What is the tax expense that would have been reported on Lally's income statement for the year ended December 31 Year 1?

• A.US $1,560,000
• B.US $1.528.000 C US $1.600.000
  D US $1,568,000

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An entity has 10.000 outstanding shares with a market value of US $25 each. It just paid a US $1 per share dividend. Dividends are expected to grow at a constant rate of 10%. If flotation costs are 5% of the selling price, the cost of new equity financing is calculated by the following formula.

• A.Option A
• B.Option B
• C.Option C
• D.Option D

Correct Answer: C

The cost of new equity is calculated by adding the expected dividend yield, based on the net proceeds of the new issue, to the expected dividend growth rate. The expected dividend at the end of the period equals the dividend at time zero times one plus the expected dividend growth rate. Net proceeds received by the entity when issuing one ordinary share equals the market price of a share times one minus the flotation cost percentage. Flotation costs include items such as underwriting fees. printing, and advertising. The calculation of the cost of new equity is as follows:

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Which of the following phases of a business cycle are marked by an underuse of
resources?
1.The trough.
2.The peak.
3.The recovery.
4.The recession.

• A.2 and 3 only
• B.1 and 4 only
• C.2 and 4 only
• D.1 and 3 only

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KW Ltd. leased equipment under a 4-year non cancelable lease properly classified as a finance learn. The lease does not transfer ownership or contain a bargain purchase option. The equipment had an estimated economic life of 5 years and an estimated residual value of US $20.000. Terms of the lease included a guarantees residual value of US $50,000. KW initially recorded the leased equipment at US $240,000 and its depreciation polity for owned assets is to use the straight-line method. Thus, the amount of depreciation that should be charged each year is:

• A.US $55,000
• B.US $47,500
• C.US $44,000
• D.US $38,000

Correct Answer: B

Depreciation should be consistent with the accounting policy for owned assets. Absent a reasonable certainty that the lessee will own the asset at the end of the lease term, it should be fully depreciated over the shorter of the useful life or the lease term. The lease does not transfer ownership or contain a bargain purchase option. Accordingly, the period of amortization should be the lease term. In accordance with the straight-line method used by KW for owned assets, the depreciable base for this finance lease is equal to the US $240,000 initially recorded minus the US $50,000 guaranteed residual value allocated equally over the 4-year lease term. Consequently, annual depreciation expense is US $47,500 [($24,00,000 - $50,000) - 4 years]. On January 1 Plantation Partners is planning to enter as the lessee into the two lease agreements described in the opposite column. Each lease is noncancelable, and Plantation does not receive title to either leased property during or at the end of the lease term. All payments required under these agreements are due on January 1 each year.

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CORRECT TEXT
Simulation, a widely used technique in decision modeling, is a(n):

• A.Inventory management model that is used to calculate the optimum order quantity.
• B.Technique used to separate costs into fixed and variable portions.
• C.Process of modeling whereby real activities are represented in mathematical or other form.
• D.Technique used to pinpoint random deviations in industrial processes and other repetitive operations.

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