QUESTION 14

1. If the price received by a producer is less than average variable cost in the short run, then the firm

   	A.	is earning zero economic profits
   	B.	is earning positive economic profits
   	C.	should continue to produce in the short run
   	D.	should shut down immediately

5 points   

QUESTION 15

1. The short-run price elasticity of demand for gasoline in the US is roughly equal to -0.25, which tells us that

   	A.	the short-run demand for gasoline is elastic
   	B.	gasoline consumers are completely unresponsive to price changes
   	C.	the short-run demand for gasoline is inelastic
   	D.	gasoline is an inferior good in the US

5 points   

QUESTION 16

1. Firms that manufacture graphic chips for televisions and computers have downward sloping average cost curves at all quantity levels.  What does this imply about the scale economies in this industry?

   	A.	Business has neither economies of scale or diseconomies of scale
   	B.	Business has economies of scope but not economies of scale
   	C.	Business has economies of scale
   	D.	Business has diseconomies of scale

5 points   

QUESTION 17

1. Which of the following will decrease the break-even quantity?

   	A.	an increase in the price level
   	B.	a decrease in the price level
   	C.	an increase in fixed costs
   	D.	an increase in marginal costs

5 points   

QUESTION 18

1. Suppose you invest $100 today in bonds that have an annual discount rate equal to -2% per year.  At this time next year, your investment will be worth:

   	A.	$98
   	B.	$100
   	C.	$102
   	D.	$104

5 points   

QUESTION 19

1. Suppose you are enrolled in an MBA program and your parents ask you how much the education will cost. Your reply includes the tuition charges and book expenses, but you do not include the opportunity cost of your time. Have you fallen into a logical trap?

   	A.	No, I always tell my parents the complete truth
   	B.	Yes, you have violated the Law of Demand
   	C.	Yes, the hidden-cost fallacy
   	D.	Yes, the sunk-cost fallacy

5 points   

QUESTION 20

1. Your restaurant sells 300 pizzas in the typical day, and the total costs are $3,000 per day. If your fixed costs are $1,200 per day, what is average variable cost?

   	A.	$6
   	B.	$4
   	C.	$10
   	D.	$8

On February 1, 2018, Cromley Motor Products issued 12% bonds, dated February 1, with a face amount of $65 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 14%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $65,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds issued on February 1, 2018.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

On February 1, 2018, Cromley Motor Products issued 6% bonds, dated February 1, with a face amount of $40 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 8%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $55,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds issued on February 1, 2018.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

On February 1, 2018, Cromley Motor Products issued 8% bonds, dated February 1, with a face amount of $75 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $75,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds issued on February 1, 2018.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020

On February 1, 2018, Cromley Motor Products issued 8% bonds, dated February 1, with a face amount of $75 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $75,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds issued on February 1, 2018.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

On February 1, 2018, Cromley Motor Products issued 8% bonds, dated February 1, with a face amount of $75 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $75,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds issued on February 1, 2018. 2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity. 2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity. 3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018. 4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020

On February 1, 2018, Cromley Motor Products issued 6% bonds, dated February 1, with a face amount of $55 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 8%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $55,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price of the bonds issued on February 1, 2018.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

On February 1, 2018, Cromley Motor Products issued 9% bonds, dated February 1, with a face amount of $60 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semi-annually on July 31 and January 31. Barnwell Industries acquired $60,000 of the bonds as a long term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of 41, PVA of $1, FVAD of $1, PVAD of $1) (Use appropriate factor(s) from tables provided.) Required: 1. Determine the price of the bonds issued February 1, 2018. 2-a. Prepare amortization schedules that indicate Cromley's effective interest expense for each interest period during the term to maturity. 2-b. Prepare amortization schedules that indicate Barnwell's effective interest revenue for each interest period during the term to maturity. 3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell's investment on February 1, 2018. 4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

Traxonia Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 2016:

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.

2. Compute the profit margin for each division.

Note: Enter percentage rounded two decimal places (e.g. .22547 is 22.56%)

Now identify the most successful division according to the profit margin:  

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? What is a major weakness of the present method?

A major weakness of the present method is that

there is no weakness. The present method works well.

a full year’s income is needed for assessment.

nonfinancial drivers are not identified.

the service department charges are incorrectly allocated.

the assets invested in each division are not considered.

Which of the following methods would better evaluate divisional performance? Check all that apply.

Including direct and indirect operating expenses for each division

None of these. The present method works well

Utilizing transfer pricing between divisions

Completing a balanced scorecard for each service department

Computing the rate of return on investment (income from operations divided by divisional assets)

Focusing on controllable revenues and expenses

Considering residual income (income from operations less a minimal return on divisional assets)

Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.

2. Compute the profit margin for each division. Enter percentage rounded two decimal places (e.g. .22547 is 22.55%).

Now identify the most successful division according to the profit margin:

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? What is a major weakness of the present method?

A major weakness of the present method is that

the assets invested in each division are not considered.

nonfinancial drivers are not identified.

the service department charges are incorrectly allocated.

a full year’s income is needed for assessment.

there is no weakness. The present method works well.

Which of the following methods would better evaluate divisional performance? Check all that apply.

Considering residual income (income from operations less a minimal return on divisional assets).

None of these. The present method works well.

Completing a balanced scorecard for each service department.

Computing the rate of return on investment (income from operations divided by divisional assets).

Utilizing transfer pricing between divisions.

Including direct and indirect operating expenses for each division.

Focusing on revenues and expenses.