Chapter 1: Investments
Held-to-maturity securities are reported at what basis on the balance sheet?
Amortized cost
Describe the difference between a cost leadership and product differentiation strategy
Cost leadership strategies are companies that are price-driven, where there are easily available substitutes. An example is gas stations. Product differentiation refers to competitors that are emphasizing something unique about their product, such as Lexus autos.
Which discount rate will produce the smallest present value?
a. 2%
b. 6%
c. 8%
d. Not possible to determine without cash flows
c. 8%
What is causing unrest in today's stock market?
Tarriffs
Fed direction
Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. What is the journal entry Koehn should make to record a cash dividend received from Sells?
DR Cash
CR Investment in Sells
Leah's sells pizzas delivered within 5 minutes to college campuses. Describe a substitute using the theory of Porter's 5 Forces
A substitute would be other fast food (such as tacos) delivered quickly to college campuses.
Collum is considering trading in an old machine and purchasing a new one for $248,600. Data related to the investment is:
Cash flows:
Year 1 $139,000, Year 2 $143,000, Year 3 $131,000 Year 4: $136,000
Salvage values: Old equipment: $24,500, New equipment $27,500
Initial investment in working capital: $15,000
What is the payback for the new machine?
1.7 years
Investment: Machine $248,600 + working capital $15,000 = $(263,600 total) cash out
Year 0: Salvage old machine $24,500
Year 1: Cash flow $139,000
Balance end of year 1: (100,100)
/ proceeds year 2 $143,000
= Portion of year 2 .7
1.7 years
Who won the NCAA basketball tournament this year?
FLORIDA GATORS
On January 3, 2024, Moss Company acquires $500,000 of Adam Company’s 10-year, 10% bonds for $532,090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. If Moss uses the effective-interest method, what amount of interest revenue would be recognized in 2025 for these bonds?
$47,698; see excel computation
Danny is completing the balanced scorecard for his company, an investment management firm. Name two measure he might use in the Internal Business Processes quadrant
- Average time to complete trades
- Number of days to onboard new customers
- Average length of time between customer calls and wealth advisor contact
- Number of statements incorrectly prepared
A project has a profitabiltiy index of 1.38. The project's present value of future cash flows is $23,250. The company has a discount rate of 12%. What was the initial investment?
$16,248
Index = PV of future cash flows/initial investment
$23,250/X = 1.38
X = $16,248
Who is the newly elected Pope?
Pope Leo XIV
from America
Rich, Inc. acquired 30% of Doane Corporation's voting stock on January 1, 2025 for $1,000,000. In 2025, Doane earned $400,000 and paid dividends of $250,000. In 2026, Doane earned $500,000 and paid cash dividends of $150,000 on April 1 and $150,000 on October 1. On July 1, 2026, Rich sold half of its stock in Doane for $660,000 cash. The carrying amount of this investment reported in Rich's December 31, 2025 balance sheet is
$1,045,000
See excel
What does a SWOT analysis refer to and describe its use
Strengths, Weaknesses, Opportunities, Threats
Used during strategic planning
Super Industries is considering investing in a machine with a 5 year life with the following characteristics:
Initial investment: $500,000
Additional investment in working capital $10,000
Cash flows before taxes years 1 to 5: $140,000
Yearly depreciation: $90,000
Tax rate: 30%
What is the after tax cash flow in year 2?
$125,000
See excel
Name the Big 4
PWC, KPMG, EY, Deloitte
As of December 31, 2024, the Fair Value Adjustment account had a debit balance of $2,500. On January 1, 2025, Alpha Corp. sold all its security investments and purchased other available-for-sale (AFS) debt securities for $100,000. By December 31, 2025, the fair value of these securities had declined to $92,000. What journal entry should Alpha make at December 31, 2025, if any?
DR Other comprehensive income $10,500
CR Fair value adjustment $10,500
See excel
John is creating a strategy for his new technology company start-up. He will be selling consulting services regarding artificial intelligence. Describe a potential vision and mission statement
Vision: Very high level
Be the #1 provider of AI consulting services in the Southeast
Mission: More specific
Be the #1 provider of AI consulting to accountants and attorneys with revenues under $10MM in the Florida market
WhiteCare Dry Cleaning has decided they need to open an additional facility. The information for the additional facility is as follows:
Cost $550,000
Additional operating costs per year (Excluding depreciation) 21,000
Additional revenues per year 45,000
Salvage value $400,000
Useful life 15 years
Tax rate 21%
What is the accrual accounting rate of return?
2.01%
see excel
Who is the chair of the Federal Reserve? What does he/she do?
Jerome Powell, sets federal borrowing rate among other responsibilities