A manufacturing firm ensures its operations strictly comply with local environmental laws and its business is highly profitable. However, it does not engage in any voluntary community development projects or charitable donations, stating that these are not the duties of a business. According to Carroll's Pyramid of Corporate Social Responsibility, which responsibilities is this firm fulfilling? (1) Economic responsibility (2) Legal responsibility (3) Philanthropic responsibility
- A.(1) and (2) only
- B.(1) and (3) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
According to Carroll's Pyramid of Corporate Social Responsibility (CSR), profitable operations represent the economic responsibility, while compliance with environmental laws represents the legal responsibility. Voluntary community development and charitable donations represent the philanthropic responsibility, which the firm explicitly refuses to fulfill. Thus, only (1) and (2) are fulfilled.
Marking scheme
Award 2 marks for the correct answer A. No marks are given for incorrect answers.
Which of the following statements about the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and the Mainland is/are correct? (1) It allows Hong Kong service suppliers to enjoy preferential treatment when setting up businesses in the Mainland. (2) All goods imported from the Mainland into Hong Kong enjoy zero tariff under CEPA. (3) It strengthens economic integration and cooperation between Hong Kong and the Mainland.
- A.(1) and (2) only
- B.(1) and (3) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
(1) and (3) are correct. Statement (2) is incorrect because Hong Kong is already a free port and does not levy import tariffs on goods from any country or region; CEPA's zero-tariff benefit applies to goods of Hong Kong origin entering the Mainland, not goods imported from the Mainland into Hong Kong.
Marking scheme
Award 2 marks for the correct answer B. No marks are given for incorrect answers.
Which of the following are the characteristics of Small and Medium Enterprises (SMEs) in Hong Kong? (1) They are highly flexible and can respond quickly to market changes. (2) They constitute the vast majority of business establishments in Hong Kong. (3) They have easier access to capital markets for equity financing compared to listed companies.
- A.(1) and (2) only
- B.(1) and (3) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
(1) and (2) are key characteristics and contributions of SMEs in Hong Kong. Statement (3) is incorrect because SMEs generally face significant difficulties in obtaining equity financing from public capital markets due to their small scale, lack of historical performance records, and unlisted status.
Marking scheme
Award 2 marks for the correct answer A. No marks are given for incorrect answers.
The owner of a retail business took goods with a cost of \( \$5,000 \) and a selling price of \( \$6,500 \) for his own use. If the business uses a periodic inventory system, the journal entry to record this transaction is:
- A.Debit Drawings \( \$5,000 \); Credit Purchases \( \$5,000 \)
- B.Debit Drawings \( \$6,500 \); Credit Sales \( \$6,500 \)
- C.Debit Drawings \( \$5,000 \); Credit Sales \( \$5,000 \)
- D.Debit Purchases \( \$5,000 \); Credit Drawings \( \$5,000 \)
Worked solution
Goods taken by the owner for personal use (drawings) must be recorded at cost price, which is \( \$5,000 \), because no profit is realized on drawings. Under a periodic inventory system, the double entry is to debit Drawings and credit Purchases to reduce the cost of purchases available for sale.
Marking scheme
Award 2 marks for the correct answer A. No marks are given for incorrect answers.
The following balances were extracted from the books of a trading firm: Sales: \( \$450,000 \); Opening inventory: \( \$30,000 \); Purchases: \( \$280,000 \); Carriage inwards: \( \$8,000 \); Carriage outwards: \( \$12,000 \); Closing inventory: \( \$40,000 \); Returns outwards: \( \$5,000 \). What is the gross profit of the firm?
- A.\$165,000
- B.\$177,000
- C.\$180,000
- D.\$185,000
Worked solution
First, calculate the Cost of Goods Sold (COGS): \( \text{COGS} = \text{Opening Inventory} + \text{Purchases} + \text{Carriage Inwards} - \text{Returns Outwards} - \text{Closing Inventory} = \$30,000 + \$280,000 + \$8,000 - \$5,000 - \$40,000 = \$273,000 \). Then, calculate Gross Profit: \( \text{Gross Profit} = \text{Sales} - \text{COGS} = \$450,000 - \$273,000 = \$177,000 \). Note that Carriage Outwards (\( \$12,000 \)) is a selling expense and is excluded from the calculation of Gross Profit.
Marking scheme
Award 2 marks for the correct answer B. No marks are given for incorrect answers.
Andy and Billy are in partnership, sharing profits and losses in the ratio of \( 3:2 \). The partnership agreement provides for an annual salary of \( \$40,000 \) to Billy and interest on capital at \( 5\% \) per annum. Capital account balances at 1 January 2022 were: Andy: \( \$200,000 \); Billy: \( \$100,000 \). For the year ended 31 December 2022, the partnership's net profit was \( \$120,000 \). What is Billy's total share of profit (including salary, interest on capital, and share of residual profit) for the year?
- A.\$26,000
- B.\$31,000
- C.\$66,000
- D.\$71,000
Worked solution
1. Interest on Capital: Andy: \( \$200,000 \times 5\% = \$10,000 \); Billy: \( \$100,000 \times 5\% = \$5,000 \). Total interest = \( \$15,000 \). 2. Billy's salary = \( \$40,000 \). 3. Residual Profit = \( \text{Net Profit} - \text{Salary} - \text{Total Interest} = \$120,000 - \$40,000 - \$15,000 = \$65,000 \). 4. Billy's share of residual profit = \( \$65,000 \times \frac{2}{5} = \$26,000 \). 5. Billy's total share of profit = \( \text{Salary} + \text{Interest} + \text{Residual Share} = \$40,000 + \$5,000 + \$26,000 = \$71,000 \).
Marking scheme
Award 2 marks for the correct answer D. No marks are given for incorrect answers.
Which of the following statements comparing government bonds and common stocks is/are correct? (1) Bondholders are creditors of the issuer, while common shareholders are owners of the company. (2) In the event of liquidation, the claims of bondholders are settled before those of common shareholders. (3) The interest payments of bonds are legally binding obligations, whereas dividend payments on common stocks are discretionary.
- A.(1) and (2) only
- B.(1) and (3) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
All three statements are correct. Bondholders act as creditors who lend money to the issuer, while common shareholders own equity. In liquidation, creditors' claims (including bondholders) must be fully settled before any residual assets are distributed to shareholders. Furthermore, bond interest represents a contractual and legal liability, whereas dividends are declared at the discretion of the company's board.
Marking scheme
Award 2 marks for the correct answer D. No marks are given for incorrect answers.
A smartphone manufacturer launches a brand-new, highly innovative flagship model. It sets a very high initial price to target tech enthusiasts who are willing to pay a premium. As competitor models enter the market, the company plans to gradually lower the price. What pricing strategy is this company using?
- A.Market penetration pricing
- B.Market skimming pricing
- C.Psychological pricing
- D.Cost-plus pricing
Worked solution
Market skimming pricing involves setting a high initial price to target customers who are less price-sensitive and eager to own the innovative product first ('skimming' the cream of the market). The price is later reduced as competition grows to appeal to broader, more price-sensitive market segments.
Marking scheme
Award 2 marks for the correct answer B. No marks are given for incorrect answers.
Which of the following statements about the '360-degree feedback' performance appraisal method is/are correct? (1) It gathers performance feedback from multiple sources, including supervisors, peers, subordinates, and customers. (2) It helps reduce individual bias that may occur when appraisals are conducted solely by a direct supervisor. (3) It is generally less time-consuming and less costly to implement than traditional top-down appraisals.
- A.(1) only
- B.(1) and (2) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
(1) and (2) are correct. Statement (3) is incorrect because 360-degree feedback involves collecting and analyzing data from multiple evaluators, making it highly complex, more time-consuming, and more costly to coordinate and implement than traditional top-down appraisals.
Marking scheme
Award 2 marks for the correct answer B. No marks are given for incorrect answers.
Which of the following activities of a retail store manager represents the management function of 'Controlling'?
- A.Establishing a new branch in a high-traffic shopping district next year
- B.Motivating sales staff by introducing a new commission scheme
- C.Allocating duties and authorities to different sales supervisors
- D.Comparing actual monthly sales figures against the pre-set targets and taking corrective actions
Worked solution
Controlling involves monitoring performance, comparing actual results with pre-set standards/targets, and taking corrective actions. Thus, Option D represents Controlling. Option A represents Planning, Option B represents Leading (motivating), and Option C represents Organizing.
Marking scheme
Award 2 marks for the correct answer D. No marks are given for incorrect answers.
Question 11 · Multiple-Choice Questions
2 marksThe financial accounts of Joyful Trading for the year ended 31 December 2023 showed: Sales $800,000, Gross profit ratio 25% on cost, Opening inventory $60,000, Closing inventory $80,000, Carriage inwards $12,000, and Carriage outwards $8,000. What was the amount of purchases for the year?
- A.$640,000
- B.$648,000
- C.$608,000
- D.$660,000
Worked solution
1. Cost of sales = Sales / (1 + Markup) = $800,000 / (1 + 0.25) = $640,000. 2. Cost of sales = Opening inventory + Purchases + Carriage inwards - Closing inventory. $640,000 = $60,000 + Purchases + $12,000 - $80,000. $640,000 = Purchases - $8,000. Purchases = $648,000. (Note: Carriage outwards is a selling expense and should not be included in the calculation of cost of sales).
Marking scheme
Award 2 marks for the correct answer B. Award 0 marks for incorrect options (A, C, or D). Option A incorrectly includes carriage outwards in the cost of sales. Option C incorrectly treats the gross profit margin as 25% on sales instead of cost. Option D ignores carriage inwards.
Question 12 · Multiple-Choice Questions
2 marksWhich of the following statements about bonds and equities (stocks) are correct? (1) Bondholders have voting rights in a company's general meetings, while shareholders do not. (2) Bond coupon payments are usually fixed, whereas stock dividends are discretionary and depend on the company's profitability. (3) In the event of liquidation, bondholders have a higher priority claim on the company's assets than ordinary shareholders. (4) Both bonds and equities guarantee the return of principal at maturity.
- A.(1) and (4) only
- B.(2) and (3) only
- C.(1), (2) and (3) only
- D.(2), (3) and (4) only
Worked solution
Statement (1) is incorrect because shareholders have voting rights, whereas bondholders (creditors) do not. Statement (2) is correct because bond coupons are contractual and fixed, while dividends depend on the board's decision and profits. Statement (3) is correct because creditors (including bondholders) are paid before equity owners in liquidation. Statement (4) is incorrect because equities do not have a maturity date and do not guarantee the return of principal.
Marking scheme
Award 2 marks for option B. Award 0 marks for all other options.
Question 13 · Multiple-Choice Questions
2 marksA fast-food chain plans to launch a new mobile ordering app to reduce customer waiting time and improve order accuracy. Which of the following represents the primary role of the Human Resources Department in this collaborative project?
- A.Allocating budgets and conducting cost-benefit analysis for the app development
- B.Designing promotional campaigns and discount coupons for first-time app users
- C.Providing training to front-line staff on how to guide customers to use the app and handle app-related inquiries
- D.Monitoring the daily transaction speed and server stability of the app
Worked solution
The Human Resources Department is responsible for training and development, which includes providing front-line staff with the skills needed to support new technological initiatives. Option A is the financial function. Option B is the marketing function. Option D is the operations/IT function.
Marking scheme
Award 2 marks for option C. Option A, B, and D describe roles of other key business functions.
Question 14 · Multiple-Choice Questions
2 marksAlan and Bob are partners sharing profits and losses in the ratio of 3:2. On 1 January 2023, Candy was admitted into the partnership with a 1/5 share of profits. On that date, the partnership's net assets (excluding goodwill) were revalued upwards by $100,000, and goodwill was valued at $50,000. It was agreed that goodwill was not to be maintained in the books. What is the net adjustment to Bob's capital account?
- A.Credit of $40,000
- B.Credit of $44,000
- C.Credit of $60,000
- D.Credit of $42,000
Worked solution
1. Revaluation surplus share: Bob's share = $100,000 * 2/5 = $40,000 (Cr.). 2. Goodwill adjustment (not maintained): Raise goodwill in old ratio (3:2): Bob's share = $50,000 * 2/5 = $20,000 (Cr.). Write off goodwill in new ratio. The new profit sharing ratio is: Candy = 1/5 = 5/25; Remaining 4/5 is split between Alan and Bob in 3:2, so Alan = 12/25, Bob = 8/25. Bob's write-off share = $50,000 * 8/25 = $16,000 (Dr.). Net goodwill adjustment for Bob = $20,000 (Cr.) - $16,000 (Dr.) = $4,000 (Cr.). 3. Total net adjustment to Bob's capital = $40,000 (Cr.) + $4,000 (Cr.) = $44,000 (Cr.).
Marking scheme
Award 2 marks for option B. Option A only includes the revaluation surplus. Option C is Alan's revaluation share. Option D uses incorrect goodwill calculations.
Question 15 · Multiple-Choice Questions
2 marksOn 5 May 2023, Zenith Company sold goods with a list price of $20,000 on credit to David. A 10% trade discount was given. The payment terms were 2/10, n/30. On 8 May 2023, David returned damaged goods with a list price of $2,000. David settled the outstanding balance on 12 May 2023. What is the cash amount received by Zenith Company on 12 May 2023?
- A.$15,680
- B.$15,876
- C.$16,200
- D.$17,640
Worked solution
1. Net sales invoice price = $20,000 * (1 - 0.10) = $18,000. 2. Value of returns (net of trade discount) = $2,000 * (1 - 0.10) = $1,800. 3. Net outstanding balance before cash discount = $18,000 - $1,800 = $16,200. 4. Since settlement was made within 10 days (from 5 May to 12 May), a 2% cash discount is applicable. Cash received = $16,200 * (1 - 0.02) = $15,876.
Marking scheme
Award 2 marks for option B. Option A is incorrect because it deducts the returns at list price ($2,000) instead of net price ($1,800). Option C is the net balance before cash discount. Option D ignores the trade discount on sales.
Question 16 · Multiple-Choice Questions
2 marksA toy manufacturer voluntarily recalls a batch of products after discovering a minor paint defect that does not violate local safety regulations but might cause skin irritation in highly sensitive children. By doing so, the company is demonstrating social responsibility towards which stakeholder group, and which business practice does this reflect?
- A.Creditors; profit maximization
- B.Customers; going beyond legal compliance
- C.Shareholders; social obligation
- D.Government; legal compliance
Worked solution
The recall is directed towards the users of the product, which are the customers. Since the defect does not violate local safety regulations, the company is voluntarily going beyond legal compliance to ensure customer safety and well-being, demonstrating ethical responsibility.
Marking scheme
Award 2 marks for option B. Award 0 marks for all other options which list incorrect stakeholder groups or ethical categories.
Question 17 · Multiple-Choice Questions
2 marksWhich of the following are major contributions of Small and Medium Enterprises (SMEs) to the economy of Hong Kong? (1) Providing the majority of employment opportunities in the private sector. (2) Serving as a major source of innovation and flexibility in response to market changes. (3) Representing over 98% of the total number of business establishments in Hong Kong. (4) Directly determining the benchmark interest rates in the interbank market.
- A.(1) and (2) only
- B.(3) and (4) only
- C.(1), (2) and (3) only
- D.(1), (2), (3) and (4)
Worked solution
SMEs represent over 98% of business establishments in Hong Kong and employ about 45% of the private sector workforce (constituting the majority of private employment). They are known for high flexibility and innovation. However, they do not determine interbank interest rates, which are determined by financial market forces and banks. Therefore, (1), (2), and (3) are correct.
Marking scheme
Award 2 marks for option C. Options containing (4) are incorrect.
Question 18 · Multiple-Choice Questions
2 marksUnder the Closer Economic Partnership Arrangement (CEPA) between Mainland China and Hong Kong, which of the following benefits is/are enjoyed by Hong Kong businesses? (1) Zero tariff on all goods of Hong Kong origin imported into the Mainland. (2) Complete waiver of corporate income tax for Hong Kong companies operating in the Mainland. (3) Preferential treatment for Hong Kong service suppliers entering the Mainland market.
- A.(1) only
- B.(1) and (3) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
CEPA provides zero tariffs for goods of HK origin (1) and preferential access/market opening for HK service suppliers in various sectors (3). It does not provide any waiver of Mainland corporate income tax for HK companies (2).
Marking scheme
Award 2 marks for option B. Option A is incomplete. Options C and D are incorrect because statement (2) is false.
Question 19 · Multiple-Choice Questions
2 marksMr. Chan plans to deposit $10,000 at the end of each year for 3 consecutive years into a savings account that pays an annual interest rate of 4%, compounded annually. What will be the total accumulated balance in the account at the end of the third year (rounded to the nearest dollar)?
- A.$30,000
- B.$31,200
- C.$31,216
- D.$32,465
Worked solution
This is an ordinary annuity. The total balance at the end of Year 3 is the sum of the future values of the three deposits: 1st deposit (made at the end of Year 1) earns interest for 2 years: $10,000 * (1.04)^2 = $10,816. 2nd deposit (made at the end of Year 2) earns interest for 1 year: $10,000 * 1.04 = $10,400. 3rd deposit (made at the end of Year 3) earns no interest: $10,000. Total accumulated balance = $10,816 + $10,400 + $10,000 = $31,216.
Marking scheme
Award 2 marks for option C. Option A ignores interest. Option B calculates simple interest. Option D is calculated as an annuity due.
Question 20 · Multiple-Choice Questions
2 marksA company purchased a specialized machine for $500,000. Due to rapid technological changes, the market value of the machine dropped to $200,000 by the end of the first year. However, the company is financially stable and plans to use the machine for its entire estimated useful life of 5 years. The accountant records the machine at cost less accumulated depreciation ($400,000) instead of writing it down to its market value of $200,000. Which of the following justifies this treatment?
- A.Historical Cost Concept and Going Concern Assumption
- B.Prudence Concept and Accrual Concept
- C.Consistency Concept and Materiality Concept
- D.Business Entity Concept and Realisation Concept
Worked solution
The Historical Cost Concept states that assets should be recorded at their acquisition cost. The Going Concern Assumption presumes the business will continue to operate for the foreseeable future, justifying carrying the asset at depreciated cost rather than net realizable value (market value) since the company has no intention to liquidate the asset or the business.
Marking scheme
Award 2 marks for option A. Option B, C, and D do not provide the primary justification for keeping long-term assets at depreciated historical cost.
A purchase of office equipment of $12,000 on credit was entered in the Purchases Journal and posted to the purchases account as $21,000. The supplier's account was correctly credited with $12,000. How does this affect the trial balance totals?
- A.The debit total exceeds the credit total by $9,000.
- B.The credit total exceeds the debit total by $9,000.
- C.The debit total exceeds the credit total by $12,000.
- D.The trial balance still agrees.
Worked solution
The debit was recorded as $21,000 in Purchases instead of $12,000 in Equipment, while the credit was correctly recorded as $12,000. Therefore, the debit side total is overstated by \( $21,000 - $12,000 = $9,000 \). This causes the debit total to exceed the credit total by $9,000.
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
Mr. Chan wishes to accumulate $500,000 in 5 years for his child's education. If the bank offers an annual interest rate of 4% compounded annually, how much must he deposit today? (Round to the nearest dollar).
- A.$410,964
- B.$400,000
- C.$411,351
- D.$416,667
Worked solution
Using the Present Value formula: \( PV = FV / (1 + r)^n \). Here, \( FV = $500,000 \), \( r = 0.04 \), and \( n = 5 \). Hence, \( PV = $500,000 / (1.04)^5 = $500,000 / 1.21665 = $410,964 \).
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
Which of the following statements about '360-degree feedback' performance appraisal is/are correct? (1) It collects feedback only from the employee's direct subordinates. (2) It helps reduce individual bias in performance evaluation. (3) It is generally less time-consuming and costly to implement than a traditional top-down appraisal.
- A.(2) only
- B.(1) and (2) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
Statement (1) is incorrect because 360-degree feedback gathers performance data from multiple sources, including supervisors, peers, subordinates, and self-appraisal, not just direct subordinates. Statement (2) is correct because using multiple raters helps to reduce individual rater bias. Statement (3) is incorrect because managing and analyzing feedback from multiple sources is typically more time-consuming and expensive than traditional appraisals.
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
Andy and Bobby are partners sharing profits and losses in the ratio of 3:1. They admitted Cindy into the partnership, and the new profit-sharing ratio is 3:2:1. Goodwill was valued at $60,000, and it was agreed that the goodwill account is not to be maintained in the books. What is the net impact on Bobby's capital account for this goodwill adjustment?
- A.Debited by $5,000
- B.Credited by $5,000
- C.Debited by $15,000
- D.Credited by $15,000
Worked solution
Goodwill to be credited to old partners in old ratio (3:1): Bobby = \( $60,000 \times 1/4 = $15,000 \) (Credit). Goodwill to be debited to all partners in new ratio (3:2:1): Bobby = \( $60,000 \times 2/6 = $20,000 \) (Debit). Net impact on Bobby's capital account: \( $15,000 \text{ Credit} - $20,000 \text{ Debit} = $5,000 \text{ Debit} \).
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
A firm paid $48,000 for a 12-month insurance policy on 1 October 2022. On 1 December 2022, it paid $30,000 for 3 months' rent in advance starting from that date. If the financial year ends on 31 December 2022, what are the total prepayments to be shown in the statement of financial position as of 31 December 2022?
- A.$56,000
- B.$44,000
- C.$62,000
- D.$38,000
Worked solution
Insurance prepayment: For 9 months (1 January 2023 to 30 September 2023) = \( $48,000 \times 9/12 = $36,000 \). Rent prepayment: For 2 months (1 January 2023 to 28 February 2023) = \( $30,000 \times 2/3 = $20,000 \). Total prepayments = \( $36,000 + $20,000 = $56,000 \).
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
Which of the following is an example of a company fulfilling its social responsibility towards its competitors?
- A.Providing clear and accurate product descriptions on packaging.
- B.Offering employees opportunities for professional training and advancement.
- C.Refraining from spreading false rumors about rival companies' products.
- D.Paying taxes on time to the local government.
Worked solution
Refraining from spreading false rumors about rival companies' products represents ethical and fair competition, which is a social responsibility towards competitors. Option A is towards customers, B is towards employees, and D is towards the government/society.
Marking scheme
Award 2 marks for the correct option C. Award 0 marks for any other option.
In Hong Kong, which of the following is/are the characteristic(s) of small and medium enterprises (SMEs)? (1) They have high flexibility in responding to market changes. (2) They usually find it easier to obtain bank loans than large enterprises due to their size. (3) They are defined as manufacturing enterprises employing fewer than 100 persons, or non-manufacturing enterprises employing fewer than 50 persons.
- A.(1) and (3) only
- B.(1) and (2) only
- C.(2) and (3) only
- D.(1), (2) and (3)
Worked solution
Statement (1) is correct as SMEs have smaller, flatter structures and can adapt quickly. Statement (2) is incorrect as SMEs usually struggle to get bank loans due to limited assets for collateral and shorter financial histories. Statement (3) is correct according to the official definition of SMEs by the Hong Kong Trade and Industry Department.
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
Under the Closer Economic Partnership Arrangement (CEPA) between Mainland China and Hong Kong, which of the following benefits is provided to Hong Kong?
- A.Goods of Hong Kong origin exported to Mainland China enjoy zero tariff.
- B.Hong Kong businesses can operate in Mainland China without complying with any Chinese laws.
- C.Hong Kong companies are allowed to set up banks in Mainland China without any capital requirements.
- D.Mainland Chinese authorities will subsidize Hong Kong service providers expanding into China.
Worked solution
Under CEPA, goods of Hong Kong origin exported to Mainland China enjoy zero tariff, which is one of the key pillars of the trade agreement. The other options contain false assertions regarding compliance with local laws, minimum capital requirements, and financial subsidies.
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
The following information is extracted from a company's financial records: Net Sales: $800,000, Cost of Goods Sold: $480,000, Opening Inventory: $55,000, Closing Inventory: $65,000. What is the inventory turnover rate (in times) for the year?
- A.8 times
- B.13.3 times
- C.7.4 times
- D.12 times
Worked solution
Average Inventory = \( ($55,000 + $65,000) / 2 = $60,000 \). Inventory Turnover Rate = Cost of Goods Sold / Average Inventory = \( $480,000 / $60,000 = 8 \) times.
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.
A company is considering a project that requires an initial outlay of $150,000. The project is expected to generate net cash inflows of $60,000, $70,000, and $80,000 at the end of Year 1, 2, and 3 respectively. If the cost of capital is 10%, what is the net present value (NPV) of the project (to the nearest dollar)? (Discount factors at 10%: Year 1 = 0.9091, Year 2 = 0.8264, Year 3 = 0.7513)
- A.$22,498
- B.$60,000
- C.$172,498
- D.-$22,498
Worked solution
PV of cash inflows = \( ($60,000 \times 0.9091) + ($70,000 \times 0.8264) + ($80,000 \times 0.7513) = $54,546 + $57,848 + $60,104 = $172,498 \). NPV = PV of cash inflows - Initial outlay = \( $172,498 - $150,000 = $22,498 \).
Marking scheme
Award 2 marks for the correct option A. Award 0 marks for any other option.