Exam: 060322rr – business and finance basics 2

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1. Federal Express bought material handling equipment for its hub operations that cost $180,000. Using the
MACRS, what is the depreciation expense in year 3 (using a five-year class)?
A. $15,360
B. $34,560
C. $43,560
D. $40,000

2. What is a sinking fund?
A. It aids in meeting a future obligation.
B. It doesn’t compound its money.
C. It’s not really an annuity.
D. It requires one lump sum payment at the beginning.

3. Megan Mei is charged 2 points on a $120,000 loan at the time of closing. The original price of the home
before the down payment was $140,000. How much do the points in dollars cost Megan?
A. $8,200
B. $4,200
C. $2,800
D. $2,400

4. What does an amortization schedule show?
A. The increase to principal
B. The increase in loan outstanding
C. The balance of interest outstanding
D. The portion of payment broken down to interest and principal

5. Dick Hercher bought a home in Homewood, Illinois, for $230,000. He put down 20% and obtained a
mortgage for 25 years at 8%. What is the total interest cost of the loan?
A. $242,411.00
B. $242,144.00
C. $184,000.00
D. $327,372.80

6. A new piece of equipment costs $18,000 with a residual value of $600 and an estimated useful life of
five years. Assuming twice the straight-line rate, the book value at the end of year 2 using the decliningbalance
method is
A. $18,000.
B. $7,200.
C. $11,520.
D. $6,480.

7. In an ordinary annuity, when does the interest on a yearly investment start building interest?
A. At the beginning of the first period
B. After the second period ends
C. At the end of the first period
D. During the first period

8. Lee Company has a current ratio of 2.65. The acid test ratio is 2.01. The current liabilities of Lee are
$45,000. Assuming there are no prepaid expenses, the dollar amount of merchandise inventory is
A. $28,008.
B. $28,800.
C. $90,540.
D. $90,450.

9. Which one of the following methods is not based on the passage of time?
A. Units-of-production method
B. None of these
C. Declining-balance method
D. Straight-line method

10. A truck costs $16,000 with a residual value of $1,000. It has an estimated useful life of five years. If
the truck was bought on July 3, what would be the book value at the end of year 1 using straight-line rate?
A. $14,500
B. $12,500
C. $1,500
D. $16,000

11. Jen purchased a condo in Naples, Florida, for $699,000. She put 20% down and financed the rest at
5% for 35 years. What are Jen’s total finance charges?
A. $457,425.60
B. $606,823.20
C. $600,000.00
D. $626,863.20

12. ***** ***** bought a new Toyota truck for $28,000. Dan made a down payment of $6,000 and paid
$390 monthly for 70 months. What is the total finance charge?
A. $11,300
B. $27,300
C. $13,300
D. $5,300

13. If a car is depreciated in four years, what is the rate of depreciation using twice the straight-line rate?
A. 25%
B. 50%
C. 100%
D. 75%

14. Given a mortgage of $48,000 for 15 years with a rate of 11%, what are the total finance charges?
A. $54,576
B. $50,236.80
C. $5,023.68
D. $545.76

15. Use the following information to answer the question:
Cost of car: $26,000
Residual value: $6,000
Life: 5 years
Using the given information, determine the depreciation expense for the first year straight-line method?
A. $4,400
B. $6,000
C. $4,000
D. $5,200

16. Open credit in a revolving charge plan results in
A. as many charged purchases till credit limit is reached.
B. the U.S. Rule being applied to each purchase.
C. as many cash purchases till credit limit is reached.
D. one purchase per month.

17. John Sullivan bought a new Brunswick boat for $17,000. He made a $2,500 down payment on it. The
bank’s loan was for 60 months, and the finance charges totaled $4,900. What is his monthly payment?
A. $332.33
B. $323.33
C. $232.33
D. $313.33

18. The acid test ratio does not include
A. cash.
B. inventory.
C. supplies.
D. accounts receivable.

19. A $104,000 selling price with $24,000 down at 81∕2% for 25 years results in a monthly payment of
A. $654.60.
B. $546.06.
C. $644.80.
D. $645.60.

20. Jay Corporation has earned $175,900 after tax. The accountant calculated the return on equity as
12.5%. Jay Corporation’s stockholders’ equity to the nearest dollar is
A. $14,720.
B. $140,720.
C. $140,720,000.
D. $1,407,200.

21. Ted Williams made deposits of $500 at the end of each year for eight years. The rate is 8%
compounded annually. Using the tables in the Business Math Handbook that accompanies the course
textbook, calculate the value of Ted’s annuity at the end of eight years.
A. $4,318.30
B. $2,873.30
C. $5,318.30
D. $2,837.03

End of exam

22. An annuity due can use the ordinary annuity table if one extra period is added and
A. two payments are added to total value.
B. three payments are subtracted from total value.
C. one payment is added to total value.
D. one payment is subtracted from total value.

23. At the beginning of each year for 14 years, Sherry Kardell invested $400 that earns 10% annually.
What is the future value of Sherry’s account in 14 years?
A. $13,100
B. $12,309
C. $14,000
D. $12,709

24. Abe Aster bought a new split level for $200,000. Abe put down 30%. Assuming a rate of 111∕2% on a
30-year mortgage, use the tables in the Business Math Handbook that accompanies the course textbook to
determine Abe’s monthly payment.
A. $1,423.80
B. $1,387.40
C. $1,982.00
D. $1,367.80

25. Depreciation expense in the declining-balance method is calculated by the depreciation rate
A. divided by book value at beginning of year.
B. times accumulated depreciation at year end.
C. times book value at beginning of year.

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