BEC - 4

Question 1

Payback Period

Answer 1

Initial cost of the project divided by the UNDISCOUNTED annual expected net cash flows

Question 2

DuPont ROA

Answer 2

ROA = Net Income / Net Sales x Net Sales / Ave Total Assets

Question 3

Comparative Advantage

Answer 3

Differences in relative OPPORTUNITY COSTS

Question 4

Internal control monitoring is considered

Answer 4

A COMPONENT of internal control

Question 5

Accounting Rate of Return

Answer 5

1. Considers entire life of project

2. Assumes incremental net income is the same each year

Question 6

Valuation for property tax purposes would be concerned with what

Answer 6

The value of the separate taxable assets (not with the value of the entity as a going concern)

Question 7

Rollback and recovery is used mostly in _______ systems.

Answer 7

Online real-time.

Rollback and recovery is an important backup procedure in which periodic snapshots are taken of a master file and, upon detection of a problem, the system reprocesses all transactions that have occurred since the snapshot.

Question 8

Globalco, a U.S. parent, has subsidiaries in Germany (Gerco) and in England (Engco). Gerco produces products that are sent to Engco for final assembly and packaging. Engo then sends the goods to Globalco for retail sales in the U.S. The effective income tax rates faced by each of the companies is:
Globalco 22%
Engco 18%
Gerco 20%
If the objective of transfer prices is to minimize income taxes, which of the following policies, within legally acceptable ranges, should Globalco adopt with respect to the transfer prices?

Answer 8

Minimize transfer price from Gerco to Engco and maximize transfer price from Engco to Globalco.

Since Engco has the lowest tax rate, the lowest income tax would be achieved by the highest income reported by Engco. That would be achieved if Engco had the lowest cost (minimum transfer price from Gerco) and the highest sales price (maximum transfer price to Globalco). Therefore, a minimum transfer price to Engco and a maximum transfer price from Engco would be correct.

Question 9

According to the 17 COSO control principles, organizational objectives primarily relate to which fundamental component of internal control:

Answer 9

Risk assessment.

According to the COSO principles, risk assessment primarily relates to organizational objectives, risk assessment, fraud, and change management. Organizational objectives link to risk assessment since objectives help to define the risks that are to be assessed.

Question 10

This component of internal control concerns the policies and procedures that ensure that actions are taken to address the risks related to the achievement of management’s objectives.

Answer 10

Control activities.

Control activities are, “…the policies and procedures that ensure that actions are taken to address the risks related to the achievement of management’s objectives.”