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Multiple Choice

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Multiple Choice

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1. Smyth Industries operated as a monopolist for the past several years earning annual profits amounting to $50 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually. The managers of Smyth Industries are trying to device a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth’s managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust concerns, answer the following question.

Compute the present value of Smyth Industries’ profits, if it could have remained a monopoly, and the present value of Smyth Industries’ profits if it remains a duopolist in this market, given the interest rate is 5 percent.

A) $250 million; $110 million.

B) $210 million; $100 million.

C) $210 million; $200 million.

D) $1.5 billion; $420 million.

E) $1.05 billion; $210 million.

 

2.  In the problem above, Smyth Industries is deciding whether it should engage in predatory pricing by slashing its price 50 percent below marginal cost, or remain as a duopolist. What do you suggest? hint: the present value of current and future profits from predatory pricing and duopoly.

A) Engage in predatory pricing since $210 million is greater than $200 million.

B) Engage in predatory pricing since $1.05 billion is greater than $1 billion.

C) Remain as a duopolist since $210 million is greater than $0.

D) Remain as a duopolist since $210 million is greater than $100 million.

E) The two options lead to the same profits.

 

3. Consider an incumbent that is a monopoly currently earning $1 million annually. Given the declining costs of raw materials, the incumbent believes a new firm may enter the market. If successful, a new entrant would reduce the incumbent’s profits to $750,000 annually. To keep potential entrants out of the market, the incumbent lowers its price to the out where it is earning $850,000 annually for the indefinite future. If the interested rate is 5 percent, does it make sense for the incumbent to limit price to prevent entry?

A) Yes, since $2 million > $150,000.

B) Yes, since $250,000 $250,000.

D) Yes, since $850 million > $750,000.

E) The firm is indifferent, because $2 million = $2 million.

 

4. Consider an incumbent successfully links the preentry price and postentry profit to prevent entry. The incumbent’s monopoly profit is $10 million. If a rival successfully enters the market, the incumbent’s profits will fall to $4 million. If the incumbent lowers output to 25,000 units, its rival will stay out of the market resulting in an infinite stream of profits of $8 million annually. Due to a recent loan default, the current interest rate is whopping 210 percent. Is limit pricing profitable for the incumbent? A) Yes, since $19.05 million is greater than $2 million.

B) No since $4 million is less than $4.2 million.

C) No, since $1.91 million is less than $2 million.

D) Yes, since $8 million is greater than $4 million.

E) Linking the preentry price to the postentry profit is sufficient to guarantee the profitability of limit pricing.

 

Multiple Choice

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Multiple Choice

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1. Which of the following amounts paid by an employer to an employee is not subject to withholding?
A. Salary
B. Bonus
C. Commissions
D. Reimbursement of expenses under an accountable plan
E. All of the above are subject to withholding

2. Abbe, age 56, is married and has three dependent children over age 17. Abbe has one job, and her husband, age 58, is not employed. How many allowances should Abbe claim on her Form W-4 for 2011.
A. 3
B. 4
C. 5
D. 6
E. 7

3. Michele is single with no dependents and earns $23,000 this year. Michele claims sixteen allowances on her Form W-4 for 2011.
Which of the following is correct concerning her Form W-4?
A. Michele may not under any circumstances claim sixteen allowances.
B. Michele’s employer will require her to verify her right to claim sixteen allowances.
C. Michele’s employer will disregard her Form W-4 and withhold as single with no allowances.
D. Michele’s employer will submit a copy of her W-4 to the IRS if directed to do so by written notice.
E. None of the above is correct.

4. Which of the following forms would a lottery winner receive for her winnings?
A. Form W-4
B. Form W-2G
C. Form 1099-DIV
D. Form 1099-R
E. Form 1099-MISC

5. For 2011, Roberta is a self-employed truck driver with earnings of $43,000 from her business. During the year, Roberta received $2,500 in interest income and dividends of $500. She also sold investment property and recognized a $1,500 gain.
What is the amount of Roberta’s self-employment tax (Social Security and Medicare taxes) liability for 2011?
A. $3,038

B. $3,290
C. $5,281
D. $6,579
E. None of the above

6. Which of the following is not subject to self-employment tax?
A. Net earnings of the owner of a shoe store
B. Net earnings of a self-employed lawyer
C. Distributive share of earnings of a partnership
D. Gain on the sale of real estate held for investment
E. Net earnings of the owner of a dry cleaner

7. Bob employs a maid to clean his house. He pays her $1,800 during the current year.
What is the proper tax treatment of the FICA and Medicare tax for the maid?
A. None of the $1,800 is subject to FICA or Medicare tax.
B. The $1,800 is subject to the Medicare tax, but not the FICA tax.
C. $500 is subject to the FICA and Medicare tax.
D. The entire $1,800 is subject to the FICA and Medicare tax.

8. Which of the following employees would not be exempt from the FICA and Medicare taxes on wages paid for household work?
A. The taxpayer’s 20-year-old sister
B. The taxpayer’s wife
C. The taxpayer’s 16-year-old daughter
D. The 14-year-old babysitter from down the street

9. 3a. Sophie is a single taxpayer. For the first payroll period in October 2011, she is paid wages of $3,250.00 monthly. Sophie claims 3 allowance on her W-4.
Use the percentage method to calculate the amount of withholding for a monthly pay period. Calculate the witholding from the percentage table in appendix C.
A. None of the choices
B. $256.77
C. $289.12
D. $291.25
E. $287.10
F. $261.23

G. $247.47

10. 3b. Sophie is a single taxpayer. For the first payroll period in October 2011, she is paid wages of $3,250.00 monthly. Sophie claims 3 allowance on her W-4.
b. Use the withholding tables to determine the amount of Sophie’s withholding for the same period. Determine the withholding from the withholding table.
A. $289.00
B. None of the choices.
C. $258.00
D. $259.66
E. $291.25
F. $247.47

11. 7. Jenny earns $34,500.00 in 2011. Calculate the FICA tax that must be paid and match the amount to the heading below.
Match Choice
1. Total FICA Tax
A. $ 500.25
2. Jenny’s Employer’s Social Security
B. $525.11
3. Jenny’s Employer’s Medicare
C. $ 2,139.00
4. Jenny’s Social Security
D. $ 500.25
5. Jenny’s Medicare
E. $ 1,449.00
F. $ 4,588.50
1. Total FICA Tax: F. $4,588.50
2. Jenny’s Employer’s Social Security: C. $2,139.00
3. Jenny’s Employer’s Medicare: A. $500.25
4. Jenny’s Social Security: E. $1,449.00
5. Jenny’s Medicare: D. $500.25

12. 8. Yolanda earns $107,00.00 in 2011. Calculate the FICA tax that must be paid. Match the calculation with the heading.
Match Choice
1. Yolanda’s Social Security
A. $1,550.00
2. Total FICA Tax
B. $14,210.20
3. Yolanda’s Employer’s Social Security
C. $4,485.60
4. Yolanda’s Employer’s Medicare
D. $ 1,551.50
5. Yolanda’s Medicare
E. $ 1,551.50
F. $ 6,621.60
1. Yolanda’s Social Security: C. $4,485.60
2. Total FICA Tax: B. $14,210.20
3. Yolanda’s Employer’s Social Security: F. $6,621.60
4. Yolanda’s Employer’s Medicare: D. $1,551.50
5. Yolanda’s Medicare: E. $1,551.50

13. Jan has two jobs during 2011. One employer withheld and paid FICA taxes on $66,600 of Jan’s salary, and the other employer withheld and paid FICA taxes on $44,400 in salary paid to Jan.
Calculate the amount of Jan’s overpayment of FICA taxes that he should claim on his 2011 Form 1040.
A.$0
B.$932.40
C. $4,662.00
D. $2,797.20
E. $1,688.40
F. $2,620.80
G. None of the choices

14. For each of the following payments, indicate the form that should be used to report the payment.
Match Choice
1. Form 1099-INT
SelectA.B.C.D.E.F.
A. Periodic payments from a retirement plan
2. Form 1099-DIV
SelectA.B.C.D.E.F.
B. Salary as president of the company
3. Form W-2G
SelectA.B.C.D.E.F.
C. Las Vegas Black Jack winning of $25,000
4. Form 1099-R
SelectA.B.C.D.E.F.
D. Interest of $400 paid by a bank
5. Form W-2
SelectA.B.C.D.E.F.
E.Payment of $400 in dividends by a corporation to a shareholder
F.Depreciation schedule
1. Form 1099-INT: D. Interest of $400 paid by a bank
2. Form 1099-DIV: E. Payment of $400 in dividends by a corporation to a shareholder
3. Form W-2G: C. Las Vegas Black Jack winning of $25,000
4. Form 1099-R: A. Periodic payments from a retirement plan
5. Form W-2: B. Salary as president of the company

15. Thomas is an employer with one emploXXXXX, XXXXX. Sarah’s wages during 2011 are $19,450, and the state unemployment tax rate is 5.4 percent. Calculate the following amounts for Thomas:
a. FUTA tax before the state tax credit?
A.$1,050.30
B.$434.00
C.$56.00
D.$525.15
E.None of the choices

16. Thomas is an employer with one emploXXXXX, XXXXX. Sarah’s wages during 2011 are $19,450, and the state unemployment tax rate is 5.4 percent. Calculate the following amounts for Thomas:
b. State unemployment tax?
A.$434.00
B.$56.00
C.None of the choices.
D.$378.00
E.$1,050.30

17. Thomas is an employer with one emploXXXXX, XXXXX. Sarah’s wages during 2011 are $19,450, and the state unemployment tax rate is 5.4 percent. Calculate the following amounts for Thomas:
c. FUTA tax after the state tax credit?
A.$56.00
B.$350.10
C.$525.15
D.None of the choices.
E.$1,050.30

18. Sally hires a maid to work in her home for $250 per month. The maid is 25 years old and not related to Sally. During 2011, the maid worked 10 months for Sally.
a. What is the amount of Social Security tax sally must pay as the maid’s employer?
A.$160.22
B.$136.25
C.None of the choices
D.$250.00
E.$141.25
F.$155.00

19. Sally hires a maid to work in her home for $250 per month. The maid is 25 years old and not related to Sally. During 2011, the maid worked 10 months for Sally.
b. What is the amount of Medicare tax Sally must pay as the maid’s employer?
A.$41.25
B.$60.22
C.None of the choices
D.$50.00
E.$55.00
F.$36.25

20. Sally hires a maid to work in her home for $250 per month. The maid is 25 years old and not related to Sally. During 2011, the maid worked 10 months for Sally.
c. What is the amount of Social Security and Medicare tax which must be withheld from the maid’s wages?
A.None of the choices
B.$160.22
C.$155.00
D.$136.25
E.$141.25
F.$250.00

21. Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old- nanny $125 per week for 48 weeks during the current year.
a. What is the employer’s portion of Social Security and Medicare tax for the nanny that Ann should pay when she files her Form 1040 for 2011?
A.$77.29
B.$360.00
C.$459.00
D.$488.22
E.$511.23
F.None of the choices

22. Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old- nanny $125 per week for 48 weeks during the current year.
b. What is the nanny’s portion of FICA and Medicare tax?
A.None of the choices
B.$488.22
C.$339.00
D.$77.29
E.$459.00
F.$360.00

Multiple Choice

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Multiple Choice

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1. Neura Pharma, Inc. has purchased a drug patent with a remaining useful life of 13 years. How should this new asset be classified?

• A current tangible asset

• A non-current tangible asset

• A non-current intangible asset

• A current intangible asset

 

2. June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market value over the next two months.

How would this transaction be recorded by Silica Labs?

• Debit patent account $700,000; credit cash $500,000; credit common stock $200,000

• Debit cash $500,000; debit common stock $200,000; credit patent account $700,000

• Debit cash $500,000; credit patent account $500,000

• Debit patent account $500,000; credit cash $500,000

 

3. Consider the same scenario as in the previous question:

June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market value over the next two months.

Assuming that Silica Labs holds some long-term debt, which of the following describes the effect of the transaction on Silica Labs?

• Current ratio will decrease and total debt to equity ratio will increase

• Current ratio will increase and total debt to equity ratio will decrease

• Current ratio will increase and total debt to equity ratio will increase

• Current ratio will decrease and total debt to equity ratio will decrease

 

4. Lucky Lee, a video-game store in New York city, purchases a game machine directly from Taiwan for $30,000. In the U.S., the same machine will probably cost at least $36,000. Pick the most appropriate accounting action for Lucky Lee:

• Record the machine at $36,000

• Record the machine at $30,000

• Record the machine for [($30,000+$36,000)/2] = $33,000

• Have the machine examined by an independent appraiser and record it at the appraised value

 

Multiple Choice

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Multiple Choice

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1. Carlita began 2004 with a taxes payable account balance of $3,000. On December 31, 2004, its taxes payable account balance is $7,000. How much did Carlita pay to the tax authorities during the year?

• $2,000

• $6,000

• $4,000

• Cannot be calculated

 

2. On January 1, 2005, Jon Sports has a bond payable of $200,000. During 2005, it pays off $20,000 of the outstanding bond principal and issues a new $70,000 bond. There are no other transactions related to the bond payable account.

What is Jon Sports’ December 31, 2005 bond payable balance?

• A debit balance of $250,000

• A credit balance of $150,000

• A debit balance of $150,000

• A credit balance of $250,000

 

3. The next 7 questions are based on Panjim Trading Company’s cash T-account for 2005.

Based on Panjim’s 2005 cash T-account, which one of the following statements must be true?

• During 2005, Panjim’s total merchandise sales were $60,000

• During 2005, Panjim’s total merchandise purchases were $44,000

• During 2005, Panjim issued $75,000 of debt

• Panjim did not record any tax expense for 2005

 

4. Panjim began 2005 with salaries payable balance of $75,000. It had 2005 salary expense of $80,000. Its 2005 ending salaries payable balance must be:

• $95,000

• $55,000

• $155,000

• $105,000

 

Multiple Choice

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Multiple Choice

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1. Panjim’s prepaid expense account consists only of garage rental prepayments. Its 2005 beginning and ending balance were the same. Which one of the following statements must be true?

• Panjim had no garage rental expenses during 2005

• Panjim’s prepaid expense account balance never varied during 2005

• Panjim’s prepaid expense account balance varied during 2005

• None of the above statements is true

 

2. Juan Foods purchases a computer system in 2005 for $20,000. Its expected useful life is 5 years. At the end of 2005, it has to record depreciation on the computer system of $2,000.

What is the correct journal entry to record the depreciation?

• Debit computer system $2,000; credit depreciation expense $2,000

• Debit accumulated depreciation $2,000; credit computer system $2,000

• Debit depreciation expense $2,000; credit accumulated depreciation $2,000

• Debit computer system $2,000; credit accumulated depreciation $2,000

 

3. Jackie’s Crafts is a successful retailer of fabric by the yard and other sewing supplies. If Jackie were to shut down the store, the bolts of fabrics and the bins of lace and trim, inventory valued at $20,000, on average, at any point in time, would have to be sold for about 10% of that value. But, Jackie’s accountant does not feel the need to reduce the value of the inventory on the books.

This is a reflection of the:

• Consistency concept

• Materiality concept

• Historical cost concept

• Going-concern concept

 

4. Weldon Engineering owes one of its creditors $20,000. To settle the debt, Weldon pays $5,000 cash and also issues common stock valued at $15,000 to the creditor.

How would this repayment of the $20,000 debt be recorded in Weldon’s books?

• Debit debt owed $20,000; credit cash $5,000; credit common stock $15,000

• Debit common stock $15,000; debit cash $5,000; credit debt owed $20,000

• Debit common stock $15,000; debit debt owed $5,000; credit cash $20,000

• Debit debt owed $5,000; credit cash $5,000