Question 1

Capital turnover is decreased when:

Accepted Answer

A)  sales increase. 
B)  new assets are purchased. 
C)  expenses decrease. 
D)  stock is issued to pay a debt. 
A)  sales increase. 
B)  new assets are purchased. 
C)  expenses decrease. 
D)  stock is issued to pay a debt. B

Question 2

Customer satisfaction, operational efficiency, and employee excellence are the primary considerations when using the balanced scorecard approach.

Accepted Answer

A) True 
 B)False  False

Question 3

Assume division 1 of the XYZ Company had the following results last year (in thousands). Management's required rate of return is 8% and the weighted average cost of capital is 6%. Its effective tax rate is 30%.
$$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 5,000,000 \
\hline \text { Operating income } & \$ 1,000,000 \
\hline \text { Total assets } & \$ 10,000,000 \
\hline \text { Current liabilities } & \$ 500,000 \
\hline
\end{array}$$ What is the division's residual income?

Accepted Answer

A)  $100,000 
B)  $200,000 
C)  $500,000 
D)  $800,000 
A)  $100,000 
B)  $200,000 
C)  $500,000 
D)  $800,000 B

Question 4

The economic value added approach takes into consideration the cost of both equity and debt.

Accepted Answer

A) True 
 B)False

Question 5

The Gnome Company has provided the following information:
$$\begin{array} { | l | l | } 
\hline \text { Income tax rate } & 30 \% \
\hline \text { Target rate of return } & 12 \% \
\hline \text { Total assets } & \$ 300,000 \
\hline \text { Total liabilities } & \$ 150,000 \
\hline \text { Current liabilities } & \$ 50,000 \
\hline \text { Operating income } & \$ 40,000 \
\hline \text { Economic value added } & \$ 3,000 \
\hline
\end{array}$$ What was Gnome's weighted average cost of capital?

Accepted Answer

A)  8% 
B)  10% 
C)  14% 
D)  12% 
A)  8% 
B)  10% 
C)  14% 
D)  12%

Question 6

Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%.
$$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 3,000,000 \
\hline \text { Operating income } & \$ 500,000 \
\hline \text { Total assets } & \$ 4,500,000 \
\hline \text { Current liabilities } & \$ 300,000 \
\hline
\end{array}$$ What is Apple division's economic value added?

Accepted Answer

A)  $14,000 
B)  $50,000 
C)  $140,000 
D)  $336,000 
A)  $14,000 
B)  $50,000 
C)  $140,000 
D)  $336,000

Question 7

Herb Corporation has provided the following information:
$$\begin{array} { | l | l | } 
\hline \text { Current assets } & \$ 200,000 \
\hline \text { Total assets } & \$ 750,000 \
\hline \text { Total liabilities } & \$ 300,000 \
\hline \text { Current liabilities } & \$ 100,000 \
\hline \text { Weighted average cost of capital } & 10 \% \
\hline \text { Operating income } & \$ 140,000 \
\hline \text { Target rate of return } & 12 \% \
\hline \text { Income tax rate } & 40 \% \
\hline
\end{array}$$ What is Herb Corporation's residual income?

Accepted Answer

A)  $74,000 
B)  $62,000 
C)  $50,000 
D)  $65,000 
A)  $74,000 
B)  $62,000 
C)  $50,000 
D)  $65,000

Question 8

The capital turnover ratio is calculated by dividing:

Accepted Answer

A)  sales by stockholders' equity. 
B)  net income by total assets. 
C)  sales by total assets. 
D)  net income by stockholders' equity. 
A)  sales by stockholders' equity. 
B)  net income by total assets. 
C)  sales by total assets. 
D)  net income by stockholders' equity.

Question 9

Return on investment is calculated by dividing:

Accepted Answer

A)  operating income by total assets. 
B)  net income by total assets. 
C)  operating income by operating assets. 
D)  net income by operating assets. 
A)  operating income by total assets. 
B)  net income by total assets. 
C)  operating income by operating assets. 
D)  net income by operating assets.

Question 10

Marx Company has total assets of $400,000, a 14% target rate of return, a $10,000 residual income, a 10% weighted average cost of capital, and current liabilities of $80,000. What is Marx Company's
 economic value added assuming that the income tax rate is 30%?

Accepted Answer

A)  $1,400 
B)  $11,200 
C)  $6,200 
D)  $14,200 
A)  $1,400 
B)  $11,200 
C)  $6,200 
D)  $14,200

Question 11

Grand Company has total assets of $700,000, a 12% target rate of return, a return on investment of 14%, and a 10% weighted average cost of capital. What is Grand's residual income?

Accepted Answer

A)  $14,000 
B)  $84,000. 
C)  $98,000 
D)  $28,000 
A)  $14,000 
B)  $84,000. 
C)  $98,000 
D)  $28,000

Question 12

The residual income approach is less likely to lead to goal congruence relative to use of the return on investment approach.

Accepted Answer

A) True 
 B)False

Question 13

Match Corporation has provided the following information:
Total assets: $200,000
Profit margin: 10%
Turnover: .20
Minimum acceptable return: 12%
Operating income: $30,000
What is Match's residual income?

Accepted Answer

A)  $4,000 
B)  $6,000 
C)  $10,000 
D)  $24,000 
A)  $4,000 
B)  $6,000 
C)  $10,000 
D)  $24,000

Question 14

Investment center managers are responsible for maximizing income with consideration given to the
amount of invested capital.

Accepted Answer

A) True 
 B)False

Question 15

Diamond Company has provided the following information:
Total assets: $100,000
Profit margin: 20%
Turnover: .25
Minimum acceptable return: 10%
What is Diamond's return on investment?

Accepted Answer

A)  10% 
B)  20% 
C)  5% 
D)  2.5% 
A)  10% 
B)  20% 
C)  5% 
D)  2.5%

Question 16

A positive residual income means that the return on investment exceeds the target rate of return established by management.

Accepted Answer

A) True 
 B)False

Question 17

Herb Corporation has provided the following information:
$$\begin{array} { | l | l | } 
\hline \text { Current assets } & \$ 200,000 \
\hline \text { Total assets } & \$ 750,000 \
\hline \text { Total liabilities } & \$ 300,000 \
\hline \text { Current liabilities } & \$ 100,000 \
\hline \text { Weighted average cost of capital } & 10 \% \
\hline \text { Operating income } & \$ 140,000 \
\hline \text { Target rate of return } & 12 \% \
\hline \text { Income tax rate } & 40 \% \
\hline
\end{array}$$

Accepted Answer

A)  $65,000 
B)  $19,000 
C)  $50,000 
D)  $6,000 
A)  $65,000 
B)  $19,000 
C)  $50,000 
D)  $6,000

Question 18

Which of the following is not a relevant performance indicator for the balanced scorecard's internal
Business perspective?

Accepted Answer

A)  Product development time 
B)  Warranty claims 
C)  Employee turnover 
D)  Manufacturing defect rate 
A)  Product development time 
B)  Warranty claims 
C)  Employee turnover 
D)  Manufacturing defect rate

Question 19

A company's accounting department is an example of a cost center and should be evaluated based on cost control as well as other factors.

Accepted Answer

A) True 
 B)False

Question 20

Crimpy Company has total assets of $900,000, a 10% target rate of return, and a residual income of ($4,500). Which of the following statements is correct?

Accepted Answer

A)  Crimpy's return on investment can't be determined given the information provided. 
B)  Crimpy's operating income was $85,500. 
C)  Crimpy's residual income would decrease $9,000 if the target rate of return was reduced to 9%. 
D)  Crimpy's return on investment will increase when the target rate of return decreases. 
A)  Crimpy's return on investment can't be determined given the information provided. 
B)  Crimpy's operating income was $85,500. 
C)  Crimpy's residual income would decrease $9,000 if the target rate of return was reduced to 9%. 
D)  Crimpy's return on investment will increase when the target rate of return decreases.

Exam 23: Performance Evaluation and the Balanced Scorecard

Capital turnover is decreased when:

Customer satisfaction, operational efficiency, and employee excellence are the primary considerations when using the balanced scorecard approach.

The economic value added approach takes into consideration the cost of both equity and debt.

The Gnome Company has provided the following information: Income tax rate 30\% Target rate of return 12\% Total assets \ 300,000 Total liabilities \ 150,000 Current liabilities \ 50,000 Operating income \ 40,000 Economic value added \ 3,000 What was Gnome's weighted average cost of capital?

The capital turnover ratio is calculated by dividing:

Return on investment is calculated by dividing:

Marx Company has total assets of $400,000, a 14% target rate of return, a $10,000 residual income, a 10% weighted average cost of capital, and current liabilities of $80,000. What is Marx Company's economic value added assuming that the income tax rate is 30%?

Grand Company has total assets of $700,000, a 12% target rate of return, a return on investment of 14%, and a 10% weighted average cost of capital. What is Grand's residual income?

The residual income approach is less likely to lead to goal congruence relative to use of the return on investment approach.

Match Corporation has provided the following information: Total assets: $200,000 Profit margin: 10% Turnover: .20 Minimum acceptable return: 12% Operating income: $30,000 What is Match's residual income?

Investment center managers are responsible for maximizing income with consideration given to the amount of invested capital.

Diamond Company has provided the following information: Total assets: $100,000 Profit margin: 20% Turnover: .25 Minimum acceptable return: 10% What is Diamond's return on investment?

A positive residual income means that the return on investment exceeds the target rate of return established by management.

Herb Corporation has provided the following information: Current assets \ 200,000 Total assets \ 750,000 Total liabilities \ 300,000 Current liabilities \ 100,000 Weighted average cost of capital 10\% Operating income \ 140,000 Target rate of return 12\% Income tax rate 40\%

Which of the following is not a relevant performance indicator for the balanced scorecard's internal Business perspective?

A company's accounting department is an example of a cost center and should be evaluated based on cost control as well as other factors.

Crimpy Company has total assets of $900,000, a 10% target rate of return, and a residual income of ($4,500). Which of the following statements is correct?

Accounting and the Business Environment

Recording Business Transactions

The Adjusting Process

Completing the Accounting Cycle

Merchandising Operations

Merchandising Inventory

Internal Control and Cash

Receivables

Plant Assets and Intangibles

Current Liabilities, Payroll, and Long-Term Liabilities

Corporations: Paid-In Capital and the Balance Sheet

Corporations: Effects on Retained Earnings and the Income Statement

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Management Accounting

Job Order and Process Costing

Appendix: Process Costing

Activity-Based Costing and Other Cost Management Tools

Cost-Volume-Profit Analysis

Short-Term Business Decisions

Capital Investment Decisions and the Time Value of Money

The Master Budget and Responsibility Accounting

Flexible Budgets and Standard Costs

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