FINANCE
Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiplestep versus a singlestep format. The discussion involves the following 2014 information related to P. Bride Company ($000 omitted).
Administrative expenses


Officers’ salaries

$4,900

Depreciation of office furniture and equipment

3,960

Cost of goods sold

60,570

Rent revenue

17,230

Selling expenses


Transportationout

2,690

Sales commissions

7,980

Depreciation of sales equipment

6,480

Sales

96,500

Income tax

9,070

Interest expense

1,860

Instructions
(a) Prepare an income statement for the year 2014 using the multiplestep form. Common shares outstanding for 2014 total 40,550 (000 omitted).
(b) Prepare an income statement for the year 2014 using the singlestep form. Common shares outstanding for 2014 total 40,550 (000 omitted).
(c) Which one do you prefer? Discuss.
Chapter 5
1) Suppose a corporation can change its depreciation method so that its tax payments will decrease by $5,000 this year but increase by $5,000 next year.
A) The change will have no impact on the value of the company because its cash flow over time will be the same.
B) The change will decrease the value of the company because investors don’t like changes in accounting methods.
C) The change will decrease the value of the company because lower tax payments this year result from lower reported income.
D) The change will increase the value of the company because the value of the cash savings this year exceeds the cost of the cash payments next year.
2) Assuming two investments have equal lives, a high discount rate tends to favor
A) the investment with even cash flow.
B) the investment with large cash flow late.
C) the investment with large cash flow early.
D) neither investment since they have equal lives.
3) Biff deposited $9,000 in a bank account, and 10 years later he closes out the account, which is worth $18,000. What annual rate of interest has he earned over the 10 years?
A) 6.45%
B) 8.00%
C) 10.00%
D) 7.180%
4) How much money do I need to place into a bank account that pays a 1.08% rate in order to have $500 at the end of 7 years?
A) $332.54
B) $751.81
C) $463.78
D) $629.51
5) Auto Loans R Them loans you $24,000 for four years to buy a car. The loan must be repaid in 48 equal monthly payments. The annual interest rate on the loan is 9 percent. What is the monthly payment?
A) $597.24
B) $543.79
C) $563.82
D) $500.55
6) You have contracted to buy a house for $250,000, paying $30,000 down and taking out a fully amortizing loan for the balance, at a 5.7% annual rate for 30 years. What will your monthly payment be if they make equal monthly installments over the next 30 years (to the nearest dollar)?
A) $1,035
B) $1,277
C) $1,189
D) $1,123
7) If Cindy deposits $12,000 into a bank account that pays 6% interest compounded semiannually, what will the account balance be in seven years?
A) 18,151
B) 14,356
C) 16,987
D) 15,555