[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for BEC.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[MaLoTu]

is it because LT debt is riskier?

[monikernc]

Malou risks of changes in foreign exchange rates is translation – like translating a foreign language or in int'l acctg a foreign sub's financial statements are subject to translation back to US$ for parent reporting.

Bond risk yield premium is the equity risk premium that is added to long term debt to get the required rate of return on equity. I think 1 in a100 of us will see a question on that but if we do, we score!!!

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[FAR_WARS]

Arrangement————————-#1—————————#2
Amount of equity raised——$700,000——————$300,000
Amount of debt financing—-$300,000——————$700,000
Before-tax cost of debt——–8% per annum———–10% per annum

Which of the following statements comparing the two financing arrangements is true?
a. The company will have a higher expected gross margin under Arrangement #1.
b. The company will have a higher degree of operating leverage under Arrangement #2.
c. The company will have higher interest expense under Arrangement #1.
d. The company will have higher expected tax expense under Arrangement #1.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[monikernc]

Farwars – d?

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[FAR_WARS]

(d) The requirement is to identify the true statement about the financing alternatives. Answer (d) is correct because taxes payable will be higher under Arrangement #1 because with lower interest expense, taxable income will be higher. Under Arrangement #1, interest expense will be $300,000 (.08) = $24,000, while under Arrangement #2, interest expense will be $700,000 (.10) = $70,000 per annum. Answer (a) is incorrect because expected gross margin is unaffected by
the choice of financing arrangement. Answer (b) is incorrect because the degree of operating leverage is not affected by the method of financing. Answer (c) is incorrect because interest expense will be higher under Arrangement #2.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[payaza2000]

Don't mean to spam the group, but just got out of BEC. Not sure it was so hot, but first testlet was good, the second one was easy which isn't a good sign, and the third one was extremely difficult I feel I may of got 1/2 wrong. I ran out of time on the third writing. Good luck to FARWARS, monikernc, and Cortes i think everyone is taking it next few days. Gonna take weekend off, and start back up Monday since I probably didn't get it this time.

FAR 5/6/2015- 84
REG 8/3/2015 - 87
AUD 10/25/2015- 69 1/20/2016 -75
BEC 2/26/2016- 80

Thank you God

[monikernc]

Payaza, glad to hear you are done. Don't stress it. March 9 isn't that far off and you may be done! Enjoy your time off.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

A company currently has 1,000 shares of common stock outstanding with zero debt. It has the choice of raising an additional $100,000 by issuing 9% long-term debt or issuing 500 shares of common stock. The company has a 40% tax rate. What level of earnings before interest and taxes (EBIT) would result in the same earnings per share (EPS) for the two financing options?

Select an answer:
A.
An EBIT of $27,000 would result in EPS of $10.80 for both.

B.
An EBIT of $27,000 would result in EPS of $7.20 for both.

C.
An EBIT of – $18,000 would result in EPS of $(7.20) for both.

D.
An EBIT of – $10,800 would result in EPS of $(7.92) for both.

Question 1

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[FAR_WARS]

@moniker:

a?
EBIT= 27

EPS if we issue bonds: (27-9) * .6 = 10.8 / 1000 = 10.8
EPS if we issue stock: (27*.6) = 16,200 / 1,500 = 10.8

If you enjoyed the rollerskating problem, you will love this!

Card Bicycle Co. has prepared production and raw mate­rials budgets for next year. At the end of this year, the finished product inventory is expected to include 2,000 bi­cycles, and raw material inventory is expected to include 3,000 bicycle tires. Each finished bicycle requires two tires. The marketing department provided the following data from the sales budget for the first quarter:

Expected bicycle sales (units)
January—February—–March
12,000—–16,000——-18,000

The company inventory policy is to have finished product inventory equal to 20% of the following month's sales requirements, and raw material equal to 10% of the following month's production requirements. In the January budget for raw materials, how many tires are expected to be purchased?

A: 24,200
B: 26,120
C: 26,600
D: 26,680

FAR- 80
BEC- 75
AUD- 78
REG- ?

[MaLoTu]

FAR_WARS – is it A 24,200?

[FAR_WARS]

(d)

Jan production = 12 + (0.2*16) – 2 = 13.2 bicycles
Feb production = 16 + (.2*18) – (.2*16) = 16.4 bicycles

Jan Purchases = (13.2) + (16.4*.1) = 13,340 bicycles * 2 = 26.68 bicycles

FAR- 80
BEC- 75
AUD- 78
REG- ?

[monikernc]

Farwars, answer is A

I just did the bicycle problem and the potatoes. I hate these.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[MaLoTu]

Wow … that was convoluted.

[Anonymous]

Ugh I hated those q (specially the bicycles one) so much!!

[MaLoTu]

Here is a variance question (because that is what I am reviewing) for you all to try:

A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor usage variance?
a. $30,000 unfavorable.
b. $25,000 favorable.
c. $30,000 favorable.
d. $25,000 unfavorable.

[Author]

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