1.A. Accounting cost theoryB. Diffusion theoryC. Transaction cost theoryD. Agency theory2. The theory concerning the cost of managing and supervising a firm is calledis when firms seek to economize on transaction costs.A. Accounting cost theoryB. Diffusion theoryC. Transaction cost theoryD. Agency theory3. The most common reason for failure of large projects is due toA. Organizational and political resistanceB. UncertaintyC. Inability to acquire resourcesD. Culture and routine4. Which of the following is NOT one of Porter's competitive forcesA. CustomersB. SuppliersC. New market entrantsD. Interest rates5. Which of the following is NOT a strategy for dealing with Porter's competitive forces?A. Traditional competitorsB. Low cost leadershipC. Focus on market nicheD. Product differentiation

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Answered: 1. A. Accounting cost theory B.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. What are the two fundamental types of business transactions? How are they interconnected and how can each type of transaction affect the other? 2. What is the difference between solvency and financial capacity? How are the two interrelated? 3. Which is more relevant in determining the company's well-being: activity ratios or solvency ratios? 4. What are the advantages and disadvantages, to a business, of taking on additional leverage? 5. Which is more relevant in interpreting and analyzing a company's financial position: ratio analysis or absolute analysis? What is the difference between the two? 6. Why are forecasting and budgeting so important? What is the difference between the two? 7. How is managing the financial resources of a not-for-profit organization different from overseeing a for-profit entity? In your mind, which is more difficult to manage?
Which of the following statements regarding responsibility accounting systems is true? O Residual income is best used when evaluating the performance of profit centers rather than investment centers. An advantage of using return on investment to evaluate performance is that it encourages managers to increase both operating assets and operating income. O The use of residual income as a performance measure may lead segment managers to reject investments in projects that would be favorable for the company as a whole. O Residual income is a less effective metric for evaluating performance if there are significant differences in the size of the operating segments. O None of the above statements is true.
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Under which of the following conditions could the overuse of financial leverage be detrimental to the firm? Multiple Choice In a stable industry. When there is cyclical demand for the firm's products. During an upswing in the business cycle. When there is low interest cost compared to return on assets.
Criticisms of return on investment as the only performancemeasure include:a. ROI focuses on short-term decisions.b. ROI is focused on only one component of the value chain.c. Managers evaluated based only on ROI are sometimesmotivated not to make an investment that is in the bestinterest of the organization as a whole.d. All of the above.
agency costs may occur if A. Managers make decisions for their own best interest B. Managers may not attempt to maximize the value of the firm to shareholders C. The board does not properly oversee the activities and decisions of managers D.all of the above
Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement. Required: Critically evaluate the methods that can be adopted to manage and achieve the efficient control of inventories and gain the resulting benefits for improving cashflow and ultimately profit in a business.
1. Which of the following is an example of qualitative factors that can effect investment decisions? Select one: a. All of the choices b. Over time, how will the quality of goods produced impact the company financially? c. How will any changes affect worker productivity? Will they have any impact on employee morale? d. How will the proposed acquisition or upgrade affect the company’s flexibility?
The reduction in profit arising from the actions of managers being self-serving or possible conflict of interest can best be attributed to.…........….….. • A. Agency cost • B. Tangible expense • C. Agency theory • D. Agency problem
Among the best things to do to maintain firm value is to: a. Improve sales at all costs b. Spend as much as possible on public relations and marketing C. Economize on employee training programs d. In so far as possible, make costs reactive to sales e. Wait until the last moment to pay bills
The term strategic management accounting involves: Select one: O A. The identification, measurement and communication of cost data in all those situations where the organisation is being judged against the performance of competitors OB. The identification of inefficient internal operations O C. The preparation of historic financial accounts O D. a) and b) above
Agency theory suggests that one way to motivate managers to act in the best interests of the owners/shareholders is to link managerial compensation to firms' payoffs, such as net income or share returns. However, such a linkage imposes risk on the manager. Required: (1) Why is it important to control or reduce some of the risk thus imposed on managers? Explain. Discuss two methods by which risk imposed on the managers could be reduced.

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