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BUS 475 Capstone Final Exam Part 1 and 2 (New, 2019)
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BUS 475 Capstone Final Examination Part 1 (New, 2018)
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BUS 475 Capstone Final Examination Part 1
From the following information calculate the net increase in cash.
• $88,780
• $18,620
• $13,220
• $23,380

Irvin’s Ice Creams a popular chain of ice cream parlors located only
in the United States is looking for opportunities to grow its business.
Which of the following suggestions, if provided by the company’s
marketing manager, would present the least amount of risk to the
firm?
• Leveraging the firm’s brand value by selling children’s toys
• Increasing sales by increasing the number of stores in the United
States
• Selling Irvin’s branded clothing in a new market
• Selling its current products in an attractive new market
Claudia is a team lead in an organization. One day at work a team
member Marc informs Claudia that he wants to speak to her about the
problems that he faces at work. Marc tells her that he is being treated
unfairly at work and that his colleagues often ridicule him because of
his ethnicity. He goes on to say that his disturbed state of mind has
caused a dip in the productivity and quality of his work. Claudia does
not interrupt him when he is speaking and encourages him to talk
openly. She also lets him know that she understands his situation and
that his feelings are valid. In this scenario, Claudia is primarily
engaged in __________.
• selective listening
• passive listening
• empathic listening
• defensive listening
Calculate the net working capital from the information given below.
The figures are in millions of dollars.
• $(140)
• $520
• $610
• $1,030
TwissData Corp. is an electronics firm based in Damiya that
manufactures motherboards. Because of a rapid growth in the
personal computing industry, TwissData Corp. decides to produce

personal desktops and laptops instead of motherboards. By doing so,
which type of market-product strategy has TwissData Corp. applied?
• Product development
• Diversification
• Market penetration
• Market development
Zuckain Corp. has issued a 10-year coupon bond. The bond is issued
at an annual coupon rate of 14%. The face value of the bond is
$1,500, and the bond is currently trading at $1,232.56. Calculate the
bond’s yield to maturity.
• 64%
• 32%
• 25%
• 95%
The current price of Latera Corporation’s common stock is $45 per
share. The company expects to pay a dividend of $3.30 per share
during the next year. The expected growth rate of the stock is 12%.
Calculate the cost of equity using the constant-growth model.
• 33%
• 60%
• 64%
• 33%
General Pharmacy’s stock has a beta of 1.8 and an expected return of
14%, and Sicoras Corp.’s stock has a beta of 1.5 and an expected
return of 16.2%. Assuming capital-asset pricing model holds,
calculate the return on the market portfolio.
• 3%
• 2%
• 6%
• 9%
In 2006, Dexel Electronics Inc. introduced audio systems in the
market for electronic gadgets. Because of an increase in sales volume
as well as a growing proportion of repeat purchasers, the company has
now upgraded the old version of audio systems by introducing new
features. Given this information, in which stage of the product life
cycle does Dexel Electronics lie?
• Growth

• Decline
• Introduction
• Maturity
FarmFresh Inc. partners with multiple retailers to sell its organic
products. If stocks fall below a product’s threshold, the retail
managers raise purchase orders to FarmFresh. It takes two days for
FarmFresh to process the orders and dispatch the products. The
process proves to be ineffective when the retail stores do not have the
stock to meet a sudden increase in demand. How can supply chain
management (SCM) systems solve this problem and make the process
more efficient?
• The retail stores can track the status of a shipment.
• Managers from the retail stores can raise purchase orders over
telephone.
• FarmFresh can have real-time access to sales information.
• Customers can track the status of a product delivery.
LaBelle, a famous cosmetic brand, introduces a new skin cleanser.
Initially, the product does extremely well and reaps huge profits for
the company. After using the product for few months, consumers
having acne complain of rashes and allergies. An external chemical
agency accuses that the company used a harsh chemical that causes
allergies to people with acne, and it did not include it on the
ingredients list displayed on the product’s label. These harsh
chemicals did not cause allergies to people with normal skin. When
enquired, the company’s CEO confesses that the products would have
not done so well if they had listed the chemical. The company can be
charged with __________.
• battery
• fraud
• defamation
• Assault
Ricalta Inc. earns a total of $500,000 before interest and taxes. Its
total debt is $1,110,000 (costing 5%). It has 150,000 shares of
common stock at $5 per share. The firm is considering reducing its
debt by $450,000 by issuing an additional 90,000 shares of common
stock. The firm is in the 35 percent tax bracket. Its earnings before
interest and taxes will remain the same as the new capital structure

will not impact the firm’s operations. Which of the following will be a
consequence of the change in Ricalta’s capital structure?
• The firm’s earnings before taxes (EBT) will remain unchanged.
• The firm’s net income will decrease by $14,625.
• The firm’s earnings per share (EPS) will be reduced by $0.66.
• The firm’s net income will increase by $10,625.
The capital structure of Wilken Corporation is given below.
Calculate the weighted average cost of capital (WACC).
Additional details are as follows:
• 35%
• 65%
• 75%
• 45%
Mirabel Inc. has recently ventured into the home cleaning supplies
market with its very own floor cleaner, Flofix, which does not contain
any harmful chemicals such as phenol. The company has used
aggressive marketing strategies and innovative advertising campaigns
to promote the product. The company’s revenue analysis shows that
the sales for the product are increasing steadily. However, when the
market survey team of the company surveyed a large number of
consumers in the target market, the consumers mentioned that they
had not switched over to the new brand of floor cleaner. Which of the
following, if true, best explains how the sales for the company went
up in spite of consumers not purchasing the product?
• People prefer to use products that they are familiar with rather than
trying out new products.
• Organizational buyers purchase new products before consumers do.
• Consumers sometimes wait to see how well a product performs in
the market before purchasing it.
• Mirabel Inc. did not invest equal amounts of money on its different
advertising campaigns.

A popular hypermarket chain came under criticism for failing to
protect the e-mail addresses and credit card details of 50,000
customers. CloudCom Inc., a web services company, identified that
the lapse was because of a worm that had breached the hypermarket’s
internal servers through an unauthorized e-mail, and that the anti-
malware system failed to catch the worm. Which of the following
actions should CloudCom take to restrict such malwares from
entering the hypermarket’s internal network?
• Install a firewall
• Use a virtual private network to connect its users
• Whitelist the malware
• Update the anti-malware system’s database
Robert, an ardent blogger, is approached by the marketing manager of
LaBelle, a famous cosmetic brand, to write positive reviews about the
company’s products. Robert knows that the company’s products cause
allergic reactions and to write positive reviews about the products
would be unethical. Which of the following decisions will be
considered an ethical lapse?
• To write positive reviews about the product
• To turn down the company’s offer
• To write a review after testing the product
• To inform people about the products’ allergic reactions
After a series of thefts in an organization, the management is
considering whether or not to install cameras inside the office. The
management is torn between violating the privacy of employees and
preventing future thefts from taking place. This scenario illustrates an
__________.
• ethical dilemma
• ethical lapse
• absence of codes of professionalism
• absence of codes of ethics
Kwalkon Computing released a new software update for their
calendar app. The update synchronizes both personal and business
calendars seamlessly. The update has all the relevant bug fixes and

promises to make the app work faster. Since there have been no recent
complaints about the software, the update must have solved all the
customers’ issues. Which of the following questions would be most
relevant in evaluating the argument?
• Has enough time passed after the release of the update?
• What is the memory required in order to install the update?
• What is the pace at which the updated app will perform its
functions?
• Has Kwalkon released any updates for their other software
applications?
Hailey’s Food Inc. sells fish sticks at $3.00 a box. The government
passes a law requiring sellers of food products to pay $0.50 as tax for
each product they sell. Hailey’s has to pay the government $0.50 for
every box of fish sticks it sells. The company decides to trade down to
compensate for the tax. Which of the following is a likely outcome of
the company’s decision?
• The company will increase the price of one box of fish sticks to
$3.50 while also increasing the package size.
• The company will sell fish sticks worth $2.50 at $3.00 per box.
• The company will increase the price and quantity of fish sticks.
• The company will continue to sell the same quantity of fish sticks at
the same price.
Michael deposits $35,000 today in his bank account. Calculate the
approximate amount he will have at the end of six years if interest is
10% per year and is compounded semiannually.
$115,560
$70,060
$50,180
$62,860
Irvin’s Ice Creams, a popular chain of ice cream parlors present only
in the United States, is looking for opportunities to grow its business.
If the firm conducts a SWOT analysis of its performance, which of
the following would be categorized as a threat?
• The growing demand for ice creams in international markets

• The entry of international ice cream brands in the U.S. market
• The firm’s inability to scale up in terms of revenue
• The firm’s positive brand value among customers
The intensive 45-day training program for new employees at Zed Inc.
requires trainees to take several tests that trainers at Zed Inc. have to
grade. Recently, there has been a 30% increase in hiring. With the
present number of trainers, it is not possible to finish grading all the
tests in time.
HR manager: The training team should transfer all the tests for the
trainees to software that will grade them automatically. Our hiring
budget will not allow the hiring of additional people to manage the
increased number of trainees. Using auto-grading software will not
require any funds from our hiring budget.
Which of the following is assumed by the HR manager?
• Using auto-grading software will allow Zed Inc. to support all of its
potential training needs in the future.
• Trainees will need a shorter duration of time to answer the tests after
the auto-grading software is implemented.
• Zed Inc. will not need to hire additional people to operate the auto-
grading software.
• The duration of the training cannot be reduced without negatively
affecting the quality of the training.
Hush Sports Inc., sellers of sportswear, transitioned from being just a
brick-and-mortar store to an online marketplace for sports goods.
Hush Sports still relied on customers to call the store for feedbacks or
complaints. To speed up the process, the company updated its Web
site with options for the customers to review the products they
purchased. Positive reviews attracted more customers, and negative
reviews helped the company improve its products. Which of the
following strategies has Hush Sports included in its business process?
• Crowdsourcing
• Cooperative advertising
• Blogging

• Conversational marketing
A shift in the demand curve for pretzels increases the price of pretzels
from $1.25 to $1.75 and its quantity demanded from 30 million to 35
million. The price elasticity of demand for pretzels is _____.
5 million pretzels per dollar
2.32
$1.50 per pretzel
0.46
Dupon Inc. is a leading manufacturer of handheld game consoles.
Each console manufactured by the firm has a different game.
Although the video game industry faced a sharp decline in demand
with the introduction of mobile games, Dupon still holds a significant
market share for handheld games compared to its competitors. To
hold the market share, Dupon provides discounts to customers
purchasing more than one console. Which of the following stages of
the product life cycle is Dupon’s products going through?
• The decline stage
• The growth stage
• The maturity stage
• The introduction stage
LaBelle, a famous cosmetic brand, introduces a new skin cleanser.
The company pays bloggers to write positive reviews about the
product. The consumers who follow these blogs assume that the
bloggers are sharing their personal experiences and decide to try the
product. They are unaware that the blogs are part of a marketing
campaign. After a few days of using the product, they complain of
rashes and allergies. The bloggers can be charged with __________.
• assault
• negligence
• battery
• Defamation
Mark is expected to receive $950 at the end of two years. Calculate
the present value of this amount if the discount rate is 6%.
• $1690.99

• $896.23
• $845.50
• $1792.45
Marketers at Cream & Fresh Ice Creams update the company’s web
site and online journals regularly with information about new ice
creams. Readers who are interested in the articles updated on the
company’s web site and online journals share the links with their
friends who further share it with more people. Some readers try the
ice creams and add their own comments to the web site and online
journals. Which of the following strategies is the company using to
promote its products?
• Telemarketing
• Wholesaling
• Stealth marketing
• Blogging
Managers at Hush Sports Inc., leading manufacturers of sports
apparel, are contemplating manufacturing high-end maple baseball
bats. To understand the existing demand for the product, the
marketing managers decide to set an online campaign, promoting the
product through blogs, videos, and interactive forums. Which of the
following approaches should the company adapt in its campaign?
• Posting messages that the company would not prefer to convey to an
audience face-to-face
• Replying to the consumer queries about the advantages of using
high-end maple baseball bats
• Restricting the consumers from posting comments on the company’s
Web site
• Withholding information that would cause potential concern over
the product’s quality
Sophie owns SugarCream bakery that produces 20 pastries in a day.
The price of one pastry is $12. If she hires another worker, she will be
able to produce 24 pastries in a day. Assuming that she operates in a
competitive market and aims to maximize her profits, she decides not

to hire the additional worker. Which of the following explains why
Sophie did not hire the additional worker?
• The cost of hiring the additional worker was greater than the value
of producing additional pastries.
• The cost of hiring the additional worker was less than the average
product of the additional worker.
• The cost of hiring the additional worker was less than the marginal
product of the additional worker.
• The opportunity cost of hiring the additional worker was zero.
Rikan Inc.’s credit sales for the year 2016 are $5,000,000, and its
gross profit is $1,500,000. The company’s average inventories are
$595,000. Its average accounts receivable is $750,000 and average
accounts payable is $640,000. From this information, calculate the
company’s cash cycle. (Round the answer to one decimal.)
50.1 days
199.5 days
36.8 days
183.5 days
Sam’s stores, a popular retail store, uses barcode scanners to scan
each product that it sells. The data generated from the scanners are
saved in a database. The database is updated every time a product is
scanned and sold. This computer-based information system helps
managers access and analyze sales data. Which of the following
systems is the store using for its business?
Transaction processing system
Supply chain management system
Expert system
Electronic commerce system
Colneith Corp. is a pharmaceutical firm that mainly produces drugs
for Alzheimer’s disease. The Medical Association of Zachary Islands
conducted a study on the effectiveness of the firm’s drugs and found
that multiple dosages of drugs were fatal. This discovery would most
likely lead to:
• short-run profits for the firm.
• a decline in the production of the drug.
• an increase the production of the drug.

• the exit of the firm from the market.
Dupon Inc., a leading manufacturer of handheld game consoles,
decides to enter the global marketplace. It decides to sell its products
directly in a foreign country. The foreign government denies
permission to the company on the grounds of protecting domestic
manufacturers. However, the government is willing to change its
decision if the company contributes to local employment. Which of
the following strategies of entering the foreign market will present the
least risk to the company while also meeting the government’s
condition?
• Direct exporting
• Joint venture
• Direct investment
• Contract assembly
Which of the following alternatives will give the lowest present
value?
• Receiving $650 at the end of three years at an interest rate of 10%
compounded annually
• Receiving $500 at the end of three years at an interest rate of 11%
compounded annually
• Receiving $450 at the end of two years at an interest rate of 9%
compounded annually
• Receiving $550 at the end of two years at an interest rate of 8%
compounded annually
Tony holds 350 shares of a company’s stock. At the end of 2015, the
market price of each share was $32. During the year 2016, the
company pays $2.25 in dividends per share. At the end of 2016, the
company’s stock is priced at $39.50. Calculate the percentage return
for holding the company’s stock during the year 2016. (Round the
answer to one decimal place.)
• 8%
• 5%
• 6%
• 4%

Rodriquez works as a scriptwriter in an advertising agency. He has
been assigned the task of developing a script for a television
commercial. He prepares a rough draft of the script and submits it to
his manager, Carl. Carl reads the script but derives a different
meaning from it than what Rodriquez intended. According to the
basic communication model, which of the following will be the next
step?
• Carl will refuse to provide feedback to Rodriquez.
• Carl will respond with his interpretation of the script.
• Rodriquez will be asked to narrate his script to an audience.
• Rodriquez will choose a communication channel to transmit his
message.
The owners of Brizzels’ Food Truck send live notifications to their
customers when their truck is close to the customers’ locations. Their
strategy was in response to a customer’s blog post about having to
wait for long hours till the truck arrives. Which of the following
strategies does this scenario illustrate?
• Social commerce
• Social intelligence
• Social publishing
• Social analytics
Managing Director: Our business has expanded over the past couple
of years. The profit margin and revenue earned have both gone up. On
careful analysis of our client base, we have found that all of our
clients belong to the same culture as us. They also hold ethical values
that are similar to ours. Based on this finding, it would be best if our
company stops training our employees on cultural sensitivity and
instead gives our employees specialized training in market research
analysis.
The Managing Director’s argument is flawed because it:
• disregards the influence that a training on cultural sensitivity could
have on the company’s profit margin.

• fails to consider that the suppliers for the company might belong to a
different culture than the clients.
• takes for granted the continued increase in revenue that the company
will experience.
• assumes that training in market research analysis is less expensive
than training in cultural sensitivity.
Calculate the cost of preferred stock from the information given
below:
• 73%
• 27%
• 45%
• 98%
When Ronike Ltd. decided to change its logo, it encouraged its
employees to get involved in the decision-making process. Employees
were asked to engage in brainstorming sessions by forming groups
and working together in teams. Which of the following is a likely
outcome of their teamwork?
• Increased diversity of views among team members will help
improve decision making.
• The dangers of groupthink will be reduced.
• Team members are less likely to support the final decision regarding
the change in logo.
• Team members who have hidden agendas will be automatically
filtered and removed.
Harry is receiving a loan of $3,000 from his friend to pay off some
outstanding bills. The loan is structured in such a manner that the
interest rate is 6% for the first year, after which the interest rate
increases by 2% per year until the loan is paid. Calculate the amount
that Harry will have to pay his friend if he waits for a period of four
years to pay off the loan. (Round the answer to one decimal place.)
• $4,231.20
• $4,005.50
• $3,777.80

• $2,127.10
Five years ago, Rigatani Corp. introduced its new energy drink,
Energize. According to recent market surveys, the product is in its
decline stage. At the same time Energize was introduced, Panne Inc.
introduced White Unicorn, another new energy drink. Therefore,
White Unicorn must also be in its decline stage now.
Which of the following is an assumption on which the conclusion is
based?
• Market surveys are not a reliable method to determine the stages in a
product’s life cycle.
• Consumers have realized that the presence of caffeine in energy
drinks is detrimental to their health.
• Both products were not well received in the market.
• White Unicorn did not spend more time in the maturity stage than
Energize did.
Rosa Maria attends an interview for a sales manager position at
Pixxels Inc. As part of the interview process, she is asked to reveal
personal information. The company gets Rosa’s consent to share the
information with a security company for background verification.
Which of the following actions, if taken by the security company, will
be unethical?
• Contacting Rosa’s previous employer for verification
• Selling Rosa’s personal information to a third party
• Requesting for additional information
• Providing Pixxels Inc. reports on Rosa’s online behavior
The government of Seronia is deeply concerned about the rate of
obesity in the country. It has framed a policy that requires food and
beverage manufacturers to be taxed according to the sugar and fat
content in their products. This will make high-sugar and high-fat
products more expensive for consumers. The government believes
that this policy will surely benefit the health of Seronian citizens.
Which of the following statements, if true, would undermine the
government’s argument?

• The policy is not applicable to food products that are not
manufactured within Seronia.
• Recent campaigns done by nutritionists have increased consumer
awareness about the adverse effects of a high-calorie diet.
• The Seronian government’s expenditure on providing health care to
its citizens has steadily increased over the last ten years.
• Consumers tend to decrease the consumption of some healthy food
products to afford the prices of high-sugar and high-fat products,
which are tastier.
Marketing head of Tosel Inc.: Our company has been using an
advanced CRM platform, Inito, which is popular among businesses
for its sophisticated functionality. Inito allows us to store customers’
psychographic data as well as their recent shopping behavior.
However, since we began using Inito, we have not been able to
generate a significant greater number of leads. Clearly then, using
CRM software does not help in generating any business.
Which of the following statements, if true, would weaken the
argument above?
• It is difficult to create a successful marketing strategy for a customer
base that greatly varies in demographic and psychographic factors.
• Inito is the most commonly used CRM platform.
• Tosel has integrated Inito into the other information systems used by
the company.
• Tosel has not invested the resources required to maintain its
database of customers’ psychographic data and shopping behavior.
Cream & Fresh Ice Creams pays bloggers to write positive reviews
about its ice creams. Readers who are interested in the product read
these reviews and share the link with their friends who further share
the reviews with more people. Some readers try the ice creams and
add their own comments to the blog. Which of the following
strategies is the company using to promote its products?
• Stealth marketing
• Wholesaling
• Online word-of-mouth marketing

• Telemarketing
In 2005, Susana purchased a 7-year zero coupon bond for $967.23.
The face value of the bond was $1,200. Calculate the capital gain on
this bond in 2006.
• $42.56
• $30.75
• $78.56
• $23.56
Truno Corp. plans to purchase new project management software.
There are three available choices in the market: Telpro, Morse, and
Verla.
Systems manager: I have compared the three available choices. All
three choices are similar in quality, features, and usability. However,
Morse is the most commonly used software, and it also has the lowest
purchase price. Therefore, the best choice of project management
software for us would be Morse.
Which of the following statements, if true, would strengthen the
systems manager’s argument?
• Morse is easily customized to fit individual customer needs.
• Employees at Truno Corp. do not support the idea of using project
management software.
• The project management requirements of other users of Morse are
not similar to those of Truno Corp.
• The prices of Verla and Telpro have fluctuated considerably over the
past 5 years.
MaxSale, a popular supermarket, is approached by Hartane’s, an
organic food producer, to sell its products through the supermarket’s
stores. MaxSale demands a substantial amount of money to display
these products for a minimum duration. MaxSale uses this strategy to
charge premium amounts to a select few producers as a means to
reduce competition. By doing so, which of the following consumer
rights is MaxSale violating?

• The right to be informed
• The right to be heard
• The right to choose
• The right to safety
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BUS 475 Capstone Final Examination Part 2
A company declared a cash dividend of $8560 on December 5 2015.
The company made a cash dividend payment on January 8, 2016.
What is the cumulative effect of the declaration and payment of the
cash dividend on the company’s financial statements?
Total liabilities will remain the same, and total assets will increase by
$8,560.
Stockholders’ equity and total assets will decrease by $8,560.
Stockholders’ equity will increase by $8,560, and total assets will
remain the same.
Total assets and liabilities will increase by $8,560.
Rilm Corporation has been recording investment income as revenue
for the past year with the aim of making the financial condition of the

company appear better than it actually is. Jon, one of the company’s
employees, becomes aware of this fraudulent activity and
immediately reports it to the appropriate authorities. After conducting
several investigations, the authorities book the company under the
Sarbanes-Oxley Act. Which of the following statements best explains
why Jon did not hesitate to alert the authorities about the company’s
fraudulent activity?
Under the Sarbanes-Oxley Act, whistleblowers who suffer retaliation
are allowed to recover criminal damages but not civil damages.
The Sarbanes-Oxley Act requires accounting firms to separate their
auditing and consulting functions.
There are no limitations to the protections offered by the Sarbanes-
Oxley Act to whistleblowers.
The Sarbanes-Oxley Act provides for the reinstatement of
whistleblowers in cases of improper termination.
LaBelle a famous cosmetic brand introduces a new skin cleanser. The
product does extremely well and reaps huge profits for the company.
After using the product for a few months, consumers complain of
rashes and allergies. An external chemical agency accuses the
company of using banned substances in its products. When
investigated, the company’s CEO confesses that he knew about the
substance but did not act because of the product’s initial success.
Which of the following could be the cause for the CEO’s unethical
behavior?
The slippery slope
Overvaluing outcomes
Indirect blindness
Ill-conceived goals
Elena Corporation owes Volmare Inc. an advertising agency a sum of
$42000 for services rendered. When Elena Corporation goes public it
offers the agency 7000 shares of its common stock in exchange for
the payable service cost. The agency accepts the offer. The stock
trades at $6 per share and the par value of the stock is $1. Which of
the following is the correct journal entry to record this transaction in
the books of Elena Corporation?

CoolWindows Corp. produces 2000 air conditioners per week in three
plants: Plant I, Plant II, and Plant III. Plant I produces 800 air
conditioners per week, Plant II produces 500 air conditioners per
week, and Plant III produces 700 air conditioners per week. The
probability of an air conditioner being defective is 7% for Plant I, 5%
for Plant II, and 6% for Plant III, respectively. In a random check, a
defective air conditioner is found. What is the probability that the air
conditioner was produced in Plant II?
25
18
20
75
Calculate the expected return for a stock based on the following
information.
Expected dividend $2.20
Current price $47.82
Expected growth rate 5.67%
6%
27%
87%
46%
As a common practice Rova Inc. mostly collects upfront payments for
goods that will be delivered to customers in the future. Unearned
revenues contribute significantly to the company’s current liabilities.
Commentator A: The advance cash received from customers can be
used to finance the company’s operations, and the corresponding
liabilities that are recorded will appear as sales in future financial

statements. Therefore, this practice is beneficial to Rova Inc. and
should be continued.
Which of the following statements, if true, weakens commentator A’s
argument?
Rova Inc.’s ability to deliver exactly as per its commitments to its
customers is frequently impacted by its unreliable suppliers.
Rova Inc.’s long-term liabilities are not offset by its current assets.
Rova Inc.’s cash flow statement shows that the company does not
have enough cash to scale up its operations in the next year.
A majority of the orders received by Rova Inc. from its customers are
for customized products.
The senior management of Reska Corp. realizes the importance of
encouraging employees to be creative. In the previous year, the
company organized quarterly town hall meetings, where employees
were given the opportunity to share innovative ideas to tackle the
issues faced by the company and to improve the company’s overall
performance. However, this plan did not yield the desired result.
The CEO of Reska Corp.: This plan failed because employees tended
to be apprehensive about expressing their ideas in public as they did
not know how the ideas would be received. We must change our
strategy and give employees the opportunity to express their ideas to
their managers in person. This will make the employees feel
comfortable expressing their creativity.
Which of the following is assumed by the CEO?
Unless the employees of Reska share their creative ideas, the
company’s overall performance is unlikely to improve.

Employees feel less apprehensive about expressing their ideas to their
managers than about expressing them in public.
Reska’s employees want to be creative at their jobs.
Companies with a creative workforce are less resistant to change than
those lacking creativity.
Melanie and Peter are discussing the limitations of internal control
systems in organizations. Melanie believes that the human element is
an insignificant factor in internal control systems. If Peter wants to
refute this view, which of the following points should he put forth?
Small companies have more efficient internal control systems as they
do not need to segregate duties or provide for independent internal
verification.
Collusion between two individuals can eliminate the protection
offered by segregation of duties in an internal control system.
A well-built internal control system has inbuilt controls to reverse the
results of employee indifference and carelessness.
The size of an organization determines the expectations from an
internal control system in the organization.
Cryser Inc. specializes in manufacturing wind turbines. In order to
increase the efficiency of its manufacturing process, the management
decides to restructure its shop floor into several workshops. Each
workshop specializes in a specific function. The engineers working in
the company raise concerns that their jobs will become monotonous if
each employee performs only one of those functions. Which of the
following is a soft tactic that the management can use to influence the
engineers?
Convincing the union leader to persuade other engineers
Explaining the benefits of the new structure
Demanding the engineers to comply with the authority

Promising monetary benefits
Jeremia joins as the new marketing manager in a leading
multinational company. The company usually advertises its products
through newspapers, television, or trade fairs. Jeremia invites
different product managers within the company to discuss and find
out new ways of creating consumer awareness for the company’s
products. Several members of the group are inclined toward Jeremia’s
idea of using social media, while others are content with the present
promotional strategies. Which of the following stages of the group
development process are the managers experiencing?
Performing
Forming
Storming
Norming
Vonik Solvers Inc. receives $40,000 in cash by issuing 15,000 shares
of common stock at the par value of $2 per share.Which of the
following is the correct journal entry to record this transaction?
Cash 80,000
Common Stock 30,000
Additional Paid-in Capital 50,000
Common Stock 40,000
Cash 30,000

Cash 40,000
Common Stock 30,000
Common Stock 80,000
Cash 30,000
Cero Inc. is an oil and gas company that operates in the nation of
Lumnia. Cero has incurred unforeseen expenses this year because of
an environmental lawsuit filed against the company for accidentally
causing an oil spill in a marine area in Lumnia. Therefore, despite
Cero’s earnings being high, the company’s net income is much lower
than what the company anticipated.
CFO of Cero Inc.: Our operations are compliant to the current
environmental laws. Accidents such as the oil spill caused by Cero
Inc. are extremely rare. Therefore, the consequences of the
environmental impacts of our operations should be categorized as
nonrecurring costs in our financial statements.
Cero’s shareholder: Cero Inc.’s earnings steadily increase every year.
Since the oil spill is a onetime incident, there is no need to worry
about its impact on next year’s profits.
Which of the following statements, if true, weakens the CFO’s
argument?
Cero Inc. categorizes any change in accounting principles as a
nonrecurring expense.

A change in the taxes applicable to Cero Inc. cannot be listed as a
nonrecurring expense unless it is unanticipated.
In the future, Lumnia’s environmental laws are likely to undergo
frequent changes because of increasing environmental activism in
Lumnia.
Cero Inc.’s earnings come from many other operations that are based
outside Lumnia.
Telda Corp. is a large accounting firm. It has an office in each of the
27 states of Kavenia.
The chairperson of Telda Corp.: I believe that if employees work in
the same office for a long time, issues like favoritism, complacency,
and misuse of authority are likely to develop. Therefore, I propose a
policy that requires at least the employees in managerial positions and
above to be transferred to a different office every five years. This
policy will be well received by our employees and discourage them
from leaving our company.
Which of the following statements, if true, would most seriously
weaken the chairperson’s policy?
The cost of living in Kavenia varies from state to state.
Employees are more likely to switch jobs within their city than to
relocate to a new city for their current jobs.
The employees of Telda Corp. would have to be paid a relocation
allowance if they are transferred to a different city.
There is a high rate of attrition among Telda Corp.’s employees who
are not in managerial positions.
The HR manager of Delta Corp.: According to our rewards and
recognition program, employee achievements are acknowledged and
employees are given gift vouchers through emails on reaching
milestones and targets. I feel this is not enough to make employees

feel appreciated. In my previous company, work anniversaries and
professional achievements were celebrated in organization-wide
meetings, where the concerned employee would be publicly
rewarded. After all, I would love it if my efforts were recognized like
this! Therefore, such an idea would be a great success in our
company.
The HR manager’s argument is flawed because it:
dismisses the possibility of increasing the value of the gift vouchers
that are given to the employees at present.
fails to prove that employees of Delta Corp. feel unappreciated.
fails to recognize the effort put in by his team to implement the
existing rewards and recognition program.
fails to consider that other people might perceive appreciation
differently than him.
The management team at Cryser Inc., manufacturer of wind turbines,
aims to increase the company’s market share by 20% by the end of
2017. The respective functional heads in the company inform their
teams that they will get a substantial bonus if they are able to achieve
this target. Which of the following stages of the goal-setting process
is the company in?
Providing support and feedback
Creating action plans
Promoting goal commitment
Setting goals
calculate the cash flows from investing activities based on the
following information.
Cash received from customers $67,550
Cash paid to suppliers 24,000
Purchase of equipment 230,000
Income tax paid 2,800

Payment of dividends 115,000
Proceeds from sale of machinery 105,000
Interest paid 1,500
Proceeds from issue of long-term debt 84,000
Purchase of stocks 87,500
Receipts from sale of equity instruments 177,300
$(35,200)
$39,250
$(31,000)
$125,000
Raubac Inc. has an earnings before interest and taxes (EBIT) of
$350,000. Raubac Inc.’s capital structure consists of a long-term debt
of $950,000 (costing 4%) and 110,000 issued shares of common stock
at a market price of $6 per share. To bring down Raubac’s
dependence on debt, the company is planning to reduce its debt by
$200,000 by selling additional shares of common stock. Raubac’s
EBIT will not change with the change in capital structure and will
remain in the 40 percent tax bracket. Which of the following is a
result of the change in Raubac’s capital structure?
Raubac’s earnings before taxes (EBT) will remain unchanged.
Raubac’s earnings per share (EPS) will increase by $0.57.
Raubac’s earnings before taxes (EBT) will reduce by $8,000.
Raubac’s net income will increase by $4,800.
The management team at Cryser Electronics Inc., manufacturer of
electrical generators, aims to increase the company’s market share by
20% by the end of 2017. To achieve this target, Marcus, the
marketing manager, assigns specific sales targets to individual
salespeople and retailers. In this scenario, the sales target is a(n)
__________.
behavioral goal
project goal
task goal

objective goal
The CEO of Wrenn Corporation is convicted of committing
accounting fraud. After several in-depth investigations, it is found that
although the CEO of the company was not aware of the fraud, he
received 1.5 million dollars in the form of bonuses and stock profits
during the company’s fraudulent period. The Securities and Exchange
Commission orders the company to restate its financial position and
furnish the correct financial statements. As per the Sarbanes-Oxley
Act, which of the following is a likely consequence that will follow?
The CEO will be held personally liable for the company’s misconduct
during the fraudulent period.
The CEO will be asked to return the money that he or she received
during the company’s fraudulent period.
The company will be allowed to grant personal loans to its executives
provided that it can prove the creditworthiness of the executives.
The company will be asked to merge its auditing and consulting
functions.
Calculate the cash flows from financing activities based on the
information given below.
Depreciation $ 770
Purchase of machinery 4,000
Increase in fixed asset 900
Payment of dividend 600
Issuance of short-term debt 1,500
Repayment of long-term debt 5,700
Increase in bank borrowings 6,200
$1,400
$630
$2,000
$4,130

Calculate the net income of Tinekal Corporation from the following
information.
Depreciation expense $ 850
Rent expense 500
Salaries expense 700
Supplies expense 650
Interest expense 400
Revenue from sales 5,000
Profit from sale of assets 1,000
Dividend 700
$2,600
$3,600
$2,900
$1,900
Omega Corp. released the unaudited financial statement prepared by
its accountants. According to the statement, the profit margin of the
company has increased. The sales of its electronic appliances have
also increased. Based on the unaudited financial statement, buying
Omega Corp. shares would be a good investment.
Which of the following, if true, casts the most doubt on the
conclusion?
Omega Corp. does not maintain more than a month’s supply of
inventory.
The sales of other products of Omega Corp. have not shown the
increase that the sales of electronic appliances have shown.

The earnings reported in the audited financial statement for Omega
Corp. are lower than that reported in the unaudited financial
statement.
The fixed expenses of the company have increased significantly.
BrightLife, a leading insurance company, provides incentives to
salespeople based on the number of prospective customers they meet
in a day. The salespeople, however, often spend time with their
friends and then claim to have met the prospective customers. They
are paid incentives based on their claims. The company’s CEO
realizes that the number of customers the company has is significantly
less compared to the number of prospective customers that the
salespeople claim to have met. To rectify the unethical behavior of the
salespeople, the company now pays incentives based on the number
of sales each person makes. Which of the following could be a cause
for the salespeople’s unethical behavior?
Motivated blindness
Indirect blindness
Ill-conceived goals
Maertge Airlines purchases an aircraft for $84,000,000 on January 1,
2016. The residual value of the aircraft is estimated at $7,500,000,
and its useful life is estimated at 25 years. Applying the double-
declining-balance method of depreciation, the depreciation expense
recognized for the year ended December 31, 2018 will be
__________.
$6,182,400
$3,096,576
$5,687,808
$6,720,000

Luisana runs a clothing boutique that sells designer clothes. In order
to expand the clothing collection in the boutique, Luisana wants to
buy some clothes from a fashion designer. After examining Luisana’s
audited financial statements, the fashion designer concludes that she
is assured a collection from Luisana.
Which of the following statements will weaken the argument?
The fashion designer makes her collections within two months of sale.
Luisana’s liquid assets are just enough to meet her current liabilities.
Luisana’s boutique faces increased competition from other designer
boutiques.
Luisana has owned the boutique for only three years and has no prior
experience of running a business.
WarmLiquid Corp., a manufacturer of water heaters, produces 30
water heaters per week. Past records indicate that 10% of total water
heaters produced in a week are likely to be defective. Suppose a
quality check was conducted on a sample of six water heaters. What is
the probability that four out of six water heaters will be defective?
0.08
0.56
0.46
0.76
In an apparel store, one individual is assigned the task of recording
the cash received from customers. Another individual is responsible

for the creation and handing over of credit memos to customers.
These measures are taken to avoid the risk of fraud. Which of the
following principles of internal control activities does this scenario
best illustrate?
Physical controls
Documentation procedures
Segregation of duties
Independent internal verification
Gharial LLC is a company that manufactures and leases cars. To
increase its production capacity, the CEO of Gharial LLC has decided
to build a new manufacturing plant. The company requires a loan
from a bank, and submits its financial statements to the bank. The
CEO believes that the loan will be approved because of the
company’s liquidity.
Which of the following strengthens the CEO’s argument?
The cost of building the manufacturing plant will be offset by the
profit Gharial LLC earns.
Gharial LLC’s financial statements show a positive working capital.
The manufacturing plant will be amortized over the next thirty years.
Gharial LLC’s earnings per share are equal to that of other similar
companies.
Telda Corp. is a large accounting firm. It has an office in each of the
27 states of Kavenia.
The chairperson of Telda Corp.: I believe that if employees work in
the same office for a long time, issues like favoritism, complacency,
and misuse of authority are likely to develop. Therefore, I propose a
policy that requires at least the employees in managerial positions and

above to be transferred to a different office every five years. This
policy will be well received by our employees and discourage them
from leaving our company.
Which of the following statements, if true, would strengthen the
chairperson’s argument?
Cultural differences may lead to different working styles in the
different office locations of Telda Corp.
Introducing policy changes without consulting the relevant
stakeholders is against the work culture of Telda Corp.
The technical skills required to work vary from team to team in Telda.
Rotating employees among different office locations leads to greater
employee cohesion in companies.
Secaucuss Co. has been in the business of manufacturing office
supplies for the last five years. Recently, the company issued more
shares to the public to raise capital for its expansion. Expanding its
operations into office maintenance helped it generate additional cash
inflows. Since the company expanded and issued more shares, the
stockholders’ equity should also have increased. However, the
stockholders’ equity went down this year.
Which of the following statements best explains why the
stockholders’ equity went down?
The company purchased some new machines to speed up its
manufacturing process.
The company employed a predatory pricing strategy to increase its
market share.
The company collected revenue from services provided on an accrual
basis.

The company declared a 2-for-1 stock split during the current year.
Reinek Company sold a fixed asset for $25,000. The asset was
originally purchased at a cost of $64,000. On the date of sale, the
accumulated depreciation was $53,000. Calculate the gain or loss on
the sale of the asset.
Loss of $39,000
Gain of $14,000
Loss of $36,000
Gain of $25,000
Cardice Services Inc. employs more than 5,000 telephone operators
globally to address customer complaints. To improve the response
time for addressing these complaints, the management decides to
automate the responses to all the frequently asked queries. The
management predicts that at least 60% of the customer queries will be
resolved without the need for human intervention. If the company
implements the process, at least 2,500 telephone operators will lose
their jobs. To oppose the management’s decision all the employees
threaten go on an indefinite strike. Which of the following
contingency approaches is commonly used to overcome resistance in
such situations?
Explicit coercion
Facilitation and support
Participation and involvement
Negotiation and agreement
From the information given below, calculate the net cash flows from
operating activities using the indirect method.
Net income $170,000
Depreciation 5,750
Loss on disposal of plant asset 4,000
Increase in inventory 7,500

Increase in prepaid expenses 5,460
Decrease in accounts payable 6,750
$160,040
$152,040
$173,540
$176,460
Elanke, an owner of a restaurant, has the following financial
information for the year ending December 31, 2016.
Revenue earned $410,000
Cash received from customers 300,000
Expenses incurred in the purchase of ingredients 250,000
Depreciation incurred during the year 700
Cash paid for miscellaneous expenses incurred in the year 2015
120,000
Based on the accrual basis of accounting, Elanke’s net income for the
year is __________.
$159,300
$39,300
$339,300
$459,300
A company issues 100,000 shares at $50 per share. It has a debt-
equity ratio of 2:1. If the company announces a 3-for-1 stock split,
what will be the result?
The total stockholder’s equity will increase and the debt-equity ratio
will decrease.

The total stockholder’s equity will decrease and the debt-equity ratio
will remain unchanged.
The total stockholder’s equity and the debt-equity ratio will decrease.
The total stockholders’ equity and the debt-equity ratio will remain
unchanged.
Calculate the operating profit or (loss) from the information given
below.
Sales revenue $320,000
Sales returns 11,000
Cost of goods sold 210,000
Selling expense 23,520
Administrative expense 46,270
Marketing expense 26,880
Research and development 6,300
($3,970)
$3,970
$7,030
($7,030)
company.

Which of the following statements, if true, weakens the HR
manager’s argument?
company.
Employees are not motivated to perform well at their jobs if their
work is not appreciated and rewarded.
The HR manager’s previous company did not offer promotions to its
employees easily.
Delta Corp.’s policy requires the CEO of the company to be present in
every town hall.
Delta Corp. does not have sufficient funds to organize frequent town
halls.
Calculate the cost of goods sold based on the following information.
Inventory at the beginning of 2016 $ 54,000
Purchases 450,000
Purchase returns 12,800
Inventory at the end of 2016 60,000
$443,200
$431,200
$491,200
$444,000

Earnings per share (EPS) is an indicator of a company’s profitability
and how its stocks are valued. EPS of a company is directly
proportional to its net income. The net income of Tolut Inc. for this
year has decreased by 10 percent from last year’s figures. Therefore,
the company’s EPS would be less than what it was last year.
Which of the following statements, if true, strengthens the argument?
Tolut Inc.’s stocks were undervalued in the market last year.
A high EPS indicates that the company has a high potential for
growth in the future.
Tolut Inc. has issued additional common shares in the current year.
Earnings per share do not necessarily fall every time there is a rise in
the taxes paid by the company.
Raetal Inc. acquired 2,000 shares of its own stock of par value $1 for
$20 per share. Which of the following is the correct journal entry to
record this transaction?
Treasury Stock 40,000
Cash 40,000
Common Stock 2,000
Cash 2,000
Cash 40,000
Leadership roles require the display of classic extrovert behavior such
as speaking confidently in public, building large social networks, and

allowing your successes as well as failures to be scrutinized by your
stakeholders. These abilities are so integral to leadership roles that
people who step into such roles learn to master extrovert behavior
regardless of their actual personalities.
Which of the following can be inferred from the given passage?
One can acquire extrovert behavior by becoming a leader.
Having large social networks helps in the development of public-
speaking skills.
Leaders should learn from both their successes and their failures.
People who are extroverted become successful leaders.
Janet works as a senior software developer in a multinational IT firm.
She prefers to work as an individual contributor and volunteers to
work on challenging projects. The firm encourages Janet and other
people like her by assigning them to projects that require a great deal
of innovation. The firm motivates Janet by appealing to her need for
__________.
power
security
achievement
affiliation
Calculate the revenue for the year ending December 31, 2016, based
on the information given below.
2016 2017
Retained earnings, January 1 $14,500 $ X
Revenue for the year Y 48,500
Expenses for the year 44,800 42,700
Dividends paid 3,500 5,700

The ending balance of retained earnings on December 31, 2017, is
$18,500.
$15,400
$52,200
$18,400
$33,800
The board of directors of Yudel Corp. is looking for a new managing
director for the company. They find a candidate, Linda, who is
hardworking, passionate, and confident. These are the characteristics
that all the past leaders of Yudel Corp. had in common. Therefore, the
board concludes that hiring Linda as the new managing director will
contribute positively to the company’s success.
The board of directors relies on the assumption that:
Linda has worked in companies similar to Yudel Corp. in the past.
the leaders of other companies have characteristics in common with
the leaders of Yudel Corp.
Linda will not have any other job offer to consider when Yudel Corp.
offers her the position of managing director.
Linda’s goals, as a leader, are compatible with the culture and vision
of Yudel Corp.
Financial analyst: Linksus Tech is a company that manufactures drill
bits and screwdrivers. Over the last year, its sales have not shown a
significant increase. The company has a large quantity of inventory on
hand, its accounts receivable have doubled, and its accounts payable
have increased threefold. Given this, the company should try to
realize its current assets at the earliest to stay afloat.
Which of the following, if true, would strengthen the argument?

Linksus Tech has applied for a short-term loan to meet its working
capital requirements.
The current liabilities are expected to be due within the next three
months.
The demand for the products sold by the company is expected to
increase.
The company will introduce a much-awaited new product into the
market in the following year.
Neha is a communications manager in a reputed software company.
She firmly believes that men do not prefer working with women
supervisors because they think women are inferior to them. Jordon is
Neha’s manager and elder to her by 10 years. Every time Neha
interacts with Jordon, she downplays her dominant nature by acting
naive. However, she is aggressive and dominant with younger
employees. Which of the following approaches to managing diversity
should be used to help Neha overcome her prejudiced attitude?
Educating Neha about stereotyping people of different age and sex
Isolating Neha by putting her in special projects that require minimum
interaction with other employees
Acknowledging Neha’s beliefs but not valuing or accepting them
Hiring more women employees to create an environment that is more
diverse
Aaron has recently been recruited as the managing director of Ikara
Corp., which is a leading accounting firm with a global presence. He
learns that the employees of Ikara felt that the previous managing
director was unapproachable and did not encourage employees to
express their problems or ideas to him. Aaron does not want to be
perceived the same way. To appear friendlier toward his employees,
he decides to use a bit of humor in his electronic communication. This
will surely enable him to build a good rapport with the employees of
Ikara Corp.
Which of the following, if true, most seriously undermines Aaron’s
argument?

Aaron has previously worked in companies where communication
between employees was informal.
Aaron’s electronic communication is mostly directed to the senior
management of the company.
Managers must seem approachable to their teams, especially when
their teams are spread across the globe.
Some employees of Ikara belong to cultures where humor is likely to
be perceived as ridicule.
Gharial LLC is a company that manufactures and leases cars. To
increase its production capacity, the CEO of Gharial LLC has decided
to build a new manufacturing plant. The company requires a loan
from a bank, and submits its financial statements to the bank. The
CEO believes that the loan will be approved because of the
company’s liquidity.
Which of the following, if true, weakens the CEO’s argument?
The price of Gharial LLC’s shares has remained constant over the
past year.
Gharial LLC specializes in high-end cars.
The current ratio of Gharial LLC is higher than one.
A majority of Gharial LLC’s current assets are in the form of
inventory.
CodeGiant Inc. is a startup company that specializes in software
development. The government levies a sales tax of 7.5% on the sale
of the company’s services. Mathew, the company’s CTO, decides to
introduce a new functional structure that will reduce the time taken to
develop each software. He believes that this will reduce the
company’s costs and compensate for the taxes. When he presents his
idea to the company’s investors, they become apprehensive that such
changes may lead to internal conflicts. The respective department
heads are also apprehensive because they do not know whether they
will fit into the new structure. They question the validity of Mathew’s

suggestion. Which of the following stages of the group development
process does this scenario portray?
Adjourning
Norming
Storming
Forming
===============================================

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