After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to:

After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to:

A) write the report.
B) decide the materiality for each condition.
C) decide the appropriate type of report for the condition.
D) discuss the report with management.
Answer
B) decide the materiality for each condition.

If there is a deviation in the statements' preparation in accordance with GAAP and another accounting principle was applied on a basis that was not consistent with that of the preceding year:

A) the auditor must choose which modification to include in the audit report.
B) only the most material modification can be disclosed.
C) more than one modification should be included in the report.
D) none of the above.
 Answer
 C) more than one modification should be included in the report.

When there is a justified departure from GAAP which is considered material, the auditor should issue a(n): A) standard unqualified audit report.

B) disclaimer of opinion.
C) unqualified audit report with an explanatory paragraph.
D) adverse opinion.
Answer
 C) unqualified audit report with an explanatory paragraph.

More than one modification should be included in the audit report when:

A) the auditor is not independent and the auditor knows that the company has not followed generally accepted accounting principles.
B) there is substantial doubt about the going concern of the company and information about the causes of the uncertainties is not adequately disclosed in the footnotes.
C) there is a scope limitation and there is substantial doubt about the company's ability to continue as a going concern.
D) all of the above.
Answer
 D) all of the above.

In most audits, the auditor issues a:

A) qualified audit report.
B) unqualified audit report.
C) scope limited audit report.
D) adverse audit report.
Answer
B) unqualified audit report.

The first step to be followed when deciding the appropriate audit report in a given set of circumstances is to:

A) decide the appropriate type of report for the condition.
B) write the report.
C) determine whether any conditions exists requiring a departure from a standard unqualified report.
D) decide the materiality for each condition.
Answer
 C) determine whether any conditions exists requiring a departure from a standard unqualified report.

When accounting principles are not consistently applied, and the materiality level is immaterial, the auditor will issue a(n):

A) unqualified opinion.
B) unqualified opinion with an explanatory paragraph. C) adverse opinion.
D) disclaimer opinion
Answer
A) unqualified opinion.

After the balance sheet date but prior to issuance of the auditor's report the auditor learns that the client's facility in a foreign country has been expropriated. Management refuses to disclose this information in a financial statement footnote or present pro-forma data as to the effect of the event. The auditor should:

A) add a footnote to the financial statements.
B) disclaim an opinion due to the client imposed scope limitation.
C) provide the information in the report and modify the opinion.
D) issue an unqualified opinion but provide the information in the auditor report.
Answer
 C) provide the information in the report and modify the opinion.

When an adverse opinion is issued, a scope paragraph would be:

A) qualified.
B) unchanged.
C) deleted.
D) expanded to identify the additional procedures which the auditor performed.
Answer
 B) unchanged.

For the report containing a disclaimer for lack of independence, the disclaimer is in the:

A) second or scope paragraph.
B) third or opinion paragraph.
C) first and only paragraph.
D) fourth or explanatory paragraph.
Answer
 C) first and only paragraph.

Holdup Bank has an issue of preferred stock with a $4.95 stated dividend that just sold for $86 per share. What is the bank’s cost of preferred stock?

Holdup Bank has an issue of preferred stock with a $4.95 stated dividend that just sold for $86 per share. What is the bank’s cost of preferred stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation:

The cost of preferred stock is the dividend payment divided by the price, so:

RP = $4.95/$86

RP = .0576, or 5.76%

The Rhaegel Corporation’s common stock has a beta of 1.9. If the risk-free rate is 5 percent and the expected return on the market is 12 percent, what is the company’s cost of equity capital?

The Rhaegel Corporation’s common stock has a beta of 1.9. If the risk-free rate is 5 percent and the expected return on the market is 12 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation:

Here we have information to calculate the cost of equity using the CAPM. The cost of equity is:

RE = .05 + 1.9(.12 – .05)

RE = .1830, or 18.30%

Suppose Stark Ltd. just issued a dividend of $1.92 per share on its common stock. The company paid dividends of $1.50, $1.65, $1.72, and $1.83 per share in the last four years.

Suppose Stark Ltd. just issued a dividend of $1.92 per share on its common stock. The company paid dividends of $1.50, $1.65, $1.72, and $1.83 per share in the last four years.

a.	If the stock currently sells for $40, what is your best estimate of the company’s cost of equity capital using the arithmetic average growth rate in dividends? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a.	What if you use the geometric average growth rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation:

To use the dividend growth model, we first need to find the growth rate in dividends. So, the increase in dividends each year was:

g1 = ($1.65 – 1.50)/$1.50 = .1000, or 10.00%

g2 = ($1.72 – 1.65)/$1.65 = .0424, or 4.24%

g3 = ($1.83 – 1.72)/$1.72 = .0640, or 6.40%

g4 = ($1.92 – 1.83)/$1.83 = .0492, or 4.92%

So, the average arithmetic growth rate in dividends was:

g = (.1000 + .0424 + .0640 + .0492)/4

g = .06389, or 6.389%

Using this growth rate in the dividend growth model, we find the cost of equity is:

RE = [$1.92(1.06389)/$40] + .06389

RE = .1150, or 11.50%

Calculating the geometric growth rate in dividends, we find:

$1.92 = $1.50(1 + g)4

g = .06366, or 6.366%

The cost of equity using the geometric dividend growth rate is:

RE = [$1.92(1.06366)/$40] + .06366

RE = .1147, or 11.47%

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 27 years to maturity that is quoted at 92 percent of face value. The issue makes semiannual payments and has an embedded cost of 7 percent annually.

Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 27 years to maturity that is quoted at 92 percent of face value. The issue makes semiannual payments and has an embedded cost of 7 percent annually.
a.   
What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b.    If the tax rate is 25 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation:

The pretax cost of debt is the YTM of the company’s bonds, so:

P0 = $920 = $35(PVIFAR%,54) + $1,000(PVIFR%,54)

R = 3.854%

YTM = 2 × 3.854% = 7.71%

And the aftertax cost of debt is:

RD = .0771(1 – .25)

RD = .0578, or 5.78%

Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt.

Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity is 12 percent, the cost of preferred stock is 8 percent, and the pretax cost of debt is 9 percent. The relevant tax rate is 24 percent.

a.	What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation:

a.

Using the equation to calculate the WACC, we find:

WACC = .60(.12) + .05(.08) + .35(.09)(1 – .24)

WACC = .0999, or 9.99%

b.

The aftertax cost of debt is:

RD = .09(1 – .24)

RD = .0684, or 6.84%

Hence, on an aftertax basis, debt is cheaper than the preferred stock.

The following information pertains to Roku's initial public offering:

The following information pertains to Roku's initial public offering:

times•    Roku's initial public offering (IPO) was on September 28, 2017

times•    Issued 15,900,000 shares; $13.80 per share

times•    Net cash proceeds $219,420,000

times•    Par value per share $0.0001

Roku's IPO has a direct impact on its net income.

A. True

B. False

If stock is issued for an asset other than cash, the asset should be recorded on the books of the corporation at:

A.
Cost

B.
Par value of the stock

C. Fair market value

D.
Zero

Hudson Corporation issued 7,000 shares of its $5 par value common stock in payment for attorney services of $ 45,000. Hudson stock has been actively trading at $ 16 per share. This transaction would include a:

A. Credit to common stock $ 45 comma 000
B. Debit to legal expense $ 112 comma 000
C. Credit to common stock $ 112 comma 000
D.Debit to legal expense $ 45 comma 000

The following information pertains to Roku's initial public offering:

times•    Roku's initial public offering (IPO) was on September 28, 2017

times•    Issued 15,900,000 shares; $13.80 per share

times•    Net cash proceeds $219,420,000

times•    Par value per share $0.0001

What is the stock issuance impact on Roku's balance sheet?

A.
Assets remain the same, liabilities remain the same, stockholders' equity increases

B. Assets increase, liabilities remain the same, stockholders' equity increases

C.
Assets increase, liabilities decrease, stockholders' equity increases

D.
Assets decrease, liabilities remain the same, stockholders' equity increases

The statement of stockholders' equity includes:

A. Each stockholders' equity account

B.
Each liability account

C.
Each asset account

D.
Each revenue and expense account

The date when a cash dividend becomes a legal obligation is on the:

A. Declaration date

B.
Payment date

C.
Last day of the corporate year

D.
Date of record

The effect of the declaration of a cash dividend is a(n):

A.
Increase to stockholders' equity and a decrease to assets

B. Increase to liabilities and a decrease to stockholders' equity

C.
Increase to assets and a decrease to liabilities

D.
Increase to liabilities and a decrease to assets

When 50 shares of $1 par value Common Stock are issued at $28 per share, Additional Paid-in Capital will:

A.
Stay the same

B.
Increase by $ 1 comma 400$1,400

C.
Increase by $ 50$50

D. Increase by $ 1 comma 350

Which of the following is NOT considered to be an advantage of forming a corporation?

A. Government regulation

B.
Continuous life

C.
Limited liability of stockholders for corporation's debts

D.
Ability to raise more capital than a partnership or proprietorship

The right to maintain​ one's proportionate ownership in the corporation is the right of preemption .

Complete each of the following statements with one of the terms listed here.

Board of directors	Charter	Common stock
Corporation	Legal capital	Limited liability
Liquidation	Par value	Preemption
Preferred stock	Retained earnings	Stockholders' equity

a.	The right to maintain​ one's proportionate ownership in the corporation is the right of preemption .

b.	The right to receive a proportionate share of any assets remaining after the corporation goes out of​ business, sells its​ assets, and pays off its liabilities is the right of liquidation .

c.	The​ stockholders' ownership interest in the assets of the corporation is called stockholders' equity .

d.	Limited liability is the legal concept that means stockholders can lose no more than the cost of their investment in the company.

e.	The authorization from the state to issue a certain number of shares of stock is granted through the​ corporation's charter .

f.	The arbitrary amount assigned to each share of stock when it is originally authorized is its par value .

g.	Preferred stock is a hybrid form of capital stock resembling both equity and debt that pays a fixed dividend.

h.	Common stock is the basic form of capital stock.

i.	The board of directors is elected by stockholders.

j.	The business entity formed under state law that has a separate legal identity from its owners is a corporation .

k.	The total of the par value of all of the shares issued is the​ corporation's legal capital .

l.	Retained earnings represents the amount of​ stockholders' equity that the corporation has earned through profitable operations less any dividends declared.