ACC 213: Chapter Eleven Handouts Multiple Choice 1. Which of the following would
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ACC 213: Chapter Eleven Handouts Multiple Choice 1. Which of the following would not be included in operating assets in return on investment calculations? A) Cash. B) Accounts Receivable. C) Equipment D) Factory building rented to (and occupled by) another company. 2. Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations? A) It is consistent with the computation of net operating income, which includes depreciation as an operating B) It is consistent with the balance sheet presentation of plant and equipment C) It eliminates the age of equipment as a factor in ROI computations. D) It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI 3. Which of the following will not result in an increase in return on investment (ROI), assuming other factors remain the same? A) A reduction in expenses B) An increase in net operating income. C) An increase in operating assets. D) An increase in sales 4. Some investment opportunities that should be accepted from the viewpoint of the entire company may be rejected by a manager who is evaluated on the basis of A) return on investment B) residual income. C) contribution margin D) segment margin. 5. Which of the following would be considered an operating asset in return on investment computations? A) Land being held for plant expansion. B) Treasury stock C) Accounts receivable D) Common stock. 6. All other things equal, which of the following would increase a division's residual Income? A) Increase in expenses. B) Decrease in average operating assets. C) Increase in minimum required return. D) Decrease in net operating income encourages continued expansion by an investment center so long as it ls able to ean a return in excess of the minimurm required return on average operating assets? A) return on investment B) transfer pricing C) the contribution approach D) residual incomeExplanation / Answer
1. D.
2. C.
3. C.
4. A. Return on Investment.
5. C. Accounts Receivable
6. B. Decrease in average operating assets.
7. D. Residual Income.
8. A.
9. C. A Profit Center.
10. D. 2.40 ( Asset Turnover = Sales / Average Operating Assets = $ 16,800,000 / $ 7,000,000 = 2.40)
11. D. 9.6 % ( Net Operating Income = $ 4,480,000 x 40% - $ 1,657,600 = $ 134,400. ROI = $ 134,400 / $ 1,400,000 * 100 = 9.6 %)
12. D. 2.08 ( Combined Asset Turnover = $ ( 10,500,000 + 2,800,000) / $ ( 5,000,000 + 1,400,000) = 2.08 )
13. D. 10 % ( Net Margin = $ 1,400,000 / $ 14,000,000 * 100 = 10 %)
14. A, 12.5 %.
15. D. $ 45,000.
Operating Assets = $ 900,000 / 3 = $ 300,000.
Net operating income = $ 300,000 x 15 % = $ 45,000.
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