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402_06_income_concepts_09

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 
When using input prices to measure income under a capital maintenance approach, which of the following input prices could be considered?

               Historical                    Current
             input prices                  input prices
a.
            yes                                no.
b.
            yes                              yes.
c.
             no                                no.
d.
             no                               yes.
 

 2. 
An example of an Internal transaction would be:
a.
purchase of goods and services for cash
b.
the reflect of the accrual of contractual obligations
c.
sales of goods and services on account
d.
collections of receivables
 

 3. 
Examples of external transactions would not include:
a.
selling products on credit
b.
purchasing products for cash
c.
the amortization of an intangible asset
d.
collecting accounts receivable
 
 
You have been offered a business proposition that will provide you with cash receipts over a 4 year time span, at the end of each year, in the following amounts:

cash flows
  
interest factors at 6%
Year
Amount
  
PV of $1
FV of $1
PV of an ordinary annuity of $1
FV of an ordinary annuity of $1
2007
600
  
.94
1.06
.94
1.00
2008
400
  
.89
1.12
1.83
2.06
2009
1,000
  
.84
1.19
2.67
3.18
2010
300
  
.79
1.26
3.47
4.38

You desire a 6% return on any investment that you make.
 

 4. 
Refer to the above data: Using the factors given above for 6%, what is the maximum amount that you are willing to pay to purchase these 4 cash receipts?
a.
$2,652
b.
$1,896
c.
$1,997
d.
$2,300
 

 5. 
Assume you purchased the above mentioned cash flows:  How much income would you earn for the first year, 2007? ( to the closest number; rounding factors will cause rounding differences)
a.
$  600
b.
$    36
c.
$  151
d.
$  120
 

 6. 
Assume you purchased the above mentioned cash flows:  Each year when you receive the cash receipt, the amount represents:
a.
a return on the investment.
b.
a return of some of the investment.
c.
both a return on and a return of the investment.
d.
the income for the year.
 

 7. 
A major difficulty of applying the capital maintenance concept revolves around the:
a.
recognition process
b.
realization process
c.
regulation process
d.
measurement process
 

 8. 
Measuring the change in the net assets from beginning to end of a period, after adjusting for capital transactions,
a.
is equal to the change in owners’ equity for the period.
b.
reflects a transactions approach to income determination
c.
is a measure of the liquidity of the firm.
d.
represents the income for the period.
 

 9. 
Which of the following events and transactions of a firm affecting income determination would normally not involve an outside party when they occur:

                        Internal                 External
                         Events                 Transactions
a.
                   yes                         no
b.
                  yes                          yes
c.
                   no                           no
d.
                   no                           yes
 

 10. 
All capital maintenance approaches to income measurement involve
 
a.
a measurement of net assets of a firm at the beginning and end of a period.
b.
the use of discounted cash flow techniques.
c.
a determination of revenues and expenses.
d.
application of the matching principle.
 



 
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