BEC exam

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Employee numbers have all numeric characters. To prevent the input of alphabetic characters, what technique should be used?

Field check

Which of the following factors is not characteristic of the efficient markets hypothesis?

Financial managers can benefit from timing the sales and purchases of securities.

Which of the following effects would a lockbox most likely provide for receivables management?

Minimized collection float

The method that recognizes the time value of money by discounting the after-tax cash flows over the life of a project, using the company's minimum desired rate of return is the:

net present value method.

Average Collection Period Ratio

365/(Net Credit Sales/Avg. AR) or Avg. AR/(Net Credit Sales/365)

Which of the following is not an integrating mechanism? A. General personnel systems B. General management systems C. Increasing coordination potential D. Reducing the need for coordination

Companies that adopt just-in-time purchasing systems often experience: A. an increase in carrying costs. B. a reduction in the number of suppliers. C. fewer deliveries from suppliers. D. a greater need for inspection of goods as the goods arrive.

Which of the following is the best way to identify and manage risk? A. Know the impact on the project B. Have experts on the team C. Control costs D. Know the risks

Preferred stock and long-term bonds are similar from the standpoint of the issuing firm because: A. both forms of financing have long maturities. B. both forms of financing have voting powers. C. interest and dividend payments are fixed. D. interest and dividend payments are tax-deductible expenses for the issuer.

The best evidence that contingency planning is effective is to have: A. no processing interruptions during the past year. B. comprehensive documentation of the plan. C. sign-off on the plan by the internal audit department. D. successful testing of the plan.

Which of the following is not a business process modeling tool? A. Use case diagrams B. Activity diagrams C. Unified modeling language D. Activity modeling diagram

Which of the following events would decrease the internal rate of return of a proposed asset purchase?

Decrease tax credits on the asset

How does inflation distort reported income?

Depreciation is not reflective of current fixed-asset replacement costs.

Economic Value Added

Economic value added (EVA) is after-tax operating income less the weighted average cost of capital (after tax) multiplied by the total assets minus current liabilities: EVA = After-tax operating income - [WACC × (Total assets - Current liabilities)]

Which of the following is an accurate comparison of fair value and fair market value?

Fair market value defines the seller as hypothetical, whereas fair value assumes a specific seller.

The benefits of debt financing over equity financing are likely to be highest in which of the following situations?

High marginal tax rates and few noninterest tax benefits

Which of the following statements is true regarding the payback method?

It is the time required to recover the investment and earn a profit.

The profitability index is a variation on which of the following capital budgeting models?

Net present value

The recommended technique for evaluating projects when capital is rationed and there are no mutually exclusive projects from which to choose is to rank the projects by:

Profitability Index

Formula for the Jensen measure of portfolio performance measure of return on portfolio

Risk-free rate + ((Return on market index - Risk-free rate) × Beta)

Which of the following statements about investment decision models is true?

The payback rule ignores all cash flows after the end of the payback period.

A company that is conservative with respect to its working capital policy would tend to have a:

low ratio of current liabilities to long-term financing.

In a continuous improvement environment, automated monitoring of controls is:

optional.

A rule of thumb used in the business valuation process is based upon such things as a multiple or a percentage of revenues, earning, book value, or other measured unit (beds, tables, etc.). Such calculations are easy to perform, and there are resources available providing rule-of-thumb information. By using a rule of thumb, a practitioner can:

provide support for a valuation estimate arrived at using another method with similar results

An example of an internal check is:

recalculating an amount to assure its accuracy.

To ensure the completeness of update in an online system, separate totals are accumulated for all transactions processed throughout the day. The computer then agrees these totals to the total of items accepted for processing. This is an example of:

run-to-run controls.

Formula for Treynor Index for portfolio performance

(Portfolio return - Risk-free rate) ÷ Beta

Midwest Fabricators is building a corporate planning model to predict cash flows. The company maintains end-of-month inventories that cover 20% of the following month's sales. Merchandise costs average 55% of selling prices, and payment is made at the time of purchase. If S(n) = Sales in month(n), an appropriate notation for total monthly cash payments for merchandise purchases in month(n) would be:

0.44S(n) + 0.11S(n+1).

Space Tech Company (STC) specializes in designing and fabricating components used in lunar and planetary landing and exploration systems. At the end of last year, STC reported the following data in its financial statements: Total Assets $16,000,000 Total Debt 10,000,000 Sales 22,000,000 Net income 2,000,000 The debt to equity ratio of STC was ________ to 1.

1.67

Canseco Enterprises uses 84,000 units of Part No. 256 in manufacturing activities over a 300-day work year. The usual lead time for the part is six days; occasionally, the lead time has gone as high as eight days. The company now wants to implement a safety stock policy (it presently has none). The safety stock size, the likely effect on stockout costs, and the likely effect on carrying costs, respectively, would be:

560 units, decrease, increase.

According to the COSO Report, the control environment in a business entity: A. sets the tone of an organization, influencing the control consciousness of its people. B. is the entity's identification and analysis of relevant risks to achievement of its objectives, forming a basis for determining how the risks should be managed. C. refers to the policies and procedures that help ensure that management directives are carried out. D. is the identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities.

Which of the following corporate characteristics would favor debt financing versus equity financing?

A high tax rate

A distributed processing environment would be most beneficial in which of the following situations? A. Large volumes of data are generated at many locations and fast access is required. B. Large volumes of data are generated centrally and fast access is not required. C. Small volumes of data are generated at many locations, fast access is required, and summaries of the data are needed promptly at a central site. D. Small volumes of data are generated centrally, fast access is required, and summaries are needed monthly at many locations.

A fast-growing service company is developing its information technology internally. What is the first step in the company's systems development life cycle? A. Analysis B. Implementation C. Testing D. Design

All of the following are computer input devices, except a: A. plotter. B. mouse. C. magnetic ink character recognition device. D. light pen.

An increase in production levels within a relevant range most likely would result in: A. increasing the total cost. B. increasing the variable cost per unit. C. decreasing the total fixed cost. D. decreasing the variable cost per unit.

Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price per unit to obtain a 15% profit margin on sales using the traditional markup calculation? A. $2,329 B. $2,277 C. $1,980 D. $1,935

Black Co.'s breakeven sales were $780,000. Variable expenses averaged 60% of sales, and the margin of safety was $130,000. What was Black's contribution margin? A. $364,000 B. $546,000 C. $910,000 D. $1,300,000

Costs that can be definitely influenced by a given manager within a given time span are best defined as: A. controllable costs. B. period costs. C. fixed costs. D. variable costs.

Del Co. has fixed costs of $100,000 and breakeven sales of $800,000. What is its projected profit at $1,200,000 sales? A. $50,000 B. $150,000 C. $200,000 D. $400,000

Global companies that deal with the political and financial risks of conducting business in a particular foreign location face which of the following types of risk? A. Country risk B. Principal risk C. Interest rate risk D. Commodity price risk

If the central bank of a country raises interest rates sharply, the country's currency will most likely: A. increase in relative value. B. remain unchanged in value. C. decrease in relative value. D. decrease sharply in value at first and then return to its initial value.

In a large multinational organization, which of the following job responsibilities should be assigned to the network administrator? A. Managing remote access B. Developing application programs C. Reviewing security policy D. Installing operating system upgrades

It is important to maintain proper segregation of duties in a computer environment. Which of the following access setups is appropriate? A. Users have update access for production data B. Users have update access for production data and application programmers have update access for production programs C. Application programmers have update access for production data and users have update access for production programs D. Users have update access for production data and application programmers have update access for both production data and programs

Madi and Molly, Inc., produces lumber, with an average pine tree having 61% of its trunk producing construction grade lumber. Of the remaining 39%, 22% is used for producing wood products for a local furniture manufacturer, and 17% goes to waste. Therefore, Madi and Molly's lumber usage rate is 83%. In 20X1 the local furniture manufacturer closed, leaving no viable prospects for Madi and Molly to sell the 22% of the wood allocated to the furniture manufacturer. What improvement initiative should Madi and Molly implement to have its lumber usage rate rise back above 80%? You can assume that an increase in the lumber usage rate will replace 100% of the revenue lost from the furniture manufacturer. A. Lean production B. Business excellence framework C. Six Sigma D. Business process re-engineering

Many entities use the Internet as a network to transmit electronic data interchange (EDI) transactions. An advantage of using the Internet for electronic commerce rather than a traditional value-added network (VAN) is that the Internet: A. permits EDI transactions to be sent to trading partners as transactions occur. B. automatically batches EDI transactions to multiple trading partners. C. possesses superior characteristics regarding disaster recovery. D. converts EDI transactions to a standard format without translation software.

Sago Co. uses regression analysis to develop a model for predicting overhead costs. Two different cost drivers (machine hours and direct materials weight) are under consideration as the independent variable. Relevant data were run on a computer using one of the standard regression programs, with the following results: Machine Direct Materials Hours Weight ------- ---------------- Y intercept coefficient 2,500 4,600 B coefficient 5.0 2.6 R2 0.70 0.50 Which regression equation should be used? A. Y = 2,500 + 5.0X B. Y = 2,500 + 3.5X C. Y = 4,600 + 2.6X D. Y = 4,600 + 1.3X

The Enterprise Risk Management—Integrated Framework of the Committee of Sponsoring Organizations (COSO) is best defined as a: A. process effected by an entity's board of directors, management, and other personnel. B. serial process in which one component affects only the next component. C. process that takes a control-based approach to an organization. D. process that replaces the COSO Internal Control Framework.

Under COSO, management monitors controls for which of the following reasons? A. To consider whether controls are operating as intended B. To let employees know that errors and irregularities will not be tolerated C. To provide data for inclusion in the annual report to shareholders regarding employee honesty and integrity D. To provide a check on the efficiency and effectiveness of both the internal and external audit functions

Which of the following costs is deducted from revenues of a manufacturing company in order to determine gross margin, but not deducted from revenues to determine contribution margin? A. Fixed manufacturing B. Variable manufacturing C. Fixed selling and administrative D. Variable selling and administrative

Which of the following systems assists with nonroutine decisions, serves strategic levels of the organization, and helps answer questions regarding what a company's competitors are doing, as well as identifies new acquisitions that would protect the company from cyclical business swings? A. Executive support system B. Decision support system C. Transaction processing system D. Management information system

Which of the following would be most impacted by the use of the percentage of sales forecasting method for budgeting purposes? A. Accounts payable B. Mortgages payable C. Bonds payable D. Common stock

Which of the following would best be considered an example of the use of decision support system (DSS)? A. A manager uses a PC-based simulation model to determine whether one of the company's ships would be able to satisfy a particular delivery schedule. B. An auditor uses a generalized audit software package to retrieve several purchase orders for detailed vouching. C. A manager uses the query language feature of a database management system (DBMS) to compile a report showing customers whose average purchase exceeds $2,500. D. An auditor uses a PC-based word-processing software package to modify an internal control questionnaire for a specific audit engagement.

Carter Co. paid $1,000,000 for land three years ago. Carter estimates it can sell the land for $1,200,000, net of selling costs. If the land is not sold, Carter plans to develop the land at a cost of $1,500,000. Carter estimates net cash flow from the development in the first year of operations would be $500,000. What is Carter's opportunity cost of the development? A. $1,500,000 B. $1,200,000 C. $1,000,000 D. $500,000

Management would like to calculate return on investment (ROI) for the current year. The following information is available: Operating assets at the end of the year $6,600,000 Operating assets at the beginning of the year 5,400,000 Sales 1,150,000 Operating expenses 550,000 What percentage amount is the ROI? A. 9% B. 10% C. 11% D. 19%

When dealing with supply chain management, one of the key differences between traditional manufacturing and demand management within the supply chain: A. is how the firm will develop key alliances with suppliers to ensure the timely development of new products. B. is that products are pulled through the production process in response to specific customer needs. C. is that products are made-to-stock and placed into the distribution channel based on demand forecasts. D. is based on metrics that provide historical demand data that is then forecasted into the future.

A basic assumption of activity-based costing (ABC) is that: A. all manufacturing costs vary directly with units of production. B. products or services require the performance of activities, and activities consume resources. C. only costs that respond to unit-level drivers are product costs. D. only variable costs are included in activity cost pools.

A controller is developing a disaster recovery plan for a corporation's computer systems. In the event of a disaster that makes the company's facilities unusable, the controller has arranged for the use of an alternate location and the delivery of duplicate computer hardware to this alternate location. Which of the following recovery plans would best describe this arrangement? A. Hot site B. Cold site C. Backup site procedures D. Hot spare site agreement

All the staff of a merger and acquisitions department in an investment banking firm use spreadsheet programs on personal computers (PCs) to analyze potential client matches. The data is highly confidential. An appropriate control over the department's use of PCs is: A. prohibit departmental staff from programming their own applications. B. keep the program and data diskettes in a secure location when they are not in use by departmental staff. C. require departmental staff to use the spreadsheet applications only through custom-designed menus. D. divide duties among the departmental staff so that some only prepare the application templates and others only run the applications.

Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta's sales price per test and fixed costs are the same as industry averages, and Asta's variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000. Sales price per test $60 Variable costs per test 20 How are the hourly wages of part-time technicians who perform tests categorized? A. Fixed cost B. Direct labor cost C. Overhead cost for testing D. General and administrative cost

Because of the sensitivity of its data, an online system for developing estimates and generating proposals was implemented with several layers of access control. Control over users' initial log-in is a function of the: A. integrated test facility. B. operating system. C. subschema authorizations. D. application software.

In a traditional job order cost system, the issue of indirect materials to a production department increases: A. stores control. B. work-in-process control. C. factory overhead control. D. factory overhead applied.

Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied manufacturing overhead costs: Fixed costs: $21,000 Variable costs: $33,000 The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job? A. $36,700 B. $40,750 C. $54,000 D. $58,050

Company management completes event identification and analyzes the risks. The company wishes to assess its risk after management's response to the risk. According to COSO, which of the following types of risk does this situation represent? A. Inherent risk B. Residual risk C. Event risk D. Detection risk

Controllable revenues would be included in the performance reports of which of the following types of responsibility centers? A. Cost centers B. Investment centers C. Both cost centers and investment centers D. Neither cost centers nor investment centers

During the annual audit, it was learned from an interview with the controller that the accounting system was programmed to use a batch processing method and a detailed posting type. This would mean that individual transactions were: A. posted upon entry, and each transaction had its own line entry in the appropriate ledger. B. assigned to groups before posting, and each transaction had its own line entry in the appropriate ledger. C. posted upon entry, and each transaction group had a cumulative entry total in the appropriate ledger. D. assigned to groups before posting, and each transaction group had a cumulative entry total in the appropriate ledger.

Erroneous management decisions might be the result of incomplete information. The best control to detect a failure to process all valid transactions is: A. periodic user submission of test data. B. user review of selected output and transactions rejected by edit checks. C. controlled output distribution. D. decollation of output.

Globalization is a process by which nations of the world become integrated through global networks of communication. Its current success is tied to a number of socioeconomic effects, with one of the key effects being: A. an understanding that the success of the emerging economies is more than simply the cost advantage they have due to having relatively low-cost labor. B. the relatively large labor force in emerging markets and declining birth rates that have historically been associated with dynamic positive economic change. C. an undervalued currency in emerging economies that would stimulate exports and strong investment in infrastructure. D. the fact that innovation blowbacks as the low-priced, high-quality products developed for the emerging economics now will be effectively marketed and sold in the developed world.

In a regression analysis, the coefficient of determination measures: A. economic plausibility. B. goodness of fit. C. independence of residuals. D. independence of variables.

Strategic planning addresses both internal and external environment factors. Which of the following is not a component of the internal environment? A. Competitive advantages B. Opportunities C. Strengths D. Weaknesses

The method that recognizes the time value of money by discounting the after-tax cash flows over the life of a project, using the company's minimum desired rate of return is the: A. accounting rate of return method. B. net present value method. C. internal rate of return method. D. payback method.

When comparing strategic planning with operational planning, which one of the following statements is most appropriate? A. Strategic planning is performed at all levels of management. B. Operational planning results in budget data. C. Strategic planning focuses on authority and responsibility. D. Operational planning is long-range in focus.

When using a flexible budget, a decrease in production levels within a relevant range: A. decreases variable cost per unit. B. decreases total costs. C. increases total fixed costs. D. increases variable cost per unit.

Which of the following functions should prevent a programmer from altering a program and then using that program in a production run? A. Computer operators should make sure that the correct version of the program is being used. B. The information system librarian secures production programs and data. C. Data control group approves data before it is used in processing. D. Users notify the librarian of the correct program to use in processing.

Which of the following listings correctly describes the order in which the four types of budgets must be prepared? A. Production, direct materials purchases, sales, cash disbursements B. Sales, production, direct materials purchases, cash disbursements C. Cash disbursements, direct materials purchases, production, sales D. Sales, direct materials purchases, production, cash disbursements

Which one of the following is a sales forecasting technique? A. Linear programming B. Exponential smoothing C. Queuing theory D. Cost-volume-profit analysis

Which of the following factors is inherent in a firm's operations if it utilizes only equity financing?

Business risk

A member of the board of directors of Central Communications Co. is offered a license by a third party to operate a cellular phone system. The director does not present this offer to the board of directors for approval but informally mentions it to a fellow board member, who does not think it will be a problem. The director buys the license. Which of the following statements is correct regarding the director's actions? A. The director breached a duty of care by failing to use prudent business judgment. B The director breached the duty of due diligence. C. The director breached a duty of loyalty by usurping a corporate opportunity. D. The director acted properly in purchasing the license.

A company's target gross margin is 40% of the selling price of a product that costs $89 per unit. The product's selling price should be: A. $124.60 B. $142.40 C. $148.33 D. $222.50

According to COSO, the position or internal entity that is best suited, as part of the enterprise risk management process, to devise and execute risk procedures for a particular department is: A. the internal audit department. B. the chief executive officer. C. a manager within the department. D. the audit committee.

Aggregate demand is defined as: A. net investment in plant and equipment designed to move the economy out of a recession. B. total expenditure on consumption, investment, government spending, and net exports during a given year. C. a schedule or curve that shows the amount of real GDP or output that buyers collectively desire to buy at every price level. D. the schedule or curve that shows consumers' willingness and ability to purchase a particular product at various alternative prices at a given moment in time.

Green, Inc., a financial investment-consulting firm, was engaged by Maple Corp. to provide technical support for making investment decisions. Maple, a manufacturer of ceramic tiles, was in the process of buying Bay, Inc., its prime competitor. Green's financial analyst made an independent detailed analysis of Bay's average collection period to determine which of the following? A. Financing B. Return on equity C. Liquidity D. Operating profitability

If a project has differing required rates of return over its life, i.e., 8% in the first three years and 12% in the second three years, the analyst should: A. choose the highest rate to compare to the firm's cost of capital. B. choose the lowest rate to compare to the firm's cost of capital. C. compute the project's net present value using both rates for the appropriate years and accept the project if the net present value is at least zero. D. use the average of the multiple rates to compare to the firm's cost of capital.

Managers of local offices of an international consulting firm need better access to human resource data for their offices' employees than they have now from the consolidated database at the firm's headquarters. A distributed database, in which data about individuals would reside on computers at local offices but would be accessible to managers worldwide, has been proposed. A risk of the proposed arrangement is that: A. segregation of incompatible duties might not be maintained at the firm's headquarters. B. the data might not be updated as quickly as with the centralized system. C. database integrity might not be preserved during a network or computer failure. D. the data are more vulnerable to outsiders than with the centralized system.

One hundred pounds of raw material W is processed into 60 pounds of X and 40 pounds of Y. Joint costs are $135. X is sold for $2.50 per pound and Y can be sold for $3.00 per pound or processed further into 30 pounds of Z (10 pounds are lost in the second process) at an additional cost of $60. Each pound of Z can then be sold for $6. What is the effect on profits of processing product Y further into product Z? A. $60 increase B. $30 increase C. No change D. $60 decrease

The CFO of a company is concerned about the company's accounts receivable turnover ratio. The company currently offers customers terms of 3/10, net 30. Which of the following strategies would most likely improve the company's accounts receivable turnover ratio? A. Pledging the accounts receivable to a finance company B. Changing customer terms to 1/10, net 30 C. Entering into a factoring agreement with a finance company D. Changing customer terms to 3/20, net 30

The COSO definition of internal control consists of how many interrelated components? A. Three B. Four C. Five D. Six

The business cycle refers to the continual ebb and flow of economic activity. No two cycles are exactly the same, but most are characterized by changes in the price level and the rate of employment and can be identified by common factors. The trough of a business cycle is generally characterized by: A. shortages of essential raw materials and rising costs. B. rising costs and an unwillingness to risk new investments. C. unused productive capacity and an unwillingness to risk new investments. D. declining purchasing power and unused productive capacity.

Through the use of decision models, managers thoroughly analyze many alternatives and decide on the "best" alternative for the company. Often the actual results achieved from a particular decision are not what were expected when the decision was made. In addition, an alternative that was not selected may have actually been the best decision for the company. The appropriate technique to analyze the alternatives by using expected inputs and then altering them before a decision is made is: A. expected value analysis. B. Program Evaluation Review Technique (PERT). C. sensitivity analysis. D. regression analysis.

To assist in an investment decision, Gift Co. selected the most likely sales volume from several possible outcomes. Which of the following attributes would selected sales volume reflect? A. The midpoint of the range B. The median C. The greatest probability D. The expected value

Universal Air, Inc., supplies instrumentation components to airplane manufacturers. Although there are only a few competitors in this market, the competition is fierce. In order to remain competitive, Universal Air's executive team conducted a customer survey and developed thirty new indicators to measure middle-management performance. This system was not successful, so new cross-functional teams, consisting of executives and middle managers, were formed to develop new performance measures. To ensure that the cross-functional teams are effective, all necessary resources should be provided. The most important such resource would be: A. comfortable meeting rooms. B. daily progress reports. C. strong top management commitment to the process. D. None of the choices listed are necessary.

Usury laws have been developed in order to provide protection for borrowers from usury interest rates. Although these laws were developed for the "general good," one negative consequence of these regulations from the borrower's perspective is that: A. the maximum interest rate that can be charged is limited. B. lenders are no longer allowed to lend to businesses located in a different state. C. less creditworthy customers are excluded from the market. D. interest rates are set by market competition.

Which of the following is most useful when risk is being prioritized? A. Low- and high-probability exposures B. Low- and high-degree loss exposures C. Expected value D. Uncontrollable risks

Which of the following is not true? Relational databases: A. are flexible and useful for unplanned, ad hoc queries. B. store data in table form. C. use trees to store data in a hierarchical structure. D. are maintained on direct access devices.

Which one of the following statements relating to the drum-buffer-rope (DBR) theory developed by Dr. Eliyahu Goldratt is incorrect? A. DBR assumes that within a manufacturing system, there is at least one (or a limited number) of constraints created by scarce resources. B. In order to best protect the throughput of a manufacturing operation, the limiting factor of the manufacturing process must be protected. C. It is important to focus on the queuing throughout the entire manufacturing system in order to provide for a smooth transition from one area to another. D. It is important to protect against inflationary inventory levels (inventory build ups) that can occur at bottlenecks.

A rational capital budgeting requires that the return on investment of a project equal or exceed the firm's:

Cost of capital

A research-based firm in the medical field could use each of the following Internet-based tools for collaboration, except: A. an e-mail application. B. videoconferencing. C. groupware systems. D. electronic data interchange.

All of the following about the economic order quantity (EOQ) model are true, except: A. the EOQ model is designed to determine an optimal order size that will minimize inventory costs. B. the use of a just-in-time inventory system makes the EOQ model irrelevant. C. the values in the EOQ model cannot remain constant for any material length of time during a period of inflation. D. the reorder quantity determined using the EOQ model is best for companies requiring flexibility.

The batch processing of business transactions can be the appropriate mode when: A. unique hardware features are available. B. timeliness is a major issue. C. a single handling of the data is desired. D. economy of scale can be gained because of high volumes of transactions.

A company that produces 10,000 units has fixed costs of $300,000, variable costs of $50 per unit, and a sales price of $85 per unit. After learning that its variable costs will increase by 20%, the company is considering an increase in production to 12,000 units. Which of the following statements is correct regarding the company's next steps? A. If production is increased to 12,000 units, profits will increase by $50,000. B. If production is increased to 12,000 units, profits will increase by $100,000. C. If production remains at 10,000 units, profits will decrease by $50,000. D. If production remains at 10,000 units, profits will decrease by $100,000.

A company's web server has been overwhelmed with a sudden surge of false requests that caused the server to crash. The company has most likely been the target of: A. spoofing. B. piggybacking. C. an eavesdropping attack. D. a denial-of-service attack.

A type of flowchart representing areas of responsibility (such as departments) as columns is called horizontal or ________ flowcharts. A. data flow Incorrect B. level C. program D. document

A user noticed that the accounts receivable update program was not providing a listing of outstanding accounts. The user asked a programmer to modify the program so that the report would be generated with each run and had the request authorized by change management. The programmer obtained a copy of the program and made the required changes. She then tested the program in the test environment and was satisfied that it worked correctly. The programmer returned the program to the system librarian to return it to the production library. Which aspect of this process violated a proper segregation of duties? A. A user made a suggestion for a program change. B. The system librarian released a copy of the program to the programmer. C. The programmer tested the changes in a test environment. D. The system librarian accepted the program into the production library after it had been tested by the programmer.

An employee mistakenly enters "April 31" in the date field. Which of the following programmed edit checks offers the best solution for detecting this error? A. Online prompting B. Mathematical accuracy C. Preformatted screen D. Reasonableness

Because an organization makes heavy use of client/server architecture, end users have much of its critical and sensitive information on their personal computers (PCs) and departmental file servers. The chief financial officer has asked the auditors for input for developing an end-user computing policy. The policy requires a long-range, end-user computing plan. Which of the following documents should most strongly influence the development of this plan? A. The multi-year audit plan B. The information security policy C. The systems development methodology D. The organization's strategic operational plan

Compatibility tests are sometimes employed to determine whether an acceptable user is allowed to proceed. In order to perform compatibility tests, the system must maintain an access control matrix. The one item that is not part of an access control matrix is a: A. list of all authorized user code numbers and passwords. B. list of all files maintained on the system. C. record of the type of access to which each user is entitled. D. limit on the number of transaction inquiries that can be made by each user in a specified time period.

Fab Co. manufactures textiles. Among Fab's June manufacturing costs were the following salaries and wages: Loom operators $120,000 Factory foremen 45,000 Machine mechanics 30,000 What was the amount of Fab's June direct labor? A. $195,000 B. $165,000 C. $150,000 D. $120,000

For a fixed-price proposal, the deliverables due on the contract are not clearly defined. As a result, the potential contractor should: A. submit the bid because the client's price seems more than adequate to meet the contract requirements. B. modify the terms to account for unforeseen difficulties that may arise. C. build in a cost escalator to adjust for materials price increases during the execution of the contract. D. wait to bid until the deliverables are clearly defined.

Franklin, Inc., is a medium-size manufacturer of toys that makes 25% of its sales to Mega Company, a major national discount retailing firm. Mega will be requiring Franklin and other suppliers to use electronic data interchange (EDI) for inventory replenishment and trade payment transactions as opposed to the paper-based systems previously used. Franklin would consider all of the following to be advantages for using EDI in its dealings with Mega, except: A. access to Mega's inventory balances of Franklin's products. B. savings in the Accounts Receivable Department. C. better status tracking of deliveries and payments. D. compatibility with Franklin's other procedures and systems.

In a process cost system, the application of factory overhead usually would be recorded as an increase in: A. finished goods inventory control. B. factory overhead control. C. cost of goods sold. D. work-in-process inventory control.

In year 1, a company's cash is 15% of sales, accounts receivable is 10% of sales, inventory is 20% of sales, accounts payable is 30% of sales, and long-term debt is 5% of sales. The company is preparing its forecasts and anticipates that sales will increase from $50,000 in year 1 to $55,000 in year 2. The company uses the percentage-of-sales method. What amount would be the required net working capital in year 2? A. $(2,750) B. $5,500 C. $7,500 D. $8,250

Lynn Manufacturing Co. prepares income statements using both standard absorption and standard variable costing methods. For Year 2, unit standard costs were unchanged from Year 1. In Year 2, the only beginning and ending inventories were finished goods of 5,000 units. How would Lynn's ratios using absorption costing compare with those using variable costing? A. Current ratio, same; Return on stockholder's equity, same B. Current ratio, same; Return on stockholder's equity, smaller C. Current ratio, greater; Return on stockholder's equity, same D. Current ratio, greater; Return on stockholder's equity, smaller

Tam Co. is negotiating for the purchase of equipment that would cost $100,000, with the expectation that $20,000 per year could be saved in after-tax cash costs if the equipment were acquired. The equipment's estimated useful life is 10 years, with no residual value, and would be depreciated by the straight-line method. Tam's predetermined minimum desired rate of return is 12%. Present value of an annuity of 1 at 12% for 10 periods is 5.65. Present value of 1 due in 10 periods at 12% is .322. What is the accrual accounting rate of return based on initial investment? A. 30% B. 20% C. 12% D. 10%

The net present value (NPV) of a project has been calculated to be $215,000. Which one of the following changes in assumptions would decrease the NPV? A. Decrease the estimated effective income tax rate. B. Decrease the initial investment amount. C. Increase the estimated salvage value. D. Increase the discount rate.

The online data entry control called preformatting is: A. a program initiated prior to regular input to discover errors in data before entry so that the errors can be corrected. B. a check to determine if all data items for a transaction have been entered by the terminal operator. C. a series of requests for required input data that requires an acceptable response to each request before a subsequent request is made. D. the display of a document with blanks for data items to be entered by the terminal operator.

The performance audit report of an information technology department indicated that the department lacked a disaster recovery plan. Which of the following steps should management take first to correct this condition? A. Bulletproof the information security architecture B. Designate a hot site C. Designate a cold site D. Prepare a statement of responsibilities for tasks included in a disaster recovery plan

The recommended technique for evaluating projects when capital is rationed and there are no mutually exclusive projects from which to choose is to rank the projects by: A. accounting rate of return. B. payback. C. internal rate of return. D. profitability index.

Which of the following is correct? A. Short-term credit can be obtained more quickly than long-term credit, but long-term credit is more flexible. B. Short-term credit is generally less costly than long-term credit due to the prepayment penalties associated with long-term credit. C. The shape of the yield curve implies that interest costs will generally be higher using long-term credit than short-term credit. D. Short-term credit can generally be obtained quicker than long-term credit; however, short-term credit holds more risk due to the need to renew more often.

Which of the following statements presents an example of a general control for a computerized system? A. Limiting entry of sales transactions to only valid credit customers B. Creating hash totals from Social Security numbers for the weekly payroll C. Restricting entry of accounts payable transactions to only authorized users D. Restricting access to the computer center by use of biometric devices

Within an integrated financial system, which of the following is not a major risk consideration associated with the accounts receivable component of the system? A. Credits may be applied to improper accounts. B. Updates of credit ratings may be untimely. C. Financial or management reporting may be inaccurate. D. Transactions may occur with unauthorized vendors.

You walk into a little boutique in the nearby mall. As you walk up to the cash register with an item that you wish to purchase, you notice that there appears to be only one employee in this small store. With a limited number of personnel in the store at any given time, what would be the best internal control procedure to provide a reasonable guarantee that all cash sales are being rung up properly and cash put in the cash drawer? A. Carefully screen all new employees B. Require that all sales be rung up on the cash register using barcodes C. Increase the minimum number of employees at the store at any given time to three D. Post a sign in a visible spot near the checkout counter that states, "If you do not get a receipt, your purchase is free."

A company has a significant e-commerce presence and self-hosts its website. To assure continuity in the event of a natural disaster, the firm should adopt which of the following strategies?

Establish an off-site mirrored web server

Which of the following is considered an application input control?

Edit check

There are two types of valuation engagements described by the Statement on Standards for Valuation Services (SSVS 1), issued by the AICPA, that went into effect in 2008. Valid comparisons of these two types of engagements include which of the following?

In a valuation engagement, the valuator is free to use any valuation approach of method deemed to be professional appropriate. In a calculation engagement, the valuator and the client agree upon the specific valuation methods or approaches to be used.

Payback method formula

Initial investment/Annual cash flow

An entity is examining potential investments and notes that 1-year maturity yields are higher than those for 10-year maturities. Which of the following explanations for this occurrence is best?

Investors are expecting reduced inflation in the future as reflected in the lower long-term returns.

A company uses its company-wide cost of capital to evaluate new capital investments. What is the implication of this policy when the company has multiple operating divisions, each having unique risk attributes and capital costs?

Low-risk divisions will over-invest in new projects and high-risk divisions will under-invest in new projects.

In building an electronic data interchange (EDI) system, what process is used to determine which elements in the entity's computer system correspond to the standard data elements?

Mapping

Which of the following covenants obliges the borrower to repay the bonds if a large quantity of common stock is held by a single investor and the bond rating is downgraded?

Poison put clause

A company is considering two projects, which have the following details: Project A Project B --------- --------- Expected sales $1,000 $1,500 Cash operating expense 400 700 Depreciation 150 250 Tax rate 30% 30% Which project would provide the largest after-tax cash inflow?

Project B because after-tax cash inflow equals $635

An individual holds a 10-year fixed-rate bond as an investment. Three years of its life remain. When the bond was issued, interest rates were much higher than they are now. Interest rates are expected to be stable for the next three years. Which of the following statements is correct regarding the bond?

The bond is currently selling at a premium

The discount rate used when preparing a business valuation when employing an income approach is critical. Which of the following statements about discount rates is true?

The higher the risk, the higher the discount rate, and the lower the present value of the subject company.

IRS Revenue Ruling 68-608 provides guidance as to the form of the financial statement when used in a valuation process. This guidance can be summarized as which of the following?

The past earnings used in the valuation process should fairly reflect the probable future earnings.

The CPA reviewed the minutes of a board of directors meeting of LQR Corp., an audit client. An order for widget handles was outsourced to SDT Corp. because LQR could not fill the order. By having SDT produce the order, LQR was able to realize $100,000 in sales profits that otherwise would have been lost. The outsourcing added a cost of $10,000, but LQR was ahead by $90,000 when the order was completed. Which of the following statements is correct regarding LQR's action?

The use of resource markets outside of LQR involves opportunity cost.

Which of the following observations regarding the valuation of bonds is correct?

When the market rate of return is less than the stated coupon rate, the market value of the bond will be more than its face value, and the bond will be selling at a premium

A program that converts a source program into instruction codes that the central processing unit can execute is called:

a compiler.

During a meeting with the CEO of the Marble Company, Connie CPA learned that the son of the CEO had worked at the company during one summer doing odd jobs. The year in question was included in the past financial records being used as a basis for the business valuation for which Connie had been engaged. The payroll records revealed that the son had received $40,000 (including taxes and other benefits) for this summer work. Connie should make a normalization adjust for:

a discretionary item for $35,000 since the going market rate for the work performed by the son would have been $5,000

The cost of debt most frequently is measured as:

actual interest rate minus tax savings.

An update program for bank account balances calculates check digits for account numbers. This is an example of:

an input control.

Devices that are used only to perform sequential file processing will not permit:

data to be edited on a real-time basis.

database integrity might not be preserved during a network or computer failure.

The net present value of a proposed investment is negative; therefore, the discount rate used must be:

greater than the project's internal rate of return.

FASB ASC 820 discusses the disclosures that need to be presented in financial statements related to fair value measurements. A basic goal of these disclosures is to provide:

enough information to the user of the financial statements so that the inputs used in the fair value measurement can be assessed.

Inflation may be measured using each of the following measures, except:

gross domestic product inflator.

A disaster recovery alternate site configured to meet user data processing requirements, including the appropriate hardware, is called a:

hot site.

The Sarbanes-Oxley Act of 2002 (SOX) requires that all publicly traded firms establish internal controls related to financial reporting that are documented, tested, and maintained for the purpose of preventing fraud. Per SOX, a company needs to do all of the following except:

include all areas of potential risk to the misstatement of the financial statements in this documentation, testing, and reporting process.

Residual income of an investment center is the center's:

income less the imputed interest on its invested capital.

The payback reciprocal can be used to approximate a project's

internal rate of return if the cash flow pattern is relatively stable.

Gordon Dividend Capitalization Model

kcm = (D / (P - u - f)) + g kcm -> cost, in percentage, of issuing new common stock

Capital budgeting is generally most accurate when the method used considers the cost of capital, as in the net present value method. The cost of capital used in this analysis should be ________ weighted average cost of capital.

marginal

Ralph was thinking about how to approach developing his investment philosophy. He thought about something he had learned in an investments class he had taken at the local university. He recalled a discussion about something called the efficient market hypothesis and remembered that at the time he really was taken by the idea that "you can't beat the market" in the long run. He wanted to incorporate that concept in his philosophy when he talked to his investment manager. This idea suggests that Ralph believes in the ________ form of the efficient market hypothesis.

strong

If you were to see the formula (Portfolio return - Risk-free rate) ÷ Standard deviation, you would be dealing with:

the Sharpe measure.

A ratio that examines the percentage change in earnings available to common stockholders that is associated with a given percentage change in earnings before interest and taxes is a measure of:

the degree of financial leverage.

In the definition of fair value as presented in FASB ASC 820, the principal market is considered to be a market where:

the holder of the asset or liability could find the greatest volume of asset sales or liability transfers of items similar to the one being valued.

When evaluating projects, the discounted breakeven period is best described as:

the point where discounted cumulative cash inflows on a project equal discounted total cash outflows.

Essex Corporation is evaluating a lease that takes effect on March 1, 2007. The company must make eight equal payments, with the first payment due on March 1, 2007. The concept most relevant to the evaluation of the lease is:

the present value of an annuity due.

All of the following about the economic order quantity (EOQ) model are true, except:

the reorder quantity determined using the EOQ model is best for companies requiring flexibility.

A small vacuum cleaner repair shop is located in a once-quiet, out-of-the way neighborhood. Recently, however, a large entertainment complex that will be used for concerts, basketball games, and other major events was just opened a block from this small business. When determining the fair value of this property, the fair value should be based upon:

the use of the property as a small restaurant serving a variety of light meals, exotic desserts, and alcohol.

The cost approach to valuation is appropriate to use when:

the value of the firm is basically related to the assets held.

An in-exchange premise as used when making a fair value calculation assumes that the maximum value of the item(s) being valued would come from:

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