal GDP
A021.
- measures the value of all final goods and services in
prices prevailing at the time of production
Q022.
- Real GDP
A022.
- measures the value of all final goods and services at a
constant price using a GDP deflator.
Q023.
- Price Index (GDP deflator) calculation:
A023.
- Nominal GDP/GDP deflator
- x
- 100
Q024.
- Composition of Business Cycles
A024.
- Expansionary Phase: rising economic activity and growth
- Peak: a high point of economic activity
- Contractionary Phase: falling economic activity and
growth, follows a peak
- Trough: low point of economic activity
- Recovery Phase: follows a trough, economic activity
begins to increase
Q025.
- Recession
A025.
- two consecutive quarters of falling national output
Q026.
- Economic Indicators:
- Leading Indicators
A026.
- Average new unemployment claims
- Building permits
- Average length of workweek
- Money supply
- Prices of selected stocks
- Orders for goods
- Index for consumer expectations
Q027.
- Lagging Indicators
A027.
- Prime rate charged by banks
- Average duration of unemployment
- Bank loans outstanding
Q028.
- Coincident Indicators
A028.
- Industrial production
- Manufacturing and trade sales
Q029.
- Aggregate Demand Curve
A029.
- illustrates the maximum quantity of all goods and
services that households, firms, and the government are
willing and able to purchase at any given price level
Q030.
- Aggregate Supply Curve
A030.
- illustrates the maximum quantity of all goods and
services producers are willing and able to produce at any
given price level
Q031.
- Factors that shift the AD curve
A031.
- 1. Changes in Wealth
- 2. Changes in real interest rates
- 3. Changes in consumer expectations
- 4. Changes in exchange rates
- 5. Changes in governmental expenditures
- 6. Changes in consumer taxes
Q032.
- Factors that shift the AS curve
A032.
- 1. Changes in input prices
- 2. Supply shocks
Q033.
- Expenditure Approach to measuring GDP
A033.
- Government purchases
- Gross private Investment
- Personal Consumption
- Net Exports
Q034.
- Income Approach to measuring GDP
A034.
- Income from proprietors
- Profits from corporations
- Interest
- Rent
- Adjustments for net foreign income
- Taxes
- Employee compensation
- Depreciation
Q035.
- Frictional Unemployment
A035.
- Normal unemployment resulting from workers routinely
changing jobs or from workers being temporarily laid off
Q036.
- Structural Unemployment occurs when:
A036.
- Jobs available in the market do not correspond to the
skills of the work force
- Unemployed workers do not live where the jobs are
located
Q037.
- Cyclical Unemployment
A037.
- the amount of unemployment resulting from declines in
real GDP during periods of contraction or recession
Q038.
- Natural Rate of Unemployment
A038.
- the sum of frictional, structural, and seasonal
unemployment
Q039.
- Seasonal Unemployment
A039.
- the result of seasonal changes in the demand and supply
of labor
Q040.
- Full Employment
A040.
- the level of unemployment when there is no cyclical
unemployment
Q041.
- Demand-Pull inflation
A041.
- caused by increase in aggregate demand
- a. Increases in government spending
- b. Decrease in taxes
- c. Increases in wealth
- Increases in money supply
Q042.
- Cost-Push inflation
A042.
- caused by reductions in the short-run aggregate supply
- a. increase in oil prices
- b. increase in nominal wages
Q043.
- Real interest rate
A043.
- Nominal interest rate- inflation rate
Q044.
- Monetary Policy:
- Open market operations (OMO)
A044.
- OMO consists of the purchase and sale of governmental
securities in the open market
Q045.
- Monetary Policy:
- Changes in discount rate
A045.
- the discount rate is the rate the Fed charges member
banks for short-term loans
Q046.
- Monetary Policy:
- Changes in the Required Reserve Ratio
A046.
- Required Reserve Ratio(RRR) is the fraction of total
deposits banks must hold in reserve
Q047.
- Describe the relationship between interest rates and the
demand of money
A047.
- inversely related
- as interest rates rise, it becomes more expensive to hold
money, thus reducing the demand for money
Q048.
- An increase in money supply causes interest rates to
_____.
A048.
- Fall
Q049.
- The long run aggregate supply curve is_______.
A049.
- vertical
Q050.
- What is functional interdependence?
A050.
- it is the participation of nations in world-wide institutions
like NATO or the UN
Q051.
- Strategic management usually involves defining the
______, identifying the _______, identifying critical
__________, and a ________ analysis.
A051.
- Strategic management usually involves defining the
MISSION, identifying the STRATEGY, identifying critical
SUCCESS FACTORS, and a SWOT analysis.
Q052.
- What are the critical success factors of strategic
objectives? Also the elements of a balanced scorecard.
A052.
- Financial measures
- Internal business process measures
- Customer measures
- Learning and growth
Q053.
- Factors that shift the demand curve on a microeconomic
basis include...
- Hint: W.R.I.T.E.N
A053.
- changes in Wealth
- changes in price of Related goods
- changes in consumer Income
- changes in consumer Taste
- changes in consumer Expectations
- changes in Number of buyers served by the market
Q054.
- Factors that shift the supply curve on a microeconomic
basis include...
- Hint: E.C.O.T.T.
A054.
- changes in price Expectations
- changes in production Costs
- changes in demand for Other goods
- changes in Subsidies
- changes in production Technology
Q055.
- In micro economics a price ceiling may cause a ______;
whereas, a price floor may cause a _______.
A055.
- In micro economics a price ceiling may cause a
SHORTAGE; whereas, a price floor may cause a SURPLUS.
Q056.
- Product demand is more elastic when ____ substitutes
are available.
A056.
- Product demand is more elastic when MORE substitutes
are available.
- *remember that elasticity is based on how changes in
price will affect the quantity demanded. If there are many
options available to the consumer a change in price of one
of the substitutes will will greatly affect the demand of the
product because consumers will just purchase one of the
many substitutes.
Q057.
- Product demand is more inelastic when _____ substitutes
are available.
A057.
- Product demand is more inelastic when FEW substitutes
are available.
- think... if there are no other viable options in the market
consumers will be forced to purchase your product, so a
change in price will likely have a small/inelastic affect on
quantity demanded.
Q058.
- The relationship between price elasticity of a product and
the firms total revenue is _______ related.
- The relationship between price inelasticity of a product
and the firms total revenue is _______ related.
A058.
- The relationship between price elasticity of a product and
the firms total revenue is INVERSELY related.
- The relationship between price inelasticity of a product
and the firms total revenue is POSITIVELY related.
Q059.
- Are monopolies socially efficient? Why?
A059.
- Monopolies are not socially efficient because they tend to
produce at a point where price is greater than marginal
cost therefore less output is produced than is socially
optimal.
Q060.
- As a strategic tool what does value chain analysis help a
firm do?
A060.
- Value chain analysis used as a strategic tool helps firms
understand the importance of perceived value with respect
to the market the firm operates in.
Q061.
- What are Porters Five Forces?
A061.
- Barriers to entry
- Market competitiveness
- Existence of substitutes
- Bargaining power of customers
- Bargaining power of suppliers
Q062.
- After analyzing Porters Five Forces a the most ideal
situation for a firm would be:
- _______ Barriers to entry
- _______ Market competitiveness
- _______ Substitutes
- _______ Bargaining power of customers
- _______ Bargaining power of suppliers
A062.
- HIGH Barriers to entry
- LOW Market competitiveness
- FEW Substitutes
- LOW Bargaining power of customers
- LOW Bargaining power of suppliers
Q063.
- Unsystematic risk is also known as ________ risk.
A063.
- Unsystematic risk is also known as DIVERSIFIABLE risk.
Q064.
- Systematic risk is also known as ______ risk.
A064.
- Systematic risk is also known as UNDIVERSIFIABLE risk.
Q065.
- Factors influencing exchange rates
- Trade Factor- relative inflation rates
- What is the effect on exchange rates when domestic
inflation exceeds foreign inflation?
A065.
- When domestic inflation exceeds foreign inflation holders
of domestic currency will purchase foreign currency in
order to flee the weakening currency leading to a greater
demand for foreign currency and thus making the foreign
currency more valuable and driving up the exchange rate.
Q066.
- Trade Factor- relative income levels
- What is the effect of rising domestic income on the
exchange rate?
A066.
- If income in the domestic country is rising relative to the
income in a foreign country the demand for the domestic
currency is increasing thus making the domestic currency
stronger relative to the foreign currency.
Q067.
- Trade Factor- government controls
- What is the effect of increasing tariffs on imported goods
from a foreign country?
A067.
- The tariff will cause the demand for imported goods to
decrease thus decreasing the demand for the importing
country's currency resulting in a stronger domestic
currency relative to the foreign currency.
Q068.
- Financial Factors- relative interest rates
- What is the effect of rising interest rates in the domestic
country?
A068.
- If interest rates are rising in the domestic country foreign
investors seeking a higher return will purchase domestic
assets thus driving up the demand for the domestic
currency leading to a strong domestic currency relative to
the foreign currency.
Q069.
- Three types of motives for holding cash
A069.
- Transaction: concerned with having enough cash to meet
payments arising from the ordinary course of business
- Speculative: concerned with having enough cash to take
advantage of temporary investment opportunities
- Precautionary: concerned with having enough cash to
maintain a safety cushion so that unexpected needs may
be met
Q070.
- Cash conversion cycle formula:
A070.
- inventory conversion period + receivables collection
period-payables deferral period
Q071.
- Inventory conversion period formula:
A071.
- average inventory / average COGS per day
Q072.
- Payables deferral period formula:
A072.
- average payables/average purchases per day
Q073.
- Number of days receivables outstanding formula:
A073.
- average receivables balance/ average daily sales
Q074.
- Inventory turnover formula:
A074.
- COGS/average inventory balance
Q075.
- Economic Order Quantity(EOQ) does not consider
_______, nor does it account for costs of ________.
A075.
- Economic Order Quantity(EOQ) does not consider
stockout costs, nor does it account for costs of safety
stock.
Q076.
- Economic Order Quantity assumes that carrying costs
include the following elements:
- Hint: SOMII
A076.
- Storage
- Obsolescence
- Materials
- Insurance
- Interest
Q077.
- Economic Order Quantity equation:
A077.
- =sqrt 2SO/C
- S=annual sales(units)
- O=cost per purchase order
- C=carrying cost per unit
Q078.
- Are rates usually lower or higher when using short-term
loans versus long-term loans?
A078.
- Lower
Q079.
- What are three advantages of using short-term financing?
A079.
- 1. Increased liquidity
- 2. Increased profitability
- 3. Lower costs of borrowing
Q080.
- What are the two main disadvantages of using short-term
financing?
A080.
- 1. Increased credit risk
- 2. Increase interest rate risk
Q081.
- A firm anticipating a higher level of permanent working
capital will likely deploy short- or long-term financing?
A081.
- Long-term
Q082.
- Define Operating Leverage
A082.
- Operating leverage is a measure of the degree to which a
firm using fixed operating costs to magnify the effects of a
given percentage change in sales on the percentage
change in EBIT
Q083.
- Degree of operating leverage formula:
A083.
- DOL = %change in EBIT/%change in sales
Q084.
- Define Financial Leverage
A084.
- Financial leverage is the measure of the degree to which
a firm utilizes fixed financial costs to finance operations.
Q085.
- Degree of financial leverage formula:
A085.
- DFL= % change in EPS/ %change in EBIT
Q086.
- Cost of Debt (kdt) formula:
A086.
- = [i+(PV-Nd)/2]/[(Nd+PV)/2]
Q087.
- When determining the cost of equity using the CAPM
method the risk premium is calculated:
A087.
- Risk Premium= Stocks Beta coefficient x Market Risk
Premium
- Market Risk Premium(MRP) is the market rate less the
risk-free rate
Q088.
- Market Risk Premium(MRP) is calculated
A088.
- MRP = (market rate - risk free rate)
Q089.
- What is the formula for determining the Cost of Retained
Earnings under the CAPM method?
A089.
- CAPM= Risk-free Rate + [Beta x (market risk- risk free
rate)]
Q090.
- ROI can be calculated using two different formulas, what
are the formulas?
A090.
- 1. Income/Investment Capital
- 2. Profit Margin x Investment Turnover
- Profit Margin = income/sales
- investment turnover = sales/assets
Q091.
- Debt-to-total capital ratio provides indications related to a
firms.....
A091.
- Long-term debt paying ability.
- The lower the ratio the greater level of solvency and the
greater the presumed ability to pay debts.
Q092.
- Debt-to-equity ratio indicates...
A092.
- the degree of leverage used, the lower the ratio the lower
the risk involved
Q093.
- Disadvantages of holding cash:
A093.
- 1. negative arbitrage effect- this occurs when the cost of
interest exceeds interest income from cash reserves
- 2. Increased attractiveness as a takeover target.
- 3. Investor dissatisfaction with allocation of assets
Q094.
- Methods of speeding up collections include:
- Hint: 6 of them
A094.
- 1. Customer credit screening
- 2. Prompt billing
- 3. Payment discounts
- 4. EFTs- ensures receipts are deposited quickly
- 5. Lockbox systems- bank receives payments directly
- 6. Factoring AR
Q095.
- Methods to defer payments include:
- Hint: 3 of them
A095.
- 1. Drafts
- 2. Line of credit
- 3. Zero balance accounts
Q096.
- Five Components of Information Technology
A096.
- People
- Software
- Hardware
- Data and Information
- Network
Q097.
- Data vs Information
A097.
- Data: raw facts
- Information: organized and processed data that is
meaningful to somebody
Q098.
- What are the three primary roles of a business
information system in business operations?
A098.
- The three primary roles of an information system in
business operations include:
- 1. Process detailed information
- 2. Assist in making daily decisions
- 3. Assist in developing business strategies
Q099.
- Business information systems allow a business to
perform the following functions on data:
A099.
- a. collect
- b. process
- c. store
- d. transform
- e. distribute
Q100.
- Basic audit trail in an accounting information system
A100.
- source documents---->journal---->ledger--->trial balance---
>financial statements
Q101.
- In a computerized environment journals are known as
_______.
A101.
- In a computerized environment journals are known as
transaction files.
Q102.
- In a computerized environment ledgers are known as
______.
A102.
- In a computerized environment ledgers are known as
Master Files.
Q103.
- Processing Methodologies
- What are the two main methods of performing file
maintenance on a master file?
A103.
- Batch Processing
- Online Real Time Processing (OLRT)
Q104.
- What is batch processing
A104.
- Batch processing is a method of performing file
maintenance on a master file. Input
documents/transactions are collected and grouped by type
of transaction. These groups, called batches, are
processed periodically
Q105.
- What type of systems is batch processing typically found
in?
- Hint* think about the nature of batch processing's time
delay
A105.
- Batch processing will typically be found in "traditional"
systems where the data does not need to be totally current.
Q106.
- What is Online Real Time Processing (OLRT)?
A106.
- Transactions are entered and the master files are updated
simultaneously.
Q107.
- What is centralized processing and what are some of its
advantages/disadvantages?
A107.
- Centralized processing environments maintain all data
and perform all data processing at a central location.
- Advantages include:
- Enhanced data security
- & Consistent processing
- Disadvantages include:
- Possible high costs
- Increased need for processing power and data storage
- Reduction in local accountability because remote
locations will always blame the central location for
processing problems
- Bottlenecks may occur at high traffic times
Q108.
- What are the six most common types of reports in a
computerized environment?
A108.
- 1. Demand reports
- 2. Periodic scheduled reports
- 3. Ad hoc reports
- 4. Push reports
- 5. Exception reports
- 6. Dashboard-style reports
Q109.
- What is an ad hoc report?
A109.
- Ad hoc reports are reports that do not currently exist but
can be created on demand without having to get a software
developer involved.
- Think about when we had to design queries in Microsoft
Access. You gave the computers specific demands to
screen data in order for the data to meet your individual
needs.
Q110.
- What is a Decision Support System?
A110.
- DSS's are an extension of Management Information
Systems (MIS). DSS's are computer based information
systems that assist management in making decisions.
- These systems do not automate decisions, but rather
provide managers with interactive, computer aided tools
that combine their subjective judgments and insights with
objective analytical data to guide the decision.
Q111.
- What is an Executive Information System (EIS)?
A111.
- These systems proved senior executive with immediate
and easy access to internal and external information to
assist the executives in monitoring business conditions in
general.
Q112.
- What is a Transaction Processing System?
A112.
- Transaction processing systems process and record the
routine daily transactions necessary to conduct the
business.
- These systems are usually very structured.
Q113.
- What are the seven phases in the System Development
Life Cycle (SDLC)?
A113.
- 1. System analysis
- 2. Conceptual design
- 3. Physical design
- 4. Implementation and conversion
- 5. Training
- 6. Testing
- 7. Operations and Maintenance
Q114.
- System Development Life Cycle
- System Analysis phase
A114.
- The system analysis phase will involve gathering the
information needed to purchase or develop a new system.
- Usually includes identifying needs of users and
managers, documenting the needs, and determining
feasibility.
Q115.
- Conceptual Design phase
A115.
- The conceptual design phase involves deciding how the
user needs are going to be met.
- Steps:
- 1. Identify and evaluate design alternatives
- 2. Develop detailed specifications outlining what the
system needs to accomplish and how it is to be controlled
Q116.
- Physical Design phase
A116.
- The physical design phase is where the company will use
the conceptual design to develop detailed specifications
that are used to code and test the computer programs.
- Steps:
- 1. Design input/output documents
- 2. Write program
- 3. Create files and databases
- 4. Develop procedures
- 5. Develop controls
Q117.
- Implementation and conversion
A117.
- The implementation and conversion phase translates the
plan into action.
- Steps:
- a. Install new hardware/software
- b. Hire or relocate employees to operate the system
- c. Test or modify new processing procedures
- d. Establish and document standards and controls
- e. Convert new system and dismantle old system
- f. Fine tune system
Q118.
- Training
A118.
- Train users to use the software and inform them of the
new policies
Q119.
- Testing
A119.
- Testing will likely include:
- 1. Tests of the effectiveness of documents and reports,
user input, operating control procedures, processing
procedures, and computer programs.
- 2. Tests of capacity limits and backup and recovery
procedures
Q120.
- Operation and Maintenance
A120.
- The system will be periodically reviewed and
modifications will be made.
Q121.
- What is the purpose of forming an information systems
steering committee? Who are its members? What are its
functions?
A121.
- Information Systems Steering Committees are formed to
plan and oversee the information systems function and it
addresses the complexities created by functional and
divisional boundaries.
- Its members are usually high level management like the
controller and managers of the user departments
- The functions of an Information Systems Steering
Committee include:
- 1. Setting governing policies for the AIS
- 2. Ensuring top-management participation, guidance, and
control
- 3. Facilitating the coordination and implementation of the
AIS.
Q122.
- Application controls _____, _____, and ______
transaction error and fraud.
- Application controls provide reasonable assurance as to
system....(4 elements)
A122.
- Application controls PREVENT, DETECT, and CORRECT
transaction error and fraud.
- Application controls provide reasonable assurance as to
system:
- Accuracy
- Completeness
- Validity
- Authorization
Q123.
- What are some examples of processing controls?
A123.
- Data Matching
- File labels
- Recalculation of batch totals
- Cross-footing
Q124.
- What are some examples of Output controls?
A124.
- User review of output
- Reconciliation
- External data reconciliation
- Output encryption
Q125.
- What is a Strategic Master Plan?
A125.
- A strategic master plan shows the projects that must be
completed to achieve long term goals.
Q126.
- Proper segregation of duties divides the _____, ______,
and ______ functions.
A126.
- Proper segregation of duties divides the authorization,
recording, and custody functions.
Q127.
- What is the difference between a systems analyst and
computer programmer?
A127.
- A systems analyst help users determine their information
needs and then design the information system
- A computer programmer takes the systems analysts
design and creates an information system by writing
computer programs
Q128.
- What is a security administrator responsible for?
A128.
- assigning initial passwords and maintenance of those
passwords
Q129.
- What is the difference between a Database Administrator
and a Network Administrator?
A129.
- Database Admins are responsible for maintaining and
supporting the database software. This is opposed to a
DATA administrator who is responsible for the definition,
planning, and control of the data within the database, like a
scientist typing information into a computer
- A network administrator supports computer networks. He
will set up and configure the computer network.
Q130.
- What is a Digital Certificate?
A130.
- A digital certificate is an electronic document, created
and digitally signed by a trusted party, which certifies the
identity of the owners of a particular public key.
Q131.
- What are the types of information security policies?
A131.
- Program-level policy
- Program-framework policy
- Issue-specific policy
- System-specific policy
Q132.
- Information security policies:
- Program-level policy
A132.
- Program-level policies are used for creating a
management sponsored computer security program.
Basically the mission statement of the IT department.
Q133.
- Program-framework policy
A133.
- A program-framework policy establishes the overall
approach to computer security. Basically the IT security
strategy.
Q134.
- Issue-specific policy
A134.
- Addresses specific issues of concern to the organization
Q135.
- System-specific policy
A135.
- System-specific policies focus on policy issues that
management has decided for a specific system (e.g.
payroll)
Q136.
- What is an Electronic Data Interchange (EDI)?
A136.
- EDI is computer-to-computer exchange of business
transaction documents.
Q137.
- What are the benefits of an EDI system?
A137.
- Reduced handling costs
- Increased processing speed
Q138.
- What are some of the common costs of an EDI system?
A138.
- 1. Legal costs associated with modifying and negotiating
trade contracts
- 2. Hardware costs
- 3. Costs of translation software
- 4. Costs of data transmission
- 5. Costs associated with security, monitoring, and control
procedures
Q139.
- What are the functions of a supply chain management
system (SCM)?
A139.
- planning
- sourcing
- making
- delivery
Q140.
- Information systems risks include:
A140.
- Strategic risk
- Operating risk
- Financial risk
- Information risk
Q141.
- Information systems security risk:
- Strategic risk
A141.
- Strategic risk is the risk of choosing inappropriate
technology.
- Take for example, a company chooses a web-based
program to share data between offices.
- If one office does not have high speed internet then they
cannot enter data as quickly as others.
Q142.
- Operating risk
A142.
- Operating risk is the risk of doing correct things
improperly
Q143.
- Financial risk
A143.
- Financial risk is the risk of having financial resources
lost, wasted, or stolen.
Q144.
- Information risk
A144.
- Information risk is the risk of loss of data integrity,
incomplete transactions, or hackers.
Q145.
- Firewalls ______; they do not ______.
A145.
- Firewalls deter; they do not prevent
Q146.
- Firewall Methodologies
- Packet filtering
A146.
- Packet filtering examines packets of data as they pass
through a firewall according to the rules that have been
established for the source of the data.
Q147.
- Circuit level gateways
A147.
- Circuit level gateways only allow data into a network that
was requested from within the network.
Q148.
- Application level gateways
A148.
- Application level gateways aka proxies examine data
coming into the gateway. Most secure but also the slowest
Q149.
- Define Sales Volume Variance
A149.
- a flexible budget variance that distills volume activity
from other sales components
Q150.
- Sales Volume Variance Formula
A150.
- (Actual units sold-Budgeted sales units)x Standard CM
per unit
Q151.
- Define Sales Mix Variance
A151.
- a measure of the change in the number of actual sold
units from those budgeted
Q152.
- Sales Mix Variance Formula
A152.
- (actual sold units of product- Budgeted sales units of
product)x Budgeted product sales mix ratio x budgeted CM
per unit of that product
Q153.
- Define Market Size Variance
A153.
- a measure of the effect the size of the entire market for
the product has on the contribution margin for the firm
Q154.
- Market Size Variance Formula
A154.
- (actual market size-expected market size0 x budgeted
market share x budgeted CM per unit
Q155.
- Define Market Share Variance
A155.
- measures the effect of a firm's market share on the firm's
CM
Q156.
- Market Share Variance Formula
A156.
- (actual market share - budgeted market share) x actual
industry units x budgeted CM per unit
Q157.
- International Risk Assessment
- Process Risk
A157.
- Process controls, data, and systems used to collect new
information required by IFRS and accounting policies are
inadequate to sustain two reporting systems under GAAP
and IFRS
Q158.
- System Risk
A158.
- New configuration setting and data mappings will need to
be defined, implemented, and embedded into the reporting
system to facilitate dual reporting in GAAP and IFRS
Q159.
- General Business Risk
A159.
- Existing contract terms, entities, covenants, etc., will
need to be reassessed to see if and how they conform to
requirements under IFRS
Q160.
- Strategy links _____ and _____ with related objectives
A160.
- mission and values
Q161.
- Define Strategic Objectives
A161.
- High level goals that support the mission and vision of
the organization and the manner in which shareholder
value will be created
Q162.
- What is the focus of operations objectives?
A162.
- efficiency and effectiveness
Q163.
- What is the focus of reporting objectives?
A163.
- Relevance, accuracy and timeliness
Q164.
- Balanced Scorecard elements
A164.
- Financial, Internal business process, Customer, Learning
and growth
Q165.
- Costs included in product costs under Absorption
Costing
A165.
- 1. DM
- 2. DL
- 3. MOH, variable and fixed
Q166.
- Costs included in product costs under
variable(contribution) approach
A166.
- 1. DM
- 2. DL
- 3. Variable MOH
Q167.
- Absorption vs variable costing effects on income:
- When production is greater than sales
A167.
- When production is greater than sales net income under
the Absorption method will be greater
Q168.
- Absorption vs variable costing effects on income:
- When sales are greater than production
A168.
- When sales are greater than production net income under
variable approach will be greater.
- This is true because, under absorption costing, some of
the fixed MOH from previous period is part of beginning
inventory and will be charged to this period's cost of sales
Q169.
- No change in inventory:
- Absorption Net Income _ Variable Net Income
A169.
- Absorption Net Income = Variable Net Income
Q170.
- Increase in inventory:
A170.
- Absorption Net Income > Variable Net Income
Q171.
- Decrease in inventory:
A171.
- Decrease in inventory:
- Absorption Net Income < Variable Net Income
Q172.
- Breakeven computation in units and sales dollars:
A172.
- Total fixed costs/CM per unit= Breakeven point in units
- Total fixed costs/ CM ratio= Breakeven point in Sales
Dollars
Q173.
- Target Cost computation:
A173.
- Target Cost= Market price-required profit
Q174.
- What is the rule for deciding whether to accept a special
order if there is excess capacity available?
A174.
- The selling price must be greater than the variable cost
per unit
Q175.
- What is the rule for deciding whether to accept a special
order if company is operating at full capacity?
A175.
- The selling price must be greater than the CM that would
have been produced if the special order were not accepted
and the variable cost per unit of special order
Q176.
- DM price variance equation
A176.
- Actual quantity purchased x (actual price - standard
price)
Q177.
- DM quantity usage variance equation
A177.
- Standard price x (actual quantity used - standard quantity
allowed)
Q178.
- DL rate variance
A178.
- Actual hours worked x (actual rate - standard rate)
Q179.
- DL efficiency variance equation
A179.
- Standard rate x (actual hours worked - standard hours
allowed)
Q180.
- Authoritative Standards vs Participative Standards
A180.
- Authoritative standards are set exclusively by
management; whereas, Participate standards involve
management and employees
Q181.
- What is a master budget?
A181.
- A master budget documents specific short-term operating
performance goals for a period of time usually less than a
year.
Q182.
- What is the ultimate output of a master budget?
A182.
- Pro forma financial statements
Q183.
- Actual Authority
A183.
- All authority that a principal expressly gives to an agent
plus any authority that can reasonably be implied from the
express grant
Q184.
- Agent
A184.
- One (agent) who acts on behalf of another (principal)
Q185.
- Apparent Authority
A185.
- Authority that a third party reasonably believes an agent
has based on the principal's holding the hange out as
being the principal's agent.
Q186.
- Appraisal Rights
A186.
- Shareholders who are dissatisfied with most fundamental
corporate changes have an opportunity to dissent and
demand that they corporation pay them the fair value of
their shares rather than remain shareholders of a
fundamentally changed corporation.
Q187.
- Articles of incorporation
A187.
- Formation filing documents of a corporation and are filed
with the state in which the business is located.
Q188.
- Articles of Organization
A188.
- Formation filing documents of a Limited Liability
Corporation.
Q189.
- Authorized Shares
A189.
- Shares described in the articles
Q190.
- Business Judgment Rule
A190.
- A director will not be liable to the corporation for acts
performed or decisions made in good faith, in a manner the
director believes to be in the best interest of the
corporation, and with the care an ordinarily prudent person
in a like position would exercise.
Q191.
- Bylaws
A191.
- Contains the rules for running the corporation. They are
not part of the articles of incorporation and are not
required to be filed by the state.
Q192.
- C Corporation
A192.
- A corporation that is taxed as an entity distinct from its
owners.
Q193.
- Certificate of Authority
A193.
- Authority granted by a state authorizing a foreign
corporation to transact business within the state
Q194.
- Charging Order
A194.
- Court order used by a creditor of an individual partner
may obtain an interest against an individual partner's share
of profits.
Q195.
- Closely held Corporation
A195.
- The articles of incorporation can eliminate the board of
directors and provide that they shareholders shall have the
power of the board, but this is not typical expect in small
corporations.
Q196.
- Common Stock
A196.
- Class of stock that will carry with it all rights of stock
ownership
Q197.
- Confessing a Judgment
A197.
- Admitting liability in a lawsuit.
Q198.
- Consolidation
A198.
- One or more corporations joining together to form a new
corporation.
Q199.
- Corporate Opportunity Doctrine
A199.
- If a director is presented with a business opportunity that
would be of interest to his corporation, generally the duty
of loyalty prohibits the director from taking the opportunity
himself.
Q200.
- Corporation
A200.
- Legal entity distinct from its owners and managers. They
are created by complying with a state incorporation
statute.
Q201.
- Corporation by Estoppel
A201.
- Under the estoppel doctrine, a party who treats a
business as if it were a validly formed corporation will be
estopped (legally barred) from claiming in a legal
proceeding that the corporation was not validly formed.
- This applies to third parties who treat the business as a
corporation as well as to the business itself
Q202.
- Cumulative Preferred Shares
A202.
- Shares with a preference usually are entitled to a fixed
amount of money before distributions can be made with
respect to nonpreferred shares. With cumulative preferred
shares, if a dividend
Q203.
- De Facto Corporation
A203.
- If all the requirements for incorporation are not met, the
business might still be treated as a corporation (and
protect its owners, officers, and directors from personal
liability).
- If the incorporators made a good faith attempt to
incorporate, and operated as if they had incorporated, the
business will be treated as a corporation in all respects,
except the state may bring an action challenging the
corporation's status.
Q204.
- De Jure Corporation
A204.
- If all the requirements for incorporation are met, the
corporation is said to be "de jure" and its existence will be
recognized for all purposes
Q205.
- Debt Securities
A205.
- Debt Securities are bonds.
- It represents a creditor-debtor relationship with the
corporation whereby the corporation has borrowed funds
from "outside investors" and promises to pay.
Q206.
- Derivative Action
A206.
- When a corporation has a legal cause of action against
someone but refuses to bring the action, the shareholders
may have a right to bring a shareholder derivative action to
enforce the corporation's rights.
- Such an action may be brought against the director of the
corporation or outsiders.
Q207.
- Directors
A207.
- Individuals with the general authority and responsibility
for management of the corporation. In most corporations,
the board of directors delegates the power to run the
corporation on a day-to-day basis to the officers.
Q208.
- Dissociation
A208.
- Change in the relationship of the partners caused by any
partner ceasing to be associated in the carrying on of the
business. The remaining partners have the right to
continue the business.
Q209.
- Dissolution
A209.
- Upon dissolution, the partnership is terminated and the
business must be wound up
Q210.
- Dividends
A210.
- Distribution of corporate profits as ordered by the
directors and paid to the shareholders
Q211.
- Domestic Corporation
A211.
- Corporation incorporated within the state
Q212.
- Equity Securities
A212.
- Stocks - An instrument representing an investment in the
corporation whereby its holder becomes a part owner of
the business.
Q213.
- Fictitious Name Statutes
A213.
- State laws that require persons conduction a business
under an assumed name to file with the state the name
under which the business is conducted and the real names
and addresses of all person conducting the business
Q214.
- Fiduciary Duty
A214.
- Duty of utmost loyalty and good faith owed by an agent to
her principal
Q215.
- Foreign Corporation
A215.
- Corporation doing business in a state other than its state
of incorporation
Q216.
- Fundamental Changes
A216.
- Issues that might fundamentally change the nature of the
entity
Q217.
- General Partner
A217.
- Person in either a general or limited partnership with
unlimited personal liability and the right to take part in the
management of the business.
Q218.
- Greenmail
A218.
- When a corporation is faced with the prospect of being
taken over and the BOD wants to resist the takeover
attempt, it will pay the person or company attempting the
takeover to abandon its takeover attempt
Q219.
- Incorporator
A219.
- The party responsible for forming the corporation by
filing articles of incorporation with the state.
Q220.
- Indemnification
A220.
- Duty of a business entity to reimburse those properly
acting on behalf of the entity for losses incurred.
Q221.
- Issued Shares
A221.
- The corporation issues some or all of the authorized
shares.
Q222.
- Joint and Several Liability
A222.
- Liability whereby creditors may sure partners jointly or
sue partners individually
Q223.
- Joint Venture
A223.
- An associate of persons with the intent of engaging in a
single business venture for profit.
Q224.
- Limited Liablity (of shareholders, limited partners, and
LLC members)
A224.
- The creditors are prevented from accessing the personal
assets of the individual. Their liability is limited to their
investment in the entity.
Q225.
- Limited Liability Company (LLC)
A225.
- Form of business entity that offers its owners (called
members) one of the main advantages of the corporate
form of business (ie they are not personally liable for the
obligations of the company) and all of the tax advantages
of a partnership.
- It is a hybrid business organization that combines
characteristics of corporations, partnerships, and limited
partnerships.
Q226.
- Limited Liability Partnership (LLP)
A226.
- An association of 2 or more persons who agree to carry
on as co-owners a business for profit.
- An LLP differs from a general partnership in that a partner
in an LLP is not personally liable for the obligations or
liabilities of the partnership arising from errors, omissions,
negligence, malpractice, or the wrongful acts committed by
another partner or by an employee, agent, or
representative of the LLP. Neither are the partners liable
for partnership contracts.
Q227.
- Limited Partner
A227.
- Partner with limited liability as to his personal assets,
risking only his investment in the limited partnership.
- A limited partner is not an agent of the partnership.
Q228.
- Limited Partnership
A228.
- A partnership made up of one or more general partners
and one or more limited partners.
Q229.
- Locking up the Crown Jewels
A229.
- When a corporation is face with the prospect of being
taken over and the board of directors wants to resist the
takeover attempt, it will give a third party an option to
purchase the company's most valuable assets.
Q230.
- Members
A230.
- Owners of a limited liability company.
Q231.
- Merger
A231.
- Involves one or more corporations merging into another
corporation.
- One corporation survives the merger and continues in
existence and the other merging corporations cease to
exist following the merger.
Q232.
- Noncumulative Preferred Shares
A232.
- Shares with a preference are usually entitled to a fixed
amount of money before distributions can be made with
respect to nonpreferred shares.
- Unless the dividend is cumulative the right to a dividend
preference is extinguished if it is not declared for that year.
Q233.
- Officers
A233.
- Parties elected by the board of directors to managed the
corporation on a day-to-day basis.
- They are agents of the corporation.
Q234.
- Outstanding Shares
A234.
- Shares in the shareholders hands
Q235.
- Par Value
A235.
- Specific face value placed on stock
Q236.
- Piercing the Corporate Viel
A236.
- In some circumstances, the courts will hould the
shareholders, officers, or directors of a corporation liable
because the legislative privilege of conducting business in
corporate form is being abused.
Q237.
- Preemptive Rights
A237.
- When a corporation proposes to issue additional shares
of stock, current shareholders often want to purchase
some shares in order to maintain their proportional voting
strength through special rights referred to as "preemptive
rights" that must be granted in the articles of incorporation
Q238.
- Preferred Stock
A238.
- Ownership interest in a company that is preferred in
some manner (dividends or assets) over the common
stockholders in the case of liquidation.
Q239.
- Promoter
A239.
- Individuals who form a corporation. Responsible for the
procurement of commitments for capital that will be used
by the corporation after formation.
- Promoters enter into contracts with third parties who are
interested in becoming shareholders and might also enter
into contracts for goods or services to be provided to the
corporation once its formed.
Q240.
- Proxy
A240.
- Written authorization given to third parties for the
purposes of voting shares on behalf of the shareholder.
Q241.
- Quorum
A241.
- Minimum number of parties that must be present for a
valid vote or transaction
Q242.
- Registered Agent
A242.
- The person on who process may be served if the limited
partnership, LLC, or corporation is sued.
Q243.
- Revised Model Business Corporation Act (RMBCA)
A243.
- Uniform law governing corporations that has been
adopted by a slight majority of the states
Q244.
- Revised Uniform Limited Partnership Act (RULPA)
A244.
- Uniform law governing limited partnerships that has been
adopted by a majority of the states
Q245.
- Revised Uniform Partnership Act (RUPA)
A245.
- Uniform law governing partnerships that has been
adopted by a majority of the states
Q246.
- S Corporation
A246.
- Corporation electing to be taxed like a partnership and
yet retaining other advantages of the corporation form
Q247.
- Scorched Earth Policy
A247.
takeover attempt, it will sell off assets or take out loans
that would make the company less financially attractive.
Q248.
- Self-Tender
A248.
takeover attempt, it will make an offer to acquire stock
from its own stockholders and thus retain control in order
to prevent a takeover.
Q249.
- Share Exchange
A249.
- Transaction in which one corporation acquires of all
outstanding shares of one or more classes of stock of
another corporation.
- Both corporations continue to exist as separate entities.
Q250.
- Shareholder/Stockholder
A250.
- Party owning an interest in a corporation. Has a limited
right to manage.
Q251.
- Shark Repellant
A251.
takeover attempt, it will amend the articles of incorporation
or bylaws to make a takeover more difficult.
Q252.
- Short-Form Merger
A252.
- A merger whereby a parent corporation owning 90% or
more of a subsidiary corporation may merge the subsidiary
into the parent without the approval of the shareholders of
either corporation or the approval of the subsidiary's
board.
Q253.
- Sole Proprietorship
A253.
- One person owns the business and manages all of its
affairs. The sole proprietor is not considered an entity
separate from the business.
Q254.
- Statement of Authority
A254.
- Document filed with the secretary of state, stating that the
partnership has expanded or curtailed a partner's authority
to enter into transactions on behalf of the partnership.
- However, the filing of a limitation does not give third
parties constructive knowledge of the limitation.
Q255.
- Statement of Denial
A255.
- A partner listed in a filed statement of partnership
authority may effectively deny her authority by filing a
statement of denial with the secretary of state.
Q256.
- Stock Dividends
A256.
- Dividends in the corporation's "own authorized but
unissued shares"
Q257.
- Stock Subscriptions
A257.
- Contracts committing parties to the purchase of stock.
Q258.
- Treasury Shares
A258.
- Issued shares that are sometimes repurchased by the
corporation (called "issued but not outstanding").
Q259.
- Ultra Vires Act
A259.
- An unauthorized act. Under the RMBCA, a corporation
may include a clause in its articles state the business
purpose for which the corporation was formed.
- A number of states require a purpose clause.
- If a corporation undertakes business activities outside
the clause (or outside the business permitted by statute) it
is said to be acting "ultra vires" and may be challenged by
adversely affected parties
Q260.
- Unlawful Distribution
A260.
- A distribution that causes a corporation not to be able to
pay its debts as they become due in the regular course of
business or causes the corporation's total assets would be
less than its total liabilities
Q261.
- Voting Agreements
A261.
- Shareholders agree among themselves to vote their
shares as the majority of signers directs
Q262.
- Voting Trusts
A262.
- An agreement of shareholders under which all the shares
owned by the parties to the agreement are transferred to a
trustee, who votes the shares and distributes the dividends
in accordance with the provisions of the voting trust
agreement.
Q263.
- Watered Stock
A263.
- Stock that is issued in exchange for property worth less
than the par value of the stock (the difference between the
par value and the value of the property is deemed to be
"water")
Q264.
- White Knight
A264.
takeover attempt, it will find a company that the directors
want to merge with.
Q265.
- Winding Up
A265.
- Liquidation that involves the process of collecting the
corporate or partnership assets, paying the expenses
involved satisfying creditors' claims, and distributing the
net assets of the business to the appropriate party.
Q266.
- What is a joint venture?
A266.
- Association of persons or entities with the intent of
engaging in a single business venture for profit.
Q267.
- What is necessary to form a general partnership?
A267.
- (i) two or more persons
- (ii) who agree (expressly or impliedly)
- (iii) to carry on as co-owners of a business for profit.
Q268.
- When is it necessary for a general partnership agreement
to be in writing under the Statute of Frauds?
A268.
- When the partners want to enforce an agreement to
remain partners for longer than a year.
Q269.
- In a partnership, how will partners share profits and/or
losses?
A269.
- Unless partners provide otherwise, profits and losses will
be split equally.
Q270.
- What are the rights in partnership property?
A270.
- 1- Not assignable or mortgageable by partner individually.
- 2- Not subject to attachment by individual partner's
creditors or for alimony.
- 3- Rights vest in surviving partners upon death.
Q271.
- What are the rights in partnership interest?
A271.
- a)interest is assignable
- b)assignee has rights to partner's profit share
- c)assignee has no management rights
- d)judicial dissolution
- e)creditors may attach a partner's interest (charging
order)
- f)upon death, heirs entitled to deceased partner's profit
share.
Q272.
- What is the effect of a partner transferring his interest in
the partnership without consent of other partners?
A272.
- The transfer does not make the assignee a partner.
- The transfee only has the right to receive the assignor's
distributions.
Q273.
- What are the rights of partners?
A273.
- 1- Rights in partnership property
- 2- Rights in partnership interest
- 3- Right to indemnification and contribution
- 4- Right to inspect books and records
- 5- Right to bring legal action against partnership.
Q274.
- Can a limited partnership be formed with limited liability
for all partners?
A274.
- No
Q275.
- What are similarities between a limited partnership and a
corporation?
A275.
- Both are created under a state statue and require filing
with the state for creation.
Q276.
- How are profits and losses allocated among partners?
A276.
- Unless there is an agreement between the partners,
profits/losses will be allocated in proportion to the value of
each partners' contributions.
Q277.
- Are corporations governed by statute?
A277.
- Yes
Q278.
- What items MUST be included in the articles of
incorporation?
A278.
- 1) Name of corporation
- 2) Names and address of the corporation's registered
agent (on whom process may be served if the corp is sued)
- 3) The names and addresses of each of the incorporators
- 4) The number of shares authorized to be issued
- 5) One or more classes of shares must have unlimited
voting rights.
Q279.
- What are the reasons for piercing the corporate veil
(disregard of corporate entity)?
A279.
- 1) Commingling personal funds with corporate funds
- 2) Inadequate capitalization
- 3) Committing frauds on existing creditors
Q280.
- In order to make a fundamental corporate change, must
there be a unanimously board approved resolution?
A280.
- NO
Q281.
- True or False:
- In order to make a fundamental corporate change, the
shareholders must be given notice and an opportunity to
vote on the change.
A281.
- TRUE
Q282.
- True or False:
- For a fundamental corporate change, at least a majority of
all outstanding shares must be cast in favor of approval of
the change.
A282.
- TRUE
Q283.
- What are the types of fundamental changes?
A283.
- (D) Termination of a corporation/dissolution
- (A) Amendments to the articles of incorporation
- (M) Merger, consolidation, and share exchange
- (S) Transfer of assets outside the regular course of
business (SALE, lease or exchange)
Q284.
- Once a dividend is declared, is a shareholder considered
an unsecured creditor?
A284.
- Yes
Q285.
- What are the Qualitative Characteristics of Accounting?
A285.
- 1.Understandability
- 2. Usefulness. What are the characteristics of
Usefulness?
Q286.
- What are the Objectives of Financial Reporting?
A286.
- 1. Provide Information useful for investment and credit
decisions
- 2. Provide information useful for assessing cash flow
prospects (Amount, timing, uncertainties)
- 3. Provide Information about the enterprise's resources,
claims to those resources, and changes therein
Q287.
- What are the most authoritative sources of guidance in
the Hierarchy of GAAP?
A287.
- Statements of Financial Accounting Standards and
Interpretations, APB Opinions, and Accounting Research
Bulletins
Q288.
- What are the pervasive constraints to Financial
Reporting?
A288.
- Benefits outweigh the associate costs
- Materiality
Q289.
- Revenue Recognition criteria
A289.
- Revenue must be recognized when both earned (indicates
the transfer of risk and that substantially all work has been
completed) and realized or realizable.
Q290.
- What is the matching principle?
A290.
- Expenses should be recorded in the same period as their
related revenues
Q291.
- How is full disclosure achieved in financial reporting?
A291.
- Through the notes to the financial statements which
contain additional information considered important for
achieving the objectives of financial reporting.
Q292.
- What is the principle of conservatism?
A292.
- Conservatism governs that gains should be deferred until
they are both earned and realized or realizable, not solely
when cash has been received. However, probably losses
should be recorded immediately as long as it is reasonably
estimable.
Q293.
- Comprehensive income
A293.
- All income to the entity excluding exchanges with
owners.
- Net Income
- +/- Pension changes in the funded status
- Unrealized gains and losses on AFS securities
- Foreign currency translation adjustments
- Effective portion of cash flow hedges
Q294.
- Changes in which balance sheet accounts result in
revenues? expenses?
A294.
- Revenues result from an increase in assets or a decrease
in liabilities
Q295.
- What is the essential quality of an asset?
A295.
- An asset signifies that the item will provide future
benefits and therefore to comply with the matching
principle it must amortize these costs of future periods
benefits.
Q296.
- Gross Concept
A296.
- Amounts are recorded in their entirety. This applies to
expenses and revenues which are recorded in whole and
then netted together in order to find income from
continuing operations.
Q297.
- Single Step Income Statement
A297.
- Total Expenses are subtracted from
Q298.
- Accounting Costs
A298.
- Explicit costs of operating a business (e.g. purchases of
input services)
Q299.
- Accounting Profit
A299.
- Difference between total revenue and total explicit costs.
(no allowance for opportunity costs or other implicit costs)
Q300.
- Aggregate Demand
A300.
- Maximum quantity of all goods and services that
households, firms, and governments are will and able to
purchase at any given price.
Q301.
- Aggregate Supply
A301.
- Maximum quantity of all goods and services that
providers are willing and able to produce at any given
price.
Q302.
- Average Fixed Cost (AFC)
A302.
- Total fixed cost(TFC)/total output or quantity. AFC
declines as Output increases.
- AFC = TFC/Q
Q303.
- Average Product (AP)
A303.
- Total product (output) divided by the number of units of
the variable input required to produce that output level.
Q304.
- Average Revenue (AR)
A304.
- Total Revenue divided by total output.
Q305.
- Average Total Cost (ATC)
A305.
- Total cost divided by total output or quantity
- ATC = TC/Q
Q306.
- Average Variable Cost (AVC)
A306.
- Total variable cost (TVC) divided by total output or
quantity (AVC = TVC/Q). The average variable cost is
constant regardless of increase or decreases in output.
Q307.
- Balanced Budget
A307.
- Where taxes and other governmental revenues equal
government spending.
Q308.
- Best Cost Strategy
A308.
- Competitive strategy that combines cost leadership
strategies with differentiation strategies to give customers
higher value for their money.
Q309.
- Boycott
A309.
- Organized group refusal to conduct market transactions
with a target group or individual (using only social
pressure, not legal obligation).
Q310.
- Budget Deficit
A310.
- When taxes and other governmental revenues are less
than governmental spending.
Q311.
- Budget Surplus
A311.
- When taxes and other governmental revenues are greater
than government spending.
Q312.
- Business Cycle
A312.
- Rise and fall of economic activity (GDP) relative to the
long-term growth trend of the economy.
Q313.
- Cartel
A313.
- A group of firms acting together to coordinate output
decisions and control prices so that the joint profit of the
members of the cartel will be maximized. The cartel will
attempt to create a monopoly.
Q314.
- Compensating Balance
A314.
- A required minimum amount of funds (10 - 20%) that a
firm received a loan or line of credit must keep in a non-
interest bearing checking account at the bank.
Q315.
- Competitive Strategies
A315.
- 1) Cost leadership focused on a broad rang of buyers
- 2) cost leadership focused on a narrow range of buyers
- 3) product differentiation focused on a broad range of
buyers
- 4) product differentiation focuses on a narrow range of
buyers
- 5) best cost
Q316.
- Complements/Complementary Products
A316.
- Products that are usually consumed jointly. They are
related such that a decrease in the price of one product will
cause an increase in the demand of the other product.
Q317.
- Constant Returns to Scale
A317.
- The state in which the long-run average total costs stays
the same as the quantity of output produced increases or
decreases
Q318.
- Consumer Price Index (CPI)
A318.
- An index that is used to adjust for inflation. It is designed
to measure the impact of price changes on the cost of a
typical basket of goods purchased by urban consumer
households.
Q319.
- Contractionary Monetary Policy
A319.
- Reduction of the money supply by the Fed.
Q320.
- Core Competency
A320.
- Fundamental knowledge, ability, or expertise in a specific
subject area or skill set.
Q321.
- Cost Leadership Strategy
A321.
- A competitive strategy that emphasizes lowest overall
cost.
Q322.
- Cost Push Inflation
A322.
- Inflation caused by reductions in short-run aggregate
supply
Q323.
- Country Risk
A323.
- Risk of political and economic uncertainty in a foreign
country that affects the value of loans or investments in
that country.
Q324.
- Covered Interest Arbitrage
A324.
- In an interest arbitrage transaction, the foreign exchange
risk can be covered (coverage interest arbitrage) if, at the
same time the investor exchanges the domestic currency
for the foreign currency to make the foreign investment,
the investor also engages in a forward sale of an equal
amount of the foreign currency to coincide with the
maturity of the investment.
Q325.
- Cross Elasticity of Demand
A325.
- The percentage change in the quantity demanded of one
good divided by the percentage change in the price of a
related good.
Q326.
- Cross Elasticity of Supply
A326.
- Percentage change in the quantity supplied of one good
divided by the percentage change in the price of a related
good.
Q327.
- Cross Hedging
A327.
- Hedging the exposure in one currency by the use of
futures, forwards, or other contracts in a second currency
that is correlated with the first currency.
Q328.
- Currency Appreciation
A328.
- Strengthening of a currency in relation to another
currency. Appreciation occurs when, because of a change
in currency exchange rates, a unit of currency buys more
units of another currency.
Q329.
- Currency Depreciation
A329.
- The weakening of a currency in relation to another
currency. Depreciation occurs when, because of a chance
in currency exchange rates, a unit of currency buys fewer
units of another currency.
Q330.
- Currency Variability
A330.
- Overall currency exposure can be assessed by
considering each currency position together with that
currency's variability and the correlations among the
currencies (how much two currencies tend to increase and
decrease together). The standard deviation of historical
data serves as one measure of currency variability.
Currency variability levels may change over time.
Q331.
- Current Method
A331.
- The current method of foreign currency translation is the
method required with a firm's books are maintained in its
functional currency. Remeasurement into the functional
currency is obviously then not required before the
translation into the reporting currency can be done.
Translation gains and losses are reported in other
comprehensive income.
Q332.
A332.
- Unemployment resulting from business cycles, especially
recessions or depressions.
Q333.
- Deflation
A333.
- Sustained decrease in the general prices of goods and
services
Q334.
- Demand Pull Inflation
A334.
- Demand pull inflation is inflation caused by increase in
aggregate demand (i.e., by a rightward shift in the
aggregate demand curve)
Q335.
- Depression
A335.
- Very severe recession.
Q336.
- Derived Demand
A336.
- Demand for the factors of production of a good caused by
the demand for a final good.
Q337.
- Differentiation Strategy
A337.
- A product differentiation strategy is a competitive
strategy that emphasizes the perception that their products
are better or have a unique quality that differentiates them
from competing products.
Q338.
- Discount rate
A338.
- Interest rate that the Fed charges banks for short-term
loans
Q339.
- Under the expenditure approach, GDP is the sum of the
following four components:
A339.
- (G) Government purchases of goods and services
- (I) Gross private domestic Investment (nonresidential
fixed investment, residential fixed investment, and change
in business inventories)
- (C) Personal Consumption expenditures (durable and
non-durable goods, and services)
- (E) Net Exports (minus imports)
Q340.
- The income approach accounts for GDP is calculated as
follows:
A340.
- (I) Income of proprietors
- (P) Profits of corporations
- (I) Interest (net)
- (R) Rental Income
- (A) Adjustments for net foreign income and
miscellaneous items
- (T) Taxes (indirect business taxes)
- (E) Employee compensation (wages)
- (D) Depreciation (also known as capital consumption
allowance)
Q341.
- Types of unemployment:
A341.
- 1) Frictional unemployment
- 2) Structural unemployment
- 3) Seasonal unemployment
- 4) Cyclical unemployment
Q342.
- SWOT Analysis stands for:
A342.
- Strengths
- Weaknesses
- Opportunities
- Threats
Q343.
- Factors the Shift Demand Curve
A343.
- (W) Change in Wealth
- (R) Changes in price of Related goods
- (I) Changes in consumer Income
- (T) Changes in consumer Tastes or preferences for a
product
- (E) Changes in consumer Expectations
- (N) Changes in the Number of buyers served by the
market
Q344.
- Factors that Shift Supply Curves:
A344.
- (E) Changes in price Expectations of the supplying firm
- (C) Changes in production Costs
- (O) Changes in price or demand for Other goods
- (S) Changes in Subsidies or taxes
- (T) Changes in production Technology
Q345.
- What is necessary to form a GP? (3)
- The is no requirement of a writing, even if the GP is to
own a land, Unless the GP is to last for __________.
A345.
- 1. 2 or more persons
- 2. who agree (expressly or impliedly)
- 3. to carry on as co-owners of a business for profit
- 4. more than ONE year.
Q346.
- Name the basic characteristic of a partnership regarding
the duration.
A346.
- LIMITED LIFE OF ENTITY
Q347.
- When a solvent partnership is dissolved and its assets
are reduced to cash, the cash must be used to pay the
partnership's liabilities in the following order: 3 steps
A347.
- 1. pay creditors/ split loss
- 2. return capita/ split loss
- 3 divide profits
Q348.
- How partners will share profits and losses?
A348.
- 1. will be split EQUALLY, unless provided otherwise,
regardless of partner's contributions.
- 2. if partner cannot contribute his share of losses, the
remaining partners MUST make up the share on a pro rata
basis
Q349.
- What are the rights of a partner in specific partnership
property?
A349.
- 1. the partner has NO RIGHT to possess or transfer
except for partnership purposes.
- Thus, the property is not subject to Personal Creditors'
claims or ALIMONY.
- However, it is subject to a surviving partner's
survivorship interest - it belongs to partnership.
Q350.
- What is effect of a partner transferring his interest in the
partnership without the consent of the other partners?
A350.
- 1. such transfer does not make the assignee a partner
- (that can be done only with the consent of other partners)
- 2. thus the transferee has no power to manage the
partnership, inspect books vote etc.
Q351.
- Is it true that LP can be formed with limited liability for all
partners?
A351.
- NO!
- you need at least on GP who has unlimited personal
liability for all partnership obligations.
Q352.
- LLP is similar to GP. The differences are:
A352.
- 1. Partners in LLP are not PERSONALLY LIABLE for Torts
of fellow partners, employees, agents.
- 2. Liable for their own negligence and who under their
direct control.
- 3. Not personally liable for debts of the LLP. They are only
liable to the extent of their capital contributions.
Q353.
- LLP and LP _________ file with the Sate.
- Generally in an LLP, there does not need to be a ______
A353.
- MUST
- GP
Q354.
- What are similarities between a LP and a Corporation?
A354.
- BOTH ARE CREATED UNDER A STATE STATUTE AND
REQUIRE FILING WITH THE STATE FOR CREATION.
Q355.
- Corporations are governed by ___________
A355.
- STATUTE
Q356.
- ITEMS INCLUDED IN THE ARTICLES OF
INCORPORATION
A356.
- 1. the name of the corporation
- 2. the name and the address of the corporation's
registered Agent
- 3. the name and the addresses of each of the
incorporators
- 4. the number of the shares authorized to be issued
Q357.
- 1. Commingling personal funds with Corp.
- 2. under capitalization
- 3. committing fraud
- Are the reasons for _________
A357.
- piercing the Corp. Veil - courts will hold the shareholders,
officers and directors liable
Q358.
- Shareholders in the Corp. do not elect the _________, and
do not have the power to remove them.
A358.
- OFFICERS
Q359.
- Regarding the Fundamental Corp. Changes:
- 1. The board must approve a resolution, but there is no
requirement of ___________
- 2. The shareholders must be given notice and an
opportunity to vote on the change. At lease a majority of
_____________ must be cast in favor of approval.
A359.
- UNANIMITY
- ALL OUTSTANDING SHARES
Q360.
- Fundamental changes include:
A360.
- 1, amendments to the articles of Incorp.
- 2. Dissolutions -termination or a corporation
- 3. mergers
- 4. consolidations
- 5. share exchanges
- 6. Transfer of assets outside the regular course of
business
- Mnemonics :DAMS
- Dissolution
- Amendments to the articles
- Mergers, consolidations and share exchanges
- Sale of almost all the Corp's assets outside the regular
course of business
Q361.
- The Shareholders have the status of ___________ once a
dividend is declared.
A361.
- UNSECURED CREDITOR
Q362.
- Cumulative preferred dividends are exam favorite
- _ they accumulate even if __________
- No dividends can be paid to common shareholders until
__________
- No dividends are due until __________
A362.
- NOT DECLARED
- ALL CUMULATIVE DIVIDENDS ARE PAID
- IT IS DECLARED BY THE BOARD OF DIRECTORS
Q363.
- The shareholders can inspect books and record for
___________, but shareholders can be denied inspection
for __________
A363.
- Proper purpose
- Improper purpose
Q364.
- Short-form merger where 90% if the stock is acquired is
not a __________ change
A364.
- FUNDAMENTAL - no shareholders approval needed
Q365.
- _________ is an option or right to purchase additional
shares of stock securities at a specified price; it does not
represent indebtedness
A365.
- WARRANT
Q366.
- Each partner is entitled to an equal share of the
partnership profits and is chargeable with a share of the
partnership losses in ____________ to the allocation
method described in the partnership agreement. If partners
agree to share profits other than ___________, losses will
be shared similar to _________, absent agreement to do
otherwise.
A366.
- PROPORTION
- EQUALLY
- PROFITS
Q367.
- A formula for sharing losses will____________ to sharing
profits
A367.
- NOT BE APPLIED
Q368.
- What is a requirement for a corp. to achieve a successful
voluntary dissolution?
A368.
- A recommendation of dissolution by the board of
directors and approval by a majority of all shareholders
entitle to vote
Q369.
- A cop. is a legally separate entity distinct form its
shareholders. To transfer interest in corp., one must
simply ___________.
- A partnerships( LP and GP) requires __________ to
transfer interest in the partnership.
- A limited liability company can follow ____________
rules, depending on how it is taxed.
A369.
- 1.SELL HIS/HER STOCK
- 2. the consent of the other partners
- 3. THE PARTNERSHIP OR CORP.
Q370.
- A Corp., initial BYLAWS shall be adopted by _________ or
_________ or the board of directors may ratify the
incorporator's initial bylaws. Generally, the bylaws are the
rules of conduct for the corporation and are ________
contained in the articles of incorporation as they are
usually bulky.
- The __________ typically note such items as the company
name, the comp. address, the names and the addresses of
persons composing the initial board of directors, the
number of authorized shares, the incorporator's name and
address, and the registered agent's name and address,
among other items.
A370.
- 1. THE INCORPORATORS OR THE BOARD OF
DIRECTORS
- 2. NOT
- 3. THE ARTICLES OF INCORPORATION
Q371.
- What corp. can :
- have more than 100 shareholders
- have a nonresident alien as a shareholder
- has a disadvantage of double taxation when
- it pays dividends to its shareholders
A371.
- C corp
Q372.
- Answer YES or NO for PROPRIETORSHIP
- 1. Tax- free distributions and contributions
- 2. Earnings accumulate tax-free
- 3. Not subject to personal holding tax
- 4. No double taxation of income
- 5. Single individual as management
- 6. Corporation as member/multiple members allowed
A372.
- PROPRIETORSHIP
- 1. Yes
- 2. Yes, pass through individuals but no entity tax
- 3. Yes
- 4. Yes
- 5. Yes
- 6. No
Q373.
- Answer YES or NO for S CORP.
A373.
- S CORP.
- 1. Yes, under certain circumstances
- 3. Yes
- 4. Yes
- 5. Yes
- 6. No
Q374.
- Answer YES or NO for C CORP.
A374.
- C CORP.
- 1. No
- 2. No
- 3.No
- 4. No
- 5. No
- 6.Yes
Q375.
- Answer YES or NO for LLPARTNERSHIP
A375.
- LLPARTNERSHIP
- 1. Yes
- 3. Yes
- 4. Yes
- 5. Yes
- 6. Yes
Q376.
- What Require shareholder's approval and what not?
- Dissolution
- Purchase of 55% of another corp. stock
- Merger
A376.
- Dissolution and Merger Require shareholder's approval
Q377.
- A __________ is an association of persons or entities
with the intent of engaging in a Single Business Venture
for PROFIT
A377.
- JOINT VENTURE
Q378.
- ___________is the simplest form of business ownership.
It is NOT considered an entity separate from the business;
nothing needs to be file unless required by the state.
A378.
- A SOLE PROPRIETORSHIP
Q379.
- List major disadvantages and advantages of sole
proprietorship.
A379.
- disadvantages:
- 1. is personally liable fro ALL obligations of the business.
- 2. limited life
- advantages:
- 1. not double taxation
- 2. sole decision maker
Q380.
- The key difference between a Joint Venture and a GP is
the fact that JV is formed for __________.
- JVs are treated as a Partnerships in most legal aspects
A380.
- SINGLE TRANSACTION OR PROJECT OR RELATED
SERIES OF TRANSACTIONS
Q381.
- A GP is similar to a sole proprietorship EXCEPT _______
A381.
- that there are at least TWO partners
Q382.
- List disadvantages and advantages of GP.
A382.
- disadvantages :
- 1. partners are personally liable for obligations of the
partnership
- 2. Transfer of partners interest must be approved by ALL
GPs.,
- 3. limited life of the GP
- Advantages:
- 1. no double taxation
Q383.
- All partnerships are assumed to be _________ unless
otherwise stated.
A383.
- GP
Q384.
- _________ is a change in the relationship of the partners
caused by any partner ceasing to be associated in the
carrying on of the business.
A384.
- DISSOCIATION
Q385.
- In case of _________ - partners change but the
partnership may or may not continue.
- In case of __________ business is wound up, then the
entity is terminated.
A385.
- DISSOCIATION
- DISSOLUTION
Q386.
- When a partner Dissociates, the partner's right to
participate in management ceases.
- Actual authority ends but __________ authority continues
until the third party given notice.
A386.
- APPARENT
Q387.
- Partners are ___________ for all contracts entered into
and All torts committed by other partners within the scope
of the partnership business or which are authorized.
- Under ___________ liability , each partner is personally
and individually liable for the _________ amount of all
partnership obligations.
A387.
- PERSONALLY LIABLE
- JOINT AND SEVERAL
- ENTIRE AMOUNT - 100%
Q388.
- Each partner owes a _________ DUTY to GP and is bound
to use P-p property and his best efforts for the benefit of
the Partnership.
A388.
- FUDUCIARY
Q389.
- LLP ________ have a perpetual life, unless provided
otherwise.
A389.
- DOSE NOT
Q390.
- Limited partners in LLP are like _________, they
contribute capital , but _________ participate in the
management of the partnership.
A390.
- SHAREHOLDERS
- DO NOT
Q391.
- Unlike a GP, if there is No agreement, Profit and Loss
allocations in LP are based on ____________
A391.
- CAPITAL CONTRIBUTIONS
Q392.
- ________ is a form of business entity that offers its
owners ( called members) one of the main advantages of
the corporate form of business - they are not personally
liable for the obligations of the company and all of the tax
advantages of a partnership - flow though taxation.
A392.
- LIMITED LIABILITY COMPANY
Q393.
- A LLC is a __________ business that combines
characteristics of corporations, partnership and LP.
A393.
- HYBRID
Q394.
- Generally, ________ may participate in management of
LLC
A394.
- ALL MEMBERS - each member will be an agent of the
LLC.
Q395.
- An LLC is formed by filing ___________ with the secretary
of state.
A395.
- ARTICLES OF ORGANIZATION
Q396.
- Voting strength of LLC members are _________ and is
based on ___________
A396.
- NOT EQUAL
- CAPITAL
Q397.
- Profit and loss allocation for the LLC members is based
on __________ and is similar to LP.
A397.
- CAPITAL
- GP and LLP - is EQUAL , unless otherwise agreed
Q398.
- List advantages and disadvantages of the LLC
A398.
- Advantages: Limited liability of members, liable only for
his own torts
- Disadvantages: may NOT transfer all of his interest
without the consent
Q399.
- _________ is a legal entity distinct from its owners -
called Shareholders, and menages.
A399.
- A CORPORATION
Q400.
- Creation of the Corp. requires filing a document called
____________ with the state.
A400.
- THE ARTICLES OF INCORPORATION
Q401.
- _________ do not have the power to manage the day-to-
day operations of a Corp.
- Management power is vested in ___________.
- They usually delegate their power to run the day-to-day
operations to __________, whom they select.
A401.
- STOCKHOLDERS
- DIRECTORS
- OFFICERS
Q402.
- List advantages (3) and disadvantage of Corp.
A402.
- Advantages:
- 1. Not personally liable
- 2. perpetual life
- 3. easy to transfer interest in the Corp. - sell
- Double Taxation is main disadvantage
Q403.
- The tax laws permit certain Corp. to elect to be Taxed like
partnerships and yet retain the other advantages of the
Corp. form
A403.
- S corp.
Q404.
- There are number of restrictions on S Corp. (5)
A404.
- 1. No more than 100 members
- 2. Shareholders must be individuals, estates, or certain
trusts
- 3. must be domestic corp.
- 4. one class of stock
- 5. foreign shareholders are not allowed.
Q405.
- An agreement among the third party, the corp. and the
promoter that the third party will release the promoter and
substitute the Corp.
A405.
- NOVATION
Q406.
- _____ are the rules for running the corp.
A406.
- BYLAWS
Q407.
- If the incorporators made a good Faith attempt to
incorporate - the doctrine is called
A407.
- De Facto
Q408.
- Foreign corp. is a corp that is ___________
- It must obtain a ____________ to transact business.
A408.
- not incorporated within the state
- Certificate of Authority
Q409.
- Individually _________ have no right or power to act -
they are not agents but do owe a fiduciary duty
A409.
- DIRECTORS
- CAN ACT AS A GROUP
Q410.
- Corporations need _________ profits and losses among
their shareholders
A410.
- NOT allocate
Q411.
- GR, Shareholder ________ the right to a dividend
UNLESS and until the dividend is __________ by the board.
A411.
- DO NOT HAVE
- DECLARED
Q412.
- What is preemptive rights?
A412.
- Right to purchase some shares to maintain their
proportional voting strength
Q413.
- What is Dissenting shareholder appraisal rights?
A413.
- Shareholder who is dissatisfied with most fundamental
corp.
- changes have an opportunity to "dissent" and demand
that the corp. pay them the Fair value of their shares rather
than remain shareholders of a fundamentally changed
corp.
Q414.
- A partnership that has no stated duration is called a
__________
A414.
- Partnership at will
Q415.
- A Corp. may be authorized to
- __________ its officers for liability incurred in a Suit of
Stockholders.
A415.
- INDEMNIFY
Q416.
- a partnership that has no stated duration is called
A416.
- a partnership at will
Q417.
- A limited partnership and a corp. are both created
under_______ and must __________
A417.
- a statute
- and must file a copy of their certificate with the proper
state authorities.
Q418.
- In general, the shareholders must approve any MERGER
or CONSOLIDATION except for
A418.
- a Short-form merger - if 90% of the stock was acquired.
Q419.
- Economic profit =
A419.
- revenue - explicit cost - implicit cost
Q420.
- Short-Run Aggregate Supply Curve is ____________
A420.
- UPWARD SLOPING
Q421.
- Long-Run Aggregate Supply Curve is ____________
A421.
- VERTICAL
Q422.
- During a recession there is _______________ demand.
- An Expansionary policy would ___________ gov.
spending or ___________ taxes., both of which would
___________ the level of aggregate demand.
- An expansionary monetary policy would attempt to
____________ interest rates.
A422.
- insufficient aggregate
- increase
- cut taxes
- increase demand
- decrease
Q423.
- In a MONOPOLISTICALLY competitive industry, firms
only earn _________ profits in the long-run. When there is
an equilibrium, a firm will operate INEFFICIENTLY with
Price _____________ than MR
A423.
- NORMAL
- GREATER
- P>MR
Q424.
- As FULL EMPLOYMENT approaches, demand for goods
and services is rising. This increased Demand usually
causes and ___________ in Price level . The result is
__________
A424.
- INCREASE
- INFLATION
Q425.
- Price freezing would cause ___________
A425.
- DEMAND TO EXCEED SUPPLY
Q426.
- Reserve ratio =
A426.
- RESERVES / TOTAL DEMAND DEPOSITS
Q427.
- ____________ is the appropriate index for measuring the
changes in a COMPANY'S PURCHASING POWER
A427.
- PPI or WHOLESALE INDEX
Q428.
- The mopoly can increase profits by increasing output and
decreasing price as long as ___________. The firm will
maximize profits by continuing to the point at the given
output ___________
A428.
- MR>MC
- MR=MC
Q429.
- Firms in a monopolistically competitive industry produce
_________products, engage in _________ competition, and
face a ____________ demand curve, there are__________
to enter the market.
A429.
- differentiated
- non-price
- downward sloping
- NO barriers
Q430.
- Firms in a porfectly competitive industry porduce a
__________ product, engage in _________ competition,
and face a ___________ demand curve, there
are__________ to enter the market.
A430.
- standardized
- price
- perfectly elastic
- NO barriers
Q431.
- Induced investment is the investment made in an
economy in response to ______________
A431.
- CHANGES IN THE LEVEL OF NATIONAL INCOME
Q432.
- If inflation in Russia is 10% and in US is 5% , the Russian
Ruble will___________
A432.
- depreciate by 5% and
- US $ appreciate by 5%
Q433.
- If someone purchases a CALL option, he expects prices
to ____________
- If someone purchases a PUT option, he expects prices to
____________
A433.
- RISE
- DECREASE
Q434.
- ___________ are the reduction in average total cost of
production when a firm expands plant production.
A434.
- ECONOMIES OF SCALE
Q435.
- Normal profit is
A435.
- a cost of resources from an economic perspective
- it is a point where, Revenue = Implicit + Explicit costs
- Economic profit < accounting profit
Q436.
- Net realizable value =
A436.
- Sale value - separable costs
Q437.
- Economic cost is
A437.
- the sum of all explicit and implicit costs of the business
firm
Q438.
- Imputed costs are ________ costs; they are not known
and must be ________.
A438.
- implied
- estimated
Q439.
- A normal profit is
A439.
- a cost of resources from an economic perspective.
- the amount necessary for the firm to be willing to keep
the resources deployed in the firm.
Q440.
- The US balance of trade is decreased by
A440.
- US imports.
- A favorable balance of trade occurs when exports exceed
imports.
Q441.
- Natural rate of unemployment - is the rate that
A441.
- occurs when there is no cyclical unemployment and the
economy is producing its potential output
Q442.
- Economic profit =
A442.
- Total Revenue - Total costs
Q443.
- The use of SL vs MACRS depreciation would result in?
A443.
- a slightly lower net cash flow
- lower NPV
- less desirable investment
Q444.
- A favorable debt-to-equity ratio means -?
A444.
- a higher bond rating -> means lower interest rates for
bonds being sold, which lowers the cost of capital for
future bond issuances.
- need to lower % of long-term debt.
Q445.
- The marketability of investment-?
A445.
- the ability to sell a security for its face market value
quickly
Q446.
- What are general characteristics of debt and equity
financing?
- Flexibility
- Tax deductibility
- EPS Dilution
- Increased Risk
- Cost (high or low?)
- Return (fixed or variable?)
A446.
- Debt Equity
- Flexibility no yes
- Tax deductibility yes no
- EPS Dilution no yes
- Increased Risk yes no
- Cost low high
- Return fixed variable
Q447.
- Aggressive WC management
- more risk
A447.
- CL ratio to non-current liabilities
- low current ratio
- Focus on high profitability potential, despite the cost of
high risk and low liquidity
Q448.
- Conservative WC Management
- less risk
A448.
- CA ratio to non-current assets
- high current ratio, long operating cycle
Q449.
- Net working capital
A449.
- (Current assets) - (Current liabilities)
- Liquidity
Q450.
- The average inventory level when the EOQ model and
Safety Stock is used = ?
A450.
- 1/2 of the EOQ + SS
Q451.
- Absorption costing assigns the fixed costs as
A451.
- a product costs.
Q452.
- Variable costing considers the fixed costs as
A452.
- expense in the period incurred
Q453.
- A/R are at the optimal level when
A453.
- Carrying costs = Opportunity costs
Q454.
- Annual carrying cost for inventory =
A454.
- average inventory x Carrying cost per unit
Q455.
- Bond/ stock order in case of default (5 items)
A455.
- 1Corporate bonds
- 2 Convertible bonds
- 3 Preferred stock
- 4 Convertible preferred stock
- 5 Common stock
Q456.
- Weighted Average Cost Of Capital - WACC=
A456.
- All else equal, the WACC of a firm increases as the beta and rate of
return on equity increases, as an increase in WACC notes a decrease
in valuation and a higher risk.
- The WACC equation is the cost of each capital component
multiplied by its proportional weight and then summing:
= E/V Re + D/V Rd (1- Tax)
- Where:
- Re = cost of equity
- Rd = cost of debt
- E = market value of the firm's equity
- D = market value of the firm's debt
- V = E + D
- E/V = percentage of financing that is equity
- D/V = percentage of financing that is debt
- Tax = corporate tax rate
Q457.
- What Does Capital Structure Mean?
A457.
- A mix of a company's long-term debt, specific short-term debt,
common equity and preferred equity. The capital structure is how a
firm finances its overall operations and growth by using different
sources of funds.
- Debt comes in the form of bond issues or long-term notes payable,
while equity is classified as common stock, preferred stock or
retained earnings. Short-term debt such as working capital
requirements is also considered to be part of the capital structure.
- A company's proportion of short and long-term debt is considered
when analyzing capital structure. When people refer to capital
structure they are most likely referring to a firm's debt-to-equity ratio,
which provides insight into how risky a company is. Usually a
company more heavily financed by debt poses greater risk, as this
firm is relatively highly levered.
Q458.
- Cost of capital decrease, The return on capital
A458.
- increase
Q459.
- Debt carries the_______cost of capital and is tax_______
A459.
- lowest
- deductable
Q460.
- The higher the tax rate the incentive to use _______
financing
A460.
- Debt
Q461.
- Classify risk into two broad categories -
A461.
- D Diversifiable risk
- U Unsystimatic ( non-market specific)
- N Nondiversifiable Risk
- S Systematic (Market)
Q462.
- A Poison pur clause is a covenant that obliges the
borrower to
A462.
- to repay the bonds if a large quantity of common stock is
held by a single investor and the bond rating is
downgraded.
Q463.
- Opportunity costs are part of _________ cost.
- Explicit costs are ___________ costs.
A463.
- IMPLICIT
- NOT IMPLICIT
Q464.
- Calculate the DISCOUNTED NET-OF-TAX amount that
relates to disposal of the asset sold at GAIN.
A464.
- Cash received
- less
- Gain amount X PFV of 1 yr 1 X tax rate
Q465.
- To RANK different investments use __________
A465.
- PROFITABILITY INDEX
Q466.
- CONTRIBUTION MARGIN =
A466.
- SALES REV - VARIABLE COSTS
Q467.
- CAPITAL STRUCTURE is defined as _________
A467.
- the % of debt, preferred stock, and common stock used
for financing a firms assets.
Q468.
- The firm's MARGINAL cost of capital is __________
A468.
- a Weighted average of the investors' required returns of
debt and equity
Q469.
- When Corp. is earning EXCESS PROFITS. __________
STOCK acts more like ____________
A469.
- PARTICIPATING PREFERRED STOCK
- EQUITY THAN CUMULATIVE PREFERRED STOCK
Q470.
- Cost of retained earnings =
A470.
- Dividend 1 / Market Price of the stock +G
Q471.
- An indenture is a legal document specifying the
_______________
A471.
- terms and conditions of a bond issue
Q472.
- The firm's FINANCIAL LEVERAGE ___________ when
DEBT-TO-EQUITY RATIO______
A472.
- increases
- INCREASES,
- Repurchase of the Treasury stocks - Decreases EQ.
Q473.
- If a company ignores the payment discount (2/10, net 30)
what is daily interest rate it is paying ?
A473.
- 1. Discount / 100%- discount
- 2% / 98%
Q474.
- To calculate the cost of a NEW common stock issue use
___________Dividend
A474.
- Next period dividend -
- Current year dividend X (1+G rate)
Q475.
- Bonds are issued at PREMIUM if _______
A475.
- STATED RATE IS > THAN YIELD TO MATURITY (
EFFECTIVE RATE)
Q476.
- CAPM Capital Asset Pricing Model =
- - is used to estimate the required return on a firm's cost
of Equity.
A476.
- Rfree + Beta (Rmarket - Rfree)
Q477.
- A noncollectable bond is _________ risky and sold at
___________ yield (price)
A477.
- less
- lower
Q478.
- LETTERS OF CREDIT reduce the risk of loss to Exporters
of goods. This is accomplished by having the bank
guarantee payment to the ___________. A draft is drawn on
the _________ .
A478.
- EXPORTER
- IMPORTER
Q479.
- Cost per check cleared =
A479.
- DSi
- D- days saved
- S - size of the check
- i - daily Interest rate %/360
OR
- Days saved x Check perDay x Annual % rate
Q480.
- CURRENT ASSETS ARE :
A480.
- CASH
- MRK SEC
- A/R
- INVENTORY
Q481.
- Gross margin =
- GM ratio =
A481.
- SALES - COGS
- GM / SALES
Q482.
- Firm's average GROSS RECEIVABLE BALANCE = ?
A482.
- average daily sales x average collection period
Q483.
- Transfer amount ( principal ) =
A483.
- INTEREST EARNED / INTEREST RATE
Q484.
- QUICK or ACID-TEST RATIO =
A484.
- (CA INVENTORY) / CL
Q485.
- Cash conversion cycle
A485.
- Payable inventory - receivable - collect
= Inventory conversion period + Receivables conversion
period Payables conversion period
Q486.
- Cash conversion cycle
A486.
- = inventory conversion period (low)
- +Receivable collection period (low)
- - payables deferral period (high - delay)
Q487.
- inventory conversion period
A487.
- average inventory / average cost of sales per day
Q488.
- Receivable collection period
A488.
- Days sales outstanding = average. Res/ average. sales
per day
Q489.
- payables deferral period
A489.
- average payables / average purchases per day
Q490.
- Days sales outstanding DSO (Receivable collection
period)?
A490.
- DSO = (average Receivables/Sales)Days
OR
- Receivable collection period= average Res/ average sales
per day
Q491.
- DSO Days sales outstanding?
- used for
A491.
- 360/ A/R Turnover
or
- average A/R / (credit sale / 360 )
or
- average A/R / average sales per day
- The average # of days required to collect A/R
Q492.
- CCC (in days) = Inventory conversion period +
Receivables conversion period Payables conversion
period
A492.
- "Payables conversion period" (or "Days payables
outstanding") refers to the time "accounts payable" is held
(from inventory delivery until cash disbursal).
- "Inventory conversion period" (or "Days inventory
outstanding") refers to the time inventory is held
(beginning at the same moment as the "payables
conversion period," i.e. the inventory delivery, and ending
with its sale for a receivable).
- "Receivables conversion period" (or "Days sales
outstanding") refers to how long inventory is held (from
the end of the "inventory conversion period," i.e. the sale
of inventory, until cash collection).
Q493.
- Payables conversion period =
A493.
- (average Accounts Payable / [+inventory +COGS])365 =
days holding accounts payable until it's all paid in cash
(i.e. time before inventory growth hits cash)
= average payables / average purchase per day
Q494.
- Inventory conversion period =
- OR Inventory T/Over in Days
A494.
- average Inventory / (COGS /365)
OR
- (average Inventory/COGS)365 = days holding inventory
until it's all sold
- The average # of days required to sell inventory. OR
average days sales in Inventory
Q495.
- Receivables conversion period =
A495.
- average Accounts Rec / (net Sales/ 365)
OR
- 365/ A/R Turnover
= days holding receivables until the last cash collection
Q496.
- Inventory Turnover
- is indicator of __________
- The higher the T/Over ->
- It would assist w/identifying______________
A496.
- COGoodsS / average Inventory
- How quickly inventory is sold is an indicator of Co's
performance.
- The higher the T/Over -> the better the performance
- It would assist w/identifying slow-moving & obsolete
inventory.
- average Inventory = (Beg + End)/2
- End Inventory = Beg + Purchases - GOGS
Q497.
- Receivables Turnover Ratio =
- is indicator of ____________
- Faster T/Over gives credibility to the ______________
- Low T/Over -______________
- High T/Over -______________
A497.
- Net sales / Average net receivables
- Quality of A/R and the success of the firm in collecting
outstanding A/R.
- Faster T/Over gives credibility to the Current and Acid-
Test ratios.
- Low T/Over - Collection problems
- High T/Over - Collections are good
Q498.
- (Days Sales Outstanding) Average Collection Period =
A498.
- 365 / Receivables Turnover Ratio
= average AR /credit sales/ 360
Q499.
- days sales in Inventory
- OR average age of inventory =
A499.
- 360 / inventory turnover,
- Inventory T/over=COGS/ average inventory
= (average inventory / COGS) 360 = average Inventory /
sales cost per day
Q500.
- Residual income RI =
A500.
- Reported net income
- (Desired rate of return x Invested Capital)
Q501.
- return on sale OR NET Profit margin=
- GROSS (profit) margin =
A501.
- net income / sales revenue.
- GROSS (profit) margin = (sales - COGS) / sales
Q502.
- capital turnover
A502.
- sales / Capital
Q503.
- 1.Cost of common stock - Ks?
- 2. Cost of preferred stock ?
- 3.Cost of retained earnings =
A503.
- Dividend / Net Proceeds + G,
- G - is a growth rate
- Net Proceeds = Price x (1-flotation %) - other charges
- 2. Dividend 1 / Market price (1-flotation%) - underpricing
- 3.Dividend 1/ Market Price of the stock +G
Q504.
- Current Ratio
- is indicator of ____________
- Selling Inventory on Account will _________ this ratio
b/se ______________
- The higher - ________
A504.
- CA/CL
- The ability to generate cash to meet short-term
obligations
- Selling Inventory on Account will INCREASE this ratio
b/se A/R > Inventory => CA
- The higher - the better
Q505.
- Safety stock =
A505.
- (max lead time - average lead time) x usage,
- Usage = annual demand / business days
Q506.
- Reoder Purchase point =
A506.
- average lead time x usage + safety stock
Q507.
- Degree of total leverage =
A507.
- = % change in NI / % change in Sales
= DOL x DFL
= Degree of Operating Leverage x Degree of Financial
Leverage
Q508.
- Annual Percentage Rate - APR
A508.
- By law, credit card companies and loan issuers must
show customers the APR
- For example, a credit card company might charge 1% a
month,
- but the APR is 1% x 12 months = 12%.
- APR= Effective periodic rate * # of periods
Q509.
- compound interest
A509.
- FV = Principal (1+i)^n,
- where n = number of periods
- i - PERIODIC RATE - annual rate/ n
Q510.
- DOL = ?
A510.
- (% in EBIT) / (% in SALES)
- High degree of operating
- leverage - firm's profits more sensitive to in SALES
- Operating leverage involves using a large proportion of
fixed costs to variable costs in the operations of the firm.
The higher the degree of operating leverage, the more
volatile the EBIT figure will be relative to a given change in
sales, all other things remaining the same.
Q511.
- DFL=?
A511.
- [% in EPS (or % in NI)] / (% in EBIT)
Q512.
- Effective Interest Rate =
A512.
- Interest / net proceeds,
- net proceeds = principal - Interest- COMPENSATING
balance
Q513.
- To calculate factoring the receivables -
A513.
- 1. annual cost = interest + fees to factor - savings
- 2. annual cost / usable funds
Q514.
- Cost of factoring =
A514.
- (interest charged + monthly fees *12 - $$ saved)/ $$$
received
Q515.
- Discount CF from Depreciation of an asset
A515.
- CF= cost of an asset x MACRS depreciation rate x tax rate
x PV factor of 1
Q516.
- the cost of the bond =
A516.
- interest / $$ received
- After tax cost = interest / $$ received * ( 1-tax rate)
- Or
- [interest payment - tax savings ( interest X tax rate)] / $$
received
Q517.
- The effective annualized % cost of financing =
A517.
- {[(Face value + transaction costs)/ borrowed amount]- 1}
x periods
- (interest + transaction costs) / usable funds periods
Q518.
- What is the calculation for the interest payment on a
bond?
A518.
- Stated rate of interest X Par value
Q519.
- ROI is affected by
A519.
- Profit margin= NI / Sales
- and
- Capital Turnover rate = Sales/ Invested capital
- ROI = NI / average invested Capital
Q520.
- Reorder Purchase point =
- SStock =
A520.
- = average lead time x usage + safety stock (SS)
= (Max - average lead time) x usage
Q521.
- The Effective Annualized % cost of financing =
A521.
- ((Face value + transaction cost) / amount borrowed) - 1) x
periods
Q522.
- A bank charges a rate of 1.5% per month on their credit
card. What Effective Annual Rate (EAR) are they charging
their customers.
A522.
- EAR is equal to (1+ APR/12) to the 12th power minus 1.
(1+.18/12) to 12th power minus 1.
- 19.6% APR is the periodic rate (1.5) times the number of
periods per year (12) or 18%
Q523.
- NPV vs IRR methods
A523.
- NPV - highlights amounts, more conservative, assumes
reinvestment at hurdle rate
- IRR - focuses decision makers on %, more aggressive,
assumes reinvestment at IRR, less reliable.
Q524.
- Pay Back period (present value factor) =
A524.
- net incremental investment/ net annual cash flows
- No consideration of time
Q525.
- When do you accept IRR?
A525.
- when IRR>hurdle (targeted RRR) rate
- Reject when IRR< or = hurdle (targeted) rate
- IRR> RRR when NPV =0
Q526.
- Compute after tax cash flow
A526.
- = Pre-tax cash flow x (1- tax rate)
Q527.
- 4 steps to calculate NPV
A527.
- 1. Compute after tax cash flow= Pre-tax cash flow x (1- tax
rate)
- 2. Add depreciation benefit = Depreciation x tax rate
- 3. Multiply result by appropriate present value of annuity.
- 4 Subtract initial Cash outflow
- (Investment)
Q528.
- Pay back period =
A528.
- Net initial investment / Increase in annual net after - tax
cash flow
- or = Net initial investment / (operating savings + savings
generated by depreciation)
= Net initial investment / [Operating savings x (1-tax rate) +
depreciation exp x tax rate]
- Increase in annual net after - tax cash flow = initial
investment / payback period
Q529.
- When do you accept NPV?
A529.
- Investment should be made if NPV >0.
- If company has unlimited funds- NPV > or =0.
Q530.
- NPV is superior to IRR because
A530.
- it is flexible enough to consistently handle either uneven
cash flows or inconsistent rates of return for each year of
the project.
Q531.
- Accounting rate of return =
A531.
- (annual savings - Depreciation)/ Required investment
Q532.
- Profitability index =
A532.
- (PV of cash flows) / Initial investment
- If Profitability index > 1 --> NPV > 0
- It provides the means to rank capital projects w/ different
amounts of investment
Q533.
- What Does Present Value Interest Factor Of Annuity -
PVIFA Mean?
A533.
- A factor which can be used to calculate the present value
of a series of annuities.
- The initial deposit, earning interest at the periodic rate (r),
perfectly finances a series of (N) consecutive dollar
withdrawals.
- PVIFA is also a variable used when calculating the
present value of an ordinary annuity (is an annuity whose
payments are made at the end of each period).
- PVIFA = [- (1 + r)^-N]/r
Q534.
- What Does Present Value Interest Factor - PVIF Mean?
A534.
- Using the PVIF works best when you are attempting to
discount one value in the future.
Q535.
- What Does Internal Rate Of Return - IRR Mean?
A535.
- The discount rate often used in capital budgeting that
makes the net present value of all cash flows from a
particular project equal to zero.
- => PV factor x cash inflows = cash investment, solve for
PV factor
Q536.
- Popular methods of capital budgeting include
A536.
- net present value (NPV), internal rate of return (IRR),
discounted cash flow (DCF) and payback period.
Q537.
- accounting rate of return (ARR)
A537.
- = (Net Cash flow - Depreciation) / investment
- - Does not consider the time value of money, It focuses
on income and not CFlow
- Definition 1: Straight-line' method of estimating average
returns from an investment, it uses accrual based financial
statements instead of compounded or discounted cash
flows. Also called book value method, financial statement
method, or simple rate of return.
- Definition 2: Ratio that expresses the earnings before
interest and taxes (EBIT) as a percentage of the capital
employed at the end of an accounting period.
Q538.
- Return on investment ROI ?
A538.
- Income / Invested Capital
- OR
- Return on Sales (Profit Margin) x Capital Turnover
= Net income/Sales x Sales / Invested capital
- Disadvantage - may lead to rejecting projects that yield
positive cash flows.
Q539.
- Net Present Value =
A539.
- = the PV of an investment's future net cash flows minus
the initial investment.
- If positive, the investment should be made (unless an
even better investment exists), otherwise it should not.
- the method that recognizes the time value of money by
discounting the after- tax cash flows over the life of a
project, given the company's minimum desired rate of
return.
Q540.
- The payback period serves as a fair approximation of ?
A540.
- of the annuity factor value used in estimating the IRR
Q541.
- ROI return on investment =
- Disadvantage -
A541.
- net income/ Invested capital
OR
- profit margin (return on Sale) x investment Turnover
- Disadvantage - may lead to rejecting projects that yield
positive cash flows.
Q542.
- NPV =
A542.
- CF- investment
Q543.
- Probability formula
A543.
- 1) find Change in Market Value
- 2) Probability factor X Change in value = Cost of
investment
Q544.
- The method that recognizes the time value of money by
discounting the after-tax cash flows over life of a project,
given the company's minimum rate of return is
A544.
- NET PRESENT VALUE METHOD
Q545.
- The discounted payback period id the length of the time
required
A545.
- for discounted cash flows to recover the cost of the
investment.
- Investment = PVF year1 x CF year1 + PVF year2 x CF
year2...
Q546.
- If the discount rate is increased, the PV of the future cash
flows will ________
A546.
- decrease
Q547.
- The profitability index is also known as
A547.
- the excess present value index.
- it is a variation of NPV
Q548.
- Short-term interest rates are generally ______ than long-
term rates
A548.
- LOWER
Q549.
- The payback method doesn't take into account
__________
A549.
- the life of the asset, its salvage value or depreciation.
Q550.
- Profitability index =
- NPV =
- PROJECT Profitability index =
A550.
- PV of CF / Investment
- PV of CF - Investment
- NPV/ Investment
Q551.
- As Interest Rate get higher, the PV FACTOR for the same
number of periods becomes ___________
A551.
- smaller.
- Smaller FVFactor - HIGHER % RATE
Q552.
- The DISCOUNTED PAYBACK PERIOD is the length of
time required for discounted cash flows to recover the cost
of the investment. If the DCB is 3 years than INVESTMENT
=
A552.
- RV of CF YEAR 1 + PV of CF YEAR 2 + PV of CF YEAR 3
Q553.
- A program that converts a source program into
instruction codes that the central processing unit can
execute is called
A553.
- A language processor
Q554.
- Central element of Management Information System MIS
is
A554.
- Processing of data items is based on decision models.
Q555.
- One reason to use RAID - array of inexpensive disks - is
to ensure that
A555.
- if one drive fail, all data can still be reconstructed
Q556.
- Critical software application programs should be stored
on the server in
A556.
- Object code
Q557.
- ____________ provides instructions to perform a task or
job. It would tell the operating system how to schedule,
allocate resources and retrieve data.
A557.
- Job control language
Q558.
- A program that converts PROCEDURE-ORIENTED
language to machine language is
A558.
- A compiler
Q559.
- A distributed/decentralized processing environment
works best when
A559.
- significant volumes of data are generated at many remote
locations and the user requires immediate access to the
data.
Q560.
- Specialized programs that perform routine and repetitive
functions are called
A560.
- Service programs
Q561.
- Cyclical fluctuations, random variations, seasonal
variations and secular trend are all components of
A561.
- time series analysis
Q562.
- ID of users who have permission to access data elements
in database is found in the
A562.
- database schema
Q563.
- Which method would provide the best data security for a
firm that uses a wide area network WAN?
A563.
- End-to-end encryption
Q564.
- implementing locking procedure could lead to
A564.
- Deadly embraces.
- Data locking ensures consistent processing
Q565.
- Exponential smoothing is a statistical method that is
useful as a sales forecasting technique.
- Exponential smoothing weights current data heavier than
A565.
- older data
- It is used to smooth forecast variation.
Q566.
- ___________ usually involves two or more computers
functioning simultaneously and allows the sharing of a
central memory during processing
A566.
- Multiprocessing
Q567.
- ___________ allows multiple programs to be executed at
exactly the same time
A567.
- Multiprogramming
Q568.
- In the systems development cycle, coding is part of the
A568.
- detailed design phase
Q569.
- The system development cycle consists of (5)
A569.
- analysis
- conceptual design
- detailed design
- implementation
- operation
Q570.
- Which characteristic distinguishes electronic data
interchange (EDI) from other forms of electronic
commerce?
A570.
- EDI transactions are formatted using STANDARDS that
are uniform worldwide
Q571.
- Online access controls include :
A571.
- authorized user code numbers
- passwords
- list of all files and programs and a record of the type of
access each user is entitled to have for each file and
program
Q572.
- A computer system flowchart provides the overall view of
the inputs, processes and outputs of __________
A572.
- an information system.
Q573.
- When evaluating internal control of an entity that
processes sales transactions on the internet, an auditor
would most concern about the:
A573.
- potential for computer disruption in recording sales
Q574.
- One of the risks in distributed system is
A574.
- database INTEGRITY (unity, wholeness ) might not be
preserved during a network or computer failure
Q575.
- Who is responsible for authorizing transactions and for
correcting errors?
A575.
- Users
Q576.
- Who is responsible for preventing unauthourized physical
and logical access to the system?
A576.
- Security management
Q577.
- Routines that utilize the computer to check the validity
and accuracy of TRANSACTION data during input are
called
A577.
- edit programs
- they reject those transactions whose data do not meet
preestablished standards of data quality
Q578.
- The computer operating system performs scheduling,
resource allocation and date retrieval functions based on a
set of instructions provided by the
A578.
- JOB CONTROL LANGUAGE
Q579.
- Librarian and production control are most likely to be
included w/in
A579.
- the Operation area of the system department
Q580.
- A decision table indicates the
A580.
- Alternative logic conditions and actions to be taken in a
program
Q581.
- Operating documentation includes
A581.
- equipment configuration, program and data files, and
description of conditions that may require program
interruption.
Q582.
- Intranets ( private networks) are characterized by
A582.
- higher security risk and lower costs
Q583.
- Managing the IS function includes
A583.
- charging user departments for computer services, project
development planning and responsibility accounting
principles
Q584.
- Validity check use when
A584.
- the data is misspelled of transposed
- has typing errors
Q585.
- Optical character recognition OCR software
A585.
- converts images of paper documents as read by scanning
device into text computer files
Q586.
- Shareware is
A586.
- a program that can be freely copied and tested before
purchase.
- It does NOT transfer data
Q587.
- Linked list is a file structure that
A587.
- has a field that has the address of the next record
Q588.
- Components of the data processing cycle?
A588.
- Collection
- refinement (classifying and/or batching)
- processing
- maintenance (calculation and storage)
- output
Q589.
- Authorization controls are implemented using
COMPATIBILITY TESTS and ACCESS CONTROL
MATRICES
A589.
- COMPATIBILITY TESTS - determine if the user is
authorized to perform the desired action.
- ACCESS CONTROL MATRICES
- 1) is a list of authorized user ID and passwords and
- 2) a list of all files, data and programs and the access
each user has to them
Q590.
- The implementation phase of an acct. software
application would include :
A590.
- obtaining and installing hardware, documenting user
procedures, training users, and entering test data.
Q591.
- A DBMS (database management system) are complex
software package which permits users to
A591.
- access information From data base.
- DBMS provides for access and identification security,
concurrent use of data and backup and recovery.
- It DOES NOT run application programs.
Q592.
- The TRANSFORMATION component of IS has which of
three subsystems?
A592.
- Storage, arithmetic-logic, control subsystem.
Q593.
- If a database has integrity,
A593.
- this means that the database has only CONSISTENT data.
Q594.
- The purpose of a cycle processing control is to mitigate
the risk of :
A594.
- missing or improper transactions
Q595.
- REMOTE BACH processing avoids the need of having
A595.
- a CPU at each user location
Q596.
- Systems analysis is assigned to
A596.
- SYSTEM ANALYST- who helps users to analyze their info
and design IS
Q597.
- Computer operations are assigned to
A597.
- Computer OPERATORS.
- Programmers should never have access to computer
operations
Q598.
- Operating systems and compilers assigned to
A598.
- SYSTEM PROGRAMMERS, who use the design developed
by the analysts to develop an IS and write the computer
programs.
Q599.
- 5 components of an IT system are:
A599.
- people
- procedures
- data
- software
- IT infrastructure
Q600.
- Help desks are usually a responsibility of ____________
A600.
- computer operations
Q601.
- How makes sure that :
- a log is kept of all inputs, data processing operation,
stored data, and system output
- source data have been properly approved
- transactions are processed correctly
- inputs and outputs are reconciled
- records of input errors are maintained
- data-related errors are sent to the users who originated
the transaction fro correction
- there is adequate rotation of operator duties
A601.
- CONTROL GROUP
Q602.
- ____________ authorize and record transactions, use
system output and are responsible for CORRECTING
ERRORS.
A602.
- USERS
Q603.
- An IS's _________ is a committee that establish overall
policy and directions for an organizations IS.
A603.
- STEERING COMMITTEE
Q604.
- Initiating input/output operations, allocating memory and
responding to interrupts is a functions of
- ______________
- 2. Translating source code to object code is a functions
of _________
- 3. Creating load module libraries is a functions of
_________
- 4. Mapping virtual views onto base tables is a functions of
_________
A604.
- 1. OPERATING SYSTEM
- 2. COMPILERS AND INTERPRETERS
- 3 LINKAGE EDITOR
- 4 DATABASE MANAGEMENT SYSTEM
Q605.
- Knowledge-based systems use symbolic processing
based on ___________ - rules-of-thumb.
A605.
- HEURISTICS
Q606.
- A computer system that allows management to make
unstructured decisions concerning company future
is___________
A606.
- A STRATEGIC INFORMATION SYSTEM
Q607.
- _____________ connects dissimilar networks
- _____________ connects network segments
A607.
- GATEWAY
- BRIDGE
Q608.
- A program that converts a source program into
instruction codes that CPU can execute is called
A608.
- LANGUAGE PROCESSOR
Q609.
- Sales Volume variance =
A609.
- (Actual units sold - Budgeted sales units) x Standard
contribution per unit
- Like Q variance : AQ x SP - SQ x SP
Q610.
- Prime costs are ________ costs
A610.
- variable
Q611.
- Sale in UNITS =
A611.
- sale / sale per unit
Q612.
- Summary:
- What are the six main formulas for calculating
breakeven?
A612.
- CM = SRev - Var Costs
- CMU = SPU - VCU
- BPU = TFC/CMU
- BPD = TFC/CMR
- CMR = CM/SRev
- BP w/Targeted Profit = TFC/CMU or CMR
Q613.
- Calculate Equivalent units W-average and FIFO
A613.
- Units completed ___________ XXX
- Ending WIP % x completed + XXX
- Weighted-average Equivalent units =XXX
- Beginning WIP % x completed - XXX
- FIFO Equivalent units ________=XXX
Q614.
- PRICE VARIANCE?
A614.
- (1) AQ X AP ____(2)AQ x SP_____ (3) SQ x SP
- PRICE VARIANCE = (1) (2)
- Materials purchase price variance
- Labor rate variances
- Variable OH spending variance
Q615.
- QUANTITY VARIANCE?
A615.
- QUANTITY VARIANCE = (2) (3)
- Materials quantity variance
- Labor efficiency variances
- Variable OH efficiency variance
- (1) AQ X AP ____(2)AQ x SP_____ (3) SQ x SP
Q616.
- To calculate the difference in NI using Variable costing VS
Absorption costing:
A616.
- If level of Production if > than level of sale -> NI under
Variable costing is < than under Absorption costing.
To calculate
- 1) Difference in units = Production sale units.
- 2) Difference in NI = (1) X Fixed cost / production units.
- Variable costing = DL + DM + Variable OH.
Q617.
- Formation of General Partnership
A617.
- No formalities.
- Can be formed by verbal or written agreement, or mere
conduct.
Q618.
- Liability of Owners of a General Partnership
A618.
- Unlimited personal liability for all partnership obligations.
Q619.
- Management of General Partnership
A619.
- Owners can manage directly or can agree to appoint a
managing partner.
Q620.
- Transferability of a General Partnership
A620.
- Partnership cannot transfer ownership interest without
unanimous consent.
Q621.
- Taxation of a General Partnership
A621.
- "flow through" taxation.
Q622.
- Formation of a Limited Partnership
A622.
- Formalities:
- File Certificate of Limited Partnership with state.
Q623.
- Liability of owners of a Limited Partnership
A623.
- General Partner: unlimited personal liability
- Limited Partner: Only investment is at risk.
Q624.
- Management of Limited Partnership
A624.
- General Partner(s) is(are) exclusive manager(s)
- Limited Partners cannot manage.
Q625.
- Transferability of Limited Partnership
A625.
- Partners cannot transfer ownership without unanimous
consent.
Q626.
- Taxation of Limited Partnership
A626.
- "flow through" taxation, but limited partners have passive
loss restrictions.
Q627.
- Formation of a Corporation
A627.
- Formalities:
- File Articles of Incorporation or Corporate Charter with
state
Q628.
- Liability of owners of a Corporation
A628.
- Shareholders generally not personally liable beyond their
investment.
Q629.
- Management of a Corporation
A629.
- Managed by Board of Directors, who appoint officers to
run day-to-day operations.
Q630.
- Transferability of Corporation
A630.
- Shareholders are free to transfer ownership interest
unless they agree otherwise.
Q631.
- Taxation of corporation
A631.
- Income taxed at corporate level and taxed again to
shareholders when dividends are distributed.
Q632.
- Formation of S Corp
A632.
- Formalities:
- File Articles of Incorporation or Corporate Charter with
state.
- File 'S' election
Q633.
- Liability of owners of S Corp
A633.
- shareholders generally not personally liable beyond their
investment
Q634.
- Management of S Corp
A634.
- Managed by Board of Directors, who appoint officers to
run day-to-day operations.
Q635.
- Transferability of S Corp
A635.
- Shareholders may transfer ownership unless they agree
otherwise, but can't transfer to foreign or entity
shareholders
Q636.
- Taxation of S Corp
A636.
- "Flow through" taxation but shareholders NOT managing
have passive loss restrictions.
Q637.
- Formation of LLC
A637.
- Formalities:
- File Articles of Organization with state
Q638.
- Liability of owners of LLC
A638.
- Members generally not personally liable beyond their
investment
Q639.
- Management of LLC
A639.
- Members manage directly or can agree to appoint a
manager
Q640.
- Transferability of LLC
A640.
- Absent agreement otherwise, members cannot transfer
ownership without unanimous consent.
Q641.
- Taxation of LLC
A641.
- "Flow through" taxation but members not managing have
passive loss restrictions.
Q642.
- Formation of LLP
A642.
- Formalities:
- File Statement of Qualification with state
Q643.
- Liability of owners of LLP
A643.
- Partners are generally not liable for partnership
obligations unless caused by their own negligence.
Q644.
- Management of LLP
A644.
- Partners manage directly or can agree to appoint a
managing partner
Q645.
- Transferability
A645.
- Partners cannot transfer ownership interest without
unanimous consent.
Q646.
- Taxation of LLP
A646.
- "Flow through" taxation but partners not managing have
passive loss restrictions.
Q647.
- Formation of Sole Prop
A647.
- Nothing need be filed.
Q648.
- Liability of owner of Sole Prop
A648.
- Personally liable for ALL obligations of the business.
Q649.
- Life of Sole Prop
A649.
- Limited.
Q650.
- Tax treatment of Sole Prop
A650.
- Flow through
Q651.
- Transferability of Sole Prop
A651.
- free to transfer interest at will
Q652.
- Macroeconomics
A652.
- Study of they economy as a whole
Q653.
- Microeconomics
A653.
- Study of consumers, producers, and suppliers operating
in a narrowly defined market.
Q654.
- GDP
A654.
- The total market value of all final goods and services
produced within the borders of a nation in a particular time
period.
Q655.
- Nominal GDP
A655.
- Measures the value of all final goods and services in
current prices - no inflation adjustment.
Q656.
- Real GDP
A656.
- Adjusted to account for changes in the price level (it
removes the effects of inflation using a price index)
Q657.
- Price Index/GDP Deflator
- (Equation for Real GDP)
A657.
- Nominal GDP/GDP Deflator X 100
Q658.
- Expansionary Phase
A658.
- Rising economic activity (real GDP) and growth.
Q659.
- Peak
A659.
- A high point of economic activity.
Q660.
- Contractionary Phase
A660.
- Falling economic activity and growth and follows a peak.
Q661.
- Trough
A661.
- A low point of economic activity.
Q662.
- Recovery Phase
A662.
- Follows a trough.
- Economic activity begins to increase and return to its
long-term growth trend.
- AKA - expansionary phase
Q663.
- Recession
A663.
- Two consecutive quarters of falling national output.
Q664.
- Depression
A664.
- A very severe recession.
Q665.
- What are three economic indicators?
A665.
- 1. leading indicators
- 2. lagging indicators
- 3. coincident indicators
Q666.
- Leading Indicators
A666.
- Tend to predict economic activity...
- average new unemployment claims, building permits for
residences, average length of the workweek, money
supply, prices of selected stocks, orders for goods, price
changes of materials, index of consumer expectations.
Q667.
- Lagging Indicators
A667.
- Tend to follow economic activity...
- Prime rate charged by banks, average duration of
unemployment, bank loans outstanding.
Q668.
- Coincident Indicators
A668.
- Tend to occur coincident to economic activity...
- Industrial production, manufacturing and trade sales.
Q669.
- Business cycles result from...
A669.
- shifts in aggregate demand and/or aggregate supply.
Q670.
- What is the effect of a REDUCTION in demand on GDP
and Prices?
A670.
- AD curve shifts left.
- AD decreases.
- GDP decreases.
- Price decreases.
Q671.
- What is the effect of an INCREASE in demand on GDP
and Prices?
A671.
- AD curve shifts right.
- AD increases.
- GDP increases.
- Price increases.
Q672.
- What is the effect of a REDUCTION of supply on GDP and
Prices?
A672.
- SRAS shifts left (decreases)
- GDP decreases.
- Price increases.
Q673.
- What is the effect of an INCREASE of supply on GDP and
Prices?
A673.
- SRAS shifts right (increase)
- GDP increases.
- Price decreases.
Q674.
- What are SIX factors that shift aggregate demand?
A674.
- 1. Changes in Wealth
- 2. Changes in real interest rates
- 3. changes in consumer confidence
- 4. Changes in exchange rates
- 5. Changes in govt. spending
- 6. Changes in consumer taxes.
Q675.
- Multiplier effect
A675.
- An increase in consumer, firm, or government spending,
produces a multiplied increase in the level of economic
activity.
Q676.
- Formula for the Multiplier Effect
A676.
- 1 / (1-MPC) x Change in Spending
- MPC-Marginal Propensity to Consume
- MPS-Marginal Propensity to Save
- MPS= 1 - MPC
Q677.
- What are TWO factors that shift short-run aggregate
supply?
A677.
- 1. Changes in input (resource) prices
- 2. Supply Shocks
Q678.
- Four most commonly cited economic measures.
A678.
- 1. real GDP
- 2. unemployment rate
- 3. inflation rate
- 4. interest rates
Q679.
- Two methods of measuring/calculating GDP.
A679.
- 1. Expenditure Approach
- 2. Income Approach
Q680.
- Under the expenditure approach, GDP is the sum of what
four components?
- "GICE"
A680.
- Government purchases
- Investment
- Consumption (personal)
- net Exports (exports minus imports)
Q681.
- Under the income approach, GDP is the sum of what eight
components?
- "I PIRATED"
A681.
- Income of proprietors
- Profits of corporations
- Interest (net)
- Rental income
- Adjustments for net foreign income
- Taxes (indirect business taxes)
- Employee wages
- Depreciation
Q682.
- Gross National Product
A682.
- The market value of final goods and services produced by
RESIDENTS of a country in a given time period.
Q683.
- Unemployment Rate
A683.
- Measures the ratio of the number of people classified as
unemployed to the total labor force.
Q684.
- Total labor force.
A684.
- Includes all non-institutionalized individuals 16 years of
age or older who are either working or actively looking for
work.
Q685.
- Formula for unemployment rate.
A685.
- #unemployed/total labor force x 100
Q686.
- Four types of unemployment.
A686.
- 1. frictional
- 2. structural
- 3. seasonal
- 4. cyclical
Q687.
- Frictional unemployment
A687.
- Normal unemployment resulting from workers routinely
changing jobs or from workers being temporarily laid off.
Q688.
- Structural Unemployment
A688.
- Jobs available in the market do not correspond to the
skills of the work force AND unemployed workers do not
live where the jobs are located.
Q689.
- Seasonal Unemployment
A689.
- The result of seasonal changes in demand and supply of
labor.
Q690.
A690.
- The amount of unemployment resulting from declines in
read GDP during periods of contraction or recession or in
any period when the economy fails to operate at its
potential.
Q691.
- Natural rate of unemployment
A691.
- The normal rate of unemployment.
- Sum of frictional, structural, and seasonal unemployment.
Q692.
- Full employment
A692.
- Level of unemployment when there is no cyclical
unemployment. Does not mean zero unemployment.
Q693.
- Relationship between unemployment and output/real
GDP.
A693.
- Move in opposite directions.
Q694.
- Inflation.
A694.
- A sustained increase in the general prices of goods and
services.
- It occurs when prices on average are increasing over
time.
Q695.
- Deflation
A695.
- A sustained decrease in the general prices of goods and
services.
- It occurs when prices on average are falling over time.
Bigger problem than inflation.
Q696.
- Inflation/Deflation Rate is measure as...
A696.
- % change in Consumer Price Index
Q697.
- Consumer Price Index
A697.
- A measure of the overall cost of a fixed basket of goods
and services purchased by an average household.
Q698.
- Formula for Inflation Rate
- (change in CPI)
A698.
- (CPI this period - CPI last period)
- Divided by CPI last period
- Multiply by 100
Q699.
- Inflation and Deflation are caused by...
A699.
- ...shifts in the aggregate demand and short-run aggregate
supply curves.
Q700.
- Demand-Pull Inflation
A700.
- Caused by increases in aggregate demand.
Q701.
- Cost-Push Inflation
A701.
- Caused be reductions in short-run aggregate supply.
Q702.
- Relationship of Inflation and Purchasing Power
A702.
- Inverse relationship.
Q703.
- During a period of inflation, holding monetary assets...
A703.
- will hurt those with a fixed amount of money or income.
Q704.
- During a period of inflation, holding monetary liabilities...
A704.
- will aid those with a fixed amount of debt.
Q705.
- Nominal interest rate
A705.
- The amount of interest paid or earned measured in
current dollars.
Q706.
- Real interest rate
A706.
- the nominal interest rate minus the inflation rate.
Q707.
- Money
A707.
- Set of liquid assets that are generally accepted in
exchange for goods and services.
Q708.
- Money Supply
A708.
- The stock of all liquid assets available for transactions in
the economy at any given point in time.
Q709.
- M1
A709.
- Money that is used for purchases of goods and services.
Typically does NOT include savings accounts or CDs.
Q710.
- M2
A710.
- M1 plus liquid assets that cannot be used as a medium of
exchange but that can be converted easily into checkable
deposits or other components of M1.
Q711.
- M3
A711.
- M2 plus time CDs in excess of $100,000.
Q712.
- Monetary Policy
A712.
- The use of the money supply to stabilize the economy.
Q713.
- Three ways the Fed controls the money supply.
A713.
- 1. Open Market Operations (OMO)
- 2. Changes in the Discount Rate
- 3. Changes in the Required Reserve Rate (RRR)
Q714.
- Open Market Operations
A714.
- Purchase and sale of government securities in the open
market.
Q715.
- Changes in the Discount Rate
A715.
- The interest rate the Fed charges member banks for
short-term (normally overnight) loans.
Q716.
- Changes in the Required Reserve Ratio
A716.
- Fraction of total deposits banks must hold in reserve.
Q717.
- Eight Steps in Strategic Management
A717.
- 1. Define the firm's vision and mission statements
- 2. Set the goals of the firm
- 3. Define the objectives of the firm
- 4. Decide what to measure and take a baseline
measurement
- 5. Strategic analysis (SWOT)
- 6. Create the strategic plan
- 7. Implement the strategic plan
- 8. Evaluate and revise the plan as necessary
Q718.
- Two broad and distinct paths for achieving organization
goals
A718.
- 1. cost leadership
- 2. differentiation
Q719.
- Financial objectives
A719.
- The improvement of the overall financial outcomes of a
firm's strategy.
Q720.
- Non-financial objectives
A720.
- The improvement of the overall ability of the firm to
compete in the market in the long run, which is the ultimate
focus for overall shareholder wealth maximization.
Q721.
- SWOT analysis
A721.
- Strengths (internal)
- Weaknesses (internal)
- Opportunities (external)
- Threats (external)
Q722.
- Change in Quantity Demanded
A722.
- A change in the amount of a good demanded resulting
solely from a change in price - movements along the
demand curve (D).
Q723.
- Change in Demand
A723.
- A change in the amount of a good demanded resulting
from a change in something other than the price of the
good - shift of the demand curve.
Q724.
- Demand Curve
A724.
- The maximum quantity of good consumers is willing and
able to purchase at each and every price, all else equal.
Q725.
- Fundamental Law of Demand
A725.
- Quantity demanded is inversely related to price.
Q726.
- Two reasons quantity demanded is inversely related to
price.
A726.
- 1. substitution effect
- 2. income effect
Q727.
- Substitution Effect
A727.
- Consumers tend to purchase more/less of a good when
its price falls/rises in relation to the price of other goods.
Q728.
- Income Effect
A728.
- As prices are lowered with income remaining constant,
people will purchase more of all of the lower priced
products.
Q729.
- Factors that Shift Demand Curves
- (WRITEN)
A729.
- Changes in Wealth
- Change in the price of Related Goods
- Changes in Consumer Income
- Changes in Consumer Tastes
- Changes in Consumer Expectations
- Changes in the Number of buyers
Q730.
- Fundamental Law of Supply
A730.
- Price and Quantity supplied are positively related.
Q731.
- Supply Curve
A731.
- The maximum quantity of good sellers is willing and able
to produce at each and every price, all else equal.
Q732.
- Quantity supplied
A732.
- Quantity supplied is the amount of a good that producers
are willing and able to produce at each and every price, all
else equal.
Q733.
- Change in Quantity Supplied
A733.
- A change in the amount producers are willing and able to
produce resulting solely from a change in price -
movement along the supply curve.
Q734.
- Change in Supply
A734.
- A change in the amount of a good supplied resulting from
a change in something other than the price of a good - shift
in the supply curve.
Q735.
- Factors that shift supply curves
- (ECOST)
A735.
- Changes in price Expectations of the supplying firm.
- Changes in production Costs
- Changes in the price or demand for Other goods
- Changes in Subsidies or taxes
- Changes in production Technology
Q736.
- Market Equilibrium
A736.
- There are no forces acting to change the current
price/quantity combination. The market's equilibrium price
and output/qty is the point where the supply and demand
curves intersect.
Q737.
- Elasticity
A737.
- A measure of how sensitive the demand for or the supply
of a products is to a change in its price.
Q738.
- Two ways to measure Price Elasticity of Demand
A738.
- 1. Point Method
- 2. Midpoint Method
Q739.
- Point Method
A739.
- %change in qty demanded/%change in price
Q740.
- Midpoint Method
A740.
- [(Q2-Q1) / (Q2+Q1)] Divided By [(P2-P1) / (P2+P1)]
Q741.
- If absolute value of Price Elasticity of demand is < 1.0
A741.
- Inelastic
Q742.
- If absolute value of Price Elasticity of demand is > 1.0
A742.
- Elastic
Q743.
- Four market structures
A743.
- 1. Perfect/Pure Competition
- 2. Monopolistic Competition
- 3. Oligopoly
- 4. Monopoly
Q744.
- Characteristics of Perfect/Pure Competition
A744.
- very competitive
- no individual firm can influence market price
- large number of suppliers and customers acting
independently
- very little product differentiation
- no barriers to entry
- Example: bottled water
Q745.
- Characteristics of a Monopoly
A745.
- least competitive
- strategic plans ignore market share and focus on
profitability
- concentration of supply in the hands of a single firm
- single firm with unique product
- significant barriers to market entry
- firm has ability to set output and prices
- no substitute products
Q746.
- Characteristics of Monopolistic Competition
A746.
- plan for enhanced product differentiation and extensive
allocation of resources to advertising, marketing, product
research, etc.
- many sellers compete to sell a differentiated product in a
market
- numerous firms w/ differentiated products
- few barriers to entry
- exert some influence over price and market
- significant non-price competition in the market (brand
awareness/loyalty)
Q747.
- Characteristics of an Oligopoly
A747.
- few firms with differentiated products
- fairly significant barriers to entry
- strongly independent firms
- prices tend to be fixed
- face a kinked demand curve
Q748.
- Kinked Demand Curve
A748.
- Firm match price cuts of competitors, but ignore price
increases
- different slopes above and below the prevailing price
Q749.
- Five forces that affect the competitive environment
A749.
- 1. Barriers to Entry
- 2. Market competitiveness (intensity)
- 3. Existence of substitute products
- 4. Bargaining power of customers
- 5. Bargaining power of suppliers
Q750.
- Five basic types of competitive strategies
A750.
- 1. Cost leadership focused on a broad range of buyers
- 2. cost leadership focused on a narrow range (niche) of
buyers
- 3. Differentiation focused on a broad range of buyers
- 4. differentiation focused on a narrow range (niche) of
buyers
- 5. Best cost provider (combo)
Q751.
- Transaction Exposure
A751.
- The potential that an organization could suffer economic
loss or experience economic gain upon settlement of
individual transactions as a result of changes in the
exchange rates.
Q752.
- Economic Exposure
A752.
- The potential that the PV of an organization's cash flows
could increase or decrease as a result of changes in the
exchange rates.
Q753.
- Translation Exposure
A753.
- The potential that assets, liabilities, equity, or income of a
consolidated organization that includes foreign
subsidiaries will change as a result of changes in the
exchange rates and defines the effect of exchange rate
fluctuations on financial position and operations.
Q754.
- Futures Hedge
A754.
- Entitles its holder to either purchase or sell a particular
number of currency units of an identified currency for a
negotiated price on a stated date.
Q755.
- Forward Hedge
A755.
- Same as futures hedge, but much larger amounts.
Q756.
- Money market hedge
A756.
- Uses international money markets to plan to meet future
currency requirements.
Q757.
- Transfer Pricing
A757.
- Claim profits in the country with the lowest tax rate.
Q758.
- How to calculate NPV?
A758.
- 1. calc after tax cash flows=annual net cash flow x (1-tax
rate)
- 2. add depr benefit =depr x tax rate
- 3. multiply result by appropriate PV of an annuity
- 4. subtract initial cash outflow
- Result=Net Present Value
Q759.
- How to calculate payback period?
A759.
- net initial investment / increase in annual net after - tax
cash flow
Q760.
- What are the two advantages of the Payback method?
A760.
- 1. easy to use and understand
- 2. emphasis on liquidity
Q761.
- What are the four limitations of the payback method?
A761.
- 1. time value of money is ignored
- 2. projected cash flows after initial investment is required
are not considered
- 3. reinvestment of cash flows is not considered
- 4. total project profitability is neglected.
Q762.
- Describe the Discounted Payback Method.
A762.
- Computes the payback period using expected cash flows
that are discounted by the project's cost of capital (also
referred to as "breakeven time method" or BET)
Q763.
- What are the two advantages of the NPV method?
A763.
- 1. flexible
- 2. can be used when there is no constant rate of return
required for each year of the project
Q764.
- What is the limitation of the NPV method?
A764.
- Does not provide the true rate of return on the
investment.
Q765.
- What are the 5 steps to determine IRR?
A765.
- 1. determine life of asset (#periods)
- 2. calc payback period
- 3. determine which table to use PV of annuity or PV of $1
- 4. find closest factor to payback period using the number
of periods
- 5. interest rate that corresponds is IRR.
Q766.
- What are the three limitations of IRR?
A766.
- 1. unreasonable reinvestment assumption
- 2. inflexible cash flow assumptions
- 3. evaluates alternatives only based on interest rates
Q767.
- What is the profitability index?
A767.
- PV net future CF/PV net initial investment
Q768.
- Formula: Working Capital
A768.
- CA-CL=WC
Q769.
- Current ratio
A769.
- CA/CL
Q770.
- Quick (Acid Test) ratio
A770.
- (Cash + market securities + receivables) divide by CL
Q771.
- What are three motives for holding cash?
A771.
- 1. transaction motive
- 2. speculative motive
- 3. precautionary motive
Q772.
- What are three disadvantages of high cash levels?
A772.
- 1. negative arbitrage effect
- 2. increased attractiveness as a takeover target
- 3. investor dissatisfaction w/ allocation of assets
Q773.
- What is the formula for the annual cost/APR of a quick
payment discount?
A773.
- [360 / (pay period - discount period)] (discount / 100
discount)
Q774.
- What are two ways to expedite deposits?
A774.
- 1. EFT
- 2. Lock box systems
Q775.
- What are four methods to delay payments?
A775.
- 1. defer payments
- 2. drafts (checks)
- 3. line of credit
- 4. zero balance accounts
Q776.
- What is the cash conversion cycle formula?
A776.
- inventory conversion period (low)
- + receivables collection period (low)
- - payables deferral period (high)
Q777.
- What is the formula for the inventory conversion period?
A777.
- Average inventory/average cost of sales per day
Q778.
- What is the formula for the receivables collection period?
Days sales outstanding (DSO)
A778.
- average receivables/average sales per day
Q779.
- What is the formula for the payables deferral period?
A779.
- average payables/average purchases per day
Q780.
- What is the computation of the annual cost of factoring
A/R?
A780.
- 1. AR * fee%
- 2. AR-withheld * interest
- 3. subtotal: cost to company
- 4. subtract collections expense saved
- 5. subtotal: net cost
- 6. net cost/amt subject to interest
- =APR
Q781.
- What is the formula for # days receivables outstanding?
(average collection period)
A781.
- ending AR/Average daily sales
Q782.
- What are the four carrying costs of inventory?
A782.
- 1. storage costs
- 2. insurance costs
- 3. opportunity costs of inventory investment
- 4. lost inventory due to obsolescence or spoilage
Q783.
- What is the formula for the Re-order point?
A783.
- safety stock + [lead time #units sold per day / week]
Q784.
- What is the formula for inventory turnover?
- For average days sales in inventory?
A784.
- COGS / Average inventory balance
- 365 / inventory turnover
- OR EI / COGS365
Q785.
- The Economic Order Quantity model assumes what 5
carrying costs?
- (SOMII)
A785.
- S- Storage
- O- Obsolescence
- M- Materials
- I- Insurance
- I- Interest
Q786.
- What is the formula for the EOQ Equation?
A786.
- E = square root of 2SO/C
- E: Order size (EOQ)
- S: Annual Sales (units)
- O: cost per purchase order
- C: carrying cost per unit
Q787.
- What is the formula for Accounting Rate of Return (ARR)?
A787.
- increase in expected average annual NI
- divided by:
- Net initial investment
Q788.
- What are the three Risk Preferences?
A788.
- 1. Risk-Indifferent
- 2. Risk-Averse
- 3. Risk-Seeking
Q789.
- What is the definition of Risk-Indifferent?
A789.
- An attitude toward risk where an increase in the level of
risk would not result in an increase in managements
required rate of return.
Q790.
- What is the definition of Risk-Averse?
A790.
risk would result in an increase in managements required
rate of return.
Q791.
- What is the definition of Risk-Seeking?
A791.
risk would result in a decrease in managements required
rate of return.
Q792.
- What is diversifiable risk?
A792.
- Unsystematic, firm-specific (strikes, lawsuits, regulatory
actions, loss of a key account)
Q793.
- What is Nondiversifiable risk?
A793.
- Systematic, (war, inflation, int'l incidents, political events)
Q794.
- Which risk preference?
- Certainty equivalent < expected value
A794.
- Risk averse
Q795.
- Certainty equivalent = expected value
A795.
- Risk indifferent
Q796.
- certainty equivalent > expected value
A796.
- Risk seeking
Q797.
- Interest Rate Risk
A797.
- fluctuations in the value of the instrument in response to
changes in interest rates
Q798.
- Market Risk?
A798.
- the exposure of a security or firm to fluctuations in value
as a result of operating w/in an economy.
Q799.
- Credit Risk?
A799.
- exposure to credit risk includes a company's inability to
secure financing or secure unfavorable credit terms as a
result of poor credit ratings
Q800.
- Default Risk?
A800.
- it is possible that its debtors may not repay the principle
or interest due on their indebtedness.
Q801.
- What is the stated interest rate?
A801.
- The rate shown in the agreement of indebtedness.
Q802.
- What is the effective interest rate?
A802.
- The actual finance charge associated with a borrowing
after reducing loan proceeds for charges and fees related
to a loan origination.
Q803.
- How do you compute the effective interest rate?
A803.
- Interest Paid Divided by net proceeds
= effective interest rate
Q804.
- How do you compute APR?
A804.
- Effective interest rate X periods in a year
=APR
Q805.
- What is the formula for Effective APR?
A805.
- I = stated interest rate
- p = compounding periods per year
- (1+(i/p))^p - 1
Q806.
- What is operating leverage?
A806.
- The degree to which a firm uses fixed operating costs.
Q807.
- What is the formula for a firm's degree of operating
leverage (DOL)?
A807.
- % change in EBIT/%change in sales
Q808.
- The higher the operating leverage...
A808.
- implies that a relatively small change in sales (increase or
decrease) will have a greater effect on profits and
shareholder value.
- the greater its profitability (and risk!)
Q809.
- What is financial leverage?
A809.
- The degree to which a firm uses fixed financial costs.
Q810.
- What is the formula for a firm's degree of financial
leverage (DFL)?
A810.
- %change in EPS/%change in EBIT
Q811.
- The higher the financial leverage...
A811.
- implies that a relatively small change in EBIT (increase or
decrease) will have greater effects on profits and
shareholder value.
- the greater its profitability (and risk!)
Q812.
- What is the formula for combined leverage (DCL)?
A812.
- %change in EPS/%change in sales
OR
- DOL DFL
Q813.
- What is the theoretical optimal capital structure?
A813.
- A mix of financing instruments that produces the lowest
WACC.
Q814.
- How do you compute the weighted average interest rate?
A814.
- Effective annual interest payments/debt cash available
Q815.
- How do you compute WACC?
A815.
- (cost of equity %equity in capital structure) + (WA cost
of debt %debt in capital structure)
Q816.
- What is the relevant cost of long-term debt?
A816.
- kdx: the after tax cost of raising long-term funds thru
borrowing.
Q817.
- What are the Net Proceeds?
A817.
- Nd: funds actually received by the firm from the sale of
bonds (gross-flotation costs)
Q818.
- What is the Pre-tax cost of debt?
A818.
- kdt: the cost of debt before considering the tax shielding
effects of the debt
= market rate
= yield to maturity
Q819.
- What is the formula for the Pre-tax cost of debt (kdt)?
A819.
- PV = par value
- I = annual interest pymts $$$
- Nd = net proceeds
- n = number of years to maturity
- I + (PV - Nd) / n divided by (Nd + PV) / 2
Q820.
- What is the formula for the after-tax cost of debt (kdx)?
A820.
- KDT(1 - tax rate)
Q821.
- What is the abbreviation of cost of preferred stock?
A821.
- kps
Q822.
- Abbreviation of Net proceeds of preferred stock?
A822.
- Nps
Q823.
- Abbreviation of Preferred stock cash dividends?
A823.
- Dps
Q824.
- What is the formula for the cost of preferred stock (kps)?
A824.
- Dps / Nps
Q825.
- What is the abbreviation for cost of retained earnings?
A825.
- kre
Q826.
- What are the three common methods of computing kre?
A826.
- 1. Capital Asset Pricing Model (CAPM)
- 2. Discounted Cash Flow (DCF)
- 3. Bond Yield plus Risk Premium (BYRP)
Q827.
- What are the four key assumptions of the CAPM?
A827.
- 1. cost of RE = risk free rate plus a risk premium
- 2. risk premium = risks associated with the entire market
risk
- 3. risk premium is the product of systematic/non-
diversifiable risk
- 4. arbitrage pricing theory assumes multiple risks s/b
considered as part of capital asset pricing, not simply one
risk.
Q828.
- What is the risk-free rate?
A828.
- krf: US T-bills
Q829.
- What is the formula for the cost of RE using the CAPM?
A829.
- kre = krf + [bi x (km - krf)]
- km = market rate
Q830.
- What is the formula for the cost of RE using the
Discounted Cash Flow (DCF)?
A830.
- kre = (D1/P0) + g
- D1:dividend/share @ end of 1 year
- P0:current price of outstanding CS
- g: constant rate of growth in dividends
Q831.
- What is the formula for the cost of RE using the Bond-
Yield-Plus-Risk-Premium (BYRP)?
A831.
- kre = kdt + PMR
- kdt: pre-tax cost of LT debt
- PMR: mkt risk premium
Q832.
- What are the three advantages of short-term financing?
A832.
- 1. increased liquidity
- 2. increased profitability
- 3. decreased financing cost
Q833.
- What are the two disadvantages of short-term financing?
A833.
- 1. increased interest rate risk
- 2. increased credit risk
Q834.
- What are the two advantages of long-term financing?
A834.
- 1. decreased interest rate risk
- 2. decreased credit risk
Q835.
- What are the three disadvantages of long-term financing?
A835.
- 1. decreased profitability
- 2. decreased liquidity
- 3. increased financing costs
Q836.
- Define: working capital financing.
A836.
- contemplates the spontaneous financing of current
assets with trade accounts payable and accrued liabilities
with the expectation that the maturities of current assets
will coincide with the maturities of current liabilities often
termed maturity matching.
Q837.
- Define: letter of credit.
A837.
- represents a 3rd party guarantee, generally by a bank, of
obligations incurred by a company.
Q838.
- Define: Line of credit.
A838.
- represents a revolving line of credit with a bank that is
generally renewable annually.
Q839.
- Define: debenture.
A839.
- an unsecured obligation of the issuing company.
Q840.
- Define: subordinated debenture.
A840.
- a bond issue that is unsecured and that ranks behind
senior creditors.
Q841.
- Define: income bonds.
A841.
- securities that pay interest only upon achievement of
target income levels.
Q842.
- Define: junk bonds.
A842.
- often unsecured - both high risk and high return.
Q843.
- Define: mortgage bonds.
A843.
- protected from default by a lien on assets of the issuing
company.
Q844.
- What is one formula for ROI?
A844.
- Income/Investment Capital
- (average assets)
- (average PPE + average WC)
Q845.
- What is a second formula for ROI?
A845.
- Profit Margin X Investment turnover
Q846.
- What are two limitations of the ROI?
A846.
- 1. short-term focus
- 2. disincentive to invest
Q847.
- Define: residual income method.
A847.
- Measures the excess of actual income earned by an
investment over the required (target or hurdle) return rate
required by the company.
Q848.
- What is the formula for the required return?
A848.
- NBV (Equity) X Hurdle rate (CAPM)
= required return
Q849.
- What is the formula for residual income?
A849.
- NI - Required Return = residual income
Q850.
- What are the two benefits of the Residual Income
performance measures?
A850.
- 1. Realistic target rates
- 2. focus on target return and amount
Q851.
- What are the two weaknesses of Residual Income
performance measures?
A851.
- 1. Reduced comparability
- 2. target rates require judgment
Q852.
- What is the formula for the debt-to-total-capital ratio?
A852.
- Total Debt / Total Capital
- (total capital = debt + equity)
Q853.
- What is the formula for the Debt to asset ratio?
A853.
- Total debt / total assets
Q854.
- What is the formula for the debt-to-equity ratio?
A854.
- Total debt / total shareholders' equity
Q855.
- What is E-Commerce?
A855.
- The electronic consummation of exchange (buying and
selling) transactions.
Q856.
- What is E-Business?
A856.
- A more general term than e-commerce and refers to any
use of information technology particularly networking and
communications technology to perform business
processes in electronic form.
Q857.
- What is EDI?
A857.
- Electronic Data Interchange: computer to computer
exchange of business transaction documents in structured
formats that allow the direct processing of the data by the
receiving system.
Q858.
- What are the costs of EDI?
A858.
- 1. Legal costs
- 2. Hardware costs
- 4. Costs of data transmission
- 5. Process reengineering and employee training costs for
affected applications
procedures.
Q859.
- Audit trails in EDI systems should include:
A859.
- 1. activity logs of failed transactions
- 2. network and sender/recipient acknowledgments
Q860.
- Compare: Cost of EDI vs. E-Commerce
A860.
- EDI - more expensive
- E-Commerce - less expensive
Q861.
- Compare: security of EDI vs. E-Commerce
A861.
- EDI - more secure
- E-commerce -less secure
Q862.
- Compare: speed of EDI vs. E-Commerce
A862.
- EDI - slower (batch)
- E-commerce - Faster (OLRT)
Q863.
- Compare: network of EDI vs. E-commerce
A863.
- EDI - VAN (private)
- E-commerce - Internet (public)
Q864.
- What is the importance of B2B?
A864.
- 1. speed
- 2. timing
- 3. personalization
- 4. security
- 5. reliability
Q865.
- What are Enterprise Resource Planning Systems? (ERP)
A865.
- A cross-functional enterprise system that integrates and
automates the many business processes that must work
together in the manufacturing, logistics, distribution,
accounting, finance, and HR functions of the business.
- Comprised of a number of modules (Peoplesoft)
Q866.
- What four characteristics is Supply Chain Management
concerned with?
A866.
- 1. what
- 2. when
- 3. where
- 4. how much
Q867.
- What is a Customer Relationship Management System
(CRM)?
A867.
- Provide sales force automation and customer services in
an attempt to manage customer relationships.
Q868.
- What are the objectives of CRM?
A868.
- 1. increase customer satisfaction
- 2. increase revenue/profitability
Q869.
- What is an Electronic Funds Transfer (EFT)?
A869.
- A form of electronic payment for banking and retailing
industries.
Q870.
- What are Application Service Providers (ASP)?
A870.
- Provide access to application programs on a rental basis.
Q871.
- What are the advantages of ASP?
A871.
- 1. lower costs (hw, sw, people)
- 2. greater flexibility
Q872.
- What are the disadvantages of ASP?
A872.
- 1. Possible risks to security and privacy
- 2. Possible poor support by the ASP
Q873.
- What are the five components of Information
Technology?
A873.
- 1. Hardware
- 2. Software
- 3. Data
- 4. Network
- 5. People
Q874.
- What is a Business Information System?
A874.
- A computer system that can accurately record and
summarize business transactions.
Q875.
- What are the five categories of Business Information
Systems?
A875.
- 1. Transaction processing systems
- 2. Knowledge systems
- 3. Management Information Systems
- 4. Decision Support Systems
- 5. Executive Information Systems
Q876.
- What are the three primary roles of Business Information
Systems?
A876.
- 1. Process detailed data
- 2. Assist in making daily decisions
Q877.
- Define hardware.
A877.
- The actual physical computer or computer peripheral
device.
Q878.
- Define software.
A878.
- The systems and programs that process data and turn
that data into information.
Q879.
- Define network.
A879.
- Made up of the communication media that allows multiple
computers to share data and information simultaneously.
Q880.
- Define people.
A880.
- The various job titles and job descriptions associated
with BIS.
Q881.
- Define data.
A881.
- Data is raw facts.
Q882.
- Define production data.
A882.
- Production data is live/real data.
Q883.
- Define test data.
A883.
- Staging/fake data for testing purposes.
Q884.
- Define information.
A884.
- Information is organized and processed data that is
meaningful to somebody.
Q885.
- What are the five functions performed on data?
A885.
- 1. collect
- 2. process
- 3. store
- 4. transform
- 5. distribute
Q886.
- What is an Accounting Information System (AIS)?
A886.
- A type of MIS - also partly a TPS and partly a KS.
Q887.
- What are the objectives of an AIS?
A887.
- 1. record valid transactions
- 2. properly classify those transactions
- 3. record transactions at proper values
- 4. record transactions in proper accounting period
- 5. properly present transactions and related info in the
financial statements.
Q888.
- What are Transaction Processing System (TPS)?
A888.
- The systems that process and record the routine daily
transactions necessary to conduct the business.
Q889.
- What are Decision Support Systems (DSS)?
A889.
- A computer based information system that provides
interactive support for managers during the decision
making process. Sometimes called expert systems.
Q890.
- What are Management Information Systems (MIS)?
A890.
- Provides managerial and other end users with
reports/information.
Q891.
- What are Executive Information Systems (EIS)?
A891.
- Provide senior executives with immediate and easy
access to internal and external information to assist the
executives in monitoring business conditions in general.
- Assist in strategic (long-term), not daily, decision making.
Q892.
- What are the five types of reports?
A892.
- 1. Periodic Scheduled Reports
- 2. Exception Reports
- 3. Demand Reports (pull reports)
- 4. Ad Hoc Reports
- 5. Push Reports
Q893.
- What are Periodic Scheduled Reports?
A893.
- Traditional reports that display information in a
predefined format and are made available on a regular
basis to end users of the system.
Q894.
- What are Exception Reports?
A894.
- Produced when a specific condition or exceptions occurs
- "Red Flag Reports"
Q895.
- What are Demand Reports?
A895.
- Information from MIS available on demand - "Pull
Reports"
Q896.
- What are Ad Hoc Reports?
A896.
- A report that does not currently exist but that can be
created on demand, without having to get a SW developer
or programmer involved.
Q897.
- What is a Query?
A897.
- A specific question made up of various criteria that the
end user can pose to the MIS and extract all transactions
or other info that meet those criteria.
Q898.
- What are Push Reports?
A898.
- Sent to a computer screen or desktop.
Q899.
- What is the central processing unit (CPU)?
A899.
- The control center of the computer system.
Q900.
- What are the two principle components of a CPU?
A900.
- 1. The Processor/chip
- 2. Primary Storage
Q901.
- What is the processor?
A901.
- Interprets program instructions and coordinates input,
output, and storage devices and performs arithmetic
calculations.
Q902.
- What is primary storage?
A902.
- Used to store program instructions and data until the
program instructions can be executed.
Q903.
- What are the two components of primary storage?
A903.
- 1. random access memory (RAM)
- 2. read-only memory (ROM)
Q904.
- What is random access memory?
A904.
- stores data temporarily while it is being processed.
Q905.
- What is read-only memory?
A905.
- Permanently store data needed to power the computer
Q906.
- What are secondary storage devices? Examples?
A906.
- A means to permanently store programs and data.
- Ex: hard drives, CD-ROM, magnetic tapes.
Q907.
- What are peripherals?
A907.
- Devices that transfer data to or from the CPU but that do
not take part in the actual processing of the data.
Q908.
- What are the two components of peripherals?
A908.
- 1. input devices
- 2. output devices
Q909.
- What are input devices? Examples?
A909.
- Supply data to be processed.
- Ex: keyboards, mice, scanners, microphones.
Q910.
- What are output devices? Examples?
A910.
- Transfer data from the processing unit to various output
media.
- Ex: printers, speakers, monitors.
Q911.
- What is system software?
A911.
- Programs that run the computer and support system
management operations.
Q912.
- What is an Operating System?
A912.
- Provides the interface between the user and the
hardware.
- It defines what commands can be issued and how they
are issued.
Q913.
- What is a Database Management System (DBMS)?
A913.
- A separate computer program that allows an organization
to create new database and use and work with the data in
the databases after the databases have been created.
- It also allows for maintenance.
Q914.
- What is a bit?
A914.
- A binary digit (0 or 1) with which all computer data is
stored.
Q915.
- What is a byte?
A915.
- A byte is a group of normally 8 bits that can represent a
letter or number.
- Also called a character.
Q916.
- What is a Field?
A916.
- A group of bytes in which a specific data element such as
an employee number or name is stored - vertical column.
Q917.
- What is a record?
A917.
- A group of fields that represents the data that is being
stored for a particular entity such as customer or an
account receivable - horizontal row.
Q918.
- What is a file?
A918.
- A collection of related records often arranged in some
kind of sequence, such as a customer file made up of
customer records and organized by customer number.
Q919.
- What is a database?
A919.
- An integrated collection of data records and data files.
- It is comprised of nothing more than stored data.
Q920.
- What is database development?
A920.
- Procedure where a DBA uses the DBMS to create a new,
empty database.
Q921.
- What is a database query?
A921.
- The process where end users can retrieve specific data or
info from the database by running a query.
Q922.
- What are the two components of database maintenance?
A922.
- 1. Effectiveness-function properly
- 2. Efficiency-working fast enough
Q923.
- What are the five types of databases?
A923.
- 1. operational databases
- 2. analytical databases
- 3. data warehouses
- 4. distributed databases
- 5. end-user databases
Q924.
- What is a data warehouse?
A924.
- Stores data from current and previous years often from
both operational and management databases - data mart.
Q925.
- What are the advantages of a DBMS?
A925.
- 1. reduction of data redundancy and inconsistency
- 2. potential for data sharing
- 3. data independence
- 4. data standardization
- 5. improved data security
- 6. expanded data fields
- 7. enhanced information timeliness, effectiveness, and
availability
Q926.
- What are the disadvantages of a DBMS?
A926.
- 1. cost
- 2. highly trained personnel are necessary.
- 3. increased chances of breakdowns.
- 4. possible obscuring of the audit trail
- 5. specialized backup and recovery procedures required.
Q927.
- What are the two types of networks?
A927.
- 1. Local Area Network (LAN)
- 2. Wide Area Network (WAN)
Q928.
- What is a local area network?
A928.
- Permit shared resources (software, hardware, data)
among computers within a limited area.
Q929.
- What is a node?
A929.
- Any device connected to a network.
Q930.
- What is a workstation?
A930.
- A node (usually a PC) that is used by end users.
Q931.
- What is a server?
A931.
- A node dedicated to providing services or resources to
the rest of the network.
Q932.
- What is a Network Interface Card (NIC)?
A932.
- A circuit board installed on a node that allows the node to
connect with and communicate over the network - Ethernet
card.
Q933.
- What is transmission media?
A933.
- The physical path between nodes on a network.
Q934.
- What is a network operating system (NOS)?
A934.
- Manages communication over a network.
Q935.
- What is a communications device/modem?
A935.
- Provides remote access and provides a network with the
ability to communicate with others.
Q936.
- What are the four network topologies?
A936.
- 1. Bus Networks
- 2. Ring Networks
- 3. Start Networks
- 4. Tree Networks
Q937.
- What is a Bus network?
A937.
- Use a common backbone to connect all of the devices on
the network.
Q938.
- What is a Ring network?
A938.
- Formed in a ring with each device connected to two other
devices.
Q939.
- What is a Star network?
A939.
- Formed in a star with each device connected to a central
"hub"
Q940.
- What is a Tree network?
A940.
- Connect multiple stars into a Bus.
Q941.
- What is a Wide Area Network?
A941.
- Allow national and international communications.
Q942.
- What are two types of WANs?
A942.
- 1. Value added networks (VAN)
- 2. Internet based networks
Q943.
- What are Value Added Networks?
A943.
- Privately owned and managed communications networks
that provide additional services beyond standard data
transmission.
Q944.
- What are four characteristics of VANs?
A944.
- 1. private
- 2. more secure
- 3. expensive
- 4. slow
Q945.
- What are internet based networks?
A945.
- Use Internet protocols and public communications
channels to establish network communications.
Q946.
- What are four characteristics of internet based networks?
A946.
- 1. public
- 2. less secure
- 3. inexpensive
- 4. fast, online real time OLRT
Q947.
- What is an Intranet?
A947.
- Connects geographically separate LANS within a
company (company's private web site just for employees)
Q948.
- What is Extranet?
A948.
- Permit others to have direct access to the company's
network - port/doorway thru firewall to company's intranet.
Q949.
- What are transaction files?
A949.
- In a computerized environment, journals are called
transaction files.
Q950.
- What are transaction files used for?
A950.
- To update master files.
Q951.
- What are master files?
A951.
- In a computerized environment, ledgers are called master
files.
Q952.
- What is a master file update?
A952.
- In a manual system, transactions are posted from the
journal to the ledger. In a computerized system,
transactions are used to update balances in the master
files.
Q953.
- What are the two types of processing?
A953.
- 1. Batch
- 2. Online Real Time (OLRT)
Q954.
- What is batch processing?
A954.
- Input documents / transactions are collected and grouped
by type of transaction.
- These groups / batches are processed periodically - may
use either sequential storage devices or random access
storage devices.
Q955.
- What are the steps in batch processing?
A955.
- 1. create a transaction file
- 2. update the master file
Q956.
- What is online real-time processing?
A956.
- Transactions are entered and the master files updated as
the transactions are entered.
- OLRT systems require random access storage devices.
Q957.
- What is centralized processing?
A957.
- Maintain all data and perform all data processing at a
central location.
Q958.
- What is decentralized (distributed) processing?
A958.
- Occurs when computing power, applications, and work is
spread out or distributed over many locations.
Q959.
- What are the two advantages of centralized processing?
A959.
- 1. enhanced security
- 2. consistent processing
Q960.
- What are the five disadvantages of centralized
processing?
A960.
- 1. possible high cost
- 2. increased need for processing power and data storage
- 3. reduction in local accountability
- 4. bottlenecks/traffic jams
- 5. larger delay in response time
Q961.
- What are the four main risks with respect to systems?
A961.
- 1. strategic risk
- 2. operating risk
- 3. financial risk
- 4. information risk
Q962.
- What is strategic risk?
A962.
- The risk of choosing inappropriate technology.
Q963.
- What is operating risk?
A963.
- The risk of doing the right things in the wrong way?
Q964.
- What is financial risk?
A964.
- The risk of having financial resources lost, wasted, or
stolen.
Q965.
- What is information risk?
A965.
- The risk of loss of data integrity, incomplete transactions,
or hackers.
Q966.
- Risks can be divided into what three categories?
A966.
- 1. errors
- 2. intentional acts
- 3. disasters
Q967.
- What are errors?
A967.
- Mistakes, lost or misplaced data, application or system
software problems or other temporary equipment
problems, transmission errors, and computer equipment
lost or stolen.
Q968.
- What are intentional acts?
A968.
- Sabotage, embezzlements, viruses, denial of service
attacks, and other types of computer fraud.
Q969.
- What are disasters?
A969.
- Fire
- flood
- earthquakes
- high winds
- terrorism
- war.
Q970.
- In general, what is risk?
A970.
- The possibility of harm or loss.
Q971.
- What is a threat?
A971.
- Any eventuality that represents a danger to an asset or a
capability linked to hostile intent.
Q972.
- What are the four types of controls?
A972.
- 1. general controls
- 2. application controls
- 3. physical controls
- 4. segregation of duties
Q973.
- What are file attributes?
A973.
- Set to restrict writing, reading, and/or directory privileges
for a file.
Q974.
- What are firewalls?
A974.
- A system, often both hardware and software, of user IDs
and authentication that prevents unauthorized users from
gaining access to network resources; acting as a
gatekeeper, it isolates a private network from a public
network.
Q975.
- What are five threats in a computerized environment?
A975.
- 1. virus
- 2. worm
- 3. Trojan horse
- 4. denial-of-service attack
- 5. phishing
Q976.
- What is disaster recovery?
A976.
- Plans for continuing operations in the event of
destruction of not only program and data files but also
processing capability.
Q977.
- What are the five steps in disaster recovery?
A977.
- 1. assess the risks
- 2. identify mission-critical applications and data
- 3. develop a plan for handling the mission-critical
applications
- 4. determine responsibilities of the personnel involved in
disaster recovery
- 5. test the disaster recovery plan
Q978.
- What is a cold site?
A978.
- An off-site location that has all the electrical connections
and other physical requirements for data processing, but it
does not have the actual equipment.
Q979.
- What is a hot site?
A979.
- An off-site location that is "completely" equipped to
"immediately" take over the company's data processing.
Q980.
- Define System Analyst.
A980.
- Architect of the overall computer hardware specifications.
Q981.
- What are the two types of Computer Programmers?
A981.
- 1. Application programmer/software developer
- 2. System programmer
Q982.
- What is an application programmer?
A982.
- Person responsible for writing/maintaining application
programs.
Q983.
- What is a system programmer?
A983.
- Person responsible for installing, supporting, monitoring,
and maintaining the operating system.
Q984.
- What are the three types of System Administrators?
A984.
- 1. Database Administrator (DBA)
- 2. Network Administrator
- 3. Web Administrator
Q985.
- What is a Database Administrator?
A985.
- Person responsible for maintaining and supporting the
database software.
Q986.
- What is a Network Administrator?
A986.
- Person responsible for supporting computer networks.
Q987.
- What is a Web Administrator?
A987.
- Person responsible for information on a web site.
Q988.
- What is a Hardware Technician?
A988.
- Person who sets up and configures hardware and
troubleshoots any resulting hardware problems.
Q989.
- What is an End User?
A989.
- Any workers in an organization who enter data into a
system or who use the information processed by the
system.
Q990.
- What is segregation of duties?
A990.
- Dividing responsibilities for different portions of a
transaction (authorization, recording, and custody) among
several different people or departments. The objective is to
prevent any one person from having total control over all
aspects of the transaction.
Q991.
- Should the duties of system analysts and computer
programmers be segregated?
A991.
- YES!
Q992.
- What is a general partnership?
A992.
- An association of two or more persons to carry on as co-
owners a business for profit.
Q993.
- What is a joint venture?
A993.
- An association of two or more persons in a single
business venture.
Q994.
- What is the difference between a general partnership and
a joint venture?
A994.
- A general partnership can mean an ongoing relationship
whereas a joint venture is usually for a one-shot deal.
Q995.
- What is a Limited Partnership (LP) ?
A995.
- A partnership with at least one general partner and one
limited partner.
Q996.
- What distinguishes a Limited Partnership from a General
Partnership?
A996.
- In a limited partnership, limited partners will enjoy
Limited Liability!
Q997.
- What is a Limited Liability Partnership (LLP) ?
A997.
- A partnership that CARRIES MUCH GREATER
PROTECTON from liability than exists in a general or
limited partnership.
Q998.
- What does Limited Liability mean?
A998.
- Only liable up to personal investment.
Q999.
- What does Liability mean?
A999.
- Legal responsibility
Q1000.
- What is General Partnership Law governed by?
A1000.
- Model acts that the states adopt
Q1001.
- What is the Uniform Partnership Act (UPA) and Revised
Uniform Partnership Act (RUPA)?
A1001.
- Model acts that govern partnership law.
Q1002.
- Joint ventures are essentially identical to partnerships
and are governed by what?
A1002.
- UPA or RUPA, depending on the jurisdiction
Q1003.
- What law governs Limited Partnership Law in most
jurisdictions?
A1003.
- The Revised Uniform "Limited" Partnership Act (RULPA)?
Q1004.
- What act was amended to provide limited liability for
partners?
A1004.
- RUPA
Q1005.
- RUPA Is functionally a form contract and provides what?
A1005.
- Default rules
Q1006.
- By agreement, partners may vary most RUPA provisions
but not prejudice rights of third parties. T or F
A1006.
- True
Q1007.
- Is a written agreement required in a written partnership?
A1007.
- No, unless the partnership will last more than a year
Q1008.
- Is an official filing required to form a General
Partnership?
A1008.
- No
Q1009.
- What are the characteristics of a General Partnership?
A1009.
- 1. Unlimited Liability for Partners
- 2. Pass-thru Taxation
- 3. An association of two or more persons to carry on as
co-owners a business for profit.
Q1010.
- Under RUPA, what is the name of the voluntary statement
that can be filed in the Secretary of State's office?
A1010.
- Statement of Partnership Authority
Q1011.
- How does pass-thru taxation work?
A1011.
- 1. The partnership files an informational return but pays
no taxes.
- 2. Individual partners pay tax on allocated income,
whether or not it is distributed.
Q1012.
- When defining the term ASSOCIATION in the definition of
a general partnership, what does Delectus Personae
mean?
A1012.
- Voluntariness.
- 1) Partners choose with whom they'll become partners.
- 2) Existing partners must consent to the addition of new
partners.
Q1013.
a general partnership, what does Intent mean?
A1013.
- Not an intent to be "partners", but an intent to enter into
the type of business relationship that the law deems a
partnership. CONTENT CTLS FORM.
Q1014.
a general partnership, what does "two or more persons
having legal capacity mean?
A1014.
- Minors can become partners
Q1015.
- What does the term Business for Profit exclude?
A1015.
- Charitable, religious, & fraternal groups
Q1016.
- What does Co-ownership mean?
A1016.
- Community of Interest: Sharing capital, control,
profits/losses
Q1017.
- The sharing of profits and losses is prima facie evidence
of a partnership, unless the profits were received in
payment of what?
A1017.
- 1. Debt
- 2. Wages of an employee
- 3. Rent to a landlord
- 4. Annuity to a widow or rep of a deceased person
- 5. Interest on a loan
- 6. Consideration for the sale of goodwill
Q1018.
- What are Purported Partners?
A1018.
- Purported Partners. Where persons who are not partners
are treated as such on the estoppel theory.
Q1019.
- What is partnership by Estoppel?
A1019.
- Not a true partnership, but is a method of fixing liability
on one who has held themselves out as a partner or has
allowed others to them as partners.
Q1020.
- What actions deem a partnership by estoppel?
A1020.
- 1. Words or conduct that represent a partnership
- 2. Detrimental actions taken by the plaintiff in reliance on
the representation
- 3. Representation was reasonably believed by plaintiff
Q1021.
- What is the Aggregate Theory versus Entity Theory?
A1021.
- The Aggregate Theory is held by UPA where the
partnership is not a separate entity from the partners.
- The Entity Theory held by RUPA recognizes the
partnership as a separate entity for most purposes.
- Pass-thru taxation still exists in both cases.
Q1022.
- What does having a separate entity mean in regards to a
General Partnership?
A1022.
- That the partnership itself continues to exist, even though
the partners may come and go.
Q1023.
- Regarding Contractual Liability to third parties, the ACT
of a partner in the ordinary course of partnership business
BINDS the partnership with what exceptions?
A1023.
- A partner's act in the ordinary course of business does
not bind the partnership when:
- 1)The partner had no authority to act for the pship in the
particular matter
AND
- 2) The person with whom the partner was dealing knew or
had received notification that the partner lacked authority
Q1024.
- If a partner does not act in the ordinary course of
partnership business, then that act can only bind the
partnership when what occurs?
A1024.
- When the other partners authorize the act
Q1025.
- A partner binds the partnership and the other partners if
the partner acts with what types of Authority?
A1025.
- Actual Authority
- Apparent Authority
Q1026.
- What is Actual Authority?
A1026.
- Expressed or Implied
Q1027.
- What is Implied Authority?
A1027.
- Customary
- Incidental
- Emergency
Q1028.
- What is Apparent Authority?
A1028.
- Authority that is Clearly seen or understood
Q1029.
- In what instances can Apparent Authority NOT exist?
A1029.
- 1) When the third party knows of a partner's lack of
authority, or
- 2) The partner's action requires unanimity (ie
extraordinary contract)
Q1030.
- What does the "Scope" of Authority mean?
A1030.
- The "range" of authority covered
Q1031.
- The scope of Authority in a Partnership is determined by
what?
A1031.
- 1) Past practices of the partnership
- 2) Practices of similar businesses in the area
Q1032.
- Give examples of Implied and Apparent Authority.
A1032.
- Hire/fire employees, open bank accts, buy supplies, sell
inventory, rent office space
Q1033.
- After a falling out with Partners B and C, Partner A of the
ABC Furniture Co. is forbidden - by majority vote - to sell
any - partnership property - without the consent of the
other partners. If A sells to a customer a couch and the
company's fleet of seven delivery trucks, which of the two
sales if any are within the scope of apparent authority?
A1033.
- The sale of the couch is probably within the scope of
apparent authority, but the sale of the trucks probably is
not.
Q1034.
- If a partner does not have actual or apparent authority,
can the partnership still be liable for the act of the partner?
A1034.
- Yes, if the partnership ratifies or formally approves the
action.
Q1035.
- What is a tort?
A1035.
- A wrongful act
Q1036.
- Generally, are Partnerships liable for the Torts of their
partners?
A1036.
- Yes
Q1037.
- What is the key question when determining if a Tort has
been committed?
A1037.
- Was the partner acting within the scope of partnership
business?
Q1038.
- What are the three types of torts?
A1038.
- Intentional
- Unintentional (Negligence)
- Strict Liability
Q1039.
- For Intentional Torts, when is the Partnership liable for
the Torts of their partners?
A1039.
- When the partner is attempting to advance partnership
interests
Q1040.
- Here is an example of an Intentional Tort a Partnership is
probably liable for.
A1040.
- In attempting to acquire more prominent shelf space for
the partnership's products in a grocery store carrying
those products, partner A gets into a fist fight with an
employee of a competitor also seeking the shelf space.
- The partnership is probably liable.
Q1041.
- For Negligence/unintentional cases, when is a
partnership liable for the Torts of their partners?
A1041.
- When the partner is performing partnership business if
using partnership owned means to do it.
- If using personal means to do partnership business, then,
the partnership is liable if the business is a regular part of
partnership business.
Q1042.
- What does RUPA impose Strict Liability on a partnership
for?
A1042.
- Misapplication of Funds received in the course of its
business
Q1043.
- Under RUPA, contract and tort liability are typically joint
and several. What does this mean?
A1043.
- That a creditor may sue any partner and hold that partner
completely liable without suing the others.
Q1044.
- RUPA and most UPA states require in cases of contract
and tort liabilities that Assets of the Partnership be
exhausted before the partnership creditor can proceed
against what?
A1044.
- Individual assets of Partners
Q1045.
- If a partner joins an Existing Partnership, the new partner
is generally liable for all subsequent debt, but is liable for
preexisting debt how?
A1045.
- Only out of her Firm Contribution.
- In other words, liable for preexisting debt only to the
extent of the amount contributed when joined the
partnership.
Q1046.
- RUPA provides that "Property transferred to or otherwise
acquired by a partnership is property of the partnership
and not of the partners individually." True or False
A1046.
- True
Q1047.
- Consistent with earlier UPA rules, RUPA provides that
property is Partnership Property if acquired in the name of
whom?
A1047.
- 1. the Partnership
- 2. In the name of the Partner or Partners with at least one
of the following indications:
- In the instrument that transferred title:
- a. The person's Capacity as partner
- b. The Existence of the Partnership
Q1048.
- Property is presumed to be partnership property when
what occurs?
A1048.
- If purchased with Partnership Assets
Q1049.
- When is property Separate from the partnership?
A1049.
- When property is acquired in the name of one or more
partners without indication of: Partnership Capacity, or
Existence of the Partnership, or without the use of
Partnership Assets.
Q1050.
- Partnerships have Entity Ownership of partnership
property. What is Entity Ownership?
A1050.
- Partnership Property is owned by the Partnership Entity,
not by the partners in common.
Q1051.
- A partner's Partnership Interest is considered what?
A1051.
- Personal Property
Q1052.
- What does Partnership Interest give the partner the Right
to?
A1052.
- 1. Share in the partnership's Profits
- 2. Share in the partnership's Net Assets upon dissolution.
Q1053.
- The Creditor Restriction relating to Partnership Property
is what?
A1053.
- No Creditor of an Individual Partner may attach
partnership property to satisfy an Individual Debt.
Q1054.
- What is the proper approach for creditors of Individual
Partners?
A1054.
- The Charging Order
Q1055.
- What is a Charging Order?
A1055.
- The judge orders the other partners to pay any
Distribution Due to the debtor partner to that Partner's
Creditor instead.
Q1056.
- What does Assignment mean relating to Individual
Partner debt?
A1056.
- Debtor partners may Assign (or creditors may seize)
ONLY the Individual Partner's Interest in the Partnership
(i.e. profits and net assets)
Q1057.
- What is the rule regarding using PARTNERSHIP
PROPERTY to satisfy the debts of Individual Partners?
A1057.
- Individual Partners MAY NOT ASSIGN and creditors of
Individual Partners MAY NOT SEIZE Partnership Property
to satisfy the debts of individual partners.
Q1058.
- Can an Individual Partner assign his Partnership Interest
to an Individual Creditor?
A1058.
- Yes
Q1059.
- If an individual partner does assign to an individual
creditor his or her partnership interest, does the creditor
become a Partner?
A1059.
- NO
Q1060.
- What is Limited Partnership Law governed by?
A1060.
- ULPA - Uniform Limited Partnership Act
- RULPA - Revised Uniform Limited Partnership Act
Q1061.
- If questions regarding Limited Partnership law cannot be
answered by ULPA or RULPA, how then is the question
answered?
A1061.
- By the General Partnership Law
Q1062.
- Important CPA Exam Note:
A1062.
- Traditionally the AICPA has not asked too many
questions about limited partnerships specifically.
Q1063.
- Define a Limited Partnership.
A1063.
- A partnership consisting of at least one general partner
(GP) and at least one limited partner (LP).
Q1064.
- Give four characteristics of a Limited Partnership.
A1064.
- 1. Limited Liability for LPs.
- 2. Partnership (Pass-Through) Taxation.
- 3. Transferability of LP interests.
- 4. Centralized management by GPs.
Q1065.
- Regarding Limited Partnerships, what is Forfeit of
Control?
A1065.
- Limited partners forfeit right to control their investment
and, in exchange, are accorded limited liability.
Q1066.
- Regarding Limited Partnerships, how can General
Partners become Limited Partners?
A1066.
- By Purchasing Limited Partnership Interests
Q1067.
- Regarding Limited Partnerships, what is the governing
law in most states?
A1067.
- RULPA
Q1068.
- Regarding Limited Partnership Formation, what is the
only way a Limited Partnership can be formed?
A1068.
- By filing the appropriate documents at the secretary of
State's Office
Q1069.
- Regarding Limited Partnerships, of the appropriate
documents filed with the Secretary of State's office, what
must one of those documents be?
A1069.
- A written Limited Partnership Agreement
Q1070.
- The Limited Partnership name should indicate its status
by use of what?
A1070.
- "Limited Partnership" or "L.P.," or "Ltd.," etc.
Q1071.
- Regarding the Limited Partnerships, Creditors of a limited
partnership who go unpaid will seek to do what?
A1071.
- Impose personal liability upon limited partners.
Q1072.
- Limited Partners can, in some circumstances, forfeit their
limited liability. How does this happen?
A1072.
- 1. Defective Formation
- 2. False Statements
- 3. Exercising Control
- 4. Use of Name
Q1073.
- If a limited partnership is Defectively Formed, an LP may
be held liable if what occurs?
A1073.
- If he knew or should have known that no certificate had
been filed
- OR that one erroneously referred to him as a general
partner.
Q1074.
- Liability for a LP for forming a Defective Limited
Partnership extends only to what?
A1074.
- (a) extends only to third parties who, reasonably believed
based on the LP's conduct that he was a GP, extended
credit to the partnership
- (b) may be terminated by the filing of an appropriate
certificate with the Secretary of State's office and the
withdrawing from participation in profits.
Q1075.
- Regarding False Statements, how does a LP forfeit limited
liability?
A1075.
- Whan an LP
- (a) signs an LP certificate knowing that it contains false
statements or omissions,
- or (b) learns of such misrepresentations and fails to
amend or cancel it.
Q1076.
- If an LP takes part in the CONTROL of the partnership
business, he may forfeit limited liability, extending ony to
what?
A1076.
- Persons who transact business with the LP believing,
based on the LP's conduct, that the LP is a GP.
Q1077.
- A limited partner does not take part in control by virtue of
the following:
A1077.
- a. being a contractor for or an agent or employee of the
limited partnership,
- b. consulting with and advising a general partner,
- c. acting as surety for the limited partnership or
guaranteeing its loans,
- d. taking any action required or permitted by law to sue
on behalf of the limited partnership,
- e. requesting or attending a meeting of the partners,
- f. winding up the partnership,
- g. exercising any right permitted to limited partners, or
- h. voting on any important partnership matter.
Q1078.
- If an LP knowingly PERMITS HIS NAME to be used in the
name of the limited partnership, FORFEITS his limited
liaability only extending to what?
A1078.
- Persons who extend credit to the limited partnership and
have no knowledge that the LP is not a GP.
Q1079.
- What are three rights and responsibilities of Limited
Partners?
A1079.
- 1. LP powers should be set out in LP agreement.
- 2. LPs often have veto power over certain "extraordinary"
acts by GPs.
- 3. LPs usually have power to replace GPs.
Q1080.
- What are the Information and Inspection Rights of a
Limited Partnership?
A1080.
- 1. A limited partnership must maintain and permit the
inspection by limited partners of all important partnership
records.
- 2. Access to Courts
- 3. LPs have the right to file derivative suits, just like
corporate shareholders.
Q1081.
- In a Limited Partnership, what is assignable and not
assignable?
A1081.
- 1. A limited partner's INTEREST (share of profits and
assets on dissolution) IS ASSIGNABLE.
- 2. A limited partner's rights to inspect, to bring
derivatives suits, etc. are not assignable NOT
ASSIGNABLE, unless they are assigned to a substitute
limited partner.
Q1082.
- In a Limited Partnership, what are the general partner's
right and responsibilities?
A1082.
- A. Unlimited personal liability, and
- B. Greater fiduciary (trust) duty owed to limited partners.
Q1083.
- In a Limited Partnership, how should Profits and Losses
be allocated?
A1083.
- In the manner provided in the written partnership
agreement.
Q1084.
- How should Partners who lend money to the Limited
Partnership be repaid?
A1084.
- They should share in distributions along with outside
creditors.
Q1085.
- Regarding allocation of Profits and Losses in a Limited
Partnership, can the partnership agreement provide that
the LPs and GPs be treated equally?
A1085.
- Yes
Q1086.
- What are the two Fiduciary duties that a partner owes the
other partners?
A1086.
- Loyalty and Care
Q1087.
- What is the Duty of Loyalty?
A1087.
- No CCAD - Can Computers Ace Deers?
- 1. No Competition;
- 2. No Conflicts of Interest;
- 3. No Appropriation of a partnership business opportunity
- 4. No Disclosure of confidential information.
- Note: Appropriation = take for own use
- As far as conflicts of interest, transactions between a
partner and the partnership are fully permissible if certain
criteria (including notice and fairness) are met.
Q1088.
- What is Duty of Care?
A1088.
- "Refraining from engaging in:
- Grossly negligent or reckless conduct
- Intentional misconduct, OR
- A knowing violation of law
Q1089.
- How should partners Discharge their duties to the
partnership and other partners per RUPA?
A1089.
- Consistently with the obligation of good faith and fair
dealing
Q1090.
- The partners' fiduciary obligations in UPA jurisdictions
are roughly analogous to those just spelled out for RUPA.
T or F
A1090.
- True
Q1091.
- Define Macroeconomics
A1091.
- Macroeconomics is the study of the economy as a whole.
- It examines the determinants of national income,
unemployment, and inflation and how monetary and fiscal
policies affect economic activity.
Q1092.
- Define GDP
A1092.
- Gross Domestic Product - total market value of all final
goods and services produced within the borders of a
nation.
- Includes the output of foreign-owned factories in the U.A.
but excludes the output of U.S. owned factories operated
abroad.
Q1093.
- Define Nominal GDP
A1093.
- the value of all final goods and services in current prices
(no inflation adjustment).
Q1094.
- Define Real GDP
A1094.
- Value of goods and services in constant prices. GDP is
adjusted to account for changes in the price level.
Removes inflation by using a price index.
Q1095.
- Real GDP Formula
A1095.
- = ((Nominal GDP) / (GDP Deflator)) x 100
- ** GDP Deflator is the price index.
Q1096.
- Real GDP per Capita
A1096.
- Real GDP divided by population.
- Used to compare standards of living across countries or
across time. Measure of economic growth.
Q1097.
- What are the 5 business Cycles?
A1097.
- 1. Expansionary
- 2. Peak
- 3. Contractionary
- 4. Trough
- 5. Recovery (aka Expansionary)
Q1098.
- Definition of a Recession
A1098.
- two consecutive quarters of falling national output (GDP).
Q1099.
- Define - Depression
A1099.
- Severe recession, characterized by long periods of
stagnation in business activity and high unemployment
rates.
Q1100.
- Leading indicators (before)
A1100.
- Average unemployment claims
- building permits for residences
- average length of the workweek
- money supply
- prices of selected stocks
- orders for goods
- price changes of materials
- index of consumer expectations
Q1101.
- Lagging indicators (after)
A1101.
- Prime rate charged by banks
- average duration of unemployment
- bank loans outstanding
Q1102.
- Coincident indicators (during/contemporaneously)
A1102.
- Industrial production
- manufacturing and trade sales
Q1103.
- What is the effect on Aggregate Demand, GDP and price
when the demand curve shifts LEFT?
A1103.
- Aggregate Demand down
- GDP down
- Price down
- **leads to contraction in economy
Q1104.
- What is the effect on Aggregate Demand, GDP and price
when the demand curve shifts RIGHT?
A1104.
- Aggregate Demand up
- GDP up
- Price up
- **leads to expansion/recovery
Q1105.
- What is the effect on short run aggregate supply, GDP
and price when the supply curve shifts RIGHT?
A1105.
- SRAS up
- GDP up
- Price down
Q1106.
- What is the effect on short run aggregate supply, GDP
and price when the supply curve shifts LEFT?
A1106.
- SRAG down
- GDP down
- price up
Q1107.
- What are the primary factors that shift Aggregate
Demand?
A1107.
- Changes in:
- Wealth
- Real Interest Rates
- Consumer Confidence (expectations about the future
outlook)
- Exchange Rates
- Government Spending
- Consumer Taxes
Q1108.
- Define - multiplier effect
A1108.
- Increase in consumer, firm or government spending
produces a multiplied increase in the level of economic
activity. The muliplier effect results from the marginal
propensity to consume (MPC).
Q1109.
- Multiplier Formula
A1109.
- = (1/(1-MPC)) x change in spending
- **MPC is typically less than 1 b/c ppl tend to save part of
their income. Thus, 1-MPC is the marginal propensity to
save (MPS).
Q1110.
- Factors that shift SHORT run aggregate supply
A1110.
- 1. Changes in input (resource) prices.
- 2. Supply Shocks (shortages/excess resources)
Q1111.
- What are the 2 methods for measuring GDP?
A1111.
- Expenditure Approach
- Income Approach
Q1112.
- What are the Components of the Expenditure Approach?
A1112.
- G -Government purchases of goods/services
- I - gross private domestic Investment
- C - personal Consumption expenditures
- E - net Exports (exports minus imports) - can be a
negative #
- **mnemonic: GICE
- GPD = G + I + C + E
Q1113.
- How do you calculate GDP using the Income Approach?
A1113.
- mnemonic: IPIRATED
- Income of proprietors
- Profits of corporations
- Interest (net)
- Rental income
- Adjustments for net foreign income and misc income
- Taxes (indirect business taxes)
- Employee compensation (wages)
- Depreciation (aka capital consumption allowance)
Q1114.
- Formula for NDP
A1114.
- Net Domestic Product = GDP - Depreciation
Q1115.
- Define GNP
A1115.
- Value of final goods and services produced by residents
of a country in a given time period.
- Example: BMW produces cars in U.S. - counts as GDP but
not GNP b/c it is foreign owned.
Q1116.
- Formula for NNP
A1116.
- Net National Product =
- GNP - Depreciation
Q1117.
- Formula for National Income
A1117.
- NNP - Sales Tax (indirect business taxes)
Q1118.
- Formula for PI
A1118.
- Personal Income = National Income +/- various adj:
- NI less:
- undistributed corp profits (RE)
- Net interest
- Contributions for social measures (soc security
contributions)
- Corporate income taxes
- Plus:
- Government transfer pmts to individuals
- Personal interest income
- Business transfer payments/dividends
Q1119.
- Calculate Disposable Income
A1119.
- DI = PI - personal taxes
- Income households have available to spend or save.
Q1120.
- Unemployment Rate Formula
A1120.
- unemployment rate = (# unemployed/total labor force) x
100
- Note: unemployed is a person over 16 who is available for
work and has actively sought employment
- Note 2: total labor force includes all non-institutionalized
ppl 16+ who were working or actively looking for work.
Q1121.
- Identify the types of unemployment
A1121.
- 1. Frictional
- 2. Structural
- 3. Seasonal
- 4. Cyclical
Q1122.
- Define Consumer Price Index
A1122.
- CPI is a measure of the overall cost of a fixed basket of
goods and ervices purchased by an averae household.
Note: PPI is the producer price index, which focuses on
purchses by firms).
Q1123.
- Formula for Inflation Rate
A1123.
- Change in CPI = Inflation Rate
- (CPI this period - CPI last period) / CPI last period x 100
Q1124.
- Formula for Real Interest Rate
A1124.
- Nominal Interest Rate - Inflation Rate
Q1125.
- M1, M2 and M3 defined (money supply)
A1125.
- M1 - $ used for the purchase of goods / services (coins,
currency, and checkable deposits).
- M2 - M1 plus liquid assets that cannot be used as a
medium of exchange (savings, mmf, CD's less than
$100,000)
- M3 - M2 plus CD's greater than $100,000.
Q1126.
- Ways the FED controls the money supply
A1126.
- 1. Open Market Operations (OMO) (t-bills and bonds)
- 2. Changes in Discount Rate (int rate charged to banks for
ST loans)
- 3. Changes in the Required Reserve Ratio (RRR) (fraction
of total deposits banks must hold in reserve).
Q1127.
- Identify the steps (in order) in strategic managment
(strategic positioning)
A1127.
- 1. Define the firm's vision and mission statements.
- 2. Set the goals of the firm
- 3. Define the objectives of the firm
- 4. Decide what to measure and take a baseline
measurement (critical success factors)
- 5. SWOT (strategic)
- 6. Create the strategic plan
- 7. Implement the strategic plan
- 8. Evaluate and revise the plan as needed.
Q1128.
- Define change in demand
A1128.
- Change in the amount of good demanded resulting from a
change in something OTHER THAN price. (shift in the
demand curve)
Q1129.
- Define change in QUANTITY demanded
A1129.
- Change in the amount of a good demanded resulting
SOLELY from a change in price. (movement along the
demand curve)
Q1130.
- Identify the factors that shift the demand CURVE
A1130.
- Mnemonic: WRITEN
- Changes in:
- Wealth
- price of Related goods (subs/complements)
- consumer Income
- Tastes/preferences
- consumer Expectations
- Number of buyers in a market
Q1131.
- Identify the factors that shift the supply CURVE
A1131.
- Mnemonic: ECOST
- Expectations of the supplying firm (prices)
- production Costs
- Other goods price/demands (ie new iphone vs. old
iphone)
- Subsidies/taxes
- production Technology (improvements)
Q1132.
- What is the effect of a simultaneous change in demand
and supply on the equilibrium?
A1132.
- Demand and Supply - Increase (Decrease)
- Quantity - Increase (Decrease)
- Price - Indeterminate
Q1133.
- Price Elasticity - supply/demand >1.0
A1133.
- Elastic
Q1134.
- Price Elasticity - supply/demand < 1.0
A1134.
- Inelastic
Q1135.
- Unit Elastic
A1135.
- Supply / Demand = 1
Q1136.
- Cross Elasticity
A1136.
- % change in the quantity demanded (or supplied) of one
good caused by the price change of another good.
Q1137.
- Cross Elasticity: What type of good is it if the coefficient
is positive, negative, or zero?
A1137.
- Positive Substitutes
- Negative Complements
- Zero - Unrelated products
Q1138.
- Positive Income Elasticity
A1138.
- Demand increases as income decreases.
- Normal Good (premium foods such as steak and lobster)
Q1139.
- Negative Income Elasticity
A1139.
- Demand decreases as income increases.
- Inferior good (canned veggies or hamburger)
Q1140.
- What are the 4 Market structures (from most competitive
to least comp.)
A1140.
- 1. Perfect/Pure Competition
- 2. Monopolistic
- 3. Oligopoly
- 4. Monopoly
Q1141.
- Attributes of Perfect Competition
A1141.
- 1. No barriers to entry
- 2. Large # of suppliers and customers
- 3. Very little product differentiation
- 4. No individual firm can influence the market price of its
product nor shift the market supply sufficiently to make a
good more scarce or abundant.
Q1142.
- Attributes of a Monopoly
A1142.
- 1. Strategic plans will likely focus on profitability, not
market share
- 2. Single firm w/ a unique product
- 3. Significant barriers to entry
- 4. set output and prices
- 5. No substitute products
Q1143.
- Attributes of Monopolistic Competition
A1143.
- 1. Numerous firms with differentiated products
- 2. Few barriers to entry
- 3. Ability to exert some influence over price and market
- 4. Significant non-price competition in the market (brand
loyalty.
Q1144.
- Attributes of an Oligopoly
A1144.
- 1. Few sellers dominate the sales of a product and entry
of new sellers is difficult or impossible (automobiles)
- 2. Relatively few firms w/ differentiated products
- 3. Fairly significant barriers to entry
- 4. Prices tend to be fixed.
- 5. Tend to face a kinked demand curve
Q1145.
- Define: Kinked Demand Curve
A1145.
- Firms match price cuts of competitors but ignore price
increases
Q1146.
- What are the characteristics of Stagflation?
A1146.
- - Occurs when the economy suffers a recession,
characterized by falling output, rising unemployment, and
rising price levels.
Q1147.
- Advantages and Disadvantages of Payback Period
Method
A1147.
- Advantages:
- Easy to Understand
- Emphasis on Liquidity: how long it will take to pay back
Disadvantages:
- TVM is ignored
- Reinvestment cash flows are not considered
- Project profitability is neglected
- After initial investment is recovered, cash flows after are
ignored.
Q1148.
- Advantages and Disadvantages of DCF
A1148.
- Advantages:
- Best for long - run decisions
- Includes TVM
Disadvantages:
- Single interest rate, doesn't adjust w/ time
Q1149.
- Objective of Payback Period:
- Objective of Discounted Payback Period:
A1149.
- - After tax cash inflow to recover the initial investment.
- Evaluate how quickly new ideas are converted into
profitable ideas.
- **Often used in companies that experience rapid tech.
changes.
Q1150.
- Advantages and Disadvantages of Discounted Payback:
A1150.
- Same as payback period method:
- **EXCEPT** it includes TVM
Q1151.
- Objective of Net Present Value Method:
A1151.
- It focuses an investment that will yield returns in an
amount in excess of a management designated hurdle rate.
- If NPV is positive = accept
Q1152.
- What does NPV ignore?
A1152.
- Depreciation (unless it is a tax shield)
And
- Method of Funding
Q1153.
- Which is better NPV or IRR?
A1153.
- NPV is considered better b/c it is flexible enough to
consistently handle uneven cash flows or inconsistent
rates of return for each year.
Q1154.
- Advantages and Disadvantages of NPV:
A1154.
- Advantages:
- Very flexible and can be used when there is no constant
rate of return required for each year of the project
- Best SINGLE technique for cap. budgeting.
Disadvantage
- Does not provide true rate of return on investment, it uses
the management hurdle rate.
Q1155.
- How to solve NPV?
A1155.
- 1) Calculate Tax Depreciation shield (net of tax)
- 2) Calculate Annual Cash Savings (net of tax)
- 3) Calculate Salvage Value
- (net of tax)
- 4) Add inflows from Annual Savings + Tax Shield +
Salvage value
- 5) Multiply by discount rate ** If annual savings is
constant use OA / if not use PV of $1
- 6) Subtract outflow --> Inflow = if positive ACCEPT.
Q1156.
- Objective of IRR?
A1156.
- IRR is expected rate of return of a project.
- "Time adjusted rate of return"
Q1157.
- How to solve IRR?
A1157.
- 1) Determine life of the Asset
- 2) Calculate Payback Period:
- Net incremental investment /
- Net annual cash flows
- 3) Find Proper PV Table
- 4) Use your U/L and PP to find IRR
Q1158.
- Disadvantages of IRR
A1158.
- - Unreasonable reinvestment assumption: assumed to
reinvested at IRR, but that is difficult to predict if it will
reach the IRR
- Inflexible Cash Flow Assumption: IRR is less reliable than
NPV b/c when there are several alternating periods of net
cash inflows and net cash outflows or the amounts of the
cash flows differ significantly
- Evaluates only based on interest rates
Q1159.
- What is Capital Rationing?
A1159.
- when you have a LIMITED CAPITAL:
- You rank projects b/t:
- 1) Importance
- 2. Ranking and Acceptance: managers will allocate
capital to the combination of projects with max NPV
Q1160.
- Three types of Risk Preferences
A1160.
- 1) Risk - Indifferent
- 2) Risk - Averse
- 3) Risk - Seeking
Q1161.
- Attributes of Risk - Indifferent
A1161.
- Increase in risk would NOT increase required rate of
return
Q1162.
- Attributes of Risk - Averse
A1162.
- Increase in risk would increase required rate of return
Q1163.
- Attributes of Risk - Seeking
A1163.
- Increase in risk would DECREASE required rate of return
Q1164.
- Diversifiable vs. Nondiversifiable Risk
A1164.
- Diverse: non-market / unsystematic / firm specific: risk
can be eliminated by diversification
- Non-Diversifiable: Market/Systematic Risk Cannot be
eliminated through diversification
Q1165.
- Accrued L + A/P + Current portion of long-term note
payable =
A1165.
- Current liabilities
Q1166.
- Cash+ A/R + inventory =
A1166.
- Current Assets
- Prepaid assets - not CA
Q1167.
- Avg. Gross Receivable balance =
A1167.
- AVG daily sales x Average collection period
Q1168.
- Gross Margin =
A1168.
- = ( unit price - unit cost ) x number of units
Q1169.
- The debt-to-equity ratio measures the
A1169.
- % of total financing provided by creditors (debt)
compared to financing by owners.
Q1170.
- The interest coverage ratio measures the
A1170.
- firm's ability to make required interest payments.
- The higher - the greater ability to repay the debt.
Q1171.
- The return on Equity reflects the
A1171.
- net income that accrued to owners
Q1172.
- If there is no provision for allocating losses ->
A1172.
- the method used to allocate profits will be used
Q1173.
- Inventory T/Over ratio
A1173.
- COGS / AVG inventory
Q1174.
- List major risks associated with the A/R component of the
system?
A1174.
- Credit may be applied to improper accounts
- Updates of credit ratings may be untimely
- Financial or management reporting may be inaccurate
Q1175.
- EVA % =
A1175.
- RCOE % - WACC %,
- where RCOE = Oper. income / capital,
- WACC = Cost of debt + cost of equity
Q1176.
- What costs are relevant in decision making?
A1176.
- only INCREMENTAL (fixed or variable)
Q1177.
- Seasonality in data may be removed by calculating a
A1177.
- WEIGHTED AVERAGE of the data for the four seasonal
time periods
Q1178.
- Treating dividends as a residual part of a financial
decision assumes that
A1178.
- earnings should be retained and reinvested as long as
profitable projects are available
Q1179.
- Interest on long-term debt costs ______ than interest on
short-term debt because
A1179.
- more
- of risk associated with longer maturity dates
Q1180.
- The intercept value is where the line crosses the _____
axis.
A1180.
- Y axis
Q1181.
- The implicit cost of debt financing is the
A1181.
- increase in the cost of debt and equity as the debt-to-
equity ratio increases
Q1182.
- ADRs are receipts issued by a US bank which represents
ownership rights in
A1182.
- a foreign corporation
Q1183.
- Cost of asset + increase in WC - tax saved - cash received
from sale of old asset =
A1183.
- NET OF INVESTMENT
Q1184.
- EBIT=
A1184.
- Total revenue - total Var. costs- total Fixed Costs
Q1185.
- At what rate company would be INDIFFERENT to the
investment?
A1185.
- at the IRR
- CF * IRR ( or annuity factor)= PV of initial investment
Q1186.
- How do you solve the problem if CL is known and Current
Ratio will change from 1.75 to 1.5 to 1?
A1186.
- CA + incease in Inv / CL + incease in Inv. = 1.5
Q1187.
- How to calculate conversion costs transferred to second
department using WA method and normal spoilage is
given?
A1187.
- 1) calc. Equivalent units= completed + spoiled + %
completed of end units
- 2) Cost per Eq. unit = Total conversion costs / Eq. units
- 3) Conversion costs transferred = Cost per unit x ( Good
units + Normal spoilage)
Q1188.
- Leverage refers to the amount of _________ in the firm's
structure
A1188.
- Debt
Q1189.
- FIXED OVERHEAD is a Product cost for ABSORPTION
COSTING at the time of _________ and
- a PERIOD COST under Variable costing at time of
________
A1189.
- SALE
- PRODUCTION
Q1190.
- What is Job Order Costing?
A1190.
- A costing technique used to accumulate costs related to
the production of large, expensive, homogeneous (custom)
items. -- Can be used for Service items.
Q1191.
- Describe the process of accumulating costs in a job order
costing system.
A1191.
- 1. The costs are accumulated in individual WIP accounts,
also called job order cost sheets. The TOTAL of each job
(WIP acct) is transferred to the WIP-Control account.
- 2. Overhead is applied based on a predetermined rate
- 3. When job is complete, the total cost is transferred to
Finished Goods.
- 4. When sold, costs flow to CGS.
Q1192.
- What is Cost of Goods Completed?
A1192.
- It is the same as the Cost of Goods Manufactured.
Q1193.
- What is Factory Overhead Applied (FOA)?
A1193.
- It is the estimated overhead for the period.
- This amount is calculated at the beg of the period and
then charged to WIP.
- Actual Overhead costs are kept separately and expensed.
- Any difference between applied and actual is under or
overapplied overhead.
- Under/Over applied overhead is charged to WIP and when
sold, to CGS.
Q1194.
- How is Factory Overhead calculated?
A1194.
- By applying the PDRate to the actual activity units used in
production.
Q1195.
- What is the calculation for the predetermined rate for
overhead?
A1195.
- PDR = Estimated Total Manf Cost/Estimated Norm Activity
Volume
- * The estimates must be based on attainable standards.
Q1196.
- What is Process Costing?
A1196.
- A costing technique used to accumulate costs for mass-
produced, continuous, homogeneous items which are
often small and inexpensive.
Q1197.
- What is the problem that occurs with process costing?
A1197.
- Since costs are not accumulated for individual items the
problem becomes one of TRACKING the # of units moving
thru WIP into FG and allocating the costs incurred to these
units on a rational basis.
Q1198.
- What complicates the process costing?
A1198.
- 1. There may be partially completed goods in beg and end
inventories.
- 2. Each of the 3 factors of production (DM, DL, FO) may
be at different levels of completion.
- 3. Some costs do not occur uniformly across the process;
esp DM.
- 4. There are two methods for calculating "equivalent
units," FIFO and Weighted Avg. (These are not the same as
the cost flow assumptions in financial acctg0
Q1199.
- What is breakeven analysis?
A1199.
- The sales level at which sales revenue exactly offsets
total costs, both variable and fixed.
Q1200.
- What is meant by Total Costs in breakeven analysis?
A1200.
- Fixed and variable costs, manufacturing and
selling/administrative costs
Q1201.
- The breakeven point is usually expressed in what?
A1201.
- Sales Units or Dollars
Q1202.
- What approach is used to calculate breakeven in units?
A1202.
- Contribution Margin per Unit Approach
Q1203.
- What is contribution margin?
A1203.
- The portion of revenues available to cover fixed costs.
Q1204.
- What is the formula for calculating contribution margin?
A1204.
- Sales Revenue - Variable Costs
Q1205.
- What is contribution margin per unit?
A1205.
- The dollar amount of the sale an individual unit
contributes to covering fixed costs.
Q1206.
- What's the formula for calculating contribution margin per
unit?
A1206.
- CMU = SPU VCU
- CM = Sales Price per Unit - Variable Costs per Unit
Q1207.
- Besides the dollar amount per unit needed to breakeven,
what other information can the contribution margin per
unit provide?
A1207.
- Can provide the # of units needed to breakeven.
Q1208.
- How is Sales Price per Unit (SPU) calculated?
A1208.
- SPU = Total Sales/# Units Sold
Q1209.
- How is Variable Cost per Unit (VCU) calculated?
A1209.
- VCU = Total Sales - Fixed Costs/# Units Sold
Q1210.
- What is the formula for calculating the breakeven point in
dollars (BPD)?
A1210.
- BPD = BPU x SPU
- Breakeven pt in units * Sales Price per unit
Q1211.
- When no sales price per unit or variable cost per unit is
available, what can be used to calculate breakeven point in
dollars?
A1211.
- Contribution Margin Ratio Approach
Q1212.
- What three elements must be available to calculate the
Contribution Margin Ratio?
A1212.
- Sales Revenue, total variable costs, total fixed costs
Q1213.
- What's the formula for calculating CMR?
A1213.
- CMR = (SRev Vcosts) / SRev
Q1214.
- What is the contribution margin ratio?
A1214.
- The % of each sales dollar that is available to cover fixed
costs.
Q1215.
- Virtually all breakeven questions on the CPA exam can be
solved by what two formulas?
A1215.
- Breakeven Point in Units &
- Breakeven Point in Dollars
- BPU - TFC/CMU
- BPD - TFC/CMR
Q1216.
- What is targeted profit?
A1216.
- When you want to sales revenue to cover more thant total
costs but to also provide a profit.
Q1217.
- What is the formula for calculating targeted profit (TP)?
A1217.
- TP = TFC + Targeted Profit / CMU or CMR
Q1218.
- Breakeven Analysis~~
- What is a good way to think about how the contribution
margin approach calculates breakeven?
A1218.
- The CM in the denominator must cover the amount in the
numerator.
Q1219.
- Summary:
- What are the six main formulas for calculating
breakeven?
A1219.
- CM = SRev - Var Costs
- CMU = SPU VCU
- BPU = TFC/CMU
- BPD = TFC/CMR
- CMR = CM/SRev
- BP w/Targeted Profit = TFC/CMU or CMR
Q1220.
- What is the margin of safety?
A1220.
- The diff between budgeted and actual sales (units or
dollars) and breakeven sales (units or dollars).
Q1221.
- Define Sunk Costs
A1221.
- Sunk costs are those that have already been incurred, are
unavoidable in the future, and will not vary with the course
of action taken
Q1222.
- What is the general definition of opportunity cost?
A1222.
- Opportunity cost is the potential benefit lost by selecting
a particular course of action.
Q1223.
- Define opportunity costs evaluated in considering an
opportunity when the firm is operating at capacity.
A1223.
- Opportunity cost at full capacity is defined as the net
benefit given up from the best alternative use of the
capacity.
Q1224.
- What is the formula for after-tax cost?
A1224.
- (1.00-tax rate) tax deductible cash expense = after tax
cost aka net cash outflow.
Q1225.
- What is the formula for after-tax benefit?
A1225.
- (1.00-tax rate) tax cash receipt = after tax benefit aka net
cash inflow.
Q1226.
- The formula for computing a depreciation tax shield is:
A1226.
- Tax rate depreciation deduction = tax savings from the
depreciated tax shield.
Q1227.
- What is the formula for the contribution approach?
A1227.
- Revenue
- Less: Variable Cost
- CONTRIBUTION MARGIN
- Less: Fixed Costs
- NET INCOME
Q1228.
- Contribution margin ratio formula:
A1228.
- Contribution margin / revenue
Q1229.
- What is the absorption formula?
A1229.
- Revenue
- Less: COGS
- GROSS MARGIN
- Less: Oper. Exp.
- NET INCOME
Q1230.
- Formula for breakeven point in units:
A1230.
- Total fixed costs / CM per Unit = Breakeven point in units
Q1231.
- Formula for breakeven point in dollars:
A1231.
- Total Fixed Costs / CM Ratio = Breakeven point in dollars
Q1232.
- What is the margin of safety formula?
A1232.
- Total Sales - Breakeven Sales = Margin of safety
Q1233.
- Define the steps and formula for economic value added.
A1233.
- Step 1: Calculate the required amount of return and
income after taxes
- Investment * Cost of Capital = Required Return
- Step 2: Compare to the required return
- Income after taxes - required return = economic value
added
Q1234.
- What is the payback method formula?
A1234.
- Net initial investment / Incease in annual net after tax
cash flow = payback period
Q1235.
- What is risk averse behavior?
A1235.
- Risk averse behavior exists when the certainty equivalent
< expected value.
Q1236.
- What is risk seeking behavior?
A1236.
- Risk seeking behavior exists when the certainty
equivalent > expected value.
Q1237.
- What is risk indifferent behavior?
A1237.
- Risk seeking behavior exists when the certainty
equivalent = expected value.
Q1238.
- Distinguish between diversifiable and non-diversifiable
risk.
A1238.
- D Diversifiable Risk
- U Unsystematic Risk (Non-Market / Firm Specific)
- N Nondiversifiable Risk
- S Systematic Risk (Mkt)
Q1239.
- What is the degree of operating leverage formula?
A1239.
- DOL = % Chg in EBIT / % Chg in Sales
Q1240.
- What is the degree of financial leverage formula?
A1240.
- DFL = % Chg in EPS / % Chg in EBIT
Q1241.
- What is the degree of combined leverage formula?
A1241.
- DCL = % Chg in EPS / % Chg in Sales
Q1242.
- Define Weighted Average Cost of Capital
A1242.
- The Weighted Average Cost of Capital (WACC) is the
average cost of debt & equity associated with the firm's
existing assets and operations.
Q1243.
- What is the pre-tax cost of debt formula (kdt)?
A1243.
- kdt = (I+(PV-Nd)/N) / ((Nd+PV)/2)
- PV = Par value of the bonds
- I = Annual Int payments in $
- Nd = Net proceeds from the sale of bonds
- n = # of yrs to the bond's maturity
Q1244.
- What is the cost of preferred stock formula (kps)?
A1244.
- kps = Dps / Nps
- Dps = Preferred stock cash dividends
- Nps = Net proceeds of preferred stock
Q1245.
- What is the cost of retained earnings (Kre), using the
CAPM formula?
A1245.
- Kre = krf + [bi(km-kf)]
- krf= risk free rate
- bi = beta coefficient of the stock
- PMR = Market risk premium
- km = Market rate
Q1246.
- Define the Weighted Average Cost of Capital (retained
earnings) by formula
A1246.
- Below is terminology used in the cost of capital and are
part of the WACC formula:
- wdx = (weight for) long-term debt
- wps = (weight for) preferred stock
- wcs = (weight for) common stock equity
- kwc = weighted average cost of capital
- "k" stands for the specific COST of each type of capital;
"w" stands for the WEIGHT of each. So, WACC would be...
- kwc = (kdxwdx) + (kpswps) + (kcswcs)
Q1247.
- What is the formula for working capital?
A1247.
- CA - CL = WC
Q1248.
- What are the three (3) motivations for holding cash?
A1248.
- 1. TRANSACTION MOTIVE
- A transaction motive for holding cash is concerned with
having enough cash to meet payments arising from the
ordinary course of business.
- 2. SPECULATIVE MOTIVE
- A speculative motive for holding cash is concerned with
having enough cash to take advantage of temporary
opportunities.
- 3. PRECAUTIONARY MOTIVE
- A precautionary motive for holding cash is concerned
with having enough cash to maintain a safety cushion so
that unexpected needs may be met.
Q1249.
- What is the formula for computing the annual percentage
rate of quick payment discounts?
A1249.
- (360 / (pay period - discount period)) (Discount % / (100%
- Discount%))
Q1250.
- What is the cash conversion cycle formula?
A1250.
- inventory conversion period + receivables collection
period - payables deferral period
Q1251.
- What is the equation for economic order quantity?
A1251.
- Mnemonic: e = (2soc)
- or
- e = square root of (2so/c)
Q1252.
- Name and briefly describe the five major components that
comprise the information technology of an organization.
A1252.
- 1. Hardware
- 2. Network
- 3. Software
- 4. Data
- 5. People
Q1253.
- Describe the normal series of events in an Accounting
Information System (AIS):
A1253.
- 1. Transaction data from source documents is entered
into the AIS by the end user.
- 2. The original paper source documents are filed.
- 3. These transactions are recorded in the appro. journal.
- 4. The transactions are posted in the general and
subsidiary ledgers.
- 5. TBs are prepared
- 6. Financial reports are generated.
Q1254.
- Name and briefly describe five different types of MIS
reports.
A1254.
- 1. Periodic Scheduled Reports
- 2. Exception Reports
- 3. Demand Reports
- 4. Ad Hoc Reports
- 5. Push Reports
Q1255.
- What are the various categories of the Business
Information Systems?
A1255.
- 1. Transactional processing systems.
- 2. Knowledge systems.
- 3. Mgmt information systems.
- 4. Decision support systems.
- 5. Executive information systems.
Q1256.
- What are the primary roles of the Biz Info Systems (BIS)?
A1256.
- 1. Process detail data
- 2. Assist in making daily decisions, and
Q1257.
- What are the reporting risks in a BIS?
A1257.
- 1) Strategic Risk
- 2) Operating Risk
- 3) Financial Risk
- 4) Information Risk
Q1258.
- Identify functions that should be segregated in an IT
department.
A1258.
- The duties of systems analysts, computer programmers,
and computer operators should be segregated.
Q1259.
- Identify the four functions of a DBMS:
A1259.
- 1. Database Development
- 2. Database Query
- 3. Database Maintenance
- 4. Application Development
Q1260.
- Identify the seven components of a LAN.
A1260.
- 1. NODE
- 2. Workstation
- 3. Server
- 4. Network Interface Card (NIC)
- 5. Transmission Media
- 6. Network Operating System (NOS)
- 7. Communications Device.
Q1261.
- Identify the two types of networks that can be used to
provide WAN Communications services.
A1261.
- VAN - privately own communications networks that
provide additional services beyond standard data
transmissions
- Internet based networks - use internet protocols and
public communications channels to establish network
communications.
Q1262.
- List some of the features of the value added network.
A1262.
- VAN:
- is privately owned
- provides additional services
- provides good security
- uses periodic (batch) processing
- may be expensive.
Q1263.
- List some of the features of an internet-based network.
A1263.
- An internet based network:
- uses public communication channels
- transmits transactions immediately
- is relatively affordable
- increases the number of potential trading partners.
Q1264.
- What is the difference between the intranet and the
extranet?
A1264.
- An intranet connects geographically separate LANs
within a company, whereas an extranet permits specified
external parties to access the company's network.
Q1265.
- Describe two types of processing used in the
computerized environment.
A1265.
- Batch processing processing
- On-line, real-time (OLRT) processing - immediate
processing
Q1266.
- Identify three types of computer software.
A1266.
- System software (programs that run the computer).
- Programming languages (generate computer processing
instructions)
- Application software (end user programs)
Q1267.
- What is a batch control total?
A1267.
- A batch control total is a manually calculated total that is
compared to a computer generated total as a means of
testing accuracy and completeness.
Q1268.
- What are the advantages and disadvantages of
centralized processing?
A1268.
- Advantages:
- Data is secured better, once received.
- Processing is consistent (decentralized systems may result in
inconsistent processing among regional offices).
- Disadvantages:
- cost of transmitting large numbers of detailed transaction can
be high
- there are increasing processing power and data storage
needs at the central location.
- there is a reduction in local accountability
- input/output bottlenecks may occur at high traffic times.
- there may be a lack of ability to respond in a timely manner to
information requests from remote locations
Q1269.
- Identify some differences and problems that one needs to
be aware of when auditing in a computer environment
rather than in a manual environment.
A1269.
- 1. Disappear Audit Trail
- 2. Uniform Transaction Processing
- 3. Computer Initiated Transactions
- 4. Potential for Increased Errors and Irregularities
- 5. Potential for Increased Supervision and Review.
Q1270.
- List and explain the steps in batch processing.
A1270.
- Batch processing is accomplished in two steps:
- 1. Create a transaction file: the first step is to create a
transaction file by manually (usually) keying the data (data
entry), editing the data for completeness and accuracy,
and making any necessary corrections.
- 2. Update the Master File: the second step is to update
the master file by sorting the transaction file into the same
order as the master file and then updating the relevant
records in the master file from the transaction file.
Q1271.
- What is the basic difference between a database
management system and a database?
A1271.
- A database is an integrated collection of data records and
data files.
- A database management system (DBMS) is the software
that allows an organization to create, use, and maintain a
database.
Q1272.
- What is a data warehouse and what is data mining?
A1272.
- A data warehouse is a collection of databases that store
both operations and management data.
- Data mining is the processing of data in a data warehouse
to attempt to identify trends and patterns of business
activity.
Q1273.
- What are some advantages of a DBMS?
A1273.
- Advantages of a DBMS include:
- 1. Data redundancy & inconsistency are reduced.
- 2. Data sharing exits
- 3. Data independence exists
- 4. Data standardization exits
- 5. Data security is improved, and
- 6. Data fields can be expanded without adverse effects on
application programs.
Q1274.
- What is the basic difference between WANs and LANs?
A1274.
- The basic difference between WANs and LANs is
distance.
- LANs normally are within a fairly limited distance, and
WANs allow much longer distance.
Q1275.
- How can the internet be defined?
A1275.
- The internet is an international network composed of
servers around the world that communicate with each
other.
Q1276.
- What are some of the similarities and differences between
the internet, intranets, and extranets?
A1276.
- The internet, intranets, and extranets all use internet
protocols and public communication networks rather than
proprietary protocols and networks so that the same
browsers can be used.
- Intranets connect LANs within a company
- Extranets allow a company's customers and suppliers to
access the company's network.
Q1277.
- What are three types of programmed controls?
A1277.
- 1. input controls
- 2. processing controls
- 3. output controls
Q1278.
- What is the major distinction between batch processing
and online processing?
A1278.
- The major distinction between batch processing and
online processing is that transactions in a bath processing
system are processed in batches and not necessarily at
the time those transactions are submitted.
- In online processing, transactions are processed as the
transactions are entered.
Q1279.
- What is the distinction between centralized and
distributed process?
A1279.
- Central processing maintains data and performs data
processing at one or more central locations.
- Decentralized processing occurs when computing power
and processing are spread out over many locations.
Q1280.
- What characteristics of a computerized system might lead
to a higher potential for errors and irregularities than in
manual systems?
A1280.
- The following:
- 1. the opportunity for remote access increases the
likelihood for unauthorized access.
- 2. concentration of information means that once security
is breached, the potential for damage is higher
- 3. decreased human involvement in processing results in
a decreased opportunity for observation of errors
- 4. errors of fraud might occur in the design or
maintenance of application programs
Q1281.
- What are access controls?
A1281.
- Access controls limit access to program documentation,
data files, programs, and computer hardware to authorized
personnel.
- Examples include locks, passwords, user id codes,
assignment of security levels, call backs on dial up
systems, setting of file attributes, and use of firewalls.
Q1282.
- What is a firewall?
A1282.
- A firewall is a system of user identification and
authorization that prevents unauthorized users form
gaining access to network controls.
Q1283.
- What is disaster recovery and what is the difference
between a hot site and a cold site?
A1283.
- Disaster recovery consists of plans for continuing
operations in the event of destruction of not only program
and data files but also processing capability.
- A hot site is an offsite location that is completely
equipped to immediately take over a company's data
processing.
- A cold site is an offsite location that has all the electrical
connections and other physical requirements for data
processing, but does not have the actual equipment.
Q1284.
- Identify the costs associated with implementing EDI.
A1284.
- 1. Legal Costs
- 2. Hardware Costs
- 4. Costs of Data Transmission
- 5. Process reengineering and employee training costs for
affected applications
procedures.
Q1285.
- Define B2B transactions and identify the three different
markets.
A1285.
- When a biz sells its products or services to other
businesses, it is called a B2B transaction.
- B2B E-commerce: many businesses buy, sell, trade their
products & services w/ other businesses.
- Electronic Market: it is very common for B2B transactions
to occur electronically via the internet.
- Direct Market: it is also very common for b2b transactions
to occur electronically between businesses where there is
a pre-existing relationship.
Q1286.
- Identify some advantages of B2B e-commerce.
A1286.
- speed
- timing
- personalization
- security
- reliability
Q1287.
- Define electronic funds transfer (EFT).
A1287.
- EFT systems are a major form of electronic payment for
banking and retailing industries.
- EFT uses a variety of technologies to transact, process,
and verify money transfers and credits between banks,
businesses, and consumers.
- The FED wire system is used very frequently in EFT to
reduce the time and expense required to process cks and
credit transactions.
Q1288.
- Define EDI
A1288.
- EDI is computer to computer exchange of business
transactions documents.
Q1289.
- How are EDI transactions submitted, and what is
mapping?
A1289.
- EDI transactions are submitted ina standard data format
- Mapping is the process of determining the
correspondence between elements in a company's
terminology and elements in standard EDI terminology.
Q1290.
- What are the characteristics / features of EDI?
A1290.
- 1. EDI allows the transmission of electronic documents
between computer systems in different orgs.
- 2. EDI reduces handling costs and speeds transaction
processing.
- 3. EDI requires that all transactions be submitted in a
standard format.
- 4. EDI can be implemented using direct links, VANs, or
over the internet.
Q1291.
- What are some controls for and EDI system?
A1291.
- Encryption of data
- Activity logs of failed transactions
- Network and sender / recipient acknowledgments.
Q1292.
- What is e-commerce?
A1292.
- E-commerce involves electronic consummation of
exchange transactions.
- E-commerce normally implies the use of the internet.
Q1293.
- What is B2B?
A1293.
- B2B is e-commerce between businesses.
Q1294.
- What is supply chain mgmt?
A1294.
- supply chain mgmt is the mgmt of an organization's
supply chain including what, when, where, and how much
for every sale.
Q1295.
- Name the three components of product costs.
A1295.
- Direct Materials (DM)
- Direct Labor (DL)
- Manufacturing Overhead (MO)
- Prime Costs = DM + Dl
- Conversion costs = DL + MO
Q1296.
- Distinguish between product & period cost.
A1296.
- Product costs are inventoriable; they become cost of
goods sold when sold.
- Period costs are
- expensed in the period incurred.
Q1297.
- Determine the standard overhead rate.
A1297.
- Standard OH rate = Est. total mfg OH costs / Est. total
activity level of cost driver.
Q1298.
- Define: Executional Cost Driver
A1298.
- executional cost drivers are factors that are helpful to the
firm in managing the short term costs of the firm (eg
relationships with suppliers, enhancements to production
processes, etc.)
Q1299.
- Define: Structural Cost Drivers
A1299.
- Structural cost drivers are strategic decisions or plans
made by the firm that have a long-term effect on the cost
(eg., experience, available technology, etc.)
Q1300.
- Define: Relevant Range
A1300.
- The relevant range is the range of volume for which the
assumptions of the cost driver (ie linear relationship with
the costs incurred) are valid and in which the actual value
of the cost driver exists.
Q1301.
- With joint products, what is the treatment of costs
incurred before the split-off point?
A1301.
- Costs incurred before split off point are sunk costs, not
relevant to further processing decisions.
- Joint costs are allocated using one of the following
methods. Use % of product to total based on a ratio of:
- Relative sales value
- Net realizable value
- Physical units
Q1302.
- What type of costs does a standard cost measurement
system use for determination of manufacturing costs?
A1302.
- Standard cost systems use standard costs for all
manufacturing costs (ie raw materials, direct labor and
manufacturing overhead).
Q1303.
- What is the difference between job and process costing?
A1303.
- Job Costing: With job costing, each unit/batch is unique
and easily identifiable costs determined by each job.
- Example: We print your resume in our print shop.
- Processing: With processing costing, continuous mass
produced identical units are manufactured and costs are
determined by activity / process / department.
- Example: We process crude oil into gasoloine.
Q1304.
- What is an equivalent unit?
A1304.
- Used in process costing, equivalent units are fully
completed and partially completed units during the period.
- In applying costs, determine the units, then costs, then
apply then apply the cost flow for cost per unit and
allocation of costs.
Q1305.
- Name the types of spoilage and indicate the appropriate
accounting treatment.
A1305.
- Abnormal: Charge to income of the current period.
- Normal: Increase the cost of the product produced (ie.,
inventorable).
Q1306.
- Define: Activity Base Costing (ABC)
A1306.
- ABC is a costing theory that assumes that resource
consuming activities cause costs and that costs should be
assigned to benefiting products based on the activities
performed and the resources consumed.
- ABC systems often divide costs into multiple activity
centers and identify the activities that drive the costs in
each cost center. Costs are then assigned based upon the
volume of cost drivers at the determined rate per cost
driver.
Q1307.
- List and define the types of economic costs.
A1307.
- Explicit Costs:
- Explicit costs are documented out of pocket expenses.
- Implicit Costs:
- Implicit costs are opportunity costs of inputs supplied by
the owners (equity contributions).
Q1308.
- Distinguish between accounting and economic costs.
A1308.
- Accounting Costs:
- Accounting costs are explicit costs.
- Economic Costs:
- 1. Economic costs combined accounting (explicit) costs
and opportunity (implicit) costs.
- 2. Economic costs is a broader concept than accounting
costs.
Q1309.
- List and define the three main production concepts.
A1309.
- Total Product:
- Total product equals the total amount of output "Q".
- Marginal Product
- Marginal product equals the change in total product
resulting from one unti increase in quantity of an input
employed.
- Average Product:
- Average product equals the total product divided by the
quantity of an input.
Q1310.
- Define: Diminishing Marginal Returns
A1310.
- Diminishing marginal returns is sometimes referred to as
diminishing marginal product.
- The concept refers to the fact that marginal product of an
input typically falls as the quantity of the input increase.
Q1311.
- Define: Economies of Scale
A1311.
- Economies of scale are reductions in unit costs resulting
from increased size of operations.
Q1312.
- Define: Diseconomies of Scale
A1312.
- Diseconomies of sale are increases in average costs of
operations resulting from problems in managing large
scale enterprises.
Q1313.
- Define: Strategic Positioning.
A1313.
- During strategic positioning, a firm will determine the
best manner to achieve organizational goals and assess
the quality practices of the organization.
Q1314.
- What is a Balanced Scorecard?
A1314.
- A balanced scorecard is a report a firm produces that
highlights the multiple dimensions of performance,
customer satisfaction, and human resource use.
Q1315.
- Define: Ideal Standards
A1315.
- Ideal standards represent cost that result from perfect
efficiency and effectiveness in job performance.
Q1316.
- Define: Currently Attainable Standards
A1316.
- Currently attainable standards represent costs that result
from work performed by employees with appropriate
training and experience but without extraordinary effort.
Q1317.
- Define: Fexible Budget
A1317.
- A flexible budget is a budget that can be adjusted to any
activity level. It shows how costs can vary with production
volume.
- Budgeted total costs = (variable cost per unit * activity
level) + fixed costs
- Fixed costs in total are constant over the relevant range
of activity.
Q1318.
- Identify the direct material variances (two way variance
analysis).
A1318.
- 1. Direct Materials price variance = (AP - SP) * AQ
- where AP = actual price., SQ is standard price, AQ actual
quantity purchased.
- 2. Direct Materials quanity usuage variance = (AQ-SQ)*SP
- where AQ is actual quantity used. SQ is actual quantity
allowed. SP is standard price.
Q1319.
- When calculating the "difference" in variance anlysis,
what is the formula?
A1319.
- It would be SAD if you forgot this formula:
- S: Standard
- A: <Actual>
- D: DIFFERENCE
Q1320.
- Identify the direct labor variances (two way variance
analysis).
A1320.
- 1. Direct Labor rate variance = (SR-AR)*AH
- 2. Direct Labor efficiency variance = (SH-AH)*SR
- where
- AR=Actual Labor Hour
- SR=Standard Labor Hour
- AH=Actual Hours
- SH=Standard Hours
Q1321.
- Define: Contribution by SBU
A1321.
- Contribution Margin
- <Controllable Fixed Costs>
- Contribution by SBU represents the difference between
the contribution margin (Fixed - Variable Costs) and
controllable fixed costs (those costs that managers can
impact in less than one year).
Q1322.
- What is the purpose of the balanced scorecard?
A1322.
- The balanced score card displays performance relative to
critical success factors identified for multiple dimensions
of a business operaton.
Q1323.
- List the two alternate formulas of ROI.
A1323.
- ROI: Inc / Invest. Capital
- ROI: PM* Invest. Turnover
- Invest. Turnover = Sales / Assets
Q1324.
- Gross Profit Margin
A1324.
- Sales - Cost of goods sold)/Sales
- Shows percentage of revenues available to cover
operating expenses and yield a profit. Higher is better.
Q1325.
- Define Benchmarking
A1325.
- Benchmarking is the process of identifying standards for
critical success factors for:
- 1. Comparison to actual performance.
- 2. Determination of gaps.
- 3. Implementation of improvements.
Q1326.
- What are best practices?
A1326.
- Best practices represent externally determined
benchmarks from workclass performers.
Q1327.
- Identify the costs of quality
A1327.
- appraisal costs
- prevention costs
- internal failure costs
- external failure costs
Q1328.
- What is the formula for residual income?
A1328.
- Net book value
- * Hurdle rate
- REQUIRED RETURN
- If amount of inc. from the inv. exceeds the computed
required return, performance objectives have been met.
Q1329.
- What dimensions or categories of business operations
are frequently identified by the balanced scorecard?
A1329.
- F: Finance
- I: Internal business Processes
- C: Customer satisfaction
- A: Advancement of human resource innovation
Q1330.
- List the 5 steps in theory of constraint analysis.
A1330.
- Mnemonic: IMAR
- I: Identify the constraint
- M: determine the profitable product Mix
- F: maximize the Flow through the constraint
- A: Add capacity to the constraint
- R: Redesigning the manufacturing process for flexibility
and faster cycle time.
Q1331.
- List and define the types of responsibilty segments (or
strategic business units - SBUs) that are used to establish
business performance measures.
A1331.
- Cost SBU: Managers are held responsible for controlling
costs.
- Revenue SBU: Managers are held responsible for
generating revenue.
- Profit SBU: Managers are held responsible for producing
a target profit.
- Investment SBU: Managers are held responsible for ROI.
Q1332.
- Using the "PURE" mnemonic, identify the formulas for 2
way variance anlaysis.
A1332.
- P: Price D*A
- U: Usage D*S
- R: Rate D*A
- E: Efficiency D*S
- D="Difference" (S-A)=D: "SAD"
- A=Actual
- S=Standard
Q1333.
- What is the formula for Cost of Goods Manufactured aka
COGM?
A1333.
- Mnemonic: BASE
- B: WIP (begin)
- A: + DM
- A: + DL
- A: + MO
- S: - WIP (end)
- E: COGM
Q1334.
- What are cost behavior patterns?
A1334.
- Process that allows us to predict how costs change in
response to changes in production or sales.
Q1335.
- What is the goal in analyzing costs?
A1335.
- To predict total costs and profit
Q1336.
- Very few costs behave consistently across a wide range
of production or sales volumes. T or F
A1336.
- True
Q1337.
- Cost behavior patterns must be analyzed under the
notion of what concept?
A1337.
- Behavior can only be analyzed within a "relevant range"
due to costs not behaving consistently over a wide range
Q1338.
- What is relevant range?
A1338.
- A range in production volumes where:
- 1. Total fixed costs remain constant
- 2. Unit Variable costs remain constant
- 3. Unit sales price remain constant
Q1339.
- All costs behavior patterns are valid only within...
A1339.
- A relevant range
Q1340.
- In a relevant range, total fixed costs remain constant and
unit fix costs do what?
A1340.
- Vary inversely
Q1341.
- How do total variable costs behave when production
volume changes?
A1341.
- Varies directly
Q1342.
- What two techniques are designed to support large
expensive items, customized, special order, small lots OR
large batch, homogeneous production?
A1342.
- Job Order & Process Costing
Q1343.
- What is Job Order Costing?
A1343.
- A costing technique that supports large expensive
heterogeneous items, customized special order, individual
or small lots
Q1344.
- What is Process Costing?
A1344.
- A costing technique that supports large batches,
homogeneous products
Q1345.
- In a job order cost system, where are costs accumulated?
A1345.
- In an individual WIP acct (job order cost sheet)
Q1346.
- What is done with the total for individual WIP accts under
the job order cost system?
A1346.
- The totals are transferred to the WIP control acct
Q1347.
- What's the process of a job order cost system?
A1347.
- 1. Accumulate costs in an individual WIP acct at the
actual costs.
- 2. Transfer the total from the individual WIP acct to the
WIP ctrl acct.
- 3. Apply FO. Charge to WIP ctl and FOA at the std costs.
- 4. In over or under amounts in WIP is decreased from or
charged to CGS.
- 5. Costs flow from FG to CGS.
Q1348.
- What is the acronym utilizing the job order cost system?
A1348.
- A Accumulate costs
- T Transfer total
- A Apply FO
- C Costs flow
Q1349.
- What's the main issue in process costing?
A1349.
- Since costs of goods are not individually tracked, the
problem lies in determining how many units were products
for the period and assigning a cost to them.
Q1350.
- JIT is a pull or push production process?
A1350.
- Pull
Q1351.
- The production schedule of the traditional "push"
production is based on budgeted or actual sales?
A1351.
- Budgeted
Q1352.
- The production schedule of the "pull" production is
based on budgeted or actual sales?
A1352.
- Actual
Q1353.
- In a JIT system, as customer orders are received...
A1353.
- Goods are scheduled for production
Q1354.
- In a JIT system, later steps pull production through...
A1354.
- the later steps
Q1355.
- In a well managed JIT system, all inventories will be...
A1355.
- Eliminated
Q1356.
- Name the characteristics that must be present in order for
a JIT inventory system to function properly.
A1356.
- 1. Many small orders
- 2. Timely delivery
- 3. Negotiate long contracts w/sm # of suppliers
- 4. Raw materials always high quality
- 5. Inspection of goods reduced
- 6. Order & Pmt Processing costs reduced
Q1357.
- JIT production environments are characterized by:
A1357.
- 1. Set up quickly
- 2. Skilled workforce that can perform multiple tasks
- 3. Very low rate of defects
Q1358.
- What is backflush costing?
A1358.
- A product costing approach that delays costs until goods
are completed or sold.
- Costs are not tracked from raw mat to FG/CGS because
theoretically, in a JIT system, inventory is eliminated.
Q1359.
- What does transfer pricing mean?
A1359.
- The prices of goods transferred between organizational
departments.
Q1360.
- Transfer prices are determined by one of three methods.
What are the methods?
A1360.
- Market Price
- Cost-based Price
- Negotiated Price
Q1361.
- What is Suboptimization?
A1361.
- When departmental managers seek to optimize their
individual best interest rather than the interest of the
organization as a whole.
Q1362.
- What is Goal Incongruence?
A1362.
- When actions encouraged by the reward structure of the
dept conflict with the goals of other depts or the
organization as a whole.
Q1363.
- What is Goal Congruence?
A1363.
- When the department and division managers make
decisions that are consistent with the goals and objectives
of the organization as a whole.
Q1364.
- What helps to ensure goal congruence?
A1364.
- The Transfer Pricing Rule
Q1365.
- What is the transfer pricing rule (formula)?
A1365.
- Transfer Price =
- Add'l Outlay Cost per unit + Opp Cost per unit
Q1366.
- What are additional outlay costs?
A1366.
- VARIABLE Production Costs + Additional Costs to sell
incurred by the selling unit
- Variable Prod'n costs - DM, DL, Var FO
- Other costs - storage, transportation, S&A
Q1367.
- In reference to transfer pricing, define opportunity costs.
A1367.
- The benefit foregone due to selling internally.
Q1368.
- In transfer pricing, opportunity cost only exists when...
A1368.
- The selling unit is producing and selling at full capacity.
Q1369.
- What is full capacity?
A1369.
- Producing AND Selling at full capacity
Q1370.
- What is the Opportunity Cost per Unit (OCU) formula =?
A1370.
- OCU = SPU AOU
- SPU = Selling Price per unit
- AOU = Add'l Outlay Cost per unit
Q1371.
- What is another definition of opportunity cost?
A1371.
- Sales given up less the add'l outlay cost to produce it
Q1372.
- When the selling unit is operating at full capacity and can
sell all that it produces, what should the transfer price be?
A1372.
- Market Price
Q1373.
- What is the theoretical transfer price?
A1373.
- Market Price
Q1374.
- What should the transfer price be when the selling unit
has EXCESS production capacity?
A1374.
- Additional Outlay Cost per Unit.
Q1375.
- When negotiating transfer prices among divisions, the
buying division's maximum price is?
A1375.
- The min price on the open market.
Q1376.
- When negotiating transfer prices among divisions, the
selling division's minimum price will be?
A1376.
- 1) Its direct costs if it has excess capacity or
- 2) Its market price if no excess capacity
Q1377.
- What are transfer prices based on when using cost-based
pricing?
A1377.
- Production Costs
Q1378.
- What are the three variations of cost-based pricing when
determining transfer prices?
A1378.
- Variable Cost Pricing
- Full Cost Pricing (absorption)
- Cost - Plus Pricing
Q1379.
- How is the transfer price determined when using the
variable cost pricing method?
A1379.
- The price is the cost to produce and sell the item to the
purchasing division.
- DM, DL, VFO, FS&A
Q1380.
- Under the variable cost pricing method for determining
transfer prices, should standard or actual costs be used?
A1380.
- Standard
Q1381.
- Using standard costs provides an incentive for the
purchasing or selling division?
A1381.
- Purchasing
Q1382.
- How are transfer prices determined when using the full
cost pricing method?
A1382.
- By allocating an amount of fixed cost from the selling
division to the variable cost of production.
Q1383.
- Why is the full cost method for determining transfer
prices problematic for the organization as a whole?
A1383.
- Because the fixed costs become variable costs to the
purchasing division and will understate profitability when
these costs are used in earnings analyses.
Q1384.
- How are transfer prices determined when using the cost
plus pricing method?
A1384.
- Transfer prices are based on the selling divisions add'l
costs per unit plus a fixed dollar amount or percentage of
the cost.
Q1385.
- Under transfer pricing, cost plus pricing have the same
advantages and disadvantages as what other cost based
method?
A1385.
- Full Cost Pricing
Q1386.
- Under transfer pricing, what does dual pricing mean?
A1386.
- Gives both the buying and selling division the price that
"works best" for them.
Q1387.
- Under dual pricing, what is the transfer price based on for
the selling and purchasing division?
A1387.
- Selling Div - Transfers out at Market Price
- Purchasing Div - Transfers in at Std Variable Costs
Q1388.
- What happens when both the buying and selling divisions
receive prices that enhance both their profitability?
A1388.
- The value of pricing as an incentive for divisions to
control cost is lost
Q1389.
- Transfer pricing is a useful tool in promoting what?
A1389.
- Goal Congruence
Q1390.
- How is transfer pricing useful in the international
environment?
A1390.
- It can reduce tax liability.
- Relating to taxes and import duties when bring products
across state or international lines.
Q1391.
- Why is transfer pricing problematic in decentralized
organizations?
A1391.
- Managers of the buying and selling division tend to seek
to maximize their own departmental revenues and
minimize their own departmental costs.
Q1392.
- When can the selling unit use cost based pricing?
A1392.
- When the selling unit has excess capacity
Q1393.
- Word of Advice
A1393.
- Decisions involving relevant costs are tested lightly on
the exam - usually a single question about one of the four
types of decisions per exam.
- This is, however, one of the few areas in Planning &
Measurement for which questions tend to be
computational rather than conceptual.
Q1394.
- What are relevant costs and benefits, in general?
A1394.
- Costs and benefits that must be identified in making
certain production decisions.
Q1395.
- What are relevant costs and benefits more specifically?
A1395.
- All future COSTS and BENEFITS that DIFFER among
alternatives.
Q1396.
- What is another name for relevant costs and benefits?
A1396.
- Relevant Factors
Q1397.
- What are the four categories of production decisions that
focus on identifying relevant costs?
A1397.
- Please Keep My Angels
- Process Further or Sell Now
- Keep or Drop
- Make or Buy
- Accept or Reject
Q1398.
- What are the two types of relevant factors?
A1398.
- Avoidable Costs (costs)
- Opportunity Costs (benefits)
Q1399.
- What are avoidable costs?
A1399.
- Costs that can be eliminated by choosing one alternative
over another.
Q1400.
- What are opportunity costs?
A1400.
- Benefits forgone when the selection of one course of
action prevents another course of action.
Q1401.
- What are the two general categories of unavoidable or
irrelevant costs?
A1401.
- Sunk Costs
- Future costs and benefits that DO NOT DIFFER among
alternatives
Q1402.
- What are sunk costs?
A1402.
- Costs that have already occurred and cannot be changed.
Q1403.
- Give examples of the unavoidable future costs and
benefits that will not differ among alternatives.
A1403.
- Fixed or allocated costs
Q1404.
- When making decisions to process further or sell now,
what type of products does this usually involve?
A1404.
- Joint products, but not always
Q1405.
- What are two important things to note about the joint
product environment?
A1405.
- 1. Products are not separately identifiable until after the
split-off point.
- 2. The costs incurred up to the split-off point cannot be
separated or avoided.
Q1406.
- What is the basic concept behind quality management?
A1406.
- Customer Satisfaction
Q1407.
- What are the three most common measures of customer
satisfaction in regards to total quality management?
A1407.
- sales returns
- warranty costs
- customer complaints
Q1408.
- Give examples of measures that are NOT measures of
customer satisfaction.
A1408.
- time required to product the product, design costs,
testing costs
Q1409.
- What is the definition of "Quality?"
A1409.
- How well an item meets its DESIGN specifications
Q1410.
- What is the term for the DEGREE to which an item meets
its design specifications and or customer expectations?
A1410.
- Quality of Conformance
Q1411.
- Define the term for the costs incurred by an organization
to ensure a high quality of performance.
A1411.
- Costs of Quality
Q1412.
- What are the four costs of quality?
A1412.
- Prevention, appraisal, internal failure, external failure
Q1413.
- What is strategic management?
A1413.
- The process of formulating organizational goals and
objectives, developing tactics to achieve these goals, and
designing performance measures to evaluate whether the
goals and objectives are being met.
Q1414.
- What does the overall organizational strategy define?
A1414.
- How the organization competes in the marketplace.
Q1415.
- Name one model that has been developed to help
formulate an organization's strategy?
A1415.
- "Porter's Five Forces" developed by Michael Porter
Q1416.
- What does Porter's Five Forces evaluate in regards to
strategic management?
A1416.
- It measures the organization's competitive intensity
based on five dimensions.
Q1417.
- HOW does Porter's Five Forces measure competitive
intensity?
A1417.
- Based on five dimensions of:
- Bargaining power of customers
- Bargaining power of suppliers
- Threat of new entrants
- Threat of substitute products
- Intensity of competition
- bargaining power of suppliers
Q1418.
- Name two generic strategies from Porter's model for
competition in broad (national & international) arenas.
A1418.
- Product differentiation, Cost leadership
Q1419.
- Define the third strategy under Porter's model, stemming
from segmenting the market.
A1419.
- Focus strategy, niche marketing
Q1420.
- Competition in market SEGMENTS can be based on what
two strategies?
A1420.
- Low cost (cost focus) or product differentiation (focused
differentiation)
Q1421.
- What is responsibility accounting?
A1421.
- Measurement of management performance based on
what they can control.
Q1422.
- In DECENTRALIZED organizations, management control
is ususally established by...
A1422.
- Dividing the organization into segments, responsibility
centers.
Q1423.
- Name four types of responsibility centers.
A1423.
- Cost center
- Revenue center
- Profit center
- Investment center
Q1424.
- What is a cost center?
A1424.
- Segment of organization where NO REVENUE is
generated & the manager is only responsible for costs.
Q1425.
- Give examples of cost centers.
A1425.
- Service (custodial), staff (personnel), and production
centers.
Q1426.
- What is a Revenue center?
A1426.
- Organizational unit whose manager is responsible only
for REVENUES.
Q1427.
- Give examples of revenue centers.
A1427.
- Sales and Marketing depts
Q1428.
- What is a Profit center?
A1428.
- Organizational unit whose manager is responsible for
REVENUES and COSTS.
Q1429.
- Give examples of profit centers.
A1429.
- Stores or product lines
Q1430.
- What is an investment center?
A1430.
- An organizational unit whose manager is responsible for
return on investments (revenues, costs, & profit)...the size
of the profit in relation to the investment.
Q1431.
- What is responsibility accounting in terms of the
accounting field?
A1431.
- The accounting procedures and reports used to measure
the performance of responsibility centers.
Q1432.
- Management uses responsibility accounting to support...
A1432.
- Goal Congruence
Q1433.
- What is goal congruence?
A1433.
- When the goals of individual segments/departments meet
the goals of the entire organization
Q1434.
- A fundamental concept of responsibility accounting is...
A1434.
- Controllability...managers should only be responsible for
what they can control.
Q1435.
- Most managers should not be held responsible for which
costs?
A1435.
- Depreciation and Insurance exp
Q1436.
- What is the definition of Business Information Systems
(BIS)?
A1436.
- DEFINITION is any combination of people, procedures,
and computing equipment employed to pursue an
organizational objective. STAKEHOLDERS - get output
from system. (can be outside organization)
Q1437.
- The Four Major Tasks of any Information System is?
A1437.
- The 4 elements are:
- a. Input
- b. Transformation
- c. Output
- d. Storage
Q1438.
- What is the definition of a Transaction Processing System
(TPS)?
A1438.
- DEFINITION is it captures the fundamental data that
reflect the economic life of an organization.
Q1439.
- What is the definition of a Management Information
System (MIS)?
A1439.
- DEFINITION is it typically receives information from a
TPS, aggregates it, then reports it in a format useful to
middle management in running the business.
Q1440.
- What is a Data Warehouse?
A1440.
- DEFINITION is it is a central database for transaction-
level data from more than one of the organization's TPSs.
- The ability of the data warehouse to relate data from
multiple systems makes it a very powerful tool for ad hoc
queries.
Q1441.
- What is a Data mart?
A1441.
- DEFINITION is it is a subset of an enterprise-wide data
warehouse.
Q1442.
- Data Mining - What is it?
- What enables it?
A1442.
- DEFINITION is it is the search for unexpected
relationships between data.
- It is enabled by a Data Warehouse.
Q1443.
- What is a Decision Support System (DSS)?
A1443.
- DEFINITION is it is an interactive system that is useful in
solving structured and semi-structured problems, that is,
those requiring a management decision maker to exercise
his or her insight and judgment.
Q1444.
- Does a DSS automate a decision?
A1444.
- No.
Q1445.
- What is an Expert System (ES)?
A1445.
- DEFINITION is it is an interactive system that attempts to
imitate the reasoning of a human expert in a given field.
- It is useful for addressing unstructured problems when
there is a local shortage of human experts.
Q1446.
- What is Artificial Intelligence (AI)?
A1446.
- DEFINITION is it attempts to imitate human decision
making, which hinges on a combination of knowledge and
intuition.
- It is more sophisticated than (ES).
- It is designed to perceive, reason, and understand.
Q1447.
- What is Business Intelligence (BI)?
A1447.
- DEFINITION is it is what gives upper management the
information it needs to know where the organization is and
how to steer it in the intended direction.
- It gives an executive immediate information about an
organization's critical success factors.
Q1448.
- What is Enterprise Resource Planning (ERP)?
A1448.
- DEFINITION is it is the latest phase in the development of
computerized systems for managing organization
resources.
- It is intended to integrate IS's all over the organization by
creating one database linked to all of an organization's
applications.
Q1449.
- What is Office Automation Systems (OASs)
A1449.
- DEFINITION is it is the word processing, spreadsheet,
digital document storage, and desktop publishing
applications familiar to most office workers, that are part of
any organization's IS environment.
Q1450.
- Does it matter for a BIS if it is manual or computer-
based?
A1450.
- The goals of BIS are the same. The risks are different.
Q1451.
- List typical IT Personnel titles
A1451.
- a. DBA
- b. Network Tech
- c. Webmaster
- d. Computer Operators
- e. Librarians
- f. System Programmers
- g. Application Programmers
- h. Help Desk
Q1452.
- What is the most common method for building new IS?
A1452.
- SDLC Approach.
Q1453.
- What is Systems Development Life-Cycle (SDLC)?
A1453.
- DEFINTION is it is highly structured and if properly
followed it can be helping an organization deploy
maintainable, well-documented systems with the
functionality that was intended.
Q1454.
- What are the SDLC Steps?
A1454.
- Steps are:
- a. Project Definition Phase
- b. Feasibility Study
- c. Cost Benefit Analysis
- d. Project initiation Phase
- e. Systems Analysis
- f. Systems Design
- g. Physical Database Design
- h. Program Development
- i. Procedure Development
- j. Installation & Operation
- k. System Maintenance
Q1455.
- What functions need to be segregated with IT?
A1455.
- List includes:
- a. Information Security
- b. Systems Development and Maintenance
- c. Computer Operations
- d. Data Administration
- e. End Users
Q1456.
- What function does an IT Security Officer perform?
A1456.
- Function performed is:
- Responsible for formulation and enforcing a formal IS
policy for all employees and outside parties who access
the organization's systems.
Q1457.
- What is the purpose of Systems Development and
Maintenance?
A1457.
- The purpose is due to the users of an organization
requesting new systems created & changes and
enhancements to existing systems.
Q1458.
- What is the function of Computer Operations?
A1458.
- The function is for the smooth running of medium &
large-scale computers.
- ex) Job scheduling and out production
Q1459.
- What is the function of Data Administration?
A1459.
- The function is the determination of how the
organization's data should be stores and what
relationships about the data best achieve the
organization's business objectives.
Q1460.
- What is the purpose of a DBA?
A1460.
- Purpose is to keep the databases running efficiently
Q1461.
- Who or what function is an end user?
A1461.
- Function:
- Data BELONGS to their department.
Q1462.
- What is INPUT
A1462.
- DEFINITION is that the system must acquire (capture)
data from within or outside of the entity.
Q1463.
- What is TRANSFORMATION
A1463.
- DEFINITION is that raw materials (data) are converted into
knowledge useful for decision making (information).
Q1464.
- What is OUTPUT
A1464.
- DEFINITION is that the ultimate purpose of the system is
communication for results to internal or external users.
Q1465.
- What is STORAGE
A1465.
- DEFINITION is that before, during, and after processing,
data must be temporarily or permanently stored in files or
databases.
Q1466.
- What is a TRANSACTION?
A1466.
- DEFINITION is it is a single, discrete event that can be
captured by an information system.
Q1467.
- MIS are often classified by function or activity. What are
common activities?
A1467.
- 1. Accounting
- 2. Finance
- 3. Manufacturing
- 4. Logistics
- 5. Marketing
- 6. Human Resources
Q1468.
- For function ACCOUNTING, what are the activities?
A1468.
- Activities for function are:
- General Ledger
- Accounts Receivable
- Accounts Payable
- Fixed Assets Management
- Tax Accounting
Q1469.
- For function FINANCE, what are the activities?
A1469.
- Capital budgeting
- Operational budgeting
- Cash Management
Q1470.
- For function MANUFACTURING, what are the activities?
A1470.
- Production Planning
- Cost Control
- Quality Control
Q1471.
- For function LOGISTICS, what are the activities?
A1471.
- Activities for the function are:
- Inventory Management
- Transportation Planning
Q1472.
- For function MARKETING, what are the activities?
A1472.
- Sales Analysis
- Forecasting
Q1473.
- For function HR, what are the activities?
A1473.
- Projecting payroll
- Projecting benefits obligations
- Employment-level planning
- Employee Evaluation tracking
Q1474.
- What is a STOVEPIPE SYSTEM?
A1474.
- DEFINITION is it is a single-focus system like most MIS
that are classified by function or activity.
Q1475.
- What is an INTEGRATED SYSTEM?
A1475.
- DEFINTION is it links multiple business activities across
the enterprise.
Q1476.
- What do data warehouses require?
A1476.
- THEY require transaction records be converted to a
standard format. They are very large repositories.
Q1477.
- What is ONLINE ANALYTICAL PROCESSING (OLAP)?
A1477.
- It is when data warehouses are accessed using analytical
and graphics tools.
Q1478.
- What is an important component of OLAP?
A1478.
- Component is drill down analysis.
Q1479.
- What is DRILL DOWN ANALYSIS?
A1479.
- DEFINITION is when the user is first presented with the
data at an aggregate level and then can display successive
levels of detail for a given date, region, product, etc. until
finally reaching the original transactions.
Q1480.
- What a QUERY-AND-REPORTING-SYSTEM?
A1480.
- A data warehouse.
- It gets input from various TPS.
- However, it does not carry on the operations of the
enterprise.
- DW's are optimized for retrieval and reporting. TPS is for
data entry.
Q1481.
- What are 3 components of the DSS?
A1481.
- Components are:
- Database
- Model
- Dialog
Q1482.
- What is a DATABASE?
A1482.
- DEFINITION, it consists of raw data that are relevant to
decisions.
- Can come from inside or outside organization.
Q1483.
- What is a MODEL?
A1483.
- DEFINITION, it is the set of equations, comparisons,
graphs, conditions, assumptions into which the data will
be fed.
Q1484.
- What is a DIALOG?
A1484.
- DEFINITION, it consists of the user interface which allows
the user to specify the particular set of data to which the
model should be applied.
Q1485.
- What is a GROUP DSS?
A1485.
- DEFINITION, it aids in the collaborative solution of
unstructured problems. Users in separate areas of the
organization can specify parameters pertinent to their
functions.
Q1486.
- What are the components of an Expert System?
A1486.
- Components are:
- Knowledge database
- Inference engine
- Dialog
Q1487.
- What is an ES KNOWLEDGE DATABASE?
A1487.
- DEFINITION, It consists of facts and the relationships
among those facts.
Q1488.
- What is an ES INFERENCE ENGINE?
A1488.
- DEFINITION, It is often a series of if/then decisions.
Q1489.
- What is an ES DIALOG?
A1489.
- DEFINITION, It allows the user to input data relevant to
the current problem which are then filtered through the
inference engine and used to query the knowledge
database.
- Optimal solution is suggested to the user - output.
Q1490.
- What are inference procedures based on?
A1490.
- The procedures are symbolic processing based on
heuristics rather than algorithms.
Q1491.
- What is a HEURISTIC PROCEDURE?
A1491.
- DEFINITION, it is based on exploratory problem-solving
technique that uses self-education methods (feedback
evaluation) to improve performance.
- Systems are interactive and provide explanations of their
problem-solving behavior.
Q1492.
- What are FUZZY LOGIC SYSTEMS?
A1492.
- DEFINITION, is a form of AI that deals with imprecise data
and problems with multiple solutions.
Q1493.
- When are fuzzy logic systems useful?
A1493.
- They are useful in the design of industrial controls.
Q1494.
- What does fuzzy logic use?
A1494.
- It can use linguistic system variables rather than binary
decisions.
Q1495.
- What is fuzzy set theory?
A1495.
- It allows object to belong partly to multiple sets.
- It is useful for the vagueness of real world items where
they belong to a set only to a degree.
Q1496.
- What do fuzzy rule based systems apply?
A1496.
- They apply methods to solve real-world problems where a
system is difficult to model and controlled by a human
operator and ambiguity is common.
Q1497.
- Benefits of Fuzzy Logic Systems?
A1497.
- They are:
- 1. Simplified, reduced development cycle.
- 2. Ease of Implementation.
- 3. User-friendly, efficient performance.
Q1498.
- What are NEURAL NETWORKS?
A1498.
- DEFINITION, A collection of processing elements working
together to process information much like the human
brain, including learning from previous situations and
generalizing concepts.
Q1499.
- What are CASE-BASED REASONING SYSTEMS?
A1499.
- DEFINITION, use a process similar to that used by
humans to learn from previous, similar situations.
Q1500.
- What are RULE-BASED EXPERT SYSTEMS?
A1500.
- DEFINITION, function on the basis of set rules to arrive at
an answer.
- Cannot be changed by the system itself and must be
changed by an outside source aka programmer.
Q1501.
- What are INTELLIGENT AGENTS?
A1501.
- DEFINITION, programs that apply a built-in or learned
knowledge base to execute a specific, repetitive, and
predictable task.
Q1502.
- What is the purpose of BI - Business Intelligence?
A1502.
- It gives executives immediate information about critical
success factors for the organization.
Q1503.
- What is a DIGITAL DASHBOARD?
A1503.
- DEFINITION, it can be displays of bar charts, graphs,
other formats etc. grouped by a particular executive's
needs.
Q1504.
- Traditional ERP system does what?
A1504.
- Subsystems share data and coordinate their activities.
- These are BACK OFFICE functions (aka Internal to the
organization).
- Comprehensively, this includes materials requirement
planning, manufacturing resource planning, supply chain
mgt, and customer relationship mgt.
Q1505.
- What is ERP II?
A1505.
- DEFINITION, Current generation has added front office
function to connect organization with customers,
suppliers, owners, creditors, etc..
- Allows for supply chain mgt, customer relationship mgt,
and partner relationship mgt.
Q1506.
- What is the major disadvantage of an ERP?
A1506.
- It is complex and extensive so it is costly and difficult to
implement.
- Only largest organizations can.
Q1507.
- What is Information Resource Management?
A1507.
- DEFINITION, includes the mgt of all the forms of IS (WP,
Spreadsheet, digital docs, desktop publishing) and needs
of users for the information holdings of the organization.
(OAS)s
Q1508.
- What is the purpose of Financial Reporting systems?
A1508.
- 1. Generate information for external users (investors,
regulators, creditors).
- 2. Form of Financial Statements.
- 3. Backward looking at historical data.
Q1509.
- General Steps of the Accounting Cycle - included in the
audit trail!
A1509.
- Cycle includes:
- 1. Entry of source data and file documents (can be
electronic)
- 2. Make entries in general and special journals.
- 3. Post entry to GL and subsidiary ledgers accounts.
- 4. Prepare Trial Balance
- 5. Prepare Financial Statements for external reporting.
Q1510.
- What is the purpose of Management Reporting systems?
A1510.
- Purpose is:
- 1. Internal focus on planning, control, and decision
making.
- 2. Forward looking - forecasting.
- 3. Internal uses (no need for GAAP)
- 4. Nonfinancial and financial data in flexible formats.
- 5. Major element = cost accounting and budgeting.
Q1511.
- BIS risks - please list?
A1511.
- Include:
- 1. System availability
- 2. Volatile transaction trails.
- 3. Decreased human involvement.
- 4. Uniform processing of transactions,
- 5. Unauthorized access.
- 6. Data Vulnerability
- 7. Reduced segregation of duties.
- 8. Reduced individual authorization of transactions.
- 9. Specialized knowledge.
Q1512.
- What is a patch?
A1512.
- A patch is a chg or modification to an existing program
that may or may not be authorized.
Q1513.
- What is a Job Control Language(JCL)?
A1513.
- A JCL is a language that prioritized & controls when
application programs are initiated.
Q1514.
- What does virtual storage do?
A1514.
- The operation system divides a program into
pgs/segments and brings only the pgs of the program
required for execution into memory. Saves time & money
as unneeded portions of the program remain in less exp
secondary storage.
Q1515.
- What is a Enterprise Resource Planning system?
A1515.
- Enterprise resource planning (ERP) is an enterprise-wide
information system designed to coordinate all the
resources, information, and activities needed to complete
business processes such as order fulfillment or billing.
- An ERP system supports most of the business system
that maintains - in a single database - the data needed for a
variety of business functions such as manufacturing,
supply chain management, financials, projects, human
resources and customer relationship management.
Q1516.
- What is a LAN
A1516.
- Local Area Network-private computer network within a
single building or relatively small geographic area.
Q1517.
- Disaster Recovery & Business Continuation Plan
A1517.
- A Disaster Recovery & Business Continuation Plan
should allow the firm to (A) Minimize the extent of
disruption, damage and loss, (C) Resume normal
operations as quickly as possible, (D) train and familiarize
personnel to perform emergency operations as well as
establish an alternate (temporary) method for processing
information.
Q1518.
- Disaster Recovery & Business Continuity Plans include:
A1518.
- priorities, insurance, backup approach, specific
assignments, period testing and updating and
documentation.
Q1519.
- Two general types of computer processing systems are:
A1519.
- Transaction processing and management reporting
Q1520.
- Mgmt Info Sys(MIS) are:
A1520.
- designed to provide information for planning organizing
and controlling the operations of the business.
Q1521.
- Decision Support Systems are:
A1521.
- designed to combine data and models, not resolve
problems.
Q1522.
- Expert systems:
A1522.
- apply specific models to data to provide a specific type of
recommendation.
Q1523.
- What is the main difference between transaction
processing and management reporting systems?
A1523.
- Transaction processing systems generally process a
large volume of transactions where management reporting
systems provide information used to support business
decisions.
Q1524.
- Methods to control access to appropriate users include:
A1524.
- passwords and user IDs, menus for EUC access
databases, independent review of transactions, restricting
user ability to load data, requirement of appropriate
validation, authorization and reporting control when the
end user uploads data and record access to company
databases by the EUC application.
Q1525.
- Forms of physical access controls include:
A1525.
- Clamps or chains to prevent removal of hard disks or
internal boards, regular backup and control over access
from outside are all
Q1526.
- Risks associated w/ End User Computing(EUC) include:
A1526.
- Management often does not review the results of
applications appropriately
- More client personnel need to understand control
concepts
- End-User applications are not always adequately tested
before being implemented .
Q1527.
- Procedures to control the small computer issue of
software piracy are:
A1527.
- Establishing a corporate software policy, maintaining a
log of all software purchases and auditing individual
computers to identify installed software.
Q1528.
- What are some security consideration for small
computers?
A1528.
- Verification of applications being processed should be
made to prevent the system from being used for personal
projects.
- Security over data and in-house developed software is
important as most companies can easily replace hardware
but may suffer a severe setback if the data and/or in-house
developed software is lost.
- Purchases of hardware & software should be reviewed for
compatibility, piracy & other issues.
Q1529.
- Control implications require that:
A1529.
- Applications be adequately tested before use, backup of
files, control access to appropriate users, adequate
documentation, & application controls & are all examples
of control implications.
Q1530.
- AICPA's Trust Services provide:
A1530.
- assurance on information systems & present one
framework for analyzing a reliable system.
Q1531.
- Physical access controls:
A1531.
- Prevent damage or other loss including theft, acts of war,
weather, disgruntled employees or others.
Q1532.
- The seven factors of the control environment are:
A1532.
- Integrity and ethical values
- Commitment to competence
- Human resource policies and practices
- Assignment of authority and responsibility
- Management's philosophy and operating style
- Board of director's or audit committee participation
- Organization
Q1533.
- The systems analyst:
A1533.
- Analyzes the user environment & requirements & may
recommend changes to the current system, the purchase
of a new system or design a new system.
Q1534.
- A systems flowchart:
A1534.
- A tool or diagram used by the systems analyst to define
system requirements.
Q1535.
- The systems analyst is responsible for:
A1535.
- ensuring programming and that end user needs are met.
Q1536.
- Systems Programmer:
A1536.
- is responsible for implementing, debugging and
modifying software.
- E.g. include to the operating systems,
telecommunications monitoring & database management
systems.
Q1537.
- The Applications Programmer:
A1537.
- is responsible for writing testing & debugging
applications software. These specifications are usually
provided by the Systems Analyst.
Q1538.
- Program flowchart:
A1538.
- is a tool or diagram used by the Applications Programmer
to document program logic.
Q1539.
- Database Administrator (DBA):
A1539.
- is responsible for maintaining the database and
restricting access to the database to authorized users only.
Q1540.
- The Operator:
A1540.
- is responsible for the daily computer operations of both
the hardware and software.
- The Operator mounts tapes, supervises operations on a
console, accepts inputs and distributes outputs.
- The Operator should have documentation available to run
programs but is not responsible for detailed program
information.
Q1541.
- The Librarian:
A1541.
- is responsible for custody of the removable media (e.g.
magnetic tape, disks) and for the maintenance of program
and systems documentation.
- Many of these services have been automated.
Q1542.
- The Web Administrator/Web Manager:
A1542.
- is responsible of overseeing the development, planning
and the implementation of a website. This is generally a
management position.
Q1543.
- The Web Master:
A1543.
- is responsible for providing expertise and leadership in
the development of a website, including but not limited to
design, analysis, security, maintenance, content
development and updates.
Q1544.
- The Web Designer:
A1544.
- is responsible for creating the visual content of the
website.
Q1545.
- The Web Coordinator:
A1545.
- is responsible for the daily operations of the website.
Q1546.
- The Internet Developer:
A1546.
- is responsible for writing programs for commercial use.
Similar to a software engineer or a systems programmer.
Q1547.
- The Intranet/Extranet Developer:
A1547.
- is responsible for writing programs based on the needs of
the company.
Q1548.
- Control activities categories:
A1548.
- general
- application
- user
Q1549.
- General system control activities:
A1549.
- affect all computer applications e.g.:
- 1-developing new programs and systems,
- 2-changing existing programs and systems,
- 3-controlling access to programs and data and
- 4-controlling computer operations.
Q1550.
- The five components of internal control are:
A1550.
- a) Control Environment - this is the foundation of all other
components;
- b) Risk Assessment - the identification and analysis of
relevant risks to achieve the entity's objectives
- c) Control Activities - the policies and procedures to
ensure management directives are carried out
- d) Information and Communication - identification,
capture, and exchange of data in a format and time to allow
proper tasks and responsibilities to be performed
- e) Monitor - The process that assesses the quality of
internal control performance over time
Q1551.
- Process objectives that internal control systems should
be designed to achieve include:
A1551.
- Operations and Information process goals.
Q1552.
- Operations Process Goals should ensure:
A1552.
- (1) Effectiveness of operations - Strives to ensure than an
intended process is fulfilling its intended purpose (such as
proper management authorization for overrides)
- (2) Efficient resources - to have enough resources to
ensure benefits of controls exceed the costs of those
controls
- (3) Security of resources - protect all tangible and
intangible resources.
Q1553.
- Information Process Control Goals should ensure:
A1553.
- (1) Input validity - where input data be approved and
reflect accurate economic events
- (2) Input completeness - all valid events are captured
- (3) Input accuracy - all events are captured correctly
- (4) Update completeness - all events are reflected in
respective master files
- (5) Update accuracy - all events are reflected correctly
within master file.
Q1554.
- Control Plans:
A1554.
- are policies & procedures that assist in accomplishing
control goals.
Q1555.
- A combination of control plans must be used to maximize
effectiveness. Three levels are
A1555.
- Control Environment (top level),
- Pervasive Control Plans (mid-level)
- Application Control (detail level) Plans.
Q1556.
- Another way to view control plans is in relation to the
timing of their occurrence:
A1556.
- Preventive control plans stop problems from occurring;
- Detective control plans discover problems that have
already occurred;
- Corrective control plans correct problems that have
already occurred.
Q1557.
- Control Objectives for Information and Related
Technology - [cobiT] developed by the Information
Systems Audit and Control Foundation to provide:
A1557.
- guidance on best practices for management and
Information technology.
Q1558.
- [cobiT] groups IT control processes into four domains:
A1558.
- a) Planning & Organization Establish strategic vision for
the IT area; develop plan to achieve vision.
- b) Acquisition & Implementation Identify automated and
IT solutions; integrate the solutions; manage changes to
existing systems; Manage Change with users.
- c) Delivery & Support Deliver required IT services;
ensure security; provide on-going support.
- d) Monitor operations.
Q1559.
- Three main types of system documentation used by
auditors and analysts are:
A1559.
- (a) Data Flow Diagrams (DFDs) that illustrate the system
components and functions, data flows among the
components and sources, destinations and storage of the
data;
- (b) System Flowcharts that illustrate Informational
Processes (such as logic flows, inputs, outputs, data
storage), Operational Processes (such as physical flows)
and
- (c) Entity Relationship Diagrams that illustrate the system
s key entities and the relationships among those entities.
Q1560.
- Elements of Definition of Partnership
A1560.
- 1. Association of agreement or contract
- 2. No limit on the number of parties
- 3. Persons can be any entities except as prohibited by
state law
Q1561.
- Liability of a partner who joins an existing partnership
A1561.
- The partner is generally liable for all subsequently-
incurred debts, but is liable for preexisting debts only out
of her firm contribution
Q1562.
- Partnership Interest
A1562.
- Personal Property - consists of the right to share in the
partnership's profits
Q1563.
- Creditor Restriction
A1563.
- No creditor of an individual partner may attach
partnership property to satisfy an individual debt
Q1564.
- Partnership Property
A1564.
- Owned by the partnership entity, not by the partners in
common
Q1565.
- Limited Partnership
A1565.
- The partnership consists of at least one general partner
(GP) and at least one limited partner (LP)
Q1566.
- Right to Manage
A1566.
- All partners have equal rights in the management and
conduct of business affairs, absent agreement
Q1567.
- Right to Profits
A1567.
- Absent agreement, profits and losses are to be shared
equally
Q1568.
- The Duty of Care
A1568.
- Duty is limited to "refraining from engaging in grossly
negligent or reckless conduct, intentional misconduct, or a
knowing violation of law"
Q1569.
- Partnership Assets include...
A1569.
- All partnership property, and any additional contributions
of partners necessary to pay obligations
Q1570.
- Three distinct phases of the UPA approach
A1570.
- Dissolution, Winding up, and Termination
Q1571.
- LLP member liability
A1571.
- Liable for their own torts and for the torts of those they
supervise
Q1572.
- Formation of Limited Liability Partnerships (LLPs)
A1572.
- Must be formed by filing appropriate documents with the
Secretary of State
Q1573.
- Joint stock companies
A1573.
- Organized under a contract normally called the articles of
association
Q1574.
- Persons Liable for Stock Sold Below Par or Authorized
Price
A1574.
- 1. The board who allowed the sale
- 2. The buyer who paid too little
- 3. Transferees who know the buyer paid too little and who
pay too little themselves
Q1575.
- Redeemable
A1575.
- Must be purchased by corporation under specific
circumstances if shareholder requests
Q1576.
- Bonds
A1576.
- Debt secured by corporate property
Q1577.
- Factors Necessary to Overcome Presumption of Board
Discretion in Issuing Dividends
A1577.
- 1. The board acted in bad faith
- 2. Funds to pay dividends existed in a legally available
source
Q1578.
- Proper payment of dividends
A1578.
- 1. Only out of legally available funds
- 2. Only in accordance with applicable preferences
Q1579.
- When Dividends Cannot be Distributed
A1579.
- 1. If it would make the corporation insolvent, or
- 2. If the distribution exceeds the surplus of the
corporation
Q1580.
- Common Law Rights
A1580.
- General Rule -- shareholders may inspect at proper times
in proper places for proper purposes
Q1581.
- Proxies
A1581.
- Granting others the right to cast their votes at
shareholder meetings
Q1582.
- Types of Economic Systems
A1582.
- 1. Command Economic System (Communism or
Socialism)
- 2. Market (Free-enterprise) Economic System
Q1583.
- Characteristics of Free-Market Economy
A1583.
- 1. Interdependent relationship between individuals and
business firms
- 2. Production depends on preferences of individuals with
ability to pay for goods and services
- 3. Production depends on availability of economic
resources, level of technology, and how business firms
choose to use them
- 4. Production depends on sale price being at least equal
to production cost
Q1584.
- Causes for Change in Aggregate Demand
A1584.
- 1. Size of market
- 2. Income or wealth of market participants
- 3. Preferences of market participants
- 4. Change in prices of other goods and services
Q1585.
- Principle of Increasing Cost
A1585.
- Production costs increase in the short-run as the quantity
produced increases because new resources are not used
as efficiently as those previously used.
Q1586.
- What are the variables that change aggregate supply?
A1586.
- Changes in:
- 1. Number of providers
- 2. Cost of inputs
- 3. Government taxation or subsidization
- 4. Technological advances
Q1587.
- What is the slope of a normal supply curve?
A1587.
- A normal supply curve has a positive slope - the higher
price the greater the quantity that will be supplied.
Q1588.
- Results of a Change in Market Demand (only) on
Equilibrium
A1588.
- 1. Increase in market demand = Demand curve shifts up
and to the right; Decrease in market demand = Demand
curve shifts down and to the left.
- 2. Increase in market demand w/no change in supply =
Increase in both equilibrium price and equilibrium quantity.
- 3. Decrease in market demand w/no change in supply =
Decrease in both equilibrium price and equilibrium
quantity.
Q1589.
- Governmental Influences on Equilibrium Supply
A1589.
- 1. Taxation increases the cost and shifts the market
supply curve up and to the left.
- 2. Subsidization decreases the cost and shifts the market
supply curve down and to the right.
Q1590.
- Equilibrium Price
A1590.
- 1. Price at which the quantity of a commodity supplied is
equal to the quantity of that commodity demanded.
- 2. The intersection of the market demand and supply
curves.
Q1591.
- Results of a Change in Market Supply (only) on
Equilibrium
A1591.
- 1. Increase in market supply = Supply curve shifts down
and to the right; Decrease in market supply = Supply curve
shifts up and to the left.
- 2. Increase in market supply w/no change in demand =
Decrease in equilibrium price and increase in equilibrium
quantity.
- 3. Decrease in market supply w/no change in demand =
Increase in equilibrium price and a decrease in equilibrium
quantity.
Q1592.
- Elasticity
A1592.
- Measures the percentage change in a market factor as a
result of a given percentage change in another market
factor
Q1593.
- Elasticity of Demand
A1593.
- The percentage change in quantity of a commodity
demanded as a result of a given percentage change in the
price of the commodity
Q1594.
- Elasticity of Supply
A1594.
- The percentage change in the quantity of a commodity
supplied as a result of a given percentage change in the
price of the commodity
Q1595.
- What does "Demand is Elastic" mean?
A1595.
- If demand is elastic, the percentage change in demand is
greater than the percentage change in price, the elasticity
coefficient is greater than 1 and total revenue will change
in the opposite direction as the change in price.
Q1596.
- Measures of Elasticity
A1596.
- 1. Elasticity of Demand
- 2. Elasticity of Supply
- 3. Income Elasticity of Demand
- 4. Cross Elasticity of Demand
Q1597.
- Indifference Curve
A1597.
- Various quantities of two commodities that give an
individual the same total utility as plotted on a graph.
Q1598.
- Utility
A1598.
- Satisfaction derived from the acquisition or use of a
commodity
Q1599.
- Law of Diminishing Marginal Utility
A1599.
- Decreasing utility (satisfaction) is derived from each
additional (marginal) unit of a commodity acquired.
Q1600.
- Marginal Utility
A1600.
- The utility derived from each (additional) marginal unit
(i.e., from the last unit acquired).
Q1601.
- Examples of Variable Costs
A1601.
- 1. Raw materials
- 2. Most labor
- 3. Electricity
Q1602.
- Economies of Scale (also Increasing Return to Scale)
A1602.
- The long-run average cost curve is decreasing reflecting
that the quantity of output is increasing in greater
proportion than the increase in inputs, largely due to
specialization of labor and equipment.
Q1603.
- Law of Diminishing Returns
A1603.
- The point at which the quantity of variable inputs begins
to overwhelm the fixed factors resulting in inefficiencies
and diminishing return on marginal units of variable
inputs.
Q1604.
- What is the shape of the demand curve for a firm in
Perfect Competition?
A1604.
- The demand curve faced by a single firm in a perfectly
competitive market is a straight horizontal line originating
at the price set by the market (of all firms).
Q1605.
- How are long-run profits determined for a firm in perfect
competition?
A1605.
- There are no long-run profits possible in a perfectly
competitive market. If profits are made in the short-run,
more firms will enter the market and increase supply, thus
decreasing market price until all firms just breakeven.
Q1606.
- Characteristics of Perfect Competition
A1606.
- 1. A large number of independent buyers and sellers,
each of which is too small to separately affect the price of
a commodity
- 2. All firms sell homogeneous products or services
- 3. Firms can enter or leave the market easily
- 4. Resources are completely mobile
- Buyers and sellers have perfect information
- Government does not set prices.
Q1607.
- In the long-run, how may a monopoly firm increase its
profits?
A1607.
- A monopoly firm may increase its profits in two ways:
- 1. Reduce cost by changing the size if its operations
- 2. Increase demand through advertising, promotion, etc.
Q1608.
- Typical Reasons Monopolies Exist
A1608.
- 1. Control of raw materials or processes
- 2. Government granted franchise (i.e., exclusive right)
- 3. Increasing return to scale (i.e., natural monopolies)
Q1609.
- Characteristics of Monopolistic Competition
A1609.
- 1. A large number of sellers
- 2. Firms sell a differentiated product or service (similar
but not identical), for which there are close substitutes
- 3. Firms can enter or leave the market easily
Q1610.
- How are long-run profits determined for a firm in
Monopolistic Competition?
A1610.
- There are no long-run profits possible in a monopolistic
competition. If profits are made in the short-run, more
firms will enter the market and lower the demand for each
firm until each just breaks even
Q1611.
- Distinguish between Overt Collusion and Tacit Collusion
A1611.
- 1. Overt Collusion = Firms conspire to set output, price or
profit; illegal in the U.S.
- 2. Tacit Collusion = Firms follow price charged by the
price leader in the market; not illegal in the U.S.
Q1612.
- Characteristics of Oligopoly
A1612.
- 1. A few sellers
- 2. Firms sell either a homogeneous product (standardized
oligopoly) or a differentiated product (differentiated
oligopoly)
- 3. Restricted entry into the market
Q1613.
- Demand Curve Shift
A1613.
- A demand curve shifts when demand variables other than
price change.
Q1614.
- Price elasticity of demand
A1614.
- Percentage change in quantity demanded/Percentage
change in price
Q1615.
- Interpretation of the demand elasticity coefficient
A1615.
- If the elasticity of demand is greater than 1, demand is
said to be elastic (sensitive to price changes).
- If elasticity is less than 1, demand is said to be inelastic
(not sensitive to price changes).
Q1616.
- Cross-elasticity of demand
A1616.
- Measures the change in demand for a good when the
price of a competing product is changed (eg Coke & Pepsi)
- Formula: Percentage change in the quantity demanded of
Product X / Percentage change in the Price of Product Y
Q1617.
- Cross-elasticity of demand and the Relationship between
goods
A1617.
- Coefficient of cross-elasticity is positive, Goods are
substitutes.
- Coefficient is negative, Goods are complements.
- Coefficient is zero, Goods are unrelated.
Q1618.
- Classical Economic Theory
A1618.
- Theory holds that market equilibrium will eventually
result in full employment over the long run without gov't
intervention.
- Does not support the use of fiscal policy to stimulate the
economy.
Q1619.
- Keynesian Theory
A1619.
- Theory holds that the economy does not necessarily
move towards full employment on its own.
- It focuses on the use of fiscal policy (change in taxes &
gov't spending) to stimulate the economy.
Q1620.
- Monetarist Theory
A1620.
- Theory holds that fiscal policy is too crude a tool for
control of the economy.
- If focuses on the use of monetary policy to control
economic growth.
Q1621.
- Supply-Side Theory
A1621.
- Theory holds that bolstering an economy's ability to
supply more goods is the most effective way to stimulate
growth.
- A decrease in taxes (esp for bus's & individuals with high
income) increases employment, savings, & investments &
is an effective way to stimulate the economy.
Q1622.
- Applied Overhead Calculation
A1622.
- Multiply the predetermined overhead rate times the actual
number of activity units used in production. (Included in
cost of WIP)
Q1623.
- Overhead Rate Formula
A1623.
- Estimated total overhead costs/estimated normal activity
volume
Q1624.
- Schedule of Cost of Goods Manufactured (WIP)
A1624.
- Beg WIP + Direct Mats + Direct Labor + Overhead Applied
- Ending WIP = Cost of Goods Manufactured
Q1625.
- Direct Materials Used Formula
A1625.
- Beginning Direct Materials + Purchases (net) = Direct
Materials Available for Use - Ending Direct Materials =
Direct Materials Used
Q1626.
- Schedule of Cost of Goods Sold
A1626.
- Beginning Finished Goods + Cost of Goods Manufactured
= Goods Available For Sale - Ending Finished Goods =
Cost of Goods Sold
Q1627.
- Conversion Costs Formula
A1627.
- Direct labor costs + Factory overhead costs (Note: DL is
included as a prime cost and a conversion cost)
Q1628.
- Accounting for differences between overhead applied and
actual overhead
A1628.
- Immaterial differences are allocated to COGS. Material
differences are prorated to WIP, Finished Goods or COGS
based on respective ending balances
Q1629.
- (Applied) Overhead rate formula
A1629.
- Estimated total overhead costs/Estimated normal activity
volume
Q1630.
- Accounting for Normal Spoilage and Scrap
A1630.
- Normal spoilage is included with other costs as an
inventoriable product cost
Q1631.
- Accounting for Abnormal Spoilage and Scrap
A1631.
- Abnormal spoilage is separated and deducted as a period
expense in the calculation of net income
Q1632.
- Accounting for the Sale of Scrap
A1632.
- Any money received from the sale of scrap are used to
reduce factory overhead (& thereby reduce cost of goods
sold)
Q1633.
- Behavior of fixed costs
A1633.
- Fixed costs remain constant in total regardless of
production volume so fixed costs PER UNIT vary -
increasing (per unit) when production decreases and
decreasing (per unit) when production increases
Q1634.
- Behavior of variable costs
A1634.
- Variable costs vary in total, in direct proportion to
changes in production volume.
- Variable costs PER UNIT remain constant regardless of
production volume.
Q1635.
- Account for Difference between Applied and Actual
Overhead
A1635.
- Immaterial differences are allocated to COGS. (reduces
COGS if overhead is overapplied, increases COGS if
overhead is underapplied)
- Material differences are prorated to WIP, Finished Goods
or COGS based on respective ending balances.
Q1636.
- Fixed vs. Variable Costs
A1636.
- Fixed costs remain constant in total regardless of
production volume. Fixed costs PER UNIT vary.
- Variable costs vary in total in proportion to changes in
production however variable costs remain constant PER
UNIT.
Q1637.
- Fixed, Variable & Total Costs' behavior when production
volume changes
A1637.
- Unit Costs Total Costs
- Fixed Vary Constant
- Variable Constant Vary
- Total Vary Vary
Q1638.
- Absorption Costing
A1638.
- assigns all three factors of production (direct material,
direct labor and both fixed & variable manufacturing
overhead) to inventory.
- Required for external reporting purposes
Q1639.
- Direct Costing
A1639.
- (aka variable costing) assigns only variable
manufacturing costs (direct material, direct labor &
variable manufacturing overhead) to inventory.
- Used for internal purposes, cannot be used for external
reporting.
Q1640.
- Variable Manufacturing Costs
A1640.
- Direct material, direct labor, variable factory overhead
Q1641.
- Fixed manufacturing costs
A1641.
- Manufacturing costs that do no vary (eg. depreciation,
supervisory salaries, property taxes, insurance, etc)
Q1642.
- Principal difference between the absorption costing and
direct costing
A1642.
- Absorption costing assigns ALL manufacturing costs to
products while Direct costing only assigns variable
manufacturing costs to products.
Q1643.
- Effect of absorption and direct costing on operating
income
A1643.
- Inventory valuation and unit costs will always be greater
using absorption costing than if direct costing is used (due
to direct costing ignoring fixed overhead)
Q1644.
- Absorption & Direct costing effects on Net Income
- Units sold = Units produced
- Units sold > Units produced
- Units sold < Units produced
A1644.
- Absorption NI = Direct NI
- Absoprtion NI < Direct NI
- Absorption NI > Direct NI
Q1645.
- Steps to figure Process Costing (FIFO or Weighted Avg)
A1645.
- 1. Acct for all units (Beg WIP + Additions = Finished +
Spoilage + Ending WIP)
- 2. Calculate Equivalent Finished Units (W. Avg: EFU= # of
units finished + % of complete ending WIP or FIFO: EFU = #
of units finished - % of complete beg WIP + % of complete
ending WIP)
- 3. Calculate Unit Costs (W. Avg: Costs in Beg WIP +
current costs or FIFO: Current costs ONLY)
Q1646.
- Material Price (Labor Rate) Variance
A1646.
- Actual Units x Actual Price
- Actual Units x Std Price
- (A x A > A x S = Unfavorable
- A x A < A x S = Favorable)
Q1647.
- Labor Efficiency (Material Usage) Variance
A1647.
- Actual Hours x Std Rates
- Std Hours x Std Rates
- (A x S > S x S = Unfavorable
- A x S < S x S = Favorable)
Q1648.
- Mixed Costs: High-Low Method
A1648.
- 1. Variable Costs: Divide the change in costs by the
change in activity
- 2. Fixed Costs: Total cost less variable cost equals fixed
costs
Q1649.
- Direct Costing
A1649.
- Only variable manufacturing costs are considered part of
inventory costs.
- Contribution Margin: Selling price less all variable costs.
Q1650.
- Direct Cost Unit Costs
A1650.
- Direct Manufacturing + Direct Labor + Variable Overhead
+ Variable Selling & Admin (Fixed costs NOT included in
unit cost!)
Q1651.
- Absorption Cost Unit Costs
A1651.
- Direct Manufacturing + Direct Labor + Variable Overhead
+ Fixed Overhead (Variable Selling & Admin NOT included
in unit cost!)
Q1652.
- Direct and Absorptions effect on income
A1652.
- If a company produces more than it sells, absorption
shows more profit than direct.
- If the company produces less than it sells, absorption
shows less profit than direct.
- If the company produces the same amount as it sells,
absorption will show the same amount of profit than direct.
Q1653.
- Margin of Safety
A1653.
- The difference between current sales and breakeven
sales.
Q1654.
- Breakeven Sales
A1654.
- Fixed Cost/Contribution Margin Percentage
Q1655.
- Does every partner have the power to dissociate from the
p/s?
A1655.
- Yes
Q1656.
- What's rule of notice?
A1656.
- For p/s affairs, notice to any individual partner is imputed
to all other partners.
- Also, any knowledge gained while working on p/s matters
is imputed to all other members of the p/s.
Q1657.
- What's the rule of termination?
A1657.
- Majority of partners may terminate the authority of a
partner, or minority of partners, unless this action would
be contrary to a previous agreement.
Q1658.
- What's the apparent authority rule?
A1658.
- The actions of a partner which are apparently for the
carrying on of the p/s bus in the usual way, but which are
not actually authorized, still will bind the p/s if the 3rd party
don't know of the partner's lack of actual authority.
Q1659.
- Explain basic p/s liab!
A1659.
- Partner's are jointly & severally liable for contracts & all
actions in tort or fraud against any p/s member where the
p/s is not an LLP.
- The other partners are liable only when it relates to p/s
bus.
- A person can sue any # of partners they want, losing
partners can have right of contribution and right of
indemnification.
Q1660.
- What's the rule of admission?
A1660.
- An admission or representation made by any partner
while the partner is acting within the scope of her/his
authority is admissible as evidence against the p/s.
Q1661.
- Gen'l limitations to partners without p/s agreement are?
A1661.
- 1. Assign the prop of the p/s in trust for the benefit of
creditors or on the assignee's promise to pay the debt's of
the p/s.
- 2. Dispose of GW of the bus or do any other act that
would make it impossible to carry on the ord bus of the
p/s.
- 3. Confess a judgment
- 4. Submit a p/s claim or liability to arbitration
Q1662.
- What's a statement of authority?
A1662.
- The p/s may file a statement of authority outlining the
authority that particular partner or partner's have.
Q1663.
- Who has the right & authority to wind up the business?
A1663.
- Unless, otherwise agreed, any nonbankrupt partner who
has not dissociated from the p/s wrongfully, or the legal
rep's of the last surviving partner.
- Remember though also: any partner, the partner's legal
rep, or the partner's assignee may petition for winding up
by the court.
Q1664.
- Are remaining partners allowed to continue the business
after dissolution?
A1664.
- Yes! Only if ALL the partners, including the dissociating
one's waive the right to have the business wound up and
terminated.
Q1665.
- What is winding up the business?
A1665.
- P/S continues after dissolution only for the purpose of
winding up it's bus then it's terminated! To participate can't
have dissociated wrongfully! Even after termination if a
previously unknown liability is asserted, all of the partners
are still liable.
Q1666.
- What are 2 things the courts view as evidence of a
partners intent to discontinue?
A1666.
- 1) Assignment of partnership interests
- 2) Levy of changing order
Q1667.
- What are 3 rights available when p/s is rescinded on the
grounds of fraud or misrepresentation?
A1667.
- 1. Right to a lien on, or a right to retention of, the surplus
of the p/s to secure her/his cap inv & any advances.
- 2. After all liability to 3rd persons have been satisfied, the
right to stand in the place of creditors for her/his payment
made on p/s liab.
- 3. The right to be indemnified by the person who is guilty
of fraud or misrep.
Q1668.
- What's a filing statement of dissolution?
A1668.
- Any partner who has not dissociated wrongfully may file a
statement of dissolution on behalf of the p/s. After 90 days,
this notice gives constructive notice to creditors that the
apparent authority of the p/s is ended for all purposes
except winding up.
Q1669.
- Are p/s allowed to be converted & merged by any
manner?
A1669.
- yes! By any manner provided by law. In the p/s less than
unanimous consent is req'd.
Q1670.
- What 2 proc's are followed when a court decrees
dissolution?
A1670.
- 1) Accting - determine the dr's and cr's of each partner &
court supervises the dist of p/s assets.
- 2) Dist Method - Usually the court orders a sale of all p/s
assets & applies proceeds 1st to satisfy debts, & then to
repay each partners cap acct. Any remaining proceeds still
remaining gets paid to the partners as earnings in
proportion to the share of the profits.
Q1671.
- What doe capacity mean?
A1671.
- Anyone basically!
Q1672.
- Can gen'l partners have limited liab?
A1672.
- NO!
Q1673.
- What's a limited partner?
A1673.
- One who contributes cap but don't have an authority or
voice in management of the bus. limited liability to
creditors.
Q1674.
- Which p/s does not req a state filing?
A1674.
- Gen'l. Everything else does req state filing.
Q1675.
- 4 things in RUPA are?
A1675.
- 1. Business
- 2. Co-ownership (not an agent)
- 3. Profit
- 4. Capacity
Q1676.
- Can an infant be a partner?
A1676.
- Yes! To extent of infants power to contract. An infant may
withdraw at ANY time, unless & only to the extent the p/s is
subject to creditor's claims.
- Infant is liable only to their contribution.
Q1677.
- What's an LLP?
A1677.
- Liability protection to gen'l partners.
Q1678.
- Does a sole prop need to register in each state to do bus
nationwide?
A1678.
- No! Corps and LLC's do however!
Q1679.
- What's a dormant partner?
A1679.
- One who has a right to participate in management, but is
undisclosed & generally inactive, once disclosed has same
liability as any other gen'l partner.
Q1680.
- In a limited partnership, who has the authority to bind?
A1680.
- Gen'l one's!
Q1681.
- What form is partnership return?
A1681.
- 1065 & info only!
Q1682.
- What's a silent partner?
A1682.
- Unlimited liability but don't share in management of
partnership!
Q1683.
- What's a secret partner?
A1683.
- One that participates in management but is undisclosed,
once disclosed unlimited liab.
Q1684.
- Explain entity status!
A1684.
- The gen'l rule is that if an entity with 2 or more persons is
formed under state law that is not a corp it is taxed as a
p/s. A 1 person LLC is disregarded for fed tax purposes &
no separate return is req'd, yet it don't lose it's liability
shield.
Q1685.
- Can a partner's int be assigned?
A1685.
- Yes.
- Assignee is only entitled to receive profits & capital to
which the partner would have been titled. However the
assignor remains liable on all p/s debts.
- An assignment don't cause a dissociation.
Q1686.
- What's a certificate?
A1686.
- When p/s is doing business under a fictitious name, it
must file a certificate w the SOS.
- Certificate must list the names & addresses of the
partners & the fictitious name of the business.
- Fines can occur if failure to comply.
Q1687.
- What happens to a p/s int when a partner dies?
A1687.
- The partners int descends as personal prop regardless of
the form in which the firms assets exist.
Q1688.
- Explain fiduciary duty!
A1688.
- The only fiduciary duties a partner owes to the p/s are
duty of care & the duty of loyalty.
Q1689.
- What are the rights of an individual partners creditor to
p/s assets?
A1689.
- Can't execute on or attach p/s assets. Creditor's only
remedy is to obtain a charging order against the debtor
partners interest. The creditor is then entitled to all future
distributions of assets or surplus due the partner until the
judgment is satisfied.
Q1690.
- Can you assign rights in p/s property such as right to
possess or use?
A1690.
- No, unless all the partners assign their rights in the same
property.
Q1691.
- Will the act of partner committed within the scope of the
partner's actual or apparent authority bind the p/s?
A1691.
- Yes!
Q1692.
- 2nd 3 of 9 things p/s agreement may not do are?
A1692.
- 1) Bargain away rule that every partner has the power to
withdraw from the p/s at any time.
- 2) Vary the right of partners to have the p/s dissolved &
it's bus wound up.
- 3) Vary the right of a court to expel a partner.
Q1693.
- What's the principal remedy avail to a partner against
her/his co-partners?
A1693.
- A suit in equity for a dissolution & an accounting.
Q1694.
- Can widower get interest?
A1694.
- Yes
Q1695.
- What's the 1st 3 of 9 things the p/s agreement may not
do?
A1695.
- 1) Vary the req's for executing, filing, & recording p/s
statements, except the duty to provide copies to all the
partners.
- 2) Unreasonably restrict partners or former partners
access rights to books
- 3) Entirely eliminate fiduciary duties or obligation of good
faith & fair dealings. Can be modified to certain limits.
Q1696.
- What happens when a partner says another person is part
of the p/s but they really are not?
A1696.
- They become an agent and what they do is binding with
3rd parties. Any liability resulting from the misrep extends
only to the partners who consented to the misrep!
Q1697.
- What's the 3rd 3 of 9 things the p/s agreement may not
do?
A1697.
- 1) Vary the req to wind up the p/s bus in certain cases.
- 2) Vary the law applicable to a LLP.
- 3) Restrict the rights of 3rd parties under RUPA.
Q1698.
- Does a p/s agreement need to be in writing?
A1698.
- No. Only needed if would be in violation of statute of
frauds. ex. transfer of real property or bus will last longer
than 1 yr.
Q1699.
- Explain limited partners repayment of cont?
A1699.
- A limited partner may demand or receive $ in repayment
of their contribution.
- However the partner may not do so until all p/s liability to
creditors have been paid or the p/s has sufficient assets to
pay them.
Q1700.
- What does an LLC file w / SOS & county clerk?
A1700.
- Articles of organization.
Q1701.
- Explain assignment of limited partners interest & rights.
A1701.
- A limited partner's interest is considered personal
property & it's freely assignable. However right's are NOT
assignable UNLESS it is to a substituted limited partner
and all other partner's are in agreement & the certificate is
amended.
Q1702.
- Which p/s formation must be in accordance with strict
statutory requirements?
A1702.
- LLP. Must also only be formed in jurisdictions that have
enacted enabling statutes. Certificate must be filed with
SOS & county clerk.
Q1703.
- List 1st 5 items in Articles of P/S.
A1703.
- 1) Firm Name
- 2) Names & Addresses of partners
- 3) Date p/s becomes effective & intended duration
- 4) nature, purpose, & scope of p/s activity
- 5) proc for admission of new partners
Q1704.
- What happens to a right to property when a partner dies?
A1704.
- Surviving partners have duty to account to the estate of
the deceased for the value of the deceased partner's rights
in the property.
Q1705.
- What are the partner's rights to participate in
management?
A1705.
- All have rights in management & control of the business
unless there is a specific agreement that says not.
Q1706.
- List 2nd 5 items in Articles of P/S.
A1706.
- 1) Computation of int on p/s cap
- 2) Computation of profits & the proportionate share of
profits & losses attributable to each partner
- 3) Powers & duties of the partners
- 4) Dissolution proc's & rights
- 5) Proc for dist of surplus, including the disposition of the
firm name & GW.
Q1707.
- What's the order of dist for settling accts when an LLC is
dissolved?
A1707.
- 1) Creditors
- 2) Capital
- 3) Profits
Q1708.
- Can a limited partner's name appear in the p/s name?
A1708.
- No! Unless it can be designated that they are a limited
partner.
Q1709.
- Once the p/s prop & the prop of the individual partners
are in the hands of the court for distribution, what are the
priorities?
A1709.
- 1) P/S creditors have priority is to p/s prop.
- 2) Individual creditor's generally have priority as to
individual prop, except for a p/s bankruptcy, wherein the
p/s creditor's share pro rata with partner's personal
creditor's.
- 3) Rights of secured or lien creditor's.
Q1710.
- Asset dist order when p/s is over?
A1710.
- Applied in this order:
- 1) Those owing to creditor's including partners
- 2) Those owing to partner's other than for cap & profits
- 3) Those owing to the partner's for cap & profits.
Q1711.
- Explain limited partner's share of profits or other comp?
A1711.
- A limited partner may receive a share of the profits and
other comp, however after the payment assets much be
greater than all liability to creditors.
Q1712.
- When is a p/s not bound by any partner's acts after
dissociation?
A1712.
- 1) The p/s is dissolved because it's unlawful to carry out
the business except when the act is appropriate to wind up
p/s affairs.
- 2) The partner is bankrupt or has no authority to wind up
p/s affairs.
Q1713.
- What happens if an individual partner becomes bankrupt
or insolvent?
A1713.
- The claims against her/his property rank as follows:
- 1) Those owing to personal creditors
- 2) Those owing to p/s creditors
- 3) Those owing to partners who have made advances for
the benefit of the p/s.
Q1714.
- Are partners liable for the amount necessary to satisfy all
the claims?
A1714.
- Yes! If a partner is insolvent or beyond the reach of
judicial process, the other partners are responsible for
there liab's!
- Such contributing partners are liable in the proportion in
which they share in the profits.
Q1715.
- What are the 3 things that allow a dissociated partner to
have their liab's discharged?
A1715.
- 1. Agreement
- 2. Assumption
- 3. Deceased partners NONPARTNERSHIP Property
Q1716.
- Does a manager of an LLC have to be a member?
A1716.
- No!
Q1717.
- Explain dist of p/s assets as stated in RUPA!
A1717.
- a. 1st to p/s creditors including any partners, except for
unpaid "dist".
- b. 2nd to partner's who have previously withdrawn from
p/s, payments to these partners for "unpaid dist" + ret. of
cap. unpaid dist's are any dist a partner is entitled to upon
withdrawal from firm.
- c. 3rd, to all partners to the extent of their cap cont &
profits.
Q1718.
- Can a creditor obtain through court a charge against a
limited partner's interest in the p/s?
A1718.
- Yes
Q1719.
- What are "safe harbors" for limited partners to participate
in management provided by RUPA?
A1719.
- 1. Being a contractor for, or an agent or employee of the
limited p/s or of a gen'l partner.
- 2. Consulting with & advising a gen'l partner regarding
the p/s.
- 3. Acting as a surety
- 4. Voting on p/s matters
Q1720.
- What's a quasi-reorg and what's the steps?
A1720.
- Proc that eliminates an acc deficit so the corp can pay div
again.
- Steps:
- 1) Assets revalued at NRV, but there is no net asset
increase (any loss increases the deficit)
- 2) A min amt of the def must be avail in PIC. This may be
created by donation of stock from stakeholders or
reduction of the par value.
- 3) The deficit is charged against PIC & thus is eliminated!
Q1721.
- What's the effect of a stock div on a corps side?
A1721.
- Reduce RE & inc legal cap! IT DONT EFFECT ASSETS!
Q1722.
- What are constructive dividends?
A1722.
- When salaries in closely held corps are unreasonable,
IRS counts it as a div!
Q1723.
- What are 4 things that an agent is NOT allowed to do?
A1723.
- 1. Cant act for 2 prins with conflicting interests unless
both consent!
- 2. Cant deal for their own int!
- 3. Cant compete with prin without prins consent.
- 4. Cant disclose to others confidential info learned during
the agency relationship.
Q1724.
- Does an agency agreement have to be in writing?
A1724.
- No! Unless stat of frauds. ex. selling real prop or greater
than 1 yr!
Q1725.
- What's ratification?
A1725.
- Acts performed by 1 who isnt an agent, or unauthorized
acts by the agent, may be ratified by the prin! A single
trans must be ratified in its entirety or not at all! Can be
ratified expressly or implied!
Q1726.
- In a derivative suit, any recovery goes to whom?
A1726.
- The Corp!
Q1727.
- Explain cum voting for directors.
A1727.
- Each s/h receives votes equal to the # of her/his share
times the # of directors to be elected.
Q1728.
- Explain a voting trust.
A1728.
- stakeholders turn over their voting rights to a trustee for
a period not more than 10 yrs. Trustee becomes record s/h.
Q1729.
- What's a pooling agreement?
A1729.
- Any 2 or more stakeholders may agree to vote their
shares in a given way & must be in writing & signed by
them!
Q1730.
- What are the 5 basic rights of a s/h?
A1730.
- 1. Derivative action
- 2. Asset share on dissolution
- 3. Right to vote
- 4. Inspect books
- 5. Preemptive right to subscribe to new stock
Q1731.
- What's a direct action?
A1731.
- A s/h has the right to sue for her/his own benefit!
Q1732.
- What are 3 s/h control devices?
A1732.
- 1. Voting trust
- 2. Pooling agreements
- 3. Proxy
Q1733.
- Explain a proxy.
A1733.
- Authorization to vote for another. A stakeholder may
appoint an agent to vote or take other action.
Q1734.
- Who in a corp is responsible for appointment & oversight
of any audit work performed by an audit firm?
A1734.
- Audit Committee!! NOT MANAGEMENT!
Q1735.
- Explain the removal of a director.
A1735.
- A director can be removed at any time during their term,
with or without cause with the consent of stakeholders!
Q1736.
- What's an exec committee?
A1736.
- It is a common practice in many jurisdictions for the BOD
to appt an "exec committee" to handle specific matters or
the day-to-day affairs of the corp. This committee MUST be
composed of directors!
Q1737.
- What's the bus judgment rule?
A1737.
- Courts adopted the bus judgment rule that when the acts
or omissions involve a question of policy or bus judgment,
a director who acted in good faith will not be held
personally liable for "mere errors of judgment or want of
prudence, short of clear & gross negligence!
Q1738.
- Is CS entitled to liquidating distributions?
A1738.
- Yes
Q1739.
- Should AC contain at least one financial expert?
A1739.
- yes
Q1740.
- What are the 5 gen'l responsibilities of the AC?
A1740.
- 1. Oversee the fin reporting process
- 2. monitoring the choice of accting policies and prins
- 3. monitoring the internal control process
- 4. Appt, comp & oversight of the external auditors
- 5. Receipt of communications & audit reports directly
from the external auditors
Q1741.
- What's a quorum?
A1741.
- In order for board action to be binding, a simple majority
of the directors must be present at the meeting.
Furthermore, a simple majority of those % is sufficient to
bind the corp legally, unless the articles call for a higher %.
Q1742.
- Explain the powers of the BOD.
A1742.
- Gen'ly BOD has the power to manage the bus of the corp,
initiate fundamental changes subject to final approval by
the stakeholders, fill vacancies on the board, adopt &
amend the bylaws, elect & fix the comp of officers, remove
officers & declare div's!
- Directors are personally liable for dividends unless they
acted with due care! Directors have duty to act with
reasonable care & loyalty.
Q1743.
- Are stakeholders liable in a noncorp?
A1743.
- Yes! Pretty much the only time!
Q1744.
- Are you allowed to issue a greater # of shares than
authorized?
A1744.
- No!
Q1745.
- Does TS only be purchased with a surplus?
A1745.
- Yes
Q1746.
- Explain participating pref stock.
A1746.
- They share ratably with common stakeholders in any
profit distributions beyond the prescribe preferred rate.
Fully participating preferred holders share equally with
common holders in xs profit dist, while partially
participating holders share in a more fixed manner.
Q1747.
- Can the same individual be an officer & director?
A1747.
- Yes
Q1748.
- Do officers need to be stakeholders in the corp?
A1748.
- No
Q1749.
- What's respondeat superior?
A1749.
- A corp is liable for the tortuous acts of its employees,
provided that the acts were committed within the course &
scope of employment.
Q1750.
- Explain piercing the corp veil.
A1750.
- Individual stakeholders may be held personally liable for
the debts of the corp.
Q1751.
- When does corp existence begin?
A1751.
- At the time of filing & before the certificate is issued.
Q1752.
- Who's the promoter?
A1752.
- Person who is primarily responsible for forming,
arranging for cap & initiating the gen'l bus of the corp. Also
duties include drawing up corp charter & promoting stock
subscriptions. Also, they are said to be a fiduciary of the
not yet formed corp. good faith, etc.
Q1753.
- Explain adoption.
A1753.
- To circumvent the harsh results of placing the complete
financial burden on the promoter for preincorp contracts,
the crts formulated the theory of adoption. Adoption is the
acceptance of the promoters preincorp contract. Can occur
in one of 3 ways: statute, agreement or implied.
Q1754.
- What are the 4 things an officer has?
A1754.
- 1. Authority to contract
- 2. Tort liability - the usual rules of agency apply to
officers
- 3. Fiduciary duties
- 4. SOX
Q1755.
- what's the corp opportunity doctrine?
A1755.
- A director may not divert to her/himself a bus opportunity
belonging to the corp (ie, one in which the corp has a right,
interest, or expectancy) without 1st giving the corp a
chance to act.
Q1756.
- What's the basic corp liab?
A1756.
- A corp is liable on the contracts of it's employees & in
particular situations, for torts committed by employees.
Q1757.
- Can a corp be liable on preincorp contracts entered into
on behalf of the corp by the promoter?
A1757.
- Gen'ly no! can become liable however by adoption.
Q1758.
- Explain continuing promoter liab.
A1758.
- Even if the corp adopts the contract, the promoter
remains personally liability unless one of the following
occurs:
- 1. they state in the contract that he/she are not personally
liable
- 2. a novation occurs when a 3rd party creditor agrees to
look to the corp for satisfaction of the contract, thereby
releasing promoter.
Q1759.
- Who are incorporators?
A1759.
- They sign the AOI. Genly same person as promoter.
Q1760.
- When do preincorp subs become binding?
A1760.
- Gen'ly courts have held that a subscription for shares in a
corp not yet formed is an unenforceable contract due to
the lack of parties. Therefore, some act of acceptance by
the corp, after incorporation is req'd b4 preincorp
subscription agreements will become binding.
Q1761.
- What's ultra vires?
A1761.
- These are acts by the corp or it's management that are
beyond the scope of corp authority as granted by it's
charter, bylaws, or state laws.
Q1762.
- Do conditional subscriptions need to be in writing?
A1762.
- yes!
Q1763.
- Can capital be contributed in the form of $, prop or svcs?
A1763.
- Yes!
Q1764.
- What's sec rule 10b-5?
A1764.
- Unlawful to:
- 1. employ any device or scheme to defraud
- 2. make untrue statements of mat'l fact
- 3. any fraud activity in the purch or sale of any security in
interstate commerce
Q1765.
- What are corps express powers?
A1765.
- A corp has the express power to perform any act
authorized by state law, AOI or the bylaws.
Q1766.
- What are 4 particular powers that a corp may have but not
implied due to public policy considerations?
A1766.
- 1. Gifts
- 2. P/S
- 3. Surety
- 4. Acquiring & reacquiring shares
Q1767.
- What's an AC?
A1767.
- The AC is an operating committee of board members who
are independent of the corp.
Q1768.
- What's a subscription agreement?
A1768.
- It's a contract by which the subscriber agrees to purchase
a # of shares of corp stock at a sub price specified in the
agreement.
Q1769.
- Explain what an enforceable preincorp sub is?
A1769.
- if INDIVIDUALS agreed to subscribe to corp stock & it
appears that each parties promise was dependent on the
other parties also subscribing, then an enforceable
contract exists. The subscription is enforceable NOT btw
the corp & each subscriber, but rather among the
subscribers themselves!
Q1770.
- When are subscriptions binding for sure?
A1770.
- Post-incorp subs! Any agreement after the corp is formed
constitutes a binding obligation to sell or purchase stock.
Q1771.
- Does the AOI have to specify the types & # of shares a
corp may issue?
A1771.
- yes! can't issue greater amt!
Q1772.
- What's a foreign corp?
A1772.
- One that does bus in any state except the 1 in which it is
incorporated.
Q1773.
- What is sec rule 16b?
A1773.
- Insider Trading - applies to officers, directors & holders of
more than 10% of the stock.
Q1774.
- What are 4 examples of implied powers?
A1774.
- 1. power to sue & be sued in the corporate name
- 2. power to make or amend corp bylaws
- 3. power to acquire, mortgage & transfer prop for corp
purposes
- 4. power to issue corp bonds
Q1775.
- Do directors need to be stakeholders?
A1775.
- No
Q1776.
- what's legal capital (state capital)?
A1776.
- The # of shares issued times their par value or stated
value. This fund primarily is reserved for the payment of
creditors in the event of a liquidation. Dividends may NOT
come from this source!
Q1777.
- What has to be publicly filed? bylaws or AOI?
A1777.
- AOI
Q1778.
- Who sets forth the measure of liability to be borne by a
corp with regard to it's issued securities.
A1778.
- UCC!
Q1779.
- what's a defacto corp?
A1779.
- Did not comply substantially with mandatory req's. This
status forces 3rd parties to perform on corp contracts &
shields stakeholders from direct liab!
Q1780.
- Can a corp place certain restrictions on the transfer of
stock?
A1780.
- yes
- 1. right of 1st refusal
- 2. has to be noted on face of stock
- 3. restrictions must be reasonable
Q1781.
- What are the essential elements of a defacto corp?
A1781.
- 1. a valid statute under which the bus could have been inc
legally
- 2. existence of a corp charter
- 3. a good faith effort to incorporate
- 4. some good faith business dealings in the corp name
Q1782.
- Does a corp recognize a taxable g or L for the
contributions of prop by stakeholders?
A1782.
- No!
- 1. If tax free to s/h, corps basis is the same as there's
- 2. If gain recognized by s/h, corp adds the gain to the
basis
Q1783.
- What's a corp by estoppel?
A1783.
- In the absence of even a defacto corp, many courts have
protected stakeholders from 3rd party suits still. If the 3rd
party believed they were dealing with a corp, the crts will
not allow the 3rd party to hold the stakeholders liable on
the contract.
Q1784.
- what are the bylaws?
A1784.
- They are the rules & regs that govern the internal
manmgmt of a corp.
Q1785.
- What's a dejure corp?
A1785.
- Under common law, any corp that substantially complies
with the mandatory statutory req's of incorporation is
deemed dejure and it's status cant be attacked by anyone
including the state.
Q1786.
- What's a quo warranto proceeding?
A1786.
- Suit challengin the corp existence.
Q1787.
- Explain what noncorp status is.
A1787.
- Gen'ly if corp fails to meet any of the protection status, it
may be attacked by anyone. Stakeholders are liable here!
Q1788.
- What's the def of contributed cap.
A1788.
- The total amount paid for stock when issued, stated cap
plus paid in surplus.
Q1789.
- Explain consideration for it's shares.
A1789.
- a corp may only receive certain types & quantities of
consideration for it's shares.
Q1790.
- Explain the legality of a stock transfer.
A1790.
- Can be transferred by endorsement & delivery. If a stock
certificate is endorsed in blank, it may be transferred by
delivery alone. A transfer becomes legally effective against
the corp only when the security is presented to the corp, or
a duly appointed agent for registration.
Q1791.
- How is a taxable G or L calculated for stock purchased or
traded to a s/h that don't have immediate control (80%
rule)?
A1791.
- FMV minus the basis of prop exchanged for the stock.
Q1792.
- What's respondeat superior?
A1792.
- The prin is vicariously liable (liable regardless of whether
s/he is at fault) for the torts of an agent if they are
committed within the scope (actual or apparent) of the
agency.
Q1793.
- When is respondeat superior not valid against prin?
A1793.
- If the agent departs from the performance of her/his
duties & acts on their own. It's usually to benefit
themselves.
Q1794.
- Does the promoter have to comply with SEC Act of 1933?
A1794.
- Yes! The act req's the filing of a registration statement
with the SEC if securities are to be offered through the mail
or through some other means of interstate commerce.
Also, each potential purchaser must be provided with a
prospectus.
Q1795.
- What are some common situations that would make a
court pierce the corp veil?
A1795.
- 1. Corp Fraud or corp was formed to do illegal stuff
- 2. Undercapitalization
- 3. Sub Corp
- 4. Loans
Q1796.
- Binding contracts brief outline.
A1796.
- If principle is:
- 1. disclosed - P
- 2. partially disclosed - P & A
- 3. undisclosed - A only!
Q1797.
- Can a fully undisclosed prin ratify?
A1797.
- No! Must be fully or partially disclosed! Also, prin was in
existence at the time the act was done!
Q1798.
- If a 3rd party withdraws b4 ratification, can prin still
ratify?
A1798.
- No
Q1799.
- Can the law create an agency relationship?
A1799.
- Yes.
- 1. Estoppel
- 2. Rep, Appearance, AA
- 3. Necessity
Q1800.
- When does a prin not have the right nor power to revoke
the agency?
A1800.
- If it's an "agency coupled with an interest"!
Q1801.
- What can be ratified, a tort or a crime?
A1801.
- Tort!
Q1802.
- Once ratification occurs, what happens as to the liability
of the agent?
A1802.
- It goes away!
- 1. Prin cant charge agent with exceeding it's authority &
3rd party can't hold them liable for breach of warranty of
authority.
- 2. Prin cant retract ratification.
Q1803.
- Does notice of an agency termination need to be given?
A1803.
- Yes! unless terminated by operation of law!
- 1. Actual Notice
- 2. Constructive Notice (publication)
Q1804.
- What are 4 ex of an agency relationship that gets
terminated by law?
A1804.
- 1. death or insanity by either partner
- 2. bankruptcy or insolvency of the prin
- 3. bankruptcy of the agent if it affects the agency
relationship
- 4. illegality or impossibility
Q1805.
- What are a few things that a s/h is liable for?
A1805.
- 1. "watered stock" if less than lawful consideration
- 2. unpaid portion of their stock subscription contract
- 3. illegal dividends, whether known or unknown, s/h is
liable for repayment ONLY to an INSOLVENT corp!
Q1806.
- What's the proc for a merger or cons?
A1806.
- 1. BOD approves
- 2. S/H approves
- 3. State filing
- 4. Certificate Issued
- 5. Appraisal rights
- 6. Short-form mergers
Q1807.
- What's a SF merger?
A1807.
- When one corp owns more than 90% of sub, only BOD of
parent corp needs to approve merger!
Q1808.
- Explain an involuntary dissolution.
A1808.
- May be brought about by an individual or the state.
- 1. Quo Warranto Action - if corp exceeds it's authority,
state can bring action for diss!
- 2. S/h action - can bring action if BOD did fraud, waste or
deadlocked!
- 3. Misc grounds - diss of a corp may arise by expiration of
the time period set out in the charter, cons or merger.
Q1809.
- Who are NOT allowed to be stakeholders of an s-corp?
A1809.
- 1. Nonresident aliens
- 2. Corps
- 3. Foreign trusts
Q1810.
- Is an agent liable to the prin for losses cuz of there own
negligence?
A1810.
- yes!
Q1811.
- What duties can one NOT be able to appoint an agent?
A1811.
- 1. Those that the prin has to perform personally!
- 2. Those precluded by statute.
- ex. execution of will
- 3. Those that the prin CANT perform! ex. a minor cant
appt an agent to convey real estate since the minor can
void the conveyance!
Q1812.
- What are the prins duties to an agent?
A1812.
- 1. Comp for svcs
- 2. Reimbursement of expenses
- 3. Indemnification - to imdemnify the agent against loss
or liability for acts performed at the prins direction, unless
they are unlawful.
- 4. Compensation for injury
Q1813.
- What's A + B = A
A1813.
- Merger
Q1814.
- What's transfer pricing?
A1814.
- Transer pricing is the process of establishing prices used
btw related parties (typically divisions of the same
company) for loans, sales or leases of tangible pp,
licensing of intangibles & the sale of svcs. This is in effort
to increase/decrease income in certain segments for tax
purposes.
Q1815.
- Explain unemployment & inflation.
A1815.
- ST (philips) - inverse relationship
- LT - little to no relationship
Q1816.
- What's the full employment act of 1964?
A1816.
- US Gov't justified entering a mkt in which mkt forces do
not allocate resources efficiently.
Q1817.
- What are the 2 prin's taxes are based on?
A1817.
- 1. ability to pay (progressive tax system)
- 2. derived benefit (like prop taxes paying for trash
removal)
Q1818.
- What's intergenerational inequity?
A1818.
- If debt-financed expenditures have no future benefit,
intergenerational inequity results. Intergenerational
inequity is when one generation pays for a diff generations
benefit.
Q1819.
- Diff btw public and private sectors?
A1819.
- Sweater is a private good, only benefits buyer of sweater.
- Law Enforcement - public good
Q1820.
- What's a VAT?
A1820.
- Each entity in production & distribution chain pays tax on
the diff btw its sales & purchases. Consumers ultimately
bear the incidence of a VAT. Under a VAT structure, all
entities pay tax, regardless of income. A VAT tax is held to
encourage savings because only consumption is taxed
(not consumption & savings as the case with an income
tax)!
Q1821.
- What does absolute adv mean?
A1821.
- Abs adv for a good exists when the cost of producing that
good in one country is less than the cost of producing that
good in another country.
Q1822.
- What are the 3 types of unemployments?
A1822.
- Frictional - due to labor mkt mechanics, time btw jobs
- Structural - aggregate demand is equal to aggregate
supply, but the nature of the supply don't match the nature
of the demand! Mismatch!
- Cyclical - aggregate demand is less than the supply
Q1823.
- Explain increasing returns to scale.
A1823.
- When inputs triple, but outputs more than triple!
- As most entities expand output, avg costs of production
decline due to better use, including specialization of
resources: management, labor & equip.
Q1824.
- When will an entity profit from additional resources used?
A1824.
- To the pt at which marg rev product = marg resource cost
Q1825.
- What's the clayton act?
A1825.
- Prohibits mergers if the resulting corp would tend to
lessen competition. Also prohibits price discrimination &
prohibits director's in common btw 2 competing corps.
(1914)
Q1826.
- What's the robinson-patman act?
A1826.
- Prohibits discounts that are not based on cost
differences to large purchasers. (1936)
Q1827.
- What are historical costs?
A1827.
- Actual expenditures made in producing a product.
Q1828.
- What's the diminishing marginal utility prin?
A1828.
- Equal increments of additional consumption of a good
provide smaller & smaller additional units of utility. For
instance, the 1st pair of shoes provides more utility than
the 101st.
Q1829.
- What are implicit costs?
A1829.
- Implicit costs are amts that would have been received if
resources had been used for other purposes.
Q1830.
- What's normal profit?
A1830.
- Normal profit is the cost of keeping entrepreneurial skills
in the org! Also called the opportunity cost of using the
owner's own resources.
Q1831.
- What are the basis for decisions?
A1831.
- Marginal Factors! Always what happens by increasing
something by one unit!
Q1832.
- 3 kinds of returns to scale are?
A1832.
- Increasing - If all outputs are changed by a factor greater
than the factor that changes inputs, returns to scale
increases!
- constant - changes are the same for both
- decreasing - opposite of increasing
Q1833.
- What's the sherman act?
A1833.
- Prohibits trade restraint in interstate & foreign trade,
including price fixing, boycotts, agreements to divide mkts
& resale restrictions. (1890)
Q1834.
- What's the celler-kefauver anti-merger act?
A1834.
- Prohibits acquiring competitors assets if the result would
tend to lessen competition. (1950)
Q1835.
- Explain what happens in the mkt with shortages &
surplus.
A1835.
- When a shortage exists, the mkt price will rise & quan
demanded will decrease, eliminating the shortage. When a
surplus exists, the mkt price will decrease & quan
demanded will increase, eliminating the surplus.
Q1836.
- What's economic cost?
A1836.
- Economic cost is the income that an entity must provide
in order to attract resource suppliers.
Q1837.
- Briefly explain the impact of shifts in demand & supply.
A1837.
- An increase in demand when supply don't change will
increase mkt price. Decrease opposite.
- If both increase, the output quantity will increase with an
indeterminate effect on mkt price.
- Say demand increases but supply decreases, the mkt
price will increase & an indeterminate effect on output
quantity.
Q1838.
- What's economic profit?
A1838.
- Economic profit is total revenue less all economic costs.
When economic profit is zero, the firm is earning just a
normal profit or normal rate of return.
Q1839.
- What's cross-elasticity of demand?
A1839.
- It measures responsiveness of demand to changes in
price of another good.
- Exy
Q1840.
- What are production factors also called?
A1840.
- Inputs
Q1841.
- What's the price elasticity of demand formula?
A1841.
- % change in quan demanded / % in price
Q1842.
- What's the utility theory?
A1842.
- That an individuals goal is to maximize the total utility
from avail income. Pants & shoes ex!
Q1843.
- What's GDP?
A1843.
- The total mkt value of all final goods & svcs produced
within a specified country. To avoid multiple counting of
the same production, either only the value added to goods
at each production stage is counted or only the final goods
are counted.
- ex. an aircraft engine typically would not be a final good
Q1844.
- What are 7 leading indicators?
A1844.
- 1. Avg hrs worked per wk by manufacturing workers
- 2. Initial unemployment claims
- 3. Stock prices
- 4. Raw mat'l price change
- 5. Residential bldg permits
- 6. Vendor delivery times & unfilled durable orders
- 7. $ supply changes
Q1845.
- What's an example of a vertical merger?
A1845.
- Merger along a supply chain.
- ex. an iron mine & a steel manufacturer
- Horizontal would be 2 entities that are competitors!
Q1846.
- What's the def of a peak in a bus cycle?
A1846.
- A peak is characterized by high levels of economic
activity & full use of resources.
Q1847.
- What's a cartel?
A1847.
- A group of oligopolistic firms intentionally joining to fix
prices.
- ex. OPEC
Q1848.
- What's disposable income?
A1848.
- Personal income less personal income taxes. Disposable
income is divided btw consumption, int payments &
savings!
Q1849.
- What tends to offset monopolistic behavior?
A1849.
- Foreign competition!
Q1850.
- What's national income?
A1850.
- NDP plus a country's NI earned abroad less indirect bus
taxes.
Q1851.
- What's "The Common" (externalities)
A1851.
- Assets used in common may suffer poor maintenance.
The damage to common assets are called externalities as
the cost is external to the abusers!
Q1852.
- What's it called when demand & supply intersect on a
graph?
A1852.
- Mkt equilibrium!
Q1853.
- In all the E (elasticity) formulas, what's common in the
numerator?
A1853.
- % change in quantity (either demanded or supplied)!
Q1854.
- Explain the cross-elas coefficient.
A1854.
- Exy = if +, goods are sub's, if -, goods are complements, if
0, goods are unrelated!
Q1855.
- Explain the accelerator theory.
A1855.
- Accelator theory states that cap investment is related to
the rate of change in national income.
- ex. an increase in cap investments is the only way to
meet any increased demand. The process of investing to
meet demand continues to accelerate. Once a recovery is
started, it creates a momentum that continues for some
time.
Q1856.
- What business or industries that perform much better
than avg during expansions & much worse than avgs
during recessions called?
A1856.
- Cyclical!
Q1857.
- What's real per-captia output?
A1857.
- GDP / by population, adj 4 inflation. It is used as a
measure of the standard of living.
Q1858.
- What's personal income?
A1858.
- National income plus transfer payments (such as corp
profit distributions & ss benefits) less both corp inc taxes
& undistributed profits & less ss contributions!
Q1859.
- What's GNP?
A1859.
- The total mkt value of all goods & svcs produced with
resources froma specified country, not necessarily within
its borders.
Q1860.
- What's a conglomerate?
A1860.
- A merger of 2 entities in diff mkts!
- ex. steel manufacturer & computer manufacturer
Q1861.
- What is price leadership?
A1861.
- In an oligopoly, a major firm announces a price change &
other mkt members match it!
Q1862.
- In monopolistic competition, what's profit maximization?
A1862.
- Each producing entity equates marginal rev with marginal
cost unless price is less than avg variable cost. If cost is
less than avg variable cost, an entity ceases production.
Q1863.
- Give the basics of the demand curve.
A1863.
- deman on x-axis, as price increase demand decreases.
An increase in demand is a shift to the right.
Q1864.
- Explain the elasticity coefficient.
A1864.
- If the absolute value of Ed is greater than 1, demand is
classified as elastic, less than 1 it's inelastic, and = 1 is
classified as having unitary elasticity.
Q1865.
- How does expectations influence demand?
A1865.
- Positively! ex. if cons expect prices to go up, or inflation,
they buy more now!
Q1866.
- Explain surplus (economic rent).
A1866.
- Surplus or ER is deemed earned when an input is paid or
purchased for higher amt than the next highest bidder-
consumer of that input would pay.
- ex. a muscian earns 500k as a rock star. His alternative
work would be a cashier for 20k. ER is 480K.
Q1867.
- What's the def of CE of demand?
A1867.
- Closely related goods influence deman.
- 1. Subs
- 2. Complements
Q1868.
- What's always on the y-axis?
A1868.
- $
Q1869.
- What's the def of demand?
A1869.
- Demand is the amt of a good that consumers as a group
will (are willing and able to) purchase at a given price
during a given time period. Demand analysis concentrates
on cons behavior!
Q1870.
- What's the law of supply?
A1870.
- The price & quantity of a good are related directly, that is,
the greater the price, the greater the supply!
Q1871.
- What are some things that can increase demand?
A1871.
- 1. Increase in sub's price or decrease in complements
price for normal goods.
- 2. Increase in cons inc for normal goods.
- 3. Decrease in cons inc for inferior goods.
- 4. Expected future price increases
Q1872.
- What's the def of price elasticity of demand?
A1872.
- It measures responsiveness of demand to changes in
price. If demand is elastic, demand will fluctuate as the
price changes!
Q1873.
- How does income influence demand?
A1873.
- 1. Normal goods - positive relationship
- 2. Inferior goods - negative
- ex. as income increases so does the demand for normal
goods!
Q1874.
- What's the def of elasticity?
A1874.
- The measure of how responsive the mkt is to change in a
determinant.
Q1875.
- What's the relationship btw price & quantitiy demanded?
A1875.
- Inverse
Q1876.
- How does the future expected price of a good affect
supply currently?
A1876.
- An increase in the expected future price for good
incourages firms to supply less now!
Q1877.
- What's communism?
A1877.
- Resources are owned by the state & most decisions are
made by the state.
Q1878.
- What's the def of supply?
A1878.
- Amt of a good that producers as a group will (are willing
and able to) supply at a given period of time.
Q1879.
- How is the gen'l price level related to the purchasing
power of $?
A1879.
- Inversly!
Q1880.
- What's a balanced budget?
A1880.
- Taxes = Gov't Expenditures
Q1881.
- What's a margin req't?
A1881.
- When the fed req's a min down payment that applies to
securities.
Q1882.
- What's the monetarist theory?
A1882.
- A steady, restrained growth of $ supply is more
significant than fiscal policy on economic activity, inflation
& employment.
- Inflation - in the long run, excessive increases in the $
supply cause inflation. Inflation can be controlled only by
restricting $ supply growth.
Q1883.
- Explain the open-mkt Op's of monetary control.
A1883.
- Purch and sell gov't debt
- 1. Selling - decreases $ supply by taking it from
circulation
- 2. Purchase - opposite!
Q1884.
- What's a multiplier coefficient?
A1884.
- Any increase in autonomous investment, consumption, or
gov't spending results in a multiplied increase in national
income. The same income is spent several times. The
impact of this effect is determined by the marginal
propensity to save (MPS).
Q1885.
- What's a disc rate?
A1885.
- When banks borrow from fed. Lowering the discount rate
encourages borrowing & increases the money supply.
Q1886.
- What's the model of closed economy?
A1886.
- In a simple economy without a gov't,a money mkt or int'l
trade, equilibrium income occurs when aggregate savings
equals aggregate investment. In other words, equilibrium
income occurs when aggregate demand (consumption &
investment) equals aggregate supply. With gov't - taxes &
gov't expenditures play a factor!
Q1887.
- What are 3 examples of near money?
A1887.
- 1. Gov't sec's
- 2. Nonchecking saving deposits
- 3. Time deposits
Q1888.
- What are the 3 components of investment?
A1888.
- 1. Residential Const
- 2. Inventories
- 3. P & E
Q1889.
- Brief explanation of monetary policy is?
A1889.
- Monetary policy is policy intended to control the money
supply. Control of money supply growth is deemed
essential to control inflation, spending & credit availability.
Stable int rates & monetary control are mutually exclusive
goals. The Fed focuses sometimes on int rates &
sometimes on $ supply.
Q1890.
- What are some things that can increase/decrease
investment?
A1890.
- High tech growth - Increase
- Real Int Decline - Increase
- High Cap Good Stock - decrease
- Higher acq & maint - decrease
Q1891.
- What's the supply side theory?
A1891.
- Cutting taxes stimulates work, savings & investments &
restores incentive to the economy.
Q1892.
- What's the PPF?
A1892.
- All the possible combo's of output, with all the other
factors held constant.
Q1893.
- What's the neo-keynesian theory?
A1893.
- Fiscal policy influences econ activities, but excessive
monetary growth leads to inflation.
Q1894.
- Explain how a shift or inflation is in the PPF.
A1894.
- 1. Shift - outward shift is called economic growth, a
nation can have more output. Change in the PPF are
caused by changes in resources (land, labor, cap, etc.) or
technology.
- 2. Inflation - If production is at the PPF boundary &
demand increases, consumers will bid up prices of goods.
Q1895.
- What's the fwd exchange rate?
A1895.
- The fwd exchange rate is the rate agreed to be paid in the
future. The diff btw the spot rate & the fwd exchange rate is
called a discount or premium. If fwd is more than spot, it's
a premium!
Q1896.
- What's the basics of keynesian economics?
A1896.
- Keynesian economics holds the theory that an economy
can be in equilibrium at less than full employment.
Keynesian economics focuses on spending & fiscal policy
(gov't stuff) as determinates of economic activity.
Q1897.
- What's hedging?
A1897.
- It's a risk avoidance technique! Hedging involves
offsetting a G or L on rec/pay denominated in foreign
currencies by purchasing or selling fwd exhange
contracts. Buying these contracts covers liability in the
foreign currency, selling covers rec!
Q1898.
- What's in the capital or current accts?
A1898.
- Current - bal of goods & svcs, net int & dividends, & net
unilateral transfers!
- Capital - tracks cash flows resulting from the exchange of
fixed or financial assets.
Q1899.
- What are 3 things that measure inflation?
A1899.
- 1. CPI - comparison of the items price in a "typical"
shopping cart to a base value.
- 2. WPI - same as above except wholesale quantities.
- 3. GDP Deflator
Q1900.
- Explain factor endowment.
A1900.
- The Heckscher-Ohlin theory states that regional
differences in efficiency occur because of diff in supply of
prod factors: land, labor, & cap! For ex, farming is favored
by a slowly moving river as a reliable irrigation source, but
manufacturing is favored by a swiftly moving river as a
power source.
Q1901.
- What's the basics of classical economies?
A1901.
- Classical economics theory holds that an economy is in
equilibrium at full employment, the economy generates &
maintains full employment over the long run without
artificial (gov't) intervention due to price & wage flexibility.
Q1902.
- What's the demand-pull theory?
A1902.
- Inflation is caused by xs aggregate demand for goods &
svcs. Usually xs aggregate demand is deemed to be due to
expansionary fiscal policy (additional gov't expenditures).
Q1903.
- Give examples of capital, labor & land intensive goods.
A1903.
- Cap intensive - req's high level of investment, like a
construction plant to build an aircraft.
- Labor intensive - req's high level of labor, for ex. the labor
involved in making computer programs.
- Land intensive - ex. land involved in beef production.
Q1904.
- What's the spot rate?
A1904.
- It's the rate paid for currency now!
Q1905.
- What's an export incentive?
A1905.
- Subsidies are gov't payments to producers, typically in a
protected industry. Indirect subsidies, or incentives,
include favorable tax treatment on export-related income.
This practice might have similar effects on the foreign
country as import quotas or tariffs.
Q1906.
- What's the purpose of trade barriers?
A1906.
- Trade restrictions exist due to many factors. An exporting
country may allow conditions that are not permitted in a
country that would otherwise import goods from that
exporting country.
Q1907.
- What's sovereignty risk?
A1907.
- Sov risk is risk of significant restrictions on removal of
the investment, either as dividends or sale of the
operations, including nationalization.
Q1908.
- When does currency appreciate or depreciate?
A1908.
- Currency appreciates when it can buy more units of
another currency & depr's when it can buy fewer units of
another currency.
Q1909.
- Give 3 reasons against free trade.
A1909.
- 1. Incubate infant industry - one argument is that a
country has a comparative adv in the long run, but a
temporary disadvantage!
- 2. Protect local jobs from cheap foreign labor!
- 3. Fair competition tariff - an import tariff that brings the
cost of imported goods up to the domestic price level.
Q1910.
- Explain current & capital in int'l payments.
A1910.
- Int'l payments - imports, exports, debt or equity
investments - rarely net to 0! The balance of payments (the
def or surplus) typically is tracked in 2 prin accts - current
or capital!
Q1911.
- What's comparative adv?
A1911.
- Comp adv for a good exists when the opportunity cost of
producing that good is less than the cost of producing
other goods in the same country compared to another
country.
Q1912.
- What's a trade barrier?
A1912.
- Usually, the effect of trade barriers is to keep resources
(land, labor, cap, etc) in less efficient protected industries
rather than move the resources to relatively efficient
industries.
Q1913.
- Which goods do countries tend to export?
A1913.
- Goods in which they have a comparative adv! For ex in a
model with only labor, land & cap as production factors,
countries with a relative abundance of labor will import
cap-intensive goods & land intensive goods & export labor
intensive goods!
Q1914.
- Barrier vs free trade?
A1914.
- Barrier support - competition costs are obvious!
- Free Trade Support - competition benefits are less
obvious!
Q1915.
- What are 4 impacts of inflation?
A1915.
- 1. Discourages saving
- 2. Restricts Lending
- 3. Strained relationships (uncertainty with LT contracts)
- 4. Wealth redistribution (debtors repay with less valuable
dollars, pensions pay out less valuable $, etc)
Q1916.
- What's the cost-push theory of inflation?
A1916.
- Inflation is caused when increased product costs are
passed on the the consumers in the form of higher prices.
Labor unions are considered the primary source of these
costs.
Q1917.
- What's the 4 objectives of the EU?
A1917.
- 1. Establish euro citizenship
- 2. Ensure freedom, security & justice
- 3. Promote economic & social progress
- 4. Assert Europes role in the world
Q1918.
- Explain what happens when an exchange rate is set
above the mkt equilibrium price.
A1918.
- There's a surplus! More people are willing to supply than
there is demand & a deficit of payments results!
Q1919.
- Call vs Put.
A1919.
- Call - Buy
- Put - Sell
Q1920.
- What's exercise value?
A1920.
- The exercise value is the diff in the mrkt price and the
exercise price times the # of shares each warrant allows
the warrant holder to purchase at the exercise price. An
options actual value is the market price.
Q1921.
- What's the ex dividend date?
A1921.
- To avoid conflict because of a delay btw an exchange &
corporate receipt of notification of an exchange, the ex
dividend date is the date after which the right to the
dividend is NOT transferred with the sale of stock.
Q1922.
- What's the formula for DFL?
A1922.
- DFL = EBIT / (EBIT - Int)
Q1923.
- Briefly explain how stock price rises & falls.
A1923.
- Expected stock prices first rise as a corp begins to
borrow, peaks, & then declines as debt becomes
excessive. Since interest is tax deductible, a corp has a
greater proportion of operating income flowing through to
investors as debt increases, increasing stock prices.
Q1924.
- What's a warrant?
A1924.
- A warrant is an option to buy a specific amount of CS at a
stated price (the exercise price) usually within a specific
period of time. A detachable warrant may be traded
separately from the bond or preferred stock.
Q1925.
- What's the residual theory of dividends?
A1925.
- 1. Determine an optimal or target capital budget.
- 2. Calculate the equity necessary to finance that capital
budget.
- 3. Suppy that equity from RE insofar as possible.
- 4. Pay dividends to the extent RE exceed equity needed
(in other words, leftover or residual earnings).
Q1926.
- What's an optimal cap structure?
A1926.
- An OCS maximizes the price of the stock by balancing
risks and returns. Also where the marginal tax shelter
benefits of the interest are equal to the marginal
bankruptcy costs.
Q1927.
- Briefly explain what financial leverage is.
A1927.
- When a relatively small change in EBIT results in a large
change in CS return, a high degree of financial leverage
exists. This results when a high % of the entity's financing
is through fixed income securities: debt & preferred stock.
Gen'ly the greater the financial leverage that exists, the
greater the bus risk will be!
Q1928.
- Briefly explain what operating leverage is.
A1928.
- When a relatively samll change in sales results in a large
change in operating income (or EBIT), a high degree of
operating leverage exists. This results when a high % of
costs are fixed! Gen'ly the greater the operating leverage
that exists, the greater bus risk will be!
Q1929.
- What's the formula for the degree of operating leverage?
A1929.
- DOL = Cont Marg / EBIT
Q1930.
- Why is bond interest risky to an issuer?
A1930.
- Unpaid bond interest could force an issuer into
bankruptcy; undeclared dividends will NOT! Bond interest
continues to accrue regardless of wheter the entity
generates profits or $ to pay interest, potentially
magnifying losses or cash shortfalls!
Q1931.
- 5 things used to determine an entity's risk are?
A1931.
- 1. Demand Variability - the more demand for an entities
products is stable, the lower the entity's risk.
- 2. Sales Price Volatility - degree at which sales prices
change, higher risk for entity.
- 3. Input Price Volatility - higher's entity's risk!
- 4. Sales Price Influence - the more a producer can charge
higher prices when inputs change the lower the risk for the
entity.
- 5. Operating Leverage - higher fixed costs are more risky
for entity.
Q1932.
- What's coverage ratio and example?
A1932.
- Coverage is a measure of an issuer's ability to meet
interest & principal. The time-int-earned ratio (EBIT / int
payments) is an example.
Q1933.
- In liquidation who's claims have priority bondholder's or
PS?
A1933.
- BONDHOLDERS!
Q1934.
- Are debenture bonds unsecured?
A1934.
- Yes. Also called junk! Bondholder's are like gen'l
creditors.
Q1935.
- What's a zero or low-coupon bond?
A1935.
- Offered below par & pays no annual interest. Usually
company's that make actuarial contracts such as pension
funds & life insurance companies buy zero coupon bonds.
They don't need to worry about investing the interest &
principal payments.
Q1936.
- Explain indenture and trustee in bonds.
A1936.
- An indenture defines the rights & obligations of
bondholders & the issuer. A trustee represents the
bondholders in ensuring the indenture terms are fulfilled.
The SEC approves indentures & ensures indenture
provisions are met initially.
Q1937.
- Best Effort vs Underwritten Issues.
A1937.
- Best Effort - an investment bank doesn't guarantee that
securities will be sold.
- Underwritten - an investment bank buys the issue at a
discount from the price at which they are offered to the
public & resells them effectively guaranteeing that the
issue will sell.
Q1938.
- Explain residual income.
A1938.
- The objective of maximizing residual income assumes
that as long as the accting unit earns a rate of return in xs
of the imputed int charge on its avg invested capital.
Q1939.
- What's cost of capital?
A1939.
- An entity's cost of capital is equal to the weighted avg of
the cost of debt, preferred & CS, & RE, with their markt
values as weights.
Q1940.
- What's a restrictive covenant ratio?
A1940.
- A provision in an indenture or term loan contract that
requires the debtor to meet certain financial standards.
Q1941.
- What are the 3 main types of LT fixed income securities?
A1941.
- 1. Term loans
- 2. Bonds
- 3. Preferred Stock
Q1942.
- What's Economic Value Added?
A1942.
- It's the Net Operating Profit after tax less the opportunity
cost of capital.
Q1943.
- What's return on investment?
A1943.
- The return on investment measures the relationship of
profit to invested capital for a unit of accountability. The
return on investment is increased when operating income
increases or when avg invested cap decreases.
- DIRECT RELATIONSHIP WITH OPERATING INCOME!
Q1944.
- What are the adv & disadvantages of the NPV?
A1944.
- Adv - all of the CF's over the life of the project is used,
including the estimated residual sales value of the project,
the TM of $ is explicitly recognized & CF's are assumed to
be reinvested at the enterprises cost of capital.
- Disadvantages - it don't estimate the projects rate of
return but merely tests the rate against a minimum rate.
Q1945.
- What are the adv & disadvantages of the IRR?
A1945.
- Adv - all of the CF's over the life of the project is used,
including the estimated residual sales value of the project,
the TM of $ is explicitly recognized & the projects rate of
return is estimated.
- Disadvantages - CF's are assumed to be reinvested at the
rate earned by the project & it's more difficult to use then
other techniques.
Q1946.
- What are the advantages and disadvantages of the
payback period?
A1946.
- Advantages - based upon CF's, serves as a rough
screening device to determine the time to recoup initial
investment, it's simple to understand & easy to compute.
- Disadvantage - the TM of $ is ignored, not all the CF over
the life of the project is used - all CF beyond the payback
period for the investment is ignored & it don't measure
profitability.
Q1947.
- What are the advantages and disadvantages of the
Accting Rate of Return on Avg Investment?
A1947.
- Adv - Understood easily
- Disadvantage - It is based upon financial accounting
income that uses the accrual basis (cap budgeting
decisions gen'ly should rely on CF's) & it ignores the TM of
$.
Q1948.
- What's the formula for the profitability index?
A1948.
- PI = PV of CF / Initial Investment
Q1949.
- What's the NPV?
A1949.
- It's PV of future cash inflows from the project MINUS the
cost of the initial investment. A project that will earn
exactly the desired rate of return will have a NPV of ZERO!
A positive NPV identifies projects that will earn in xs of the
minimum rate of return.
Q1950.
- What's the IRR?
A1950.
- This is the rate of interest that would make the PV of the
future CF's from the project equal to the cost of the initial
investment. Projects with a rate less than a minimum rate
(or hurdle rate) set by the company are eliminated from
consideration.
Q1951.
- What's payback period?
A1951.
- This is the length of time req'd to recover the initial cash
outflow from incremental cash benefits AFTER tax. Thus, if
we have an investment of 10K that yields 4.5K each yr after
tax, it would take us 2.22 yrs (10/4.5) to recover the org
investment from the cum net CF's!
Q1952.
- What's the Accounting Rate of Return on Avg
Investment?
A1952.
- This is the avg annual net income from the project
divided by the avg investment in the project. The
numerator is the avg annual increase in NI, NOT CF, so
depr and incremental inc taxes are SUBTRACTED!
Q1953.
- Independent vs Mutually Exclusvie.
A1953.
- A project is independent if it's projected CF's are
unaffected by another projects existence. For independent
projects, NPV & IRR criteria lead to the same accept or
reject decisions. In mutually exclusive NPV & IRR can give
diff rankings. NPV ranking is usually more reliable.
Q1954.
- What's the current extensive use for derivatives?
A1954.
- 1. Volatile Markets
- 2. Deregulation
- 3. Emerging Technologies
Q1955.
- Explain the free component.
A1955.
- The credit received during the disc periods commonly is
called free. A supplier has the cost of carrying receivables
during that disc period & must pass that cost to the cust.
Thus, the costs of the disc period credit is included in the
form of higher base prices. However, unless a supplier will
lower the base price for cash purchases, the discount
period is free.
Q1956.
- When is depr EXCLUDED from certian calcs?
A1956.
- When income tax considerations are IGNORED!
Q1957.
- What's the purpose of Post-Project audit's?
A1957.
- 1. Supports refinement of future predictions.
- 2. Improves the project implementation as an
implementation team has incentive to make the project
happen, for their reputations if nothing else, just because
the team is aware of the post project audit.
Q1958.
- What are the categories of derivatives.
A1958.
- 1. Fwd Contracts
- 2. Swap Contracts
- 3. Option contracts based on int rates or currencies
Q1959.
- Explain the costly component.
A1959.
- "Costly" trade credits cost is an implicit cost = to forgone
discounts. Entities should use the costly component only
after determining that the cost of this credit is less than the
cost of funds from other sources.
Q1960.
- A/P or trade credit is typically divided into 2 categories
which are?
A1960.
- Free and Costly Components!
Q1961.
- What's the Economic Order Quantity?
A1961.
- The EOQ is the purchase size that minimizes the total
inventory order cost & inventory carry costs!
- >(2 x order cost x annual demand) / inventory carrying
cost per unit
Q1962.
- What is good inventory management characterized by?
A1962.
- 1. High Inventory Turnover
- 2. Low obsolescence or deterioration write-offs
- 3. Infrequent work stoppages or lost sales due to stock-
outs
Q1963.
- How is outstanding A/R calculated?
A1963.
- By multiplying credit sales volume by the avg length of
time btw sales and collections.
Q1964.
- How is the level of safety stock determined?
A1964.
- It's level is determined by balancing the cost of a stock-
out (i.e., lost business & customer GW) against the cost of
carrying extra inventory.
Q1965.
- Explain lead time & reorder point.
A1965.
- Lead time is the time lag btw placing an order & the
receipt of the goods. If safety stock is ignored, the reorder
point is computed as the anticipated demand during the
lead time. If safety stock is considered, the reorder point is
computed as the anticipated demand during the lead time
plus the level of safety stock.
Q1966.
- What's the downside to discounts?
A1966.
- The reduced margin on sales.
Q1967.
- What's float?
A1967.
- Float is the diff btw the amount on the depositor's books
& the balance according to the bank.
Q1968.
- Precautionary balances?
A1968.
- Cash budgets are merely forecasts with varying degrees
of reliability. Unpredicted fluctuations in inflows could
reduce an account just normal outflows need to be made,
causing havoc in everyday operations.
Q1969.
- Transaction Balances vs Compensating Balances
A1969.
- Trans Balances - balances associated with routine
payments & collections.
- Comp Balances - banks usually specify a min balance or
deposit to offset the cost of svcs such as check
processing or lockbox collection.
Q1970.
- Rate of return estimates?
A1970.
- The rate of return req'd for stock "n" is the default-free
rate of return plus the beta for stock "n" times the market
risk premium.
Q1971.
- Lockbox arrangement?
A1971.
- A lockbox arrangement involves payment checks
addressed to an entity to be physically mailed to a nearby
bank, which clears the check & then wires funds to the
entity's bank.
Q1972.
- Working capital?
A1972.
- Entity's current assets: $, MS, AR & Inventory. Net WC is
current assets less current liab.
Q1973.
- Speculative balances?
A1973.
- Cash balances that are held to allow an entity to take
advantage of an unplanned bargain purchase.
Q1974.
- Rational Investor Behavior (buying & selling).
A1974.
- A rational investor will buy a stock if it's expected rate or
return exceeds it's req'd rate of return. Sell opposite! Few
will buy until the stock price drops to the point where the
expected returns = the req'd returns! Equilibrium price!
Q1975.
- Assumed rates of return?
A1975.
- A default-free rate of return typically is estimated as the
rate of return on LT US Treasury bonds. The req'd rate of
return on an avg stock by definition, is one with a beta of
1.0.
Q1976.
- Correlation?
A1976.
- Correlation is the tendency of 2 variables to move jointly.
The correlation coefficient (r) ranges from +1.0 to -1.0. +1 =
positive perfect correlation & -1 = perfectly negative
correlation.
Q1977.
- What are several factors that change stock prices?
A1977.
- 1. A riskless rate change due to changes in anticipated
inflation.
- 2. A stocks beta coefficient changing.
- 3. Expected growth rate flucuations.
Q1978.
- What are beta coefficients?
A1978.
- They measure the tendency of stock prices to change
with the market changes. High Beta = MORE VOLATILE!
- As a corps assets or operating environment changes, so
will it's stock beta coeff!
Q1979.
- What's the CAPM?
A1979.
- The Capital Assets Pricing Model, also called the security
market line, attempts to specify relationships btw risk &
rates of return. Beta coefficients are determined based on
past volatility, yet investors often attempt to use them to
predict future results without full regard for changing
conditions.
Q1980.
- Explain market risk.
A1980.
- Market risk can't be eliminated by diversification, it can
be eliminated only by remaining out of the market. Market
risk is caused by change in the stock market at large. For
instance, market risk includes the risk that int will rise,
lowering all stock prices. Undiversifiable or systematic
risk.
Q1981.
- What is expected rate of return?
A1981.
- The ERR is the weighted avg or outcomes in other words,
the sum of each possible outcome multiplied by its
probability.
Q1982.
- Market risk premium?
A1982.
- The MRP is the addtional return over the default-free rate
req'd for the avg stock. If stock "h" is twic as risky as the
market avg it's risk premium is estimated at twice that of
an avg stock.
Q1983.
- What's the expected total return?
A1983.
- The ETR is the expected dividend yield plus the expected
cap gain (or loss) yield.
Q1984.
- YTM?
A1984.
- The YTM or rate of return on a bond is the effective or real
rate of interest NOT stated!
Q1985.
- What's the model of bond value?
A1985.
- BV = PV of prn payment + PV of int payments (annuity)
Q1986.
- For compounding periods other than a yr, how are they
handled?
A1986.
- For Qtrly compounding, the PV factor for 4 times the # of
periods & one-qtr of the int is used!
Q1987.
- YTC?
A1987.
- If current mkt rates are below an outstanding callable
bonds stated rate, the bond is likely to be called.
Q1988.
- Explain for bonds the stated face value or par value & the
coupon int rate or stated int rate?
A1988.
- Stated or par = what's repaid!
- Stated or coupon = rate the issuer use to calculate int
payments (par val x coupon int rate)
Q1989.
- What's a premium on a bond?
A1989.
- If a 12% bond is available when the mkt rate is 10% a
premium will be awarded to the 12% bond, such that the
effective int rate is 10%!
Q1990.
- Zero growth stock vs Uneven growth stock
A1990.
- Zero growth = constant dividends
- Uneven = more realistic
Q1991.
- Formula for FV of annuity due?
A1991.
- (n + 1) - A
- Think future, going fwd so + !
Q1992.
- Do rising int rates depress stock prices?
A1992.
- Yes
Q1993.
- What's the risk premium?
A1993.
- Default risk premium + Maturity risk premium
Q1994.
- What's the effect of a maturity risk premium?
A1994.
- The effect of a maturity risk premium is to have higher int
rates on LT bonds as opposed to comparable ST bonds.
Q1995.
- What's perpetuity?
A1995.
- A special instance of annuity, continues infinitely! The PV
is the payment divided by the disc rate. Why? The effect of
each additional payment far in the future decrease to the
point where the impact of individual future payments
approaches 0.
Q1996.
- T or F, demand for $ falls during recession.
A1996.
- True
Q1997.
- Example of PV of a future amount?
A1997.
- A person wants to deposit enough $ to have 5K in 2 yrs.
What will they need to deposit now?
Q1998.
- Explain normal yield.
A1998.
- In a stable economy (where inflation flucuates in a low
range, expected future inflation rates are roughly equal to
current rates & no intervention by the fed occurs), the yield
curve is relatively low & generally has a slight upward
slope reflecting maturity effects.
Q1999.
- Corps raise cap in what 2 forms?
A1999.
- Debt & Equity!
Q2000.
- T or F. Temporary EPS increses that cripple future
earning potential might not be taken into acct when
comparing current performance.
A2000.
- True
Q2001.
- Explain what happens when dividends & EPS are diff &
the same.
A2001.
- Diff - part of the stock value is due to untrasferred
earnings, rather than performance.
- Same - all of the stock value change is due to
performance.
Q2002.
- Briefly explain autonomy.
A2002.
- Autonomy could translate into actions that, rather than
maximizing s/h wealth, merely keeping stakeholders
satisfied while other goals are pursued.
Q2003.
- What are the 4 cycles of a life cycle?
A2003.
- 1. Infancy
- 2. Growth
- 3. Maturity
- 4. Decline
Q2004.
- What are some external constraints?
A2004.
- Societies make antitrust, employment, environmental,
product safety, workplace safety, & other laws, reg's &
practices.
Q2005.
- To maximize s/h wealth, management should concentrate
on what?
A2005.
- Total ret per share!
Q2006.
- What are 2 arguments against a corp taking cost-
increasing socially responsible actions?
A2006.
- 1. Mandates increase effectiveness
- 2. Owners benefit equals social benefit
Q2007.
- What is default risk?
A2007.
- The default risk premium for a given security is the diff
btw the security rate & the US Treasury bond rate.
Q2008.
- Debt vs Equity markets.
A2008.
- Debt mkts exchange bonds, notes & loans. Equity mkts
exchange stock & other ownership interests.
Q2009.
- What are mutual funds?
A2009.
- Mutual funds are corporations that pool dollars from
stockholders (savers) to invest typically in debt & equity
securities.
Q2010.
- Physical assets mkt vs financial assets mkt
A2010.
- Physical - real estate, grains, computers, etc.
- FA mkt - claims on assets, ex. include stocks, bonds,
warrants, options, notes & mortgages.
Q2011.
- 1 yr vs 3 yr bond when inflation is expected to decrease.
A2011.
- The int rate on the 1 yr bond is expected to be greater that
the int rate on the 3 yr!
Q2012.
- What are bid & asked prices?
A2012.
- Bid - what price the specialist will buy
- Ask - " " sell
- Thnk BB & SS
Q2013.
- What do investment banks typically do?
A2013.
- 1. Help corps design securities with features that will
attract investors.
- 2. Buy the securities
- 3. Re-sell them to investors.
Q2014.
- What's in money mkt?
A2014.
- Exchanges for ST debt securities (less than 1 yr).
Q2015.
- Explain what direct (variable) costing is.
A2015.
- It's an inventory costing method whereby dm, dl & voh
are considered to be product costs (inventoriable costs),
while fixed manufacturing OH is considered to be a period
cost (cost expensed in the period incurred).
- In absorption costing, the costs to be inventoried include
ALL manufacturing costs, both variable & fixed.
Q2016.
- Example of percentage markup on cost.
A2016.
- Want to sell a product at a gross margin of 20%. The cost
of the product is $4.00.
- % markup = 20% / 100% - 20% so = 25%
- Selling price = Cost of product + GM so 4.00 + 25%(4.00) =
5.00
Q2017.
- What's the formula for % markup on cost in cost-plus
pricing?
A2017.
- % markup on cost = % markup on selling price / 100% - %
markup on selling price
Q2018.
- Explain the cost-plus pricing approach in product pricing.
A2018.
- Takes the products costs & adds a predetermined markup
to compute the targeted selling price.
Q2019.
- Explain cont marg approach in product pricing.
A2019.
- Under CM approach, product pricing is based upon all
relevant costs plus any additional fixed costs necessary
for the increased production level.
Q2020.
- What's up with irrelevent costs?
A2020.
- Historical costs are always irrelevent per se, although
they may be helpful in predicting relevent costs. In order to
be relevent for decision making, an item must meet both of
the following: it's an expected future cost or revenue, it's
amount will differ among alternatives.
Q2021.
- What's the def of relevent costs?
A2021.
- Relevent costs are expected future costs that will differ
among alternatives. The concept of cost relevence is
important in the decision making process, especially in
decisions that are nonroutine.
Q2022.
- What's predatory pricing?
A2022.
- Deliberately setting prices below cost in an effort to drive
competition out of the mkt. Once competitors leave, prices
are raised.
Q2023.
- What are the 2 common approaches to product pricing?
A2023.
- Cont Margin Approach & Cost Plus Pricing
Q2024.
- Eliminate product line or division.
A2024.
- The cont margin of a line must be compared to its
relevant fixed costs (the FC's that would be eliminated if
the line were discontinued). If the CM of the line exceeds
the FC's that would be eliminated, the line should NOT be
discontinued! The fixed cost's that will not be eliminated
are irrelevant to the decision because they will continue
regardless of the decision.
Q2025.
- Examples of relevent costs are?
A2025.
- Avoidable Costs - cost that will not be incurred if an
activity is altered or suspended.
- Differential (incremental) costs - the diff in cost btw 2
alternatives
- Marginal costs - the addition to total cost of producing or
selling one more unit of output.
- Out of pocket costs - immediate or near future $ outlays.
- Opportunity costs - the foregone benefits (revs minus
costs) from alternatives not selected.
Q2026.
- Composite sales BE?
A2026.
- FC / *Composite CMR
- *Remember, this is the 1/19 (50%) + 6/19 (25%) + 12/19
(33%) thing!
Q2027.
- In mixed sales, how would you get the BE point for each
product?
A2027.
- Composite Units x sales mix ratio = BE Units
- BE Units x selling price = BE $
Q2028.
- In composite BE pt, do you multiply the cont marg for
each product by their sales mix ratio to get weighted CM?
A2028.
- Yes
Q2029.
- Contribution marg method of BE pt in $ & units.
A2029.
- FC + NI / Cont Marg Ratio
- FC + NI / UCM
- Cont Marg is always in den!
Q2030.
- What's the def of MOS?
A2030.
- MOS can be defined as the xs of budgeted (or actual)
sales over the BE volume of sales. It states the amount by
which sales can drop before losses begin to be incurred in
an org.
- Total Sales - BE Sales = MOS
- MOS / Total Sales = MOS%
Q2031.
- Formula for composite cont margin?
A2031.
- CCM = Sum(sales mix ratio for a product x cmr for the
product)
- ex. 1/19 (50%) + 6/19 (25%) + 12/19 (33%)
Q2032.
- Formula for composite units? (also called the BE point for
mixed sales)
A2032.
- FC / Composite CM
- CCM is the weighted CM's added together.
- Note: A composite unit is based on the ex in the bk as the
"package" made up of 1 unit of A, 3 units of B, & 4 units of
C.
Q2033.
- What is composite BE?
A2033.
- When a company sells more than 1 product, a BE point
can be determined for each product based on expected
sales mix & the composite or combined cont marg!
Q2034.
- What are committed costs?
A2034.
- These represent fixed costs that arise from having PPE, &
a functioning org! These costs remain even when the
production volume is zero! Included is depr & LT lease
payments.
Q2035.
- Prime costs vs conv costs
A2035.
- Prime = DM & DL
- CC = DL & OH
- Period = Selling & Admin (expensed as incurred)
Q2036.
- Give examples of DM, DL & MOH.
A2036.
- DL ex = easily traceable to product. The labor costs of
workers who assemble desk tops or operate melting equip.
- DM ex = desk tops & legs
- MOH = indirect labor, indirect mat'l, repairs &
maintenance, factory utilities, equip depr.
Q2037.
- What are product costs?
A2037.
- They are inventoriable. They are DM, DL, VOH & FOH.
Pretty much everything!
Q2038.
- What's the def of CC?
A2038.
- Sum of DL & MOH (V & F)! It represents the costs to
convert raw mat'ls into finished products.
Q2039.
- What are prime costs?
A2039.
- DM & DL
Q2040.
- What are discretionary costs?
A2040.
- These costs are often unrelated to volume & include for
ex. adv costs & research & development costs.
Q2041.
- Does COGM replace purchases of a merchandising firm?
A2041.
- Yes! Finished Goods = EI
Q2042.
- Learning Curve?
A2042.
- Used to refer to the phenomenon that when people first
perform a task, they will be slower than when they perform
it for the 100th time. Hence, labor hrs will be more (&
associated costs higher) when people are doing for the 1st
time.
Q2043.
- Does total variable cost have a direct relationship with
volume?
A2043.
- Yes! FC don't change remember!
Q2044.
- Explain mixed costs.
A2044.
- Mixed costs are comprised of both variable and fixed
elements. Due to their variable cost element, mc change in
total with a change in volume, but not in direct proportion
cuz of their fixed cost element. Due to their fixed cost part,
avg mc per unit decreases with an increase in volume. MC
include electricity, maintenance, etc. MC are usually split
into fixed & variable elements for purposes of cvp &
budgets.
Q2045.
- What's in raw mat'ls inventory acct?
A2045.
- Beg Bal + Purchases = Available for use - RM used
(transferred to WIP) = Ending Balance
Q2046.
- Experience curve?
A2046.
- The experience curve is the graphic representation of
time (& costs) for a broad category of tasks decreasing as
a group gains experience with a set of tasks.
Q2047.
- Does avg fixed cost per unit have an inverse relationship
with volume?
A2047.
- Yes
Q2048.
- What are step variable costs?
A2048.
- ex. supervision may be fixed over a given production
volume, but additional shifts or work crews may be needed
to increase production therefore additional supervisors are
needed & thus the added cost will go up in a lump sum or
"stair step" manner!
Q2049.
- Explain how the cvp chart works.
A2049.
- The cvp chart shows the profit or loss potential for the
range of volume within the relevant range. At any given
level of output, the predicted profit or loss is the vertical
diff btw the sales line & the total cost line. The BE point is
at the intersection of sales & total costs.
Q2050.
- What's the schedule called that represents the cost of the
products completed during the period & transferred to FG
inventory?
A2050.
- COGM schedule!
Q2051.
- What's in the WIP inventory acct?
A2051.
- Beg Bal + RM, Labor, OH used = Avail to finish - Good
Finished ( to FG's) = ending balance
Q2052.
- Explain the relevent range.
A2052.
- All the relationships graphed on the cvp chart are valid
only within a band of activity called the relevent range, the
same relationships are unlikely to hold true. For ex, some
fixed costs may increase at high levels of output!
Q2053.
- T or F, breakeven & cvp analyses are concerned with the
effect upon operating income (or NI) of various decisions
regarding sales & costs?
A2053.
- True
Q2054.
- Explain how the diff (variance) btw actual OH & applied
OH is reported?
A2054.
- Usually reported as an adj to COGS in the I/S!
Q2055.
- What's in the FG inventory acct?
A2055.
- Beg Bal + Goods Finished (from WIP) = Avail for Sale -
COGS = Ending Bal
Q2056.
- What's the dollar sales to achieve a desired profit
formula?
A2056.
- (FC + desired NI) / Cont Marg Ratio
Q2057.
- What's the cont margin ratio?
A2057.
- Total cont margin / total sales
Q2058.
- In the cvp chart, explain BE pt, cont marg, NI & NL.
A2058.
- BE = Total cost & sales intersect
- Cont Marg = Sales line over variable costs line
- NI = Past BE pt
- NL = Below BE pt
Q2059.
- Simply put, how is BE pt defined?
A2059.
- The pt where sales less fixed & variable costs result in
zero profit. Thus, the BE point is defined as the point
where NI = 0!
Q2060.
- At zero volume, what would the net loss equal?
A2060.
- Equals total fixed costs!
Q2061.
- Hardware?
A2061.
- Physical computer equip. Downtime is when computer
aint functioning.
Q2062.
- What's CPU / mainframe?
A2062.
- Primary hardware component. Actual processing data
occurs in the CPU! It contains primary storage, a control
unit & an arithmetic / logic unit!
Q2063.
- What's RAM & ROM?
A2063.
- The primary storage contains the data & program steps
that are being processed by the CPU & is divided into RAM
(random-access memory) & ROM (read-only memory)!
Q2064.
- What's the control unit?
A2064.
- Portion of the CPU that controls & directs the operations
of the computer. It interprets the instructions from the
program & directs the computer system to perform them.
Q2065.
- What are peripheral equip?
A2065.
- Equip that is NOT part of the CPU but that may be placed
under the control of the CPU, i.e., which may be accessed
directly by the CPU. Input/Output devices & secondary
storage devices are peripheral equip!
Q2066.
- What are examples of Input/Output devices?
A2066.
- 1. Barcode readers
- 2. Keyboard
- 3. Magnetic Ink Character Recognition
- 4. Magnetic Tape Reader
- 5. Modem
- 6. Monitor / Screen
- 7. Mouse / Trackball
- 8. Optical character recognition scanner
- 9. Printer
Q2067.
- Briefly explain what software is?
A2067.
- Software includes programs, routines, documentation,
manuals, etc., that make it possible for the computer
system to operate & process data.
Q2068.
- What are examples of secondary storage?
A2068.
- 1. Disk, Diskette
- 2. Magnetic Tape
- 3. Offline Storage
- 4. Online Storage
- 5. Redundant Array of Independent disks
- 6. Randomly accessible (direct access)
- 7. Sequentially Accessible
Q2069.
- What's a program?
A2069.
- A program is a set of instructions that the computer
follows to accomplish a task (e.g., A/R update program,
inventory management program, & payroll program).
Program maintenance refers to making changes in the
program in order to keep it current & functioning properly.
ex. payroll update for soc sec changes.
Q2070.
- What are the 5 program languages?
A2070.
- MAPFO
- 1. Machine Language
- 2. Assembly Language
- 3. Procedural Language
- 4. Fourth-generation Lang
- 5. Object-oriented programming
Q2071.
- What's a graphical user interface?
A2071.
- A GUI allows user access to software functions depicted
through use of icons, scroll bars, frames, & other pictorial
means, rather than line-by-line commands or requests.
Q2072.
- What's a patch?
A2072.
- Addition of a new part to a program.
Q2073.
- Explain briefly JCL, Multiprocessing & programming &
VS.
A2073.
- Job Control Lang - A commend language that launches
apps, specifying priorities, program sizes, running
sequences, databases used, & files used.
- Multiprocessing - 2 or more programs at same time &
needs more than one CPU!
- Multiprogramming - A program is processed until some
type of input or output is needed. APPEARS if more than
one program is being processed concurrently using one
CPU!
- Virtual Storage - O/S divides a program into segments
(called pages) & brings only sections of the program into
memory as needed.
Q2074.
- What's an operating system?
A2074.
- Manages the coordinating & scheduling of various
application programs & computer functions. The O/S is like
a traffic controller for data btw peripheral equip &
application programs.
Q2075.
- What's pass (run)?
A2075.
- A complete cycle of input, processing, & output in the
execution of a program, typically an application program.
Q2076.
- What's heuristic?
A2076.
- In computing, the adjective heuristic signifies able to
change, it is used to descrie a computer program that can
modify itself in response to the user. ex. spell check or
voice recognition software.
- Think Heuristic - spell check, wierd spelling!
Q2077.
- Collaborative Computing Applications (Groupware,
Shareware)?
A2077.
- A program that allows several people to have access to
the same info & attempts to track the authors of changes.
Q2078.
- Management information system?
A2078.
- An information system within an org that provides
manmgt with the info needed for planning & control.
Q2079.
- Utility program?
A2079.
- Routine functions such as sorting & merging!
Q2080.
- What's Enterprise Resource Planning Software?
A2080.
- Complex, highly integrated, multimodule applications that
manage a business' diff aspects, from traditional
accounting to inventory management & advanced planning
& forecasting.
Q2081.
- Library Program (library routine)?
A2081.
- Programs that frequently are used by several other
programs. They are kept within the system & "called up"
whenever necessary.
- ex. generating random #'s
Q2082.
- Web Crawler?
A2082.
- A specialized program used to search the WWW for files
meeting user criteria.
- *Browser displays!
- *Crawler searches!
Q2083.
- Topology?
A2083.
- Physical layout of a network! BTRS!
Q2084.
- Explain the 4 topologies.
A2084.
- BTRS!
- Bus - Each device is connected to a line with disconnected
ends. Communication on either side of a failed device is
impossible.
- Tree - Devices connected to other devices in a hierarchical
manner. Some have many connections & some don't.
- Ring - Each device connected to 2 others suce that it
resembles a circle. If one device fails communication is still
possible, however if a device btw 2 failed one's won't be able to
communicate.
- Star - All connected to cent'l device, all messages pass
through cent'l one!
Q2085.
- Brief explanation of what networks are.
A2085.
- A network is an arrangement of computers to allow users
access to common data, hardware, &/or software. An
internet is a network of networks. Intranet gen'ly is
restricted to employee access. Extranet is password
protected internet usually made for vendors & customers.
Q2086.
- What's a concentrator?
A2086.
- A device that combines multiple communication channels
into one. A concentrator differs from a multiplexor in that
the total bandwidth of inputs don't have to = total
bandwidth of outputs!
Q2087.
- Multiplexor?
A2087.
- Total bw of inputs must equal outputs. It converts low
speed into high speed transmissions & back again for
communication stuff!
Q2088.
- Proxy server?
A2088.
- An app or device that manages requests from web
browsers. A proxy server caches (saves) a copy of pages
retrieved from a web server. Future requests for the same
page are supplied from the cache for shorter response
time.
Q2089.
- Router?
A2089.
- Switch that transfers incoming messages to outgoing
links via the most efficient route possible. ex. over the
internet!
Q2090.
- Firewall?
A2090.
- Software designed to prevent unauthorized access to
data by separating one segment from another!
Q2091.
- Gateway?
A2091.
- Software or hardware that links 2 or more computer
networks.
Q2092.
- Web Browser?
A2092.
- Program used to find & display www files meeting user
criteria.
Q2093.
- Parallel vs Serial Transmissions.
A2093.
- P - all of the bits of a byte are transmitted at once along
parallel lines, with one bit on each line. Practical only for
short distances, public infrastructure is limited in capacity
to do this.
- S - each bit is transmitted at one time!
Q2094.
- What are transmission protocols?
A2094.
- Sets of rules used by the transmitting and receiving
devices so that they both interpret data identically. File
transfer protocols is an example.
Q2095.
- Explain what packet switching is.
A2095.
- PS divides a message into packets which may be
transmitted separately through diff paths. Routing & ctrl
software assemble the packets to recreate the org
message. More efficient than circuit switching, but often
involves some delay.
Q2096.
- Explain what circuit switching is.
A2096.
- CS involves a dedicated channel for the duration of the
transmission. Sender signals it will send message,
receiver acknowledges, then whole message is sent.
Q2097.
- What's client-svr architecture?
A2097.
- A network of workstations (clients) & another computer
(server) that is shared among the clients.
- 1. File Server - a server in two-tier architecture where
most processing occurs at clients & server mainly serves
to store stuff.
- 2. Database server - similar to a file server, except the
server stores the database management software & does
some processing.
- 3. Three Tier (n-tier) Architecture - additional servers are
added to a two-tier so clients share the functions provided
by the svrs. Typical servers include print servers, fax
servers, application servers & web servers.
Q2098.
- What are the 4 network languages?
A2098.
- HHXX
- 1. HTML - Hyper text markup lang - the code used to
format files for internet display.
- 2. HTTP - Hyper text transfer protocol - a set of rules
establishing how data in files is coded, transferred &
viewed.
- 3. XML - extensive markup lang - similar to HTML as
formats info for use on the web but goes further identifying
the nature of the info.
- XBRL - Extensive business reporting lang - protocol
under development that will provide interactive capabilities
to SEC filings.
Q2099.
- IP# or address?
A2099.
- An internet protocol # is a unique # assigned to a
computer in a network. A registered IP # is registered with
a central database to eliminate duplication on the web.
Since IP #'s aren't easy to remember, unique domain
names may be assigned to these #'s. A Uniform Resource
Locator (URL) is another name for a web address.
Q2100.
- What's prima facie credibility?
A2100.
- Something transmitted electronically froma customer
derives its credibility primarily from the controls within the
electronic environment.
Q2101.
- A sniffer is?
A2101.
- A tool that will report all the user names & passwords that
it finds, allowing the operator access to an unaware users
email or other accounts.
Q2102.
- What are the diff's btw a TH, virus, & virus hoax?
A2102.
- Trojan Horse - a seemingly legit program that operates in
an unauthorized manner, usually causing damage.
- Virus - replicates & attaches itself to other programs, can
be just an annoying message or malicious activity.
- Virus Hoax - an email message with a false warning,
originator trys to get it circulated as widely as possible.
Q2103.
- Digital Sig?
A2103.
- A dig sig is a guarantee that info has not been modified,
like a tamper proof seal on a bottle of aspirin. Digital sigs
are used for establishing secure website connections &
verifying the validity, but NOT the privacy, of transmitted
files. Also, a digital sig don't verify the receiving person or
address.
Q2104.
- What's encryption?
A2104.
- Encryption is a mathematical process of coding data so
that in cant be read by unauthorized people. Decryption is
transforming an encrypted file into the file that existed b4
the encryption. A key is used to lock & unlock the data.
The key is the set of mathematical operations & any
random initial values that are used to encrypt & decrypt the
data. Algorithms describe the mathematical process vs.
key which give the exact process.
Q2105.
- Explain symmetric encryption.
A2105.
- With symmetric (private key) encryption, the same
algorithm is used for encryption & decryption. Anyone who
knows the method used to encrypt the message can
decrypt it. Should be kept secret btw sender & recipient.
Q2106.
- Explain asymmetric encryption.
A2106.
- Think A-Pub!!
- Public key (asymmetric) encryption is a system that uses
a public key that may be widely known & a private key that
is intended to be dept secret & known only by the recipient
of the encrypted messages. The sender encrypts
messages to each particular recipient public key. The
recipient decrypts messages with their private key.
Q2107.
- What are "hot" & "cold" sites?
A2107.
- Back up places!
- Hot - location where a functioning system is planned for
use with minimal prep in the event of a disaster at the
primary location.
- Cold - equip & power is avail at a location, but req's a lot
of set up!
Q2108.
- What's a connectionless enivironment?
A2108.
- The internet (web) since a website can interact with many
users simultaneously.
Q2109.
- What's back-end processing?
A2109.
- Sales reporting, order inquiry, inventory updating,
shipping order generation, etc.
Q2110.
- Hacker vs Cracker?
A2110.
- Hackers - computer enthusiast who's interested in
learning the nitty-gritty.
- Crackers - (criminal hacker)
- intentionally involved in unethical activity.
- Script Kiddies - use tools in an automated fashion &
cause damage without understanding what they doing.
Q2111.
- What are 7 kinds of hacker tools?
A2111.
- DPS TVSV
- 1. Demon Dialers
- 2. Port Scanners
- 3. Scripts
- 4. Trojan Horse
- 5. Virus
- 6. Sniffer
- 7. Virus Hoax
Q2112.
- What's an ad hoc report?
A2112.
- Non-standardize report composed when the need arises.
Q2113.
- What are demon dialers?
A2113.
- Software tools that will dial through a series of phone #'s
finding modems then it will issue standard or default
passwords, username combos, or brute attack trying to
break into the system.
Q2114.
- What are scripts?
A2114.
- Scripts will interrogate or investigate machines, finding
out what accounts exist on the maching & whether a limit
on password attempts is enabled.
Q2115.
- What are port scanners?
A2115.
- Port Scanners are tools that will scan a network &
network devices, & produce, automatically, reports that
say these particular svcs are available & open. Thus, it's
important to turn off svcs NOT being used & restrict svcs
that are being used.
Q2116.
- 6 things a gen'l IT system includes?
A2116.
- 1. Hardware
- 2. Software
- 3. Documentation
- 4. Personnel
- 5. Data
- 6. Controls
Q2117.
- What's another word for automated controls?
A2117.
- Controls embedded in computer programs!
Q2118.
- What are the benefits of an IT environment?
A2118.
- 1. Consistently apply predefined bus rules & perform
complex calcs in processing large volumes of trans!
- 2. Enhance timeliness, availability, & accuracy of info.
- 3. Facilitate additional analysis of info.
- 4. Enhance the ability to monitor the performance of the
entity's activities & compliance with its policies & proc's.
- 5. Reduce the risk that controls will be circumvented,
especially if controls over changes to the IT system are
effective.
Q2119.
- What are the risks of an IT environment?
A2119.
- 1. Overeliance on info provided b the IT system.
- 2. Unauthorized access to data.
- 3. Unauthorized changes to computer programs.
- 4. Failure to make necessary changes to computer
programs.
- 5. Inappropriate manual intervention.
- 6. Potential loss of data.
Q2120.
- What are the 6 trans processing systems?
A2120.
- 1. Inventory control
- 2. Sales
- 3. Purchasing
- 4. Payroll
- 5. Production
- 6. Gen'l ledger
Q2121.
- What are 4 things to consider about an IT system?
A2121.
- 1. Documentation - many proc's in IT system don't leave
evidence of performance automatically.
- 2. Electronic info - files & records are in machine-
readable form & can't be read without a computer.
- 3. Knowledge - a user may need specialized knowledge to
use the system.
- 4. Difficulty of change - once implemented it's hard to
change an IT system.
Q2122.
- What are the 3 management reporting systems?
A2122.
- 1. F/S
- 2. Data Mining
- 3. Key Performance Indicators
Q2123.
- Explain the 3 types of data mining.
A2123.
- 1. Sieve - sift thru large amts of data quickly. Can be done
on entire pop's!
- 2. Customer Profiling - ex. credit card co may flag & delay
trans that don't fit the customer profile. A store may notice
several unrelated items commonly are purchases at the
same time, a change in merchandise arrangement can
result in increased sales.
- 3. Auditing - looking for fraud.
Q2124.
- Explain the structure of data.
A2124.
- Bit - binary digit (0 or 1, on or off) represents smallest unit
of data.
- Byte - group of bits that represents a single character
- Field - group of related characters. ex. a name
- Record - group of related fields. ex. customer file
- Editing refers to the addition, deletion, &/or
rearrangement of data. Input editing refers to editing b4
processing & output editing refers to editing after
processing.
Q2125.
- Master vs Transaction file?
A2125.
- Master - contains relatively perm data like customer
name, address, credit limit, amount owed, etc.
- Transaction - contain current temporary data. A
transaction file is used to update a master file.
- For example, the day's charge sales would be
accumulated on a trans file that would be used to update
the A/R master file during an update run.
Q2126.
- Explain database.
A2126.
- A structured set of interrelated files combined to
eliminate redundancy of data items within the files & to
establish logical connections btw data items. For ex, within
personnel & payroll files, some of the data in the two sets
of records will be the same, in a database system, these
files would be combined to eliminate the redundant data.
Q2127.
- What's encode and decode?
A2127.
- Encoding (or encryption) is scrambling data to prevent
unauthorized use.
- Decoding is converting data from an encoded state to its
original form.
Q2128.
- What are the 5 phases of development & implementation?
A2128.
- Analysis - feasibility study
- Design
- Programming - coding and testing
- Implementation - system is released to user
- Monitoring
Q2129.
- In systems operation, what are the 4 processing
methodologies?
A2129.
- 1. Batch Processing
- 2. Online Processing
- 3. Real-time Processing
- 4. Integrated System
Q2130.
- Diff btw batch & online processing?
A2130.
- B - transactions to be processed are accumulated in
group (batches) b4 processing & are then processed as a
batch.
- OP - Trans are processed & the files are updated as the
trans occurs. ex. cash terminal may automatically update
inventory file when sale is made.
Q2131.
- What's real-time processing and what's an example?
A2131.
- An online system is operating in real time if the data is
processed fast enough to get the response back in time to
influence the process. For ex, an airline reservation system
is an OLRT system since the customer receives
reservations after waiting only a few moments.
Q2132.
- Which functions within the IT dept should be segregated?
A2132.
- Control Group
- Operators
- Programmer
- System Analyst
- Librarian
- COPSL
Q2133.
- What's an integrated system?
A2133.
- All files affected by a transaction are updated in one trans
processing run! ex. a sales trans may update the sales
summary file, the A/R master file, & the inventory file
during one processing run!
Q2134.
- What are the 3 outside processing arrangements?
A2134.
- 1. Block time - rent certain block of time from outside
party.
- 2. Time-sharing - a # of users share a computer system.
Each may a access a CPU outside a client whenever.
- 3. Service bureau - outside org that provides a wide range
of data processing svcs for a fee.
Q2135.
- What do the C, O & S do in an IT dept?
A2135.
- Control Group - repsonsible for I/C within the IT dept!
- Operators - Convert data into machine readable form!
- Systems Analyst - Designs the overall system & prepares
the system flowchart.
Q2136.
- Who are the 6 people usually in a website team?
A2136.
- 1. Accountant / Auditor - Specialists who understand how
bus processes work.
- 2. Graphics designer - an artists who uses colors &
images to design a site to complement the sites mission.
- 3. Marketing Specialist
- 4. Usability Specialist
- 5. Webmaster - A programmer responsible for the
functionality of a site.
- 6. Writer
- AMUGWW
Q2137.
- What are the 3 diff administrators & what do they each
do?
A2137.
- Database administrator - responsible for maintaining 1 or
more databases & restricting access to authorized
personnel.
- Network Administrator - responsible for maintaining the
efficiency & effectiveness of an internal network.
- Web Administrator - responsible for maintaining external
network interfaces (websites).
Q2138.
- What's program documentation?
A2138.
- Primarily used by systems analysts & programmers to
provide a control over program corrections & revisions.
Q2139.
- What are operations documentation?
A2139.
- Info provided to the computer operator. IT can be used by
the auditor to obtain an understanding of the functions
performed by the operator & to determine how data is
processed.
Q2140.
- What are hardware controls?
A2140.
- They are controls that are built into the computer.
Q2141.
- Echo check vs Hardware Check?
A2141.
- Echo - CPU sends signal to activate input/output device,
the device sends back signal to verify activation.
- Hardware - computer checks to make sure the equip is
functioning properly.
Q2142.
- What is boundary protection?
A2142.
- Keeps several files or programs seperate when they
share a common storage.
Q2143.
- File labels?
A2143.
- External - Human readable
- Internal - Machine readable
- Header - appears at beg of file & contains such info as the
file name, ID# & the tape reel #.
- Trailer - at end of file, contains info like count of the
records in the file & an end of file code.
Q2144.
- What's a file protection ring?
A2144.
- Guards against the inadvertant erasure of the info on the
tape.
Q2145.
- What's computer editing?
A2145.
- Computers can be programmed to perform a wide range
of edit tests (edit checks) on records as they are being
entered in the system.
- If a particular record does NOT meet the test, it aint
processed.
Q2146.
- The 6 control types are?
A2146.
- PACCDS
- Preventive - b4 an error occurs
- Application - limited to a specific app, such as a control
that verifies that a soc sec # has only numerical input.
- Corrective - after an error is found
- Compliance - promote adherence to established policies
- Detective - uncover errors after they happen
- System or gen'l - apply to the entire system, such as a
control that verifies parity is maintained.
Q2147.
- Hot vs cold sites?
A2147.
- Hot - location where a functioning system is planned for
use with minimal prep in the event of a disaster at the
primary location.
- Cold - location where equip & power is located &
available but req's considerable effort to get an o/s
functioning.
Q2148.
- What should continuity planning include?
A2148.
- 1. Notification proc's
- 2. Recovery management
- 3. Temp Operating Proc's
- 4. Backup & recovery proc's
Q2149.
- Best way to scenario test disaster stuff?
A2149.
- Scenario Testing - The expense & lost productivity to
simulate a company wide disaster could be significant &
unnecessary. A dry run (or table-top testing) would
discover many weaknesses & allow contingency plans to
be refined. Several limited-scope disaster sims could
pinpoint additional weaknesses with minimal disruption to
regular operations.
Q2150.
- Documentation Mnemonic?
A2150.
- OPSOUP
- Operation documentation
- Problem definition doc
- Systems documentation
- Operator documentation
- User documentation
- Program documentation
Q2151.
- Explain user documentation.
A2151.
- Description of the input req'd for processing an output
listing. Auditor's may use it to gain an understanding of the
functions performed by the user & the gen'l flow of info.
Q2152.
- What are decision tables?
A2152.
- Decision tables are one means of documentation. They
emphasize the relationships among conditions & actions,
& present decision choices. Decision tables often
supplement systems flowcharts.
Q2153.
- Explain operator documenation.
A2153.
- Documentation should be prepared that will indicate the
jobs run & any operator interaction.
- 1. Daily computer log - tells jobs run, the time & by who.
- 2. Console log - a listing of all interactions btw the
console & the cpu.
Q2154.
- What's systems documentation?
A2154.
- Provides sufficient info to trace accting data from it's
original entry to system output. Includes:
- 1. Desc of system
- 2. System flowchart
- 3. Input descriptions
- 4. Output descriptions
- 5. File descriptions
- 6. Descriptions of controls
- 7. Copies of authorizations & their effective dates for
system changes.
Q2155.
- What's problem definition documentation?
A2155.
- Permits auditor to gain a gen'l understanding of a system
without having to become involved in the details of the
programs.

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- 7 Principles of Control Environment

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