What is Widget Inc.'s gross profit?Widget Inc. Earnings StatementSales: $200,000Cost of Goods Sold: $80,000Selling & General Expenses: $40,000Depreciation: $5,000Total Expenses: $30,000Net Earnings: $40,000
Answer(s): C
Gross profit is calculated as sales minus the cost of goods sold. For Widget Inc.: $200,000 - $80,000 = $120,000. The feedback from the document states:"Sales are reduced by the expenses that were incurred in order to generate the goods sold (cost of goods sold). These expenses include the cost of inventories used to produce the goods as well as the labour that went into their production. The sales revenue, net of the cost of producing those goods, is known as gross profit. In this case, gross profit = $200,000 - $80,000 = $120,000."
Chapter 9 Understanding Financial StatementsLearning Domain: Understanding Investment Products and Portfolios
Apex Mutual Fund has been structured to avoid taxation by distributing any net interest, dividends, and capital gains to unitholders each calendar year. This is an example of what type of mutual fund structure?
Answer(s): B
A mutual fund trust structure allows the fund to avoid taxation by distributing its income to unitholders. The feedback from the document states:"The most common structure for mutual funds in Canada is the open-end trust. The trust structure allows a fund itself to avoid taxation. Any interest, dividends and capital gains income, net of the fund's fees, expenses and capital losses, if passed to its unitholders each calendar year, will allow the trust to avoid being taxed on its income."
Chapter 10 The Modern Mutual FundLearning Domain: The Modern Mutual Fund
What criteria does the independent review committee use to determine if a potential conflict of interest, such as interfund trading, should be approved?
Answer(s): A
The independent review committee approves actions involving conflicts of interest only if they achieve a fair and reasonable result for the fund. The feedback from the document states:"The Independent Review Committee will only approve actions where a conflict of interest arises if certain requirements are met, including, most importantly, the action achieves a fair and reasonable result for the fund."
Why is it important that an investor receive a copy of the Fund Facts document when buying a mutual fund?
The Fund Facts document provides essential information to ensure the fund's objectives and risk profile align with the investor's needs. The feedback from the document states:"The fundamental purpose of a Fund Facts document is to provide `full, plain and true' disclosure of material information concerning the securities and the issuer of the securities, so that potential purchasers can make informed decisions about purchasing the new securities. The fundamental investment objectives of a mutual fund can be found in the Fund Facts. It specifies what the fund intends to accomplish and how it is to be done."
What entity receives all fund money obtained from investors buying units/shares?
The custodian, typically a trust company, receives and holds all funds from investors and other sources, managing the fund's assets and expenses. The feedback from the document states:"The Custodian. When a mutual fund is established, a separate organization, most often a trust company, is appointed as the fund's custodian. The custodian receives and holds the fund's money obtained from all sources investors buying the fund's units or shares, income earned by the fund's investment portfolio, proceeds from the sale of the fund's investments, holds all the fund's assets and distributes the fund's money to pay the fund's expenses."
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