Fall 2007 - ASEC - Accounting Students Education Contribution Fund

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Fall 2007 - ASEC - Accounting Students Education Contribution Fund ...

    University of Waterloo

    School of Accountancy

    AFM 131

    Mid-Term Examination

    Fall 2007

    1. Lucinda recently left a large insurance firm and opened a home-based business preparing medical transcriptions for doctors. Based on recent statistics, she can expect: A) a negative reaction from friends and family who wonder when she will get a “real”


    B) that affordable computer technology will allow her to compete with larger firms. C) the government will discourage her attempts to create a new business. D) to find security, routine and a paycheck from her new enterprise.

2. As his college graduation nears, Manny has focused his attention on finding full time

    employment. He has decided to narrow his job search to jobs with a major

    corporation. His job search strategy:

    A) makes sense because managerial skills are best developed by working for big firms. B) is smart because major corporations represent the most important source of

    employment growth in Canada.

    C) indicates that Manny's passion is to fulfill his dream of owning his own business. D) will likely limit his job prospects since most new jobs are with small businesses.

    3. A review of small business successes and failures indicates that the: A) businesses that are easiest to start offer the greatest potential for long term growth

    and profits.

    B) restaurant industry offers the least risk for entrepreneurs.

    C) businesses with the potential of high profit levels tend to be difficult to start and

    hard to keep going.

    D) reason the service sector is rapidly growing is that these firms are easy to start and

    keep going, and offer high levels of security and growth potential.

    Page 1

4. Motivated by his desire to operate his own business, Caleb is considering the purchase

    an existing business. As he carefully weights this option, he is likely to find that: A) very few owners of small businesses have any interest in selling. B) his potential for success would greatly improve if he started his own new firm. C) the value of an existing business is determined by what the business owns, what it

    earns, and what makes it unique.

    D) any entrepreneur willing to sell their business is experiencing serious financial


    5. Lamont wants to improve his chances to be a successful entrepreneur and so he has written a business plan. One advantage of developing this plan is that it: A) meets federal reporting requirements of Revenue Canada.

    B) insures financing will be available from the venture capitalists. C) forces Lamont to think carefully about all aspects of his planned business. D) will enable him to switch from a sole proprietorship to a corporation without any

    further paperwork.

    6. Which of the following statements best describes the theory of comparative advantage? A) The best way for a nation to ensure full employment is to be totally self-sufficient

    rather than relying on other nations to obtain goods and services. B) Each nation should produce those goods that it can produce more efficiently than

    other nations, and buy the goods it can not produce efficiently from other nations. C) The nation that has the largest reserves of gold and other natural resources will

    enjoy a position of comparative advantage in trade relationships. D) A nation should produce those goods for which domestic demand is comparatively

    strong, and should import those goods for which domestic demand is comparatively


7. Both the federal and provincial governments have provided incentives for Toyota to

    locate a new manufacturing facility in Woodstock Ontario because, A) Toyota makes significant political contributions.

    B) Canada is trying to establish an auto industry.

    C) this new facility will export all of its output to Japan.

    D) the auto industry is critical to the Canadian economy.

    Page 2

8. There are many ways in which an organization may participate in global trade. Which

    of the following strategies has the most amount of commitment, control, risk, and profit

    potential associated with it?

    A) exporting

    B) foreign direct investment

    C) international joint venture and strategic alliances D) licensing

9. In the article, "Let's make a deal, Western-style", the trade agreement signed between

    Alberta and British Columbia will,

    A) foster greater trade between Alberta and British Columbia with the Far East.

    B) force Alberta and British Columbia to increase the amount of trade between the two


    C) allow businesses in either province to buy goods or services from anywhere in

    Alberta or British Columbia without the added cost of tariffs. D) impose trade barriers between every other province and the combined provinces of

    Alberta and British Columbia.

    10. Active Learning implies,

    A) coming to every lecture during the term.

    B) buying all of the course resources identified in the course outline. C) memorizing all the definitions and formulas in a course. D) doing and thinking about what you are doing in a course.

    11. Governments throughout Canada are privatizing services that they have traditionally

    offered in response to:

    A) an opportunity to realize huge ongoing profits from royalties they will collect from

    private companies who acquire these services. B) new laws and regulations that have been passed mandating that these services be


    C) as a means to lower costs and improve efficiencies associated with the provision of

    these services.

    D) as a means of increasing the scope of their involvement in the economy.

    Page 3

    12. Ralph owns a small business. Some friends have suggested that he should switch from

    his current manual accounting system to one that is computerized. Ralph is not certain

    he wants to use computers in his small firm's accounting system. He is concerned

    about the time it would take in learning the system, and wonders whether the benefits

    will justify the costs of setting up the system. As a small business owner, Ralph would

    probably find that:

    A) computer software tends to be very helpful to small business owners who lack

    strong accounting support within their companies. B) today's accounting software tends to be very complex, so only people with

    extensive accounting experience can understand its features and use it effectively.

    C) even though it is not yet cost effective, he should go ahead and adopt a

    computerized system, because government regulations will require most business

    functions to be computerized in the near future. D) such systems actually reduce costs, because they eliminate the need to ever consult

    with an accountant.

    13. Our Gang Transfer Company has shown consistent profits over the past five years.

    However, the company has recently found itself in financial trouble due to cash

    shortages. This indicates that:

    A) an accounting profit does not guarantee a positive cash flow. B) it's not always important to prepare financial statements. C) the accountants apparently made a mistake when they prepared the trial balance.

    D) the state of the economy is less important than financial control techniques.

    14. If a firm can reduce its cost of goods sold and continue to sell its product for the same

    price, we would expect the firm to enjoy an increase in its ________. A) revenue

    B) liabilities

    C) employee turnover

    D) gross margin

    15. At the time the Jepson Plumbing Supply prepared its financial statements, it had several

    customers who had bought goods in the past three months on its "90 days same as cash"

    credit plan. These customers had not yet paid their bills, but they have good credit

    ratings and Jepson is confident that they will make their payments on time. The amount

    these credit customers owe would show up as part of the: A) current assets listed on Jepson's balance sheet. B) current liabilities listed on Jepson's balance sheet. C) a deferred cash flow on Jepson's statement of cash flows. D) unrealized revenue reported on Jepson's income statement.

    Page 4

    16. Accountants at Rextech are seriously considering a change in the methods they use to

    depreciate equipment and value inventory. If they do so, the changes they make: A) will have no impact on the "bottom line" of the firm.

    B) will influence the cost of goods sold, but will have no impact on the firm's operating


    C) must be clearly explained to any readers of Rextech's financial statements. D) must be balanced by offsetting changes in the treatment of intangible assets.

    17. Your firm is a supplier to a major chain of discount stores. You have heard rumors

    that this chain of discount stores is in some financial difficulty. Which financial ratios

    would indicate the discount stores' ability to pay their short-term debts? A) Liquidity ratios

    B) Leverage ratios

    C) Activity ratios

    D) Profitability ratios

    18. In trying to evaluate the management of inventory you could calculate the inventory

    turnover ratio and compare that ratio to the industry average. You would conclude that

    inventory could be managed better if,

    A) the company's inventory turnover was higher than the industry's. B) the company's inventory turnover was lower than the industry's. C) cost of goods sold for the company was higher than the industry's average. D) cost of goods sold for the company was lower than the industry's average.

    19. When using ratios it's important to compare a ratio calculated for one company to which

    of the following?

    A) The cash balance at the beginning of the period.

    B) The same ratio for the company from the previous year. C) The same ratio for firms in a different industry.

    D) The net income for the current year.

    20. Which of the following statements about federal government deficit spending is most


    A) The federal government violates the law by running deficits because the Canadian

    Constitution requires the government to balance its budget each year. B) Although the government used to run big deficits, it has consistently run surpluses

    since the late 1980s.

    C) The government has used deficit spending to lower the national debt. D) One reason the government has a hard time reducing deficits is that there is a great

    deal of pressure on the government to expand its spending each year.

    Page 5

    21. The Canadian system of marketing boards has been under attack by various

    organizations because:

    A) they are illegal under NAFTA.

    B) they favour certain provinces over others.

    C) not all items are covered.

    D) it does not permit normal competitive conditions to operate.

    22. Federal and provincial governments use their enormous purchasing power to:

    A) favour Canadian companies

    B) favour foreign suppliers

    C) reduce taxes

    D) force private firms to comply with the laws

    23. In the article, "Help Wanted", one of the current issues with the implementation of a strategy using immigration to grow our Canadian economy is, A) focus on immigrants with strong technical skills which is not the skill set needed in


    B) inefficient government procedures for processing immigration applications results

    in a massive backlog.

    C) willingness of immigrants to settle everywhere in Canada, specifically in remote

    areas where their skills are not needed.

    D) little regulation of immigrants leading to a lack of desire of immigrants to settle in


    24. Ellen wants to start a business. She is leaning toward setting up her company as a sole

    proprietorship, but she is also looking at other possibilities. Ellen has two major goals.

    First, given her limited personal wealth and eagerness to get started, she wants to get her business up and running with the least possible hassle and expense. Second, she wants

    to minimize her personal risk in the event that her company experiences difficulties. If

    Ellen chooses a sole proprietorship, she would:

    A) be able to achieve both goals since this form of ownership is both the easiest to

    form and the least risky.

    B) meet her first goal since sole proprietorships are easy and inexpensive to form.

    However, she would expose herself to a high level of personal risk because owners

    of sole proprietorships have unlimited liability. C) not achieve either goal since proprietorships are both costly to set up and subject to

    unlimited liability.

    D) achieve her second goal, since the owners of sole proprietorships are legally

    protected from losing more than the amount they invest in their company. However,

    she would find that the start-up costs would be higher than if she had incorporated

    her business.

    Page 6

    25. Mara plans to open a shop specializing in foods and cultural items from the Middle East.

    She wants to be the firm's only general partner, but she is trying to get several friends to

    participate as limited partners. Apparently Mara wants to:

    A) limit her personal liability to the amount she personally invests in the company. B) be the only person allowed to share in the firm's profits.

    C) obtain a strong financial base for the firm while maintaining personal control over

    the firm's management.

    D) meet the legal requirements of the Uniform Partnership Act.

    26. Marshall Officer is a stockholder in Endrun Investments, which is organized as a

    corporation. Endrun recently lost a major court decision and will probably be forced

    into bankruptcy. In fact, the damages awarded are so great that, even if all of its assets are sold and the proceeds are used to pay its debts, Endrun is likely to still owe money

    to its creditors. If Endrun does go bankrupt, Marshall and the other stockholders will: A) be personally responsible for all remaining debts.

    B) lose their investment but nothing else.

    C) be entitled to full reimbursement of any investment losses. D) automatically qualify for federal reimbursement for any losses suffered by the firm.

    27. Which of the following statements about buying a franchise is most accurate? A) One of the advantages of buying a franchise is that franchisors are so closely

    regulated that there is virtually no chance for scams to succeed. B) Before purchasing a franchise, the buyer should carefully evaluate the franchise, the

    franchisor, his or her own situation, and the nature of the market. C) Franchise agreements are simple to evaluate, since federal law requires that all such

    agreements must be written in plain English with all fees and terms clearly


    D) Buying a franchise is the simplest and least expensive way to set up a business,

    since the franchisor has already worked out all of the details for setting up and

    running the business.

    28. If you sign a personal guarantee, which a lender happens to exercise to collect on a loan, then,

    A) by asking for legal advise from a certified lawyer, none of your personal assets

    could be seized to repay the loan.

    B) the guarantee is only valid if signed within the last year.

    C) only those personal assets you are willing to have seized, can be taken by the bank. D) any of your personal assets could be seized to repay the loan in full.

    Page 7

    29. In order to resolve conflict within a team,

    A) remember that confrontation is not a fight.

    B) don't spend time on issues, focus your attention on the personalities. C) you should seek outside assistance initially, to speed up the resolve of the conflict.

    D) you need to build the best case possible to justify your position, ignoring the

    position of those you are in conflict with.

    30. As the campaign manager for a candidate for the Canadian Federal Parliament, Pete

    works to learn as much as possible about potential voters. With this information, he

    hopes to focus the campaign on the issues most important to voters. This represents:

    A) the use of marketing by a nonprofit organization. B) a nonprofit application of the production era strategy. C) the selling of a political candidate.

    D) an extension of the profit orientation to a nonprofit organization.

    31. Andre is a real estate agent who has an idea for a software program that will help

    perform real estate appraisals more quickly and more accurately. He has worked with a

    buddy who is good at programming to develop a detailed description of what the

    software will do and how it differs from existing applications. Now Andre has taken this

    description and shown it to a number of fellow real estate agents to see if his idea

    appeals to them. Andre is engaging in:

    A) prototype outsourcing.

    B) test marketing.

    C) concept testing.

    D) word-of-mouth advertising.

    32. Archie just bought a pickup truck with centre armrests that double as laptop

    workstations. What part of the four Ps is his automobile company addressing?

    A) place

    B) promotion

    C) product

    D) price

    33. Which of the following is considered a source of selected secondary information?

    A) focus group

    B) company records

    C) surveys

    D) observation

    Page 8

    34. As part of her responsibilities as a marketing manager, Jan has completed her review of

    data her department has gathered through telephone interviews, mail surveys and focus

    groups. Jan is disappointed because the research results strongly suggest that a product

    idea she helped develop is unlikely to be popular with potential customers. Jan should: A) proceed with product development because the opinions of experienced marketing

    managers often turn out to be more accurate than marketing research. B) accept the research results and reevaluate the proposed product. C) continue developing the product, but try to find ways to reduce production costs. D) put the product on temporary hold, throw out the results of the research, and design

    and conduct new surveys and questionnaires.

    35. Which of the following represents an example of demographic segmentation? A) A firm producing recreational equipment divides its market into groups by region of

    the country, designing different products for people in different parts of the country. B) An automobile manufacturer offers different types of cars designed to appeal to

    different age groups and income levels.

    C) A motion picture company divides its market according to the attitudes and interests

    of its customers, marketing some films to people who enjoy action movies and

    targeting other movies to people who prefer romantic comedies. D) A company that produces food products has designed a special line of easy to

    prepare microwavable meals that are low in low fat and high in fiber to attract

    people interested in the health benefits of the foods they eat.

    36. Which of the following is most consistent with a relationship marketing strategy? A) The development of a web site that seeks customer feedback and allows customers

    to communicate with each other.

    B) The creation of a national advertising campaign using radio and television to

    increase market share.

    C) Designing a promotional campaign to increase cooperation among the firm's


    D) Distributing goods through limited service discount stores.

    37. After years of selling in the consumer market, Dave accepted a job as a salesperson for a firm that markets its products in the B2B market. As he considers his new

    responsibilities, it's likely that he will:

    A) find little difference between buyers in the consumer market and those in the

    business-to-business market.

    B) discover that decision making in the B2B requires salespeople to be little more than

    order takers.

    C) learn that industrial buyers generally require more personal service than buyers in

    the consumer market.

    D) find that B2B buyers tend to purchase more on impulse than consumer buyers.

    Page 9

    38. All of the following statements about the B2B market are true except: A) the markets are often geographically concentrated.

    B) industrial buyers are usually large.

    C) industrial buyers tend to be more rational.

    D) the size of the market is smaller than the consumer market.

    39. The article, "Mind the GAAP", reminds us that when comparing the net income of two

    companies, one reporting using Canadian GAAP and the other using US GAAP, A) there is no difference in the reported net income.

    B) the use of Canadian GAAP will always result in higher reported income than the

    use of US GAAP.

    C) there is no consistent difference when using these different GAAPs. D) the difference in reported net incomes will depend on the current exchange rate

    between Canadian and US currencies.

    40. Sweet Dream Confectioners uses the same ingredients as most other producers of

    chocolate candies. In fact, taste tests suggest that the candy itself, while quite good, isn't

    much better than other well-known brands of chocolate. However, the company wraps

    its candies in expensive looking foil and places them in very attractive boxes. It

    promotes its products in advertisements as "the ultimate in chocolate experience."

    Sweet Dream charges a much higher price than most competitors, but sales continue to

    grow. This success indicates that:

    A) consumers often behave in an irrational manner.

    B) there is more to the total product offer than the physical product. C) consumers seldom consider price when making a buying decision for goods such as


    D) chocolate is best classified as a convenience good.

    41. Which of the following statements about packaging is the most accurate? A) Changes in packaging can improve the product itself and open up large new


    B) Packaging is the least critical element of a firm's promotional strategy. C) Technology has not changed the role of packaging.

    D) Packaging has avoided federal regulations.

    Page 10

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