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Financial & Managerial Accounting for MBAs, 5 Edition jj jj jj jj jj jj jj
by Easton, Halsey, McAnally, Hartgraves & Morse
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Practice Quiz Solutions jj jj
Module 1 – Financial Accounting for MBAs
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1. Which of the following organizations does not contribute to the formation of GAAP?
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a. FASB (Financial Accounting Standards Board)
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b. IRS (Internal Revenue Service)jj j jj
c. AICPA (American Institute of Certified Public Accountants)
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d. SEC (Securities and Exchange Commission)
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Answer: b
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2. Rocky Beach reports the following dollar balances in its retained earnings account.
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($ millions)
jj 2017 2016
Retained earnings…………. j 8,968.1 8,223.9
During 2017, Rocky Beach reported net income of $1,351.4 million. What amount of dividends, if
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any, did Rocky Beach pay to its shareholders in 2017?
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a. $607.2 million j
b. No dividends paid j jj
c. $301.2 million j
d. $744.2 million j
Answer: a
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Computation of dividends j jj
Beginning retained earnings, 2017 ............................................................................
j j j j $8,223.9
+ Net income.................................................................................................................
jj j 1,351.4
– Cash dividends...........................................................................................................
jj (?)
= Ending retained earnings, 2017.................................................................................
j j j j $8,968.1
Thus, dividends were $607.2 million for 2017.
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,3. At the beginning of a recent year, The Walt Disney Company’s liabilities equaled $26,197 million.
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During the year, assets increased by $400 million and year-end assets equaled $50,388 million.
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Liabilities decreased $100 million during the year.
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What were beginning and ending amounts for W alt Disney’s equity?
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a. $26,197 million beginning equity and $24,291 million ending equity
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b. $23,791 million beginning equity and $27,042 million ending equity
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c. $23,791 million beginning equity and $24,291 million ending equity
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d. $27,042 million beginning equity and $25,183 million ending equity
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Answer: c
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Using the accounting equation at the beginning of the year:
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Assets($50,388 - $400) jj jj = Liabilities($26,197) + Equity(?)
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Thus: Beginning Equity
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Using the accounting equation at the end of the year:
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Assets($50,388) = Liabilities($26,197 - $100) + Equity(?) jj jj jj jj jj
Thus: Ending Equity jj = $24,291 jj jj
4. Assume that Starbucks reported net income for a recent year of $564 million. Its
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stockholders’ equity is $2,229 million and $2,090 million, respectively.
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Compute its return on equity. jj jj jj jj
a. 13.0%
b. 22.8%
c. 26.1%
d. 32.7%
Answer: c j
ROE j j = Net income / Average stockholders’ equity
j j jj jj jj jj jj jj
= $564 million / [($2,229 million + $2,090 million) / 2] = 26.1%
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5. Nokia manufactures, markets, and sells phones and other electronics. Assume that Nokia reported
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net income of €3,582 on sales of €34,191 and total stockholders’ equity of €14,576 and €14,871,
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respectively.
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What is Nokia’s return on equity?
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a. 24.3%
b. 42.3%
c. 17.7%
d. 10.5%
Answer: a jj
Return on equity is net income divided by the average total stockholders’ equity.
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Nokia’s ROE: €3,582 / [(€14,576 + €14,871) / 2] = 24.3%.
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,6. The total assets of Dell, Inc. equal $15,470 million and its equity is $4,873 million. What is the
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amount of its liabilities, and what percentage of financing is provided by Dell’s owners?
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a. $20,343 million, 24.0% j jj
b. $10,597 million, 31.50% j jj
c. $10,597 million, 68.5% j jj
d. $20,343 million, 76.0% j jj
Answer: b jj
($ millions)
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Assets = Liabilities + Equity
$15,470 $10,597 $4,873
Dell receives more of its financing from nonowners ($10,597 million) versus owners ($4,873 million).
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Its owner financing comprises 31.5% of its total financing ($4,873 million/ $15,470 million).
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7. The total assets of Ford Motor Company equal $315,920 million and its liabilities equal $304,269
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million. What is the amount of Ford’s equity and what percentage of financing is provided by its
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owners?
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a. $ 11,651 million,
j j 3.9% jj j j
b. $620,189 million, 49.1% j jj
c. $620,189 million, 50.9% j jj
d. $ 11,651 million,
j j 3.7% jj j j
Answer: d jj
($ millions)
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Assets = Liabilities + Equity
$315,920 $304,269 $11,651
Ford receives more of its financing from nonowners ($304,269 million) versus owners ($11,651
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million). Its owner financing comprises 3.7% of its total financing ($11,651 million/ $315,920 million).
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The relatively low level of equity capital is primarily the result of the fact that Ford is actually a blend
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of two companies: the automotive manufacturing company and the financial subsidiary. The financial
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subsidiary has a balance sheet similar to that of a bank, that is, relatively little equity capital. The
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blend of these two operating entities results in a balance sheet that is more dependent on borrowed
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funds than would be the case if Ford consisted solely of the manufacturing company.
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, 8. Following are selected ratios of Canary Corp. for 2017 and 2016.
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Return jjon jjAssets jj(ROA) jjComponent 2017 2016
Profitability jj(Net jjincome/Sales) j j …………… 26% 22%
Productivity jj(Sales/Average jjnet jjassets) j j ……. 1.2 1.1
Compute the company’s return on assets (ROA) for 2017.
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a. 30.0%
b. 19.2%
c. 12.1%
d. 31.2%
Answer: d jj
ROA = Profit margin asset turnover. 2017 ROA = 26% 1.2 = 31.2%.
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9. Nickle Company reports net income of $800 million for its fiscal year ended January 2017. At the
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beginning of that fiscal year, Nickle Company had $5,000 million in total assets. By fiscal year-
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end 2017, total assets had grown to $6,500 million.
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What is Nickle’s return on assets (ROA)?
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a. 13.9%
b. 16.0%
c. 12.3%
d. 10.7%
Answer: a j j
Return on assets (ROA) jj jj jj = Net income / Average assets
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= $800 / [($5,000 + $6,500) / 2]
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= 13.9%
10. The following table contains financial statement information for Izzy Corporation.
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($ jjmillions) Total jjAssets Net jjIncome Sales Equity
2016 j j ………………………….. $105,000 $10,000 $95,000 $30,000
2017 j j ………………………….. $125,000 $11,000 $100,000 $31,000
Compute the return on equity (ROE) and return on assets (ROA) for 2017.
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a. 25.5% ROE, 10.0% ROA jj jj jj
b. 31.9% ROE, 11.2% ROA jj jj jj
c. 36.1% ROE, 9.6% ROA jj jj jj
d. 37.2% ROE, 13.1% ROA jj jj jj
Answer: c j j
2017 ROE = $11,000 / [($31,000+$30,000) / 2] = 36.1%
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2017 ROA = $11,000 / [($125,000+$105,000) / 2] = 9.6%
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