TEST BANK FOR Financial & Managerial Accounting for MBAs, 6th Edition by Easton, Halsey, McAnally, Hartgraves & Morse

Cambridge rBusiness rPublishers, r©2018
Practice rQuiz rSolutions, rModule r1 1-1

,Financial & Managerial Accounting for MBAs, 5th Edition by Easton, Halsey,
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McAnally, Hartgraves & Morse r r r r




Practice Quiz Solutions r r




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)
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c. AICPA (American Institute of Certified Public Accountants)
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d. SEC (Securities and Exchange Commission)
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r Answer: b r




2. Rocky Beach reports the following dollar balances in its retained earnings account.
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($ millions)
r 2017 2016
Retained earnings…………. r 8,968.1 8,223.9

During 2017, Rocky Beach reported net income of $1,351.4 million. What amount of dividends, if any,
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did Rocky Beach pay to its shareholders in 2017?
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a. $607.2 million r

b. No dividends paid
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c. $301.2 million r

d. $744.2 million r




r Answer: a r




Computation of dividends r r

Beginning retained earnings, 2017 ............................................................................
r r r r $8,223.9
+ Net income.................................................................................................................
r r 1,351.4
– Cash dividends...........................................................................................................
r (?)
= Ending retained earnings, 2017.................................................................................
r r r r $8,968.1

Thus, dividends were $607.2 million for 2017.
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Cambridge rBusiness rPublishers, r©2018
r1-2 Financial r& rManagerial rAccounting rfor rMBAs, r5th rEdition

,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 Walt 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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r Answer: c r




Using the accounting equation at the beginning of the year:
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Assets($50,388 - $400) r r = Liabilities($26,197) + Equity(?)
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Thus: Beginning Equity
r r = $23,791 r




Using the accounting equation at the end of the year:
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Assets($50,388) = Liabilities($26,197 - $100) + Equity(?) r r r r r

Thus: Ending Equity
r = $24,291 r r




4. Assume that Starbucks reported net income for a recent year of $564 million. Its stockholders’
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equity is $2,229 million and $2,090 million, respectively.
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Compute its return on equity. r r r r




a. 13.0%
b. 22.8%
c. 26.1%
d. 32.7%

Answer: c r




ROE r = Net income / Average stockholders’ equity
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= $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 r




Return on equity is net income divided by the average total stockholders’ equity. Nokia’s
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ROE: €3,582 / [(€14,576 + €14,871) / 2] = 24.3%.
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Cambridge rBusiness rPublishers, r©2018
Practice rQuiz rSolutions, rModule r1 1-3

, 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% r r

b. $10,597 million, 31.50% r r

c. $10,597 million, 68.5% r r

d. $20,343 million, 76.0% r r




Answer: b r




r ($ 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, 3.9%
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b. $620,189 million, 49.1% r r

c. $620,189 million, 50.9% r r

d. $ 11,651 million, 3.7%
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Answer: d r




r ($ 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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Cambridge rBusiness rPublishers, r©2018
r1-4 Financial r& rManagerial rAccounting rfor rMBAs, r5th rEdition