FINANCE and ACCOUNTING: ACCG 350 Online: Questions and Answers

FINANCE and ACCOUNTING: ACCG 350 Online: Questions and Answers

Question 569  personal tax

The average weekly earnings of an Australian adult worker before tax was $1,542.40 per week in November 2014 according to the Australian Bureau of Statistics. Therefore average annual earnings before tax were $80,204.80 assuming 52 weeks per year. Personal income tax rates published by the Australian Tax Office are reproduced for the 2014-2015 financial year in the table below:

Taxable income           Tax on this income

0 – $18,200     Nil

$18,201 – $37,000      19c for each $1 over $18,200

$37,001 – $80,000      $3,572 plus 32.5c for each $1 over $37,000

$80,001 – $180,000    $17,547 plus 37c for each $1 over $80,000

$180,001 and over      $54,547 plus 45c for each $1 over $180,000

The above rates do not include the Medicare levy of 2%. Exclude the Medicare levy from your calculations

How much personal income tax would you have to pay per year if you earned $80,204.80 per annum before-tax?

 (a) $36,092.16

 (b) $29,675.78

 (c) $21,185.56

(d) $17,622.78

 (e) $3,638.56

Question 633  personal tax

In 2014 the median starting salaries of male and female Australian bachelor degree accounting graduates aged less than 25 years in their first full-time industry job was $50,000 before tax, according to Graduate Careers Australia. See page 9 of this report. Personal income tax rates published by the Australian Tax Office are reproduced for the 2014-2015 financial year in the table below.

Taxable income           Tax on this income

0 – $18,200     Nil

$18,201 – $37,000      19c for each $1 over $18,200

$37,001 – $80,000      $3,572 plus 32.5c for each $1 over $37,000

$80,001 – $180,000    $17,547 plus 37c for each $1 over $80,000

$180,001 and over      $54,547 plus 45c for each $1 over $180,000

The above rates do not include the Medicare levy of 2%. Exclude the Medicare levy from your calculations

How much personal income tax would you have to pay per year if you earned $50,000 per annum before-tax?

 (a) $6,042

(b) $7,797

 (c) $9,614

 (d) $18,500

 (e) $22,500

Question 449  personal tax on dividends, classical tax system

A small private company has a single shareholder. This year the firm earned a $100 profit before tax. All of the firm's after tax profits will be paid out as dividends to the owner.

The corporate tax rate is 30% and the sole shareholder's personal marginal tax rate is 45%.

The United States' classical tax system applies because the company generates all of its income in the US and pays corporate tax to the Internal Revenue Service. The shareholder is also an American for tax purposes.

What will be the personal tax payable by the shareholder and the corporate tax payable by the company?

 (a) Personal tax of $6.43 and corporate tax of $45.

(b) Personal tax of $15 and corporate tax of $30.

 (c) Personal tax of $16.5 and corporate tax of $45.

(d) Personal tax of $31.5 and corporate tax of $30.

 (e) Personal tax of $45 and corporate tax of $0.

Question 448  franking credit, personal tax on dividends, imputation tax system

A small private company has a single shareholder. This year the firm earned a $100 profit before tax. All of the firm's after tax profits will be paid out as dividends to the owner.

The corporate tax rate is 30% and the sole shareholder's personal marginal tax rate is 45%.

The Australian imputation tax system applies because the company generates all of its income in Australia and pays corporate tax to the Australian Tax Office. Therefore all of the company's dividends are fully franked. The sole shareholder is an Australian for tax purposes and can therefore use the franking credits to offset his personal income tax liability.

What will be the personal tax payable by the shareholder and the corporate tax payable by the company?

 (a) Personal tax of $6.43 and corporate tax of $45.

(b) Personal tax of $15 and corporate tax of $30.

 (c) Personal tax of $16.5 and corporate tax of $45.

 (d) Personal tax of $31.5 and corporate tax of $30.

 (e) Personal tax of $45 and corporate tax of $0.

Question 469  franking credit, personal tax on dividends, imputation tax system, no explanation

A firm pays a fully franked cash dividend of $70 to one of its Australian shareholders who has a personal marginal tax rate of 45%. The corporate tax rate is 30%.

What will be the shareholder's personal tax payable due to the dividend payment?

 (a) $13.50

(b) $15.00

 (c) $30.00

 (d) $31.50

(e) $45.00

Question 494  franking credit, personal tax on dividends, imputation tax system

A firm pays a fully franked cash dividend of $100 to one of its Australian shareholders who has a personal marginal tax rate of 15%. The corporate tax rate is 30%.

What will be the shareholder's personal tax payable due to the dividend payment?

(a) -$21.4286

 (b) -$7.563

 (c) $15

 (d) $21.4286

 (e) $78.5714

tax system, no explanation

Which of the following statements about Australian franking credits is NOT correct? Franking credits:

 (a) Refund the corporate tax paid by companies to their individual shareholders. Therefore they prevent the double-taxation of dividends at the corporate and personal level.

(b) Are distributed to shareholders together with cash dividends.

 (c) Are also called imputation credits.

(d) Are worthless to individuals who earn less than the tax-free threshold because they have a zero marginal personal tax rate.

 (e) Are worthless to individual shareholders who are foreigners for tax purposes.

Question 443  corporate financial decision theory, investment decision, financing decision, working capital decision, payout policy

Business people make lots of important decisions. Which of the following is the most important long term decision?

(a) Investment decision.

 (b) Financing decision.

 (c) Working capital decision.

 (d) Payout policy decision.

 (e) Capital or labour decision.

Question 444  investment decision, corporate financial decision theory

The investment decision primarily affects which part of a business?

(a) Assets.

 (b) Liabilities and owner's equity.

 (c) Current assets and current liabilities.

 (d) Dividends and buy backs.

 (e) Net income, also known as earnings or net profit after tax.

Question 445  financing decision, corporate financial decision theory

The financing decision primarily affects which part of a business?

 (a) Assets.

(b) Liabilities and owner's equity.

(c) Current assets and current liabilities.

 (d) Dividends and buy backs.

 (e) Net income, also known as earnings or net profit after tax.

Question 446  working capital decision, corporate financial decision theory

The working capital decision primarily affects which part of a business?

 (a) Assets.

 (b) Liabilities and owner's equity.

(c) Current assets and current liabilities.

 (d) Dividends and buy backs.

 (e) Net income, also known as earnings or net profit after tax.

Question 447  payout policy, corporate financial decision theory

Payout policy is most closely related to which part of a business?

 (a) Assets.

 (b) Liabilities and owner's equity.

 (c) Current assets and current liabilities.

(d) Dividends and buy backs.

 (e) Net income, also known as earnings or net profit after tax.

Question 514  corporate financial decision theory, idiom

The expression 'cash is king' emphasizes the importance of which business decision?

(a) Investment decision.

 (b) Financing decision.

(c) Working capital decision.

 (d) Payout policy decision.

 (e) Capital or labour decision.

Question 515  corporate financial decision theory, idiom

The expression 'you have to spend money to make money' relates to which business decision?

 (a) Investment decision.

 (b) Financing decision.

 (c) Working capital decision.

 (d) Payout policy decision.

 (e) Capital or labour decision.

Question 516  corporate financial decision theory

Which of the following decisions relates to the current assets and current liabilities of the firm?

 (a) Investment decision.

 (b) Financing decision.

 (c) Working capital decision.

 (d) Payout policy decision.

 (e) Capital or labour decision.

Question 767  idiom, corporate financial decision theory, no explanation

The sayings "Don't cry over spilt milk", "Don't regret the things that you can't change" and "What's done is done" are most closely related to which financial concept?

 (a) Competition.

(b) Opportunity costs.

 (c) Separation of the investment and financing decisions.

 (d) Diversification.

(e) Sunk costs.

Question 768  accounting terminology, book and market values, no explanation

Accountants and finance professionals have lots of names for the same things which can be quite confusing.

Which of the following groups of items are NOT synonyms?

 (a) Revenue, sales, turn over.

 (b) Paid up capital, contributed equity.

 (c) Shares, stock, equity.

 (d) Net income, earnings, net profit after tax, the bottom line.

(e) Market capitalisation of equity, book value of equity.

Question 729  book and market values, balance sheet, no explanation

If a firm makes a profit and pays no dividends, which of the following accounts will increase?

 (a) Asset revaluation reserve.

 (b) Foreign currency translation reserve.

(c) Retained earnings, also known as retained profits.

 (d) Contributed equity, also known as paid up capital.

 (e) General reserve.

Question 737  financial statement, balance sheet, income statement

Where can a publicly listed firm's book value of equity be found? It can be sourced from the company's:

(a) Income statement

(b) Balance sheet

 (c) Cash flow statement

 (d) Stock exchange data

 (e) It's not published, it can only be estimated using multiples or discounted cash flow methods.

Question 738  financial statement, balance sheet, income statement

Where can a private firm's market value of equity be found? It can be sourced from the company's:

(a) Income statement

 (b) Balance sheet

 (c) Cash flow statement

 (d) Stock exchange data.

(e) It's not published, it can only be estimated using multiples or discounted cash flow methods.

Question 531  bankruptcy or insolvency, capital structure, risk, limited liability

Who is most in danger of being personally bankrupt? Assume that all of their businesses' assets are highly liquid and can therefore be sold immediately.

 (a) Alice has $6,000 cash, owes $10,000 credit card debt due immediately and 100% owns a sole tradership business with assets worth $10,000 and liabilities of $3,000.

 (b) Billy has $10,000 cash, owes $6,000 credit card debt due immediately and 100% owns a corporate business with assets worth $3,000 and liabilities of $10,000.

 (c) Carla has $6,000 cash, owes $10,000 credit card debt due immediately and 100% owns a corporate business with assets worth $10,000 and liabilities of $3,000.

(d) Darren has $10,000 cash, owes $6,000 credit card debt due immediately and 100% owns a sole tradership business with assets worth $3,000 and liabilities of $10,000.

 (e) Ernie has $1,000 cash, lent $3,000 to his friend, and doesn't have any personal debt or own any businesses.

Question 524  risk, expected and historical returns, bankruptcy or insolvency, capital structure, corporate financial decision theory, limited liability

Which of the following statements is NOT correct?

 (a) Stocks are higher risk investments than debt.

 (b) Stocks have higher expected returns than debt.

(c) Firms' past realised stock returns are always higher than their past realised debt returns.

 (d) In the event of bankruptcy, stock holders are paid after debt holders are fully paid.

(e) Stock holders have a residual claim on the firm's assets.

Question 467  book and market values

Which of the following statements about book and market equity is NOT correct?

 (a) The market value of equity of a listed company's common stock is equal to the number of common shares multiplied by the share price.

 (b) The book value of equity is the sum of contributed equity, retained profits and reserves.

(c) A company's book value of equity is recorded in its income statement, also known as the 'profit and loss' or the 'statement of financial performance'.

(d) A new company's market value of equity equals its book value of equity the moment that its shares are first sold in an IPO. From then on, the market value changes continuously but the book value which is recorded at historical cost tends to only change due to retained profits.

 (e) To buy all of the firm's shares, generally a price close to the market value of equity will have to be paid.