EMBA Pre-Core Self tests Financial Accounting Quantitative Methods, Computers & Statistics Economics

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1 EMBA Pre-Core Self tests Financial Accounting Quantitative Methods, Computers & Statistics Economics

2 Part-Time MBA 2007 Pre-Core Self-Tests Quantitative Methods/Computer Sills/Statistics Self-Assessment Test 1. a) Suppose the population of B.C. is growing at the rate of 2% per annum. At this rate how many years will it take for the population to grow 50%? b) A stock is bought for $100 and is sold exactly 3 years later for $125. What was the per annum yield on this investment? You can assume there were no transaction costs, dividends or stock splits etc. 2. A large set of accounts was randomly sampled and it was found that out of n=144 accounts, the average amount outstanding was $312 with a standard deviation of $100. Do you think it likely that, for the set of all accounts, the average amount outstanding is $250? Justify your answer. 3. The two partners in a business are splitting up. They each own 50% of the business. The sole assets of the business are two pieces of land, one worth $100,000 and the other $50,000. These two pieces have mortgages of respectively $80,000 and $20,000. It is proposed that one of the partners take the $100,000 piece of land together with the $80,000 mortgage while the other partners takes the $50,000 piece of land together with the $20,000 mortgage. What further amount should be transferred between the partners to achieve an equitable division? 4. A firm wishes to maximize revenue from sales of a particular product. Show that to do so it must increase the price of the product until a further 1% increase in price would generate more than a 1% reduction in demand. 5. Your teacher informs you that on the last exam a score of 95 is 3 standard deviations above the mean while a score of 65 is one standard deviation below the mean. What are the mean and standard deviation? 6. In the January of this year, it was reported that the average price of houses sold on the West Side of Vancouver fell by $8,000. At the same time the median price of houses sold on the West Side of Vancouver rose by $20,000. What implication(s) do you draw from these figures? 7. The total value of Japan's land is now $16.98 trillion in 1988 values, according to the Japanese Economic Planning Agency. In the US, the total value of land is assessed at $4.103 trillion in The U.S. is 25 times as large as Japan. On an average per unit area basis, how much more expensive is Japanese land compared to land in the US? (Note: 1 trillion is a million million). 8. A real estate firm owns a block of 70 apartments. At $250 per month every apartment can be rented. However, for each $10 per month increase there will be two vacancies with no possibility of filling them. The firm wants to maximize the revenue from rents. What rent should be charged for each apartment. Suppose that all apartments are rented out at the same rent. Page 2

3 Part-Time MBA 2007 Pre-Core Self-Tests Financial Accounting Self-Assessment Test Suggested time to complete: 90 minutes Question No. 1 Indicate the effect on assets, liabilities and shareholders' equity of failing to record each of the following transactions or events. Use the notation "O" (overstated), "U" (understated) or "N" (no effect) in recording your answer. For example, a failure to record the issuance of common shares for $50,000 cash would be: Assets - U $50,000 Liabilities - N Shareholders' equity - U $50,000 a) Inventory costing $4,000 is purchased on account. b) A building costing $100,000 is acquired. A 20% downpayment is made, with the remainder payable over four years. c) A purchase order for $6,000 of merchandise is sent to a supplier. d) A cheque for $1,000 is received from a customer for goods to be delivered next month. e) A cheque for $500 is issued to cover rental of a warehouse for the next two months. f) Common shares with a market value of $5,000 are issued to lawyers for services rendered in setting up the company. g) A loan payable of $10,000, which had previously been recorded on the books, is now fully paid. h) A cheque for $5,000 is issued for an option to purchase some land. The total price of the land is $20,000. The option can be rescinded within 90 days. Page 3

4 Part-Time MBA 2007 Pre-Core Self-Tests Question No. 2 On March 1, 1999 your friend, Pamela Martin, opened a florist shop, Scents of Flowers Ltd., in a nearby shopping mall. To begin her business, Pamela invested $50,000 in share capital and her boy friend, Fred, loaned the firm another $50,000, bearing interest of 10% per annum, of which none has been paid to date. The following is a summary of selected transactions for the year ended February 28, Cost of merchandise purchased on account $45,000 Wages paid to part-time employee 10,200 Salary paid to Pamela Martin 24,000 Rent paid 6,000 Business taxes and licenses (10 months, 1994) 500 Supplies purchased for cash 4,350 Miscellaneous expenses paid 7,625 Merchandise sold (all collected except $5,000) 75,000 Cost of merchandise sold 40,000 Supplies on hand at end of year 350 Additional Information: Of the merchandise purchased during the year, $6,000 had not yet been paid. When the company started, Pamela purchased a comprehensive insurance policy with a two year premium for $1,000. The company had purchased on March 1, 1999, furniture and fixtures for $15,000 cash which were estimated to last for 5 years. At the end of five years, the furniture and fixtures would have no salvage value. Required: Prepare an income statement and balance sheet of Scent of Flowers Ltd. for the year ended February 28, 2000 in the proper format. Ignore income taxes. Page 4

5 Question No. 3 Kirstin Wayne Ltd.'s balance sheets for the year ended December 31, 1998 and 1999 as well as the income statement for the year ended December 31, 1999 are presented below: KIRSTIN WAYNE LTD.- Balance Sheet ASSETS December 31, 1998 December 31, 1999 Current: Cash $40,000 $25,000 Accounts receivable 40,000 20,000 Inventory 60,000 80,000 Total current assets $140,000 $125,000 Property, plant and equipment $200,000 $318,000 Accumulated depreciation (100,000) (138,400) Net property, plant and equipment $100,000 $179,600 Total assets $240,000 $304,600 LIABILITIES & SHAREHOLDERS' EQUITY December 31, 1998 December 31, 1999 Current Liabilities: Accounts payable $10,000 $40,000 Dividends payable 0 2,000 Notes payable 0 40,000 Total current liabilities $10,000 $82,000 Bonds payable 100,000 80,000 Common shares 50,000 60,000 Retained earnings 80,000 82,600 Total liabilities & shareholders' equity $240,000 $304,600 KIRSTIN WAYNE LTD. Income Statement For the Year Ended December 31, 1999 Sales revenue $260,000 Cost of goods sold 180,000 Gross profit $ 80,000 Operating expenses 30,000 Depreciation expenses 40,000 Gain on sale of property, plant & equipment 600 Net Income $ 10,600 Additional Information: During 1999, Kirstin Wayne Ltd. sold for $1,000 in cash, property, plant and equipment that had an original cost of $2,000 and a net book value of $400. Required: Prepare a cash flow statement, in proper format, for Kirstin Wayne Ltd. for the year ended December 31, Page 5

6 Economics Self Assessment Test The test consists of two exercises (5 points each) and 30 multiple choice questions (worth 3 points each). Graphical Question 1. Show the effects of a minimum wage in a competitive labour market. What happens to employment? Use L' and W' to denote employment and wage levels in the presence of a minimum wage and L* and W* in a free market. Equation Question 2. Suppose demand and supply are given by Q d 1 =50 P and Q s = P 10 2 a) what is the inverse demand curve? b) what is the consumer surplus when price is $20? c) what are the equilibrium quantity and price in this market? d) determine the quantity demanded, the quantity supplied, and the magnitude of the surplus quantity if a price floor of $42 is imposed in this market e) determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of $30 is imposed in this market Multiple Choice 1. Individuals and firms in the economy must make choices because of a) diminishing returns b) rationality c) scarcity d) economic efficiency e) Sunk costs 2. Henry spends an hour shopping and buys one sweater for $30. Assuming that he spends the entire hour shopping for only the sweater and doesn t enjoy the shopping for its own sake, the opportunity cost of the sweater is a) one hour b) $30 c) one hour plus $30 d) the next-best alternative uses of the hour and the $30 e) a jacket 3. Renting an apartment, Bill signs a lease promising to pay $400 each month for one year. He always keeps his word, and therefore he will pay the $400 each month whether he lives in the apartment or not. The $400 each month represents a) an opportunity cost b) a sunk cost c) a trade-off d) a budget constraint e) diminishing returns Page 6

7 4. Fred is considering renting an apartment. A one-bedroom apartment rents for $400, and a two-bedroom apartment for $500. The $100 difference is a) the opportunity cost of the two-bedroom apartment b) the marginal cost of the second bedroom c) a sunk cost d) the marginal cost of an apartment e) none of the above 5. The Canadian government has invested billions of taxpayers' dollars in the Hibernia oil field off the coast of Newfoundland. Which of the following statements about the money already spent is true? a) it represents the opportunity cost of Hibernia because it would cost this much to develop another oil field b) it represents the marginal cost of the first barrel of oil that will eventually flow from Hibernia c) it is irrelevant to a decision on whether to continue development of Hibernia because it represents a sunk cost d) it does not represent a sunk cost until and unless development of Hibernia is permanently halted e) it represents the marginal cost of all the oil that will ever flow from Hibernia 6. Assume that you have completed 3 years of a 4 year college degree and are currently evaluating whether to accept a job or to continue in the degree program. In selecting the relevant costs and benefits a) you would include tuition payments for the past 3 years b) you would include forgone income for the past 3 years c) you would include the cost of an extra year of tuition if you were to complete the degree d) none of the above e) a and b only 7. The individual demand curve for a good or service a) gives the quantity of the good or service the individual would purchase at each price b) gives the equilibrium price in the market c) shows which other goods or services will be substituted according to the principle of substitution d) gives the amount of money the individual would spend on the good at each price e) none of the above 8. In a competitive market, as the price rises, the quantity supplied increases along the market supply curve because a) higher prices give firms an incentive to supply more units b) some firms exit the market, but those that remain supply more units c) some firms enter the market, and hence supply more units d) the quantity demanded increases e) higher prices give firms an incentive to supply more units and some firms enter the market Page 7

8 9. Comparative statics a) is a useful tool for studying price instability b) tells us more about the process of change than about the end results of change c) helps us evaluate the effects of exogenous changes in a given market d) is a scientific concept involving objects which are held together by static electricity that has been adapted to economics to help explain why markets remain close to their equilibrium e) allows us to examine several changes in a given market simultaneously 10. A diamond sells for a higher price than a litre of water because a) luxuries always have higher prices than necessities b) only a few people demand diamonds, but everyone needs water c) the total use value of diamonds exceeds the total value of water d) the total cost of diamond production exceeds the total cost of water production e) none of the above 11. Stationary exercise bicycles and stair-stepper machines are substitutes, according to the aerobically correct. An increase in the price of exercise bicycles will a) shift the demand for stair-stepper machines to the left b) increase the price of stair-stepper machines c) lower the quantity of stair-stepper machine sales d) shift the supply curve of stair-stepper machines to the left e) none of the above 12. As people have grown more concerned about saturated fat in their diets, the demand for beef has shifted to the left. The quantity of beef sold has also fallen. This change is a a) movement along the demand curve for beef b) shift to the right in the supply curve for beef c) movement along the supply curve for beef d) shift to the left in the supply curve for beef e) none of the above 13. If ski-lift tickets and skiing lessons are complements, then an increase in the price of lift tickets a) shifts demand for skiing lessons to the left b) shifts demand for skiing lessons to the right c) shifts supply of skiing lessons to the left d) shifts supply of skiing lessons to the right e) none of the above 14. A recent regulation requires tuna fishing companies to use nets that allow dolphins to escape. These nets also allow some tuna to escape. This regulation causes a) the supply curve of tuna to shift to the left b) the demand curve for tuna to shift to the right c) the demand curve for tuna to shift to the left d) the supply curve of tuna to shift to the right e) none of the above Page 8

9 15. Suppose that the price elasticity of demand is 1.5. If price falls, total revenue will a) remain the same b) fall c) rise d) double e) fall or rise depending on the price elasticity of supply 16. Suppose that demand is perfectly inelastic, and the supply curve shifts to the left. Then a) price and quantity will increase b) quantity will increase, but price will remain constant c) price will increase, but quantity will remain constant d) neither price nor quantity will increase e) price will increase, but quantity will decrease 17. What must be true if the consumer is to bear the full burden of a sales tax? a) demand must be perfectly inelastic b) demand must be perfectly elastic c) supply must be perfectly elastic d) either a or c is true e) either b or c is true 18. Fixed or overhead inputs are a) inputs that cannot be moved b) inputs that can be purchased in only one fixed configuration c) inputs that can be purchased at a fixed price d) inputs that do not depend on the level of output e) none of the above 19. A firm should increase production when a) marginal revenue is greater than total costs b) marginal revenue is greater than marginal cost c) marginal cost is greater than marginal revenue d) total revenue is increasing e) the firm is making economic profit 20. Marginal revenue a) is less than price for the competitive firm because as it sells more output, it must lower the price b) equals price for the competitive firm c) is the revenue that the firm receives for selling its output d) is the extra profit that the firm receives from selling another unit of output, after accounting for all opportunity costs e) none of the above 21. The firm supplies the profit-maximizing level of output when a) marginal revenue equals price b) marginal revenue equals marginal cost c) economic profits are zero d) accounting profits are zero e) sunk costs equal fixed costs Page 9

10 22. The extra cost of producing an additional unit of output is called a) marginal cost b) fixed cost c) overhead cost d) sunk cost e) marginal revenue 23. It pays a firm to enter a market whenever a) the market price is greater than the minimum average cost at which the firm can produce b) the firm can earn revenues greater than any non-recoverable costs c) price is greater than the minimum of the average variable cost curve d) price equals marginal cost e) marginal revenue equals marginal cost 24. When price is greater than the minimum of the average variable cost curve, the firm a) enters the market b) exits the market c) will continue in the short run but may exit the market in the long run depending upon the magnitude of fixed costs d) shuts down production but does not exit e) enters the market only if overhead costs are zero 25. If the AVC curve is decreasing, and there are positive fixed costs, a) the MC curve must be decreasing b) the MC curve may be decreasing, flat, or increasing c) the AC curve may be decreasing, flat, or increasing d) a and c e) b and c 26. Compared to competition, a monopoly a) charges a higher price and sells the same quantity of output b) charges the same price and sells more output c) charges a higher price and sells more output d) charges the same price and sells less output e) charges a higher price and sells less output 27. A monopoly increases price above marginal cost by a greater amount when the demand is a) more elastic b) more inelastic c) unitary elastic d) perfectly elastic e) none of the above 28. The practice of charging different prices to different customers is called a) product differentiation b) price discrimination c) predatory pricing d) limit pricing e) natural monopoly Page 10

11 29. Suppose the government imposes a 20% sales tax on all items. For which of the following commodities would you expect the producer s share of the tax burden to be highest? a) insulin b) concert tickets c) cigarettes d) gasoline e) toilet paper 30. When economists speak of market failures, to what are they commonly referring? a) Developments such as Sony s Beta videotape technology, which most people considered superior to the competition s VHS technology, being largely unsuccessful despite their superior qualities. b) Equity market crashes like the one which preceded the Great Depression in 1929 and on Black Monday in October, c) The inability of an (unregulated) market to achieve ideal outcomes d) The observed tendency for competitive markets to become oligopolistic over time as mergers and consolidations decrease the number of firms e) A variety of (frequently politically or socially motivated) policies which interrupt the free workings of the market, common examples being trade protectionism and minimum wage laws Page 11

12 Self-Test Answers Page 12

13 Quantitative Methods/Computer Sills/Statistics Self Assessment Test Solutions 1. a ) Want to know what is n such that (1.02) n =1.5. Take logs of both sides to get n=log(1.5)/log(1.02)= b) Want to find r such that 125= 100(1+r ) 3. Thus r=1.25 1/3 1 = 7.72% Comment: You will need to know something about logs and compound interest. 2. Under the stated conditions the sample mean is approximately normally distributed with mean equal to the population mean and standard deviation approximately 100/ 144 = If the population mean is 250 then we have observed a sample mean that is ( )/ 8.33 = 7.44 above the mean. This is highly unlikely and hence we conclude that average amount outstanding is not equal to $250. Comment: This question relies on some knowledge of elementary sampling distributions. 3. If A gets the $100k piece of land with the $80k mortgage then he receives a net benefit of $20k. The other partner, B, has a net benefit of $30k. Thus to equalize the net benefits, B would have to give A $5k, leaving each partner with a net benefit of $25k. Comment: Very elementary algebra. 4. R(P)=PxQ(P) where R(P) is revenue, P is price and Q(P) is the quantity sold. Differentiate with respect to P and equate to zero to get, at the maximum, Q(P)+PQ'(P)=0, where Q'(P) indicates the derivative of Q(P). Dividing both sides by Q(P) and rearranging gives, at a maximum, Q'(P)/Q(P)=-1/P, that is the proportionate change in quantity demanded is equal to the negative of the proportionate change in price. Comment: Knowledge of calculus is required for this question. 5. Here 95=µ + 3σ while 65= µ - σ. Solving simultaneously gives 4σ = 30 or σ = 7.5 and hence µ = = Comment: This is a very elementary example of simultaneous equations. 6. Since housing prices are typically skewed to the right, with the average above the median (and influenced by the very top of the market) it is likely that the top end of the market has experienced a downturn while the middle and lower end of the market have moved up. Comment: Do you know about means and medians? Page 13

14 7. Suppose x is the amount of land in Japan and p its average price. Then from the Japan figures 16.98=xp while from the US figures 4.103=25xq where q is the average price of US land. This leads to 4.14=p/(25q) or p/q= That is Japanese land appears to be on average about 100 times as expensive as land in the US. Comment: A very elementary example of some algebra. 8. Note that the price/demand relationship is linear and can be written as p = -5q where p = price and q = quantity demanded. Since Total Revenue (TR) = price * quantity, our Total Revenue function becomes: TR = (-5q+ 600)*q Differentiating this function yields that when q = 60, total revenue is maximized at $18,000 and the price of each apartment should be $300 per month. Comment: An elementary example of calculus. How to score this test There are only 8 questions in this self assessment test. A score of 75% or higher (6 out of 8) might indicate that your background knowledge is sufficient and you should consider NOT taking the pre-core in quantitative methods. However, if you missed these 2 questions in the same subject area (such as calculus for example), it clearly indicates a need to brush up in this area. In this situation, taking the pre-core quantitative methods course would be advised. Page 14

15 Financial Accounting Self-Assessment Test Solutions Question No. 1: TRANSACTION NUMBER ASSETS LIABILITIES SHAREHOLDERS' EQUITY a. U $ 4,000 U $ 4,000 N b. U $80,000 U $80,000 N c. N N N d. U $ 1,000 U $ 1,000 N e. O $ 500 * N N U $ 500 * N N f. U $ 5,000 N $ 5,000 g. O $10,000 O $10,000 N h. O $5,000 * N N U $5,000 * N N * "N" is also acceptable here. Page 15

16 Question No. 2 SCENTS OF FLOWERS LTD. T-Accounts Year ended February 28, 2000 CASH SHARE CAPITAL LOANS PAYABLE (1) 50,000 10,200 (4) 50,000 (1) 50,000 (2) (2) 50,000 24,000 (5) (10) 70,000 6,000 (6) 500 (7) INVENTORY ACCOUNTS PAYABLE 4,350 (8) (3) 45,000 40,000 (1) (13) 39,000 45,000 (3) 7,625 (9) 5,000 6,000 39,000 (13) 1,000 (14) WAGES & SALARIES RENT EXPENSE 15,000 (16) (4) 10,200 (6) 6,000 62,325 (5) 24,000 34,200 TAXES AND LICENSES EXPENSE SALES SUPPLIES USED (7) ,000 (10) (8) 4, (12) (18) 100 4, MISCELLANEOUS EXP. COST OF SALES ACCOUNTS RECEIVABLE (9) 7,625 (11) 40,000 (10) 5,000 Page 16

17 PREPAID INSURANCE FURNITURE & FIXTURES ACCUMULATED DEPRECIATION (14) 500 (16) 15,000 3,000 (17) DEPRECIATION EXPENSE ACCRUED TAXES & LICENSES ACCRUED INTEREST PAYABLE (17) 3, (18) 5,000 (15) INTEREST EXPENSE SUPPLIES ON HAND INSURANCE EXPENSE (15) 5,000 (12) 350 (14) 500 SCENTS OF FLOWERS LTD. Income Statement For the Year Ended February 28, 2000 Sales $75,000 Cost of sales 40,000 Gross Profit $35,000 Selling and administrative expenses: Wages and salaries $34,200 Rent 6,000 Taxes & Licenses 600 Supplies 4,000 Miscellaneous 7,625 Depreciation 3,000 Interest 5,000 Insurance ,925 Net loss $ 25,925 Page 17

18 SCENTS OF FLOWERS LTD. Balance Sheet February 28, 2000 Assets Current Assets: Cash $62,325 Accounts receivable 5,000 Inventory 5,000 Prepaid insurance 500 Supplies on hand 350 $73,175 Furniture & fixtures $15,000 less accumulated depreciation 3,000 12,000 $85,175 LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 6,000 Accrued interest payable 5,000 Accrued taxes & licenses 100 $11,100 Loan payable 50,000 Shareholders' equity: Share capital $50,000 Deficit 25,925 24,075 $85,175 Page 18

19 Question No. 3 KIRSTIN WAYNE LTD. Statement of Cash Flows For the Year Ended December 31, 1999 OPERATIONS: Net Income $10,600 Add (deduct): Depreciation expense 40,000 Gain on sale of property, plant & equipment (600) Decrease in accounts receivable 20,000 Increase in inventory (20,000) Increase in accounts payable 30,000 $80,000 INVESTING: Sale of property, plant & equipment $ 1,000 Purchase of property, plant & equipment (120,000) (119,000) FINANCING: Issuance of short-term notes $40,000 Issuance of common shares 10,000 Repayment of bonds (20,000) Cash dividends paid (6,000) 24,000 Decrease in cash $15,000 Cash balance at January 1, ,000 Cash balance at December 31, 1994 $25,000 Page 19

20 Economics Self-Assessment Test Solutions Answer to Graphical Question: 1. See diagram below. Employment declines if the minimum wage (w') exceeds the equilibrium wage (w*). Otherwise employment stays the same because the minimum wage is nonbinding. W L S W W* L L* L D L Answer to Equation Question: 2. a) P = 50 d Q b) Consumer surplus = 0.5x30x30 = $450 c) P = $40, Q = 10 d) At price floor of $42, quantity demand will fall to 8 units, while quantity supplied will increase to 11 units, so the surplus = 3 units e) At a price ceiling of $30, quantity demanded will increase to 20 units, while quantity supplied will equal 5 units, a shortage of 15 units. Page 20

21 Answers to Multiple Choice Questions 1. (c) 2. (d) 3. (b) 4. (b) 5. (c) 6. (c) 7. (a) 8. (e) 9. (c) 10. (e) 11. (b) 12. (c) 13. (a) 14. (a) 15. (c) 16. (c) 17. (d) 18. (d) 19. (b) 20. (b) 21. (b) 22. (a) 23. (a) 24. (c) 25. (b) 26. (e) 27. (b) 28. (b) 29. (b) 30. (c) Page 21

22 How to score your Economics exam For the multiple choice questions, it is all or nothing. Sum the number you answered correctly and then multiply by three. For the graphical questions, you will have to use your judgement a bit. If you draw supply and demand curves with the right slope, give yourself 2 points. If you show the new wage to be above the equilibrium in the first question and below the equilibrium in the second problem, then give yourself 4 points. If you determine the change in quantity correctly give yourself the final point. Add the graph points to your multiple choice score. If you get over 80, you did quite well and probably do not need to take the pre-core economics course. Between 70 and 80, you should spend some time brushing up on your own or else take the Pre-Core course. Between 50 and 70, I recommend that you spend a significant amount of time reviewing the topics in the course outline and/or take the Pre-Core course. Under 50, you should certainly take the Pre-Core course. Page 22