QUESTION: 1493

Which of the following would be considered a liability that arises from financing activities?

Accounts payable
Accrued wages
Notes payable
Taxes payable
None of these answers

Answer(s): C

Explanation:

Notes payable represents a liability that originates from financing activities. Liabilities that arise from financing activities typically require compensation in the form of interest. This can be contrasted with liabilities that arise from operating activities where interest bearing credit is not being extended but the liability arises from the "normal course of business."

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QUESTION: 1494

Termite Terminators has a debt-to-equity ratio of 50%. The equity consists of 80,000 common stock, valued at the year-end at 65. The preferred equity consists of 30,000 shares of par value 25 and coupon of 6%. The debt carries a coupon rate of 8%. During the year, Termite earned 1.2 million and had an average stock price of 75. It also has 40,000 warrants attached to the debt, each exercisable at 68. Termite's reported Diluted EPS should
be:

14.64
13.79
15.08
15.00

Answer(s): B

Explanation:

For Diluted EPS, the average price is used in the treasury stock method. Since the average price of 75 is more than the strike price of 68 of the warrants, the warrants are dilutive for DEPS calculations. The preferred dividend is 30,000*25*6% = 45,000. The additional shares using the treasury stock method equal 40,000 - 40,000*68/75 = 3,733. The DEPS then equals (1,200,000-45,000)/(80,000+3,733) = 13.79.

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QUESTION: 1495

Which of the following is/are problems with comparing firm ratios with industry ratios?

The firm under consideration may not be a typical firm in the industry.
II. The firm may be located in a homogeneous industry.
III. The firm may be multi-product, multi-industry in nature.
IV. Industry ratios are difficult to calculate.
I, II, III & IV
I, III & IV
I, II & III
I & III

Answer(s): D

Explanation:

II is not a problem, but rather the relationship among firms in an industry with homogenous products is significant.

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QUESTION: 1496

The peaks and valleys of the business cycle tend to be smoothed out using which inventory method?

gross profit method
LIFO
weighted average
FIFO

Answer(s): B

Explanation:

When prices are moving either upward or downward, the cost of goods sold (under LIFO) will show costs closer to the price level at the time the goods were sold. Therefore the LIFO method tends to show a smaller net income during inflationary times and a larger net income during deflationary times than other methods of inventory valuation.

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QUESTION: 1493

Explanation:

QUESTION: 1494

Explanation:

QUESTION: 1495

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QUESTION: 1496

Explanation: