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w©2018
Practice wQuiz wSolutions, wModule
w1 1-1
,Financial & Managerial Accounting for MBAs, 5th Edition by Easton, Halsey,
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McAnally, Hartgraves & Morse r wr wr wr
Practice Quiz Solutions w w
Module 1 – Financial Accounting for MBAs
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1. Which of the following organizations does not contribute to the formation of GAAP?
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a. FASB(Financial Accounting Standards Board) w w w
b. IRS (Internal Revenue Service)
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c. AICPA (American Institute of Certified Public Accountants)
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d. SEC (Securities and Exchange Commission)
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wAnswer: b w
2. Rocky Beach reports the following dollar balances in its retained earnings account.
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($ millions)
r 2017 2016
Retained earnings…………. w 8,968.1 8,223.9
During 2017, Rocky Beach reported net income of $1,351.4 million.
w w w w w w w w w w What amount of dividends, if
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wany, did Rocky Beach pay to its shareholders in 2017?
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a. $607.2 million w
b. No dividends paid w w
c. $301.2 million w
d. $744.2 million w
wAnswer: a w
Computation of dividends w w
Beginning retained earnings, 2017............................................................................
w w w $8,223.9
+ Net income .................................................................................................................
w r 1,351.4
– Cash dividends...........................................................................................................
w (?)
= Ending retained earnings, 2017.................................................................................
w w w $8,968.1
Thus, dividends were $607.2 million for 2017.
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Cambridge wBusiness wPublishers,
w©2018 w1-2 Financial w& wManagerial wAccounting wfor wMBAs, w5th
wEdition
,3. At the beginning of a recent year, The Walt Disney Company’s liabilities equaled $26,197
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wmillion. During the year, assets increased by $400 million and year-end assets equaled
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w$50,388 million. Liabilities decreased $100 million during the year.
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What were beginning and ending amounts for Walt Disney’s equity?
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a. $26,197 million beginning equity and $24,291 million ending equity
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b. $23,791 million beginning equity and $27,042 million ending equity
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c. $23,791 million beginning equity and $24,291 million ending equity
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d. $27,042 million beginning equity and $25,183 million ending
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w equity Answer: c
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Using the accounting equation at the beginning of the year:
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Assets($50,388 - $400) w w = Liabilities($26,197) + Equity(?)
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Thus: Beginning Equity
w w = $23,791
w
Using the accounting equation at the end of the year:
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Assets($50,388) = Liabilities($26,197 - $100) + Equity(?) w w w w w
Thus: Ending Equity
w = $24,291
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4. Assume that Starbucks reported net income for a recent year of $564 million.
w w w w w w w w w w w w w Its
wstockholders’ equity is $2,229 million and $2,090 million, respectively.
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Compute its return on equity.
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a. 13.0%
b. 22.8%
c. 26.1%
d. 32.7%
Answer: c w
ROE = Net income / Average stockholders’ equity
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= $564 million / [($2,229 million + $2,090 million) / 2] = 26.1%
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5. Nokia manufactures, markets, and sells phones and other electronics. Assume that Nokia
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reported net income of €3,582 on sales of €34,191 and total stockholders’ equity of €14,576 and
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€14,871, respectively.
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What is Nokia’s return on equity?
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a. 24.3%
b. 42.3%
c. 17.7%
d. 10.5%
Answer: a w
Return on equity is net income divided by the average total stockholders’ equity.
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Nokia’s ROE: €3,582 / [(€14,576 + €14,871) / 2] = 24.3%.
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Cambridge wBusiness wPublishers,
w©2018
Practice wQuiz wSolutions, wModule
w1 1-3
, 6. The total assets of Dell, Inc. equal $15,470 million and its equity is $4,873 million. What is
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wthe amount of its liabilities, and what percentage of financing is provided by Dell’s
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wowners?
a. $20,343 million, 24.0% w w
b. $10,597 million, 31.50% w w
c. $10,597 million, 68.5% w w
d. $20,343 million, 76.0% w w
Answer: b w
w ($millions)
Assets = Liabilities + Equity
$15,470 $10,597 $4,873
Dell receives more of its financing from nonowners ($10,597 million) versus owners ($4,873 million).
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wIts owner financing comprises 31.5% of its total financing ($4,873 million/ $15,470 million).
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7. The total assets of Ford Motor Company equal $315,920 million and its liabilities equal
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w$304,269 million. What is the amount of Ford’s equity and what percentage of financing is
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wprovided by its owners? w w w
a. $ 11,651 million, 3.9%
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b. $620,189 million, 49.1% w w
c. $620,189 million, 50.9% w w
d. $ 11,651 million, 3.7%
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Answer: d w
w ($millions)
Assets = Liabilities + Equity
$315,920 $304,269 $11,651
Ford receives more of its financing from nonowners ($304,269 million) versus owners ($11,651
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wmillion). Its owner financing comprises 3.7% of its total financing ($11,651 million/ $315,920
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wmillion). The relatively low level of equity capital is primarily the result of the fact that Ford is
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wactually a blend of two companies: the automotive manufacturing company and the financial
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wsubsidiary. The financial subsidiary has a balance sheet similar to that of a bank, that is,
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wrelatively little equity capital. The blend of these two operating entities results in a balance sheet
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wthat is more dependent on borrowed funds than would be the case if Ford consisted solely of
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wthe manufacturing company.
w w
Cambridge wBusiness wPublishers,
w©2018 w1-4 Financial w& wManagerial wAccounting wfor wMBAs, w5th
wEdition
