Question 1

The account that records expenses, gains and losses is

Options :

A : Personal account

B : Real account

C : Nominal account

D : None of the above

Answer: C

Question 2

Knickerbocker Corp. issued $20 million of long-term debt in the current year. What is a major advantage to Knickerbocker with the debt issuance?

Options :

A : The reduced earnings per share possible through financial leverage.

B : The relatively low after-tax cost due to the interest deduction.

C : The increased financial risk resulting from the use of the debt.

D : The reduction of the shareholders' control over the company.

Answer: B

Question 3

Sales on credit is recorded in which of the following journal ?

Options :

A : Purchase journal

B : Sales journal

C : Purchase return journal

D : Sales return journal

Answer: B

Question 4

Sales on credit is recorded in which of the following journal ?

Options :

A : Purchase journal

B : Sales journal

C : Purchase return journal

D : Sales return journal

Answer: B

Question 5

The target capital structure of Cerberus Co. is 50% debt, 10% preferred equity, and 40% common equity. The interest rate on debt is 8%, the yield on the preferred is 10%, the cost of common equity is 12%, and the tax rate is 40%. Cerberus does not anticipate issuing any new stock. What is Cerberus' weighted-average cost of capital?

Options :

A : 7.40%

B : 8.20%

C : 9.00%

D : 9.80%

Answer: B