Information rules

a.emerge when research confirms the same results each time a problem is studied.

b.are of no use to most managers because situations are constantly changing.

c.are often called the great confusers.

d.cost too much to implement.

e.are valid only when they can be used to aid the decision-making process over a large number of years.

Randy is shopping for an all-in-one printer/copier/scanner/fax machine. He decides to purchase a certain model because it has the highest price, so Randy assumes it must have the highest quality. Randy has applied a(n) ____ in making his decision.

a.data structure

b.reference price

c.database

d.information rule

e.qualitative analysis

Creating a Web site so that customers can search for information instead of calling the company's offices and speaking to a customer-service representative is an e-business strategy designed to increase profit by

a.reducing revenues.

b.reducing expenses.

c.creating a new revenue stream.

d.increasing revenues.

e.creating more assets.

Ridgley, Cooper, and Ross (RCR)

Katie is the CEO of Ridgley, Cooper, and Ross (RCR), a regional accounting firm. RCR offers services in most areas of accounting, including auditing and consulting services. The firm must follow the GAAP rules, just like any other accounting firm. If there are information gaps that are not addressed and resolved by the firm, RCR could be considered a violator of the Sarbanes-Oxley Act. Katie understands what must be done and wants every employee of the firm to understand that they have to follow all the rules and regulations. Like any other industry, accounting is a competitive industry and employees of accounting firms must be productive, progressive, and well trained.

Refer to Ridgley, Cooper, and Ross. Which of the following represents a key component of the Sarbanes-Oxley Act relating to consulting services?

a.A public corporation must change its lead consulting firm every five years.

b.Accounting firms are prohibited from providing many types of consulting services to the companies they audit.

c.Accounting firms who report violations of the Sarbanes-Oxley Act must be banned from consulting for five years.

d.The SEC is required to establish a full-time five-member federal oversight board that will police the consulting industry.

e.Consultants must maintain financial documents and audit work papers for fifteen years.

Refer to Ridgley, Cooper, and Ross. What does GAAP stand for?

a.Generally accepted accounting principles

b.Generally accepted auditing principles

c.Generalized accounting and auditing principles

d.Generic accounting alternative practices

e.General administrative accounting practices

Richard Samonski does not understand the significance of the accounting equation. You explain its importance in the simplest way by saying that

a.as a result of each transaction, the total assets should equal the total liabilities plus owners' equity.

b.as a result of most of the transactions, assets and liabilities are equal.

c.owners' equity is not as important as assets and liabilities.

d.it is just an exercise in accounting.

e.as a result of each transaction, total liabilities should equal total assets plus owners' equity.

Each month, Bath & Body Works pays employees wages, telephone bills, and salaries to accountants. These are all considered

a.cost of goods sold.

b.gross profit.

c.sales allowances.

d.operating expenses.

e.current assets.

Which of the following is not an advantage that promissory notes have over trade credit from the perspective of the seller?

a.Notes are legally binding agreements.

b.Most notes earn interest for the seller.

c.Notes are negotiable instruments.

d.The company extending credit can sell the note and receive the money quickly.

e.The seller may demand payment from the buyer at any time.

Over the years, Zebra Productions has been slow making payments to its bank. Now it is in need of financing. Based on past experience, the interest rate Zebra will pay is the

a.interest rate determined by the SBA.

b.finance rate determined by the Department of Commerce.

c.prime rate.

d.prime rate plus 4 percent.

e.prime rate minus 2 percentage points.

Commercial paper usually is issued

a.for 3 to 7 years.

b.for short-term financing by large corporations.

c.for short-term financing by small businesses.

d.by large corporations unable to get credit elsewhere.

e.by savings and loan associations.

Suppose IBM decided to issue commercial paper in denominations of $5,000 to raise a large sum of money. Since the commercial paper is secured only by IBM's reputation,

a.IBM does not have to pay back the principal.

b.IBM has to pay interest rates higher than those charged by commercial banks for short-term loans.

d.no collateral is involved.

e.the commercial paper can be issued only in $1,500 or $10,000 denominations.

Which of the following statements is incorrect?

a.The size of the investment banker's commission depends on the financial health of the corporation issuing stock.

b.Although a corporation can have only one IPO, it can sell additional stock after the IPO.

c.The cost of selling stock is referred to as flotation costs.

d.The ongoing costs associated with selling stock are low.

e.All of these statements are correct.

Marietta Hotels used a twenty-five-year, $50 million bond issue to finance its expansion. In its plan to ensure that funds would be available to redeem the bonds at maturity, it arranged that none of the bonds would mature during the first fifteen years. Therefore, 10 percent of the bonds mature each year until all the bonds are retired at the end of the twenty-fifth year. This is an example of the ____ method of repayment.

a.sinking fund

b.selling new bonds

c.registered bond

d.selling old bonds

e.serial bond