1. A bonus usually differs from a salary in terms of:
A. Amount and timing.
B. Base, timing, and financial statement effect.
C. Tax implications.
D. Motivation effects.
E. Base, pool, and payment terms.
2. Of the three basic forms of management compensation (salary, bonus, benefits), the fastest growing part of total compensation is:
A. Salary.
B. Bonus.
C. Benefits.
D. Salary and bonus.
3. As a firm’s strategy changes to respond to different stages of a product’s life cycle, compensation:
A. Can be affected.
B. Is affected, but only to a very limited extent.
C. Should change in response to the new strategy.
D. Should increase.
E. Should decrease.
4. Risk aversion by managers should be recognized when revising compensation plans because:
A. Compensation mix (salary, bonus) can influence a manager’s risk aversion.
B. Most companies want risk averse managers.
C. Most companies want risk taking managers.
D. It costs less to pay risk averse managers.
5. Due in part to the failure of many banks in 2008, executive compensation is getting increased oversight by:
A. Audit committees of corporate boards
B. Top management
C. Compensation committees of corporate boards
D. Banking regulators and corporate compensation committees
E. Banking regulators such as the SEC
6. Any system of compensation:
A. May encourage unethical behavior.
B. Must be approved by the appropriate regulatory authority.
C. Should be designed by top management.
D. Must be approved by the auditor.
7. The objectives of management compensation, when compared to the objectives used to develop performance measurement systems, are:
A. More numerous.
B. Less specific.
C. Consistent in content.
D. Significantly broader in scope.
E. More specific.
8. In developing compensation plans, the management accountant works to achieve fairness by making the plan:
A. Precise, comprehensive and directive.
B. Simple, clear and consistent.
C. Attractive.
D. Rewarding.
E. Selective.
9. Bases for management bonus compensation often include:
A. Stock price performance.
B. Percentage of salary.
C. Achievement of break-even sales.
D. Percentage of firm-wide net income.
10. When strategic performance measures or critical success factors are used to determine bonus compensation, the bonus will usually depend either on the amount of improvement in the measure or on:
A. Maintaining the current level.
B. Achieving a predetermined goal.
C. Quality of work completed.
D. Intensity of effort expended.
11. Bonus plans should be tied to variable cost income which is not affected by inventory level changes, rather than the conventional:
A. Tax-based net income.
B. Marginal cost income.
C. Full cost income.
D. Operating income.
12. The balanced scorecard critical success factors (CSFs) provide strong motivation in bonus compensation plans if the non-controllable factors are:
A. Emphasized.
B. Separated.
C. Recognized.
D. Excluded.
E. Controlled.
13. If fairness only is considered, unit managers prefer:
A. Not to be evaluated.
B. A subjective measure.
C. A single, objective measure.
D. A firm-wide pool over a unit-based pool.
E. A unit-based pool over a firm-wide pool.
14. Generally, the current and deferred types of bonus payment options currently in use tend to focus the manager’s attention on short-term performance measures, most commonly:
A. Division profit.
B. After tax corporate profit.
C. Cash flow.
D. Growth in firm value.
E. Stock price.
15. The stock option form of bonus payments to managers usually:
A. Motivates well even in extended market downturns.
B. Can lose some motivation because of the delay in reward.
C. Focuses on the short-term.
D. Is not consistent with shareholder interests.
E. Has less risk than other types of bonus payment plans.
16. The ideal compensation plan would make all company contributions to the plan immediately tax-deductible and all tax consequences for managers:
A. Insignificant.
B. Deferred or avoidable.
C. Limited, but current.
D. Limited, but pre-paid.
17. In management compensation, the use of the balanced scorecard achieves:
A. Fairness.
B. Alignment of manager’s incentives and the organization’s strategy.
C. The desired ethical environment.
D. Revenue generation and cost control.
E. A specific non-financial measurement.
18. The balanced scorecard evaluation of the firm is an especially strong financial tool because of its:
A. Use of qualitative measures.
B. Use of quantitative measures.
C. Simplicity in use.
D. Ability to predict change.
E. Use of multiple critical success factors (CSFs).
19. The receivables turnover ratio is a measure of:
A. Asset value.
B. Leverage.
C. Sales performance.
D. Profitability.
E. Liquidity.
20. Market value of equity is an objective measure which clearly shows what:
A. The firm’s financial statements show the firm’s value to be.
B. Investors think is the firm value.
C. Stock analysts calculate as the firm’s value.
D. Is the sales value of the firm.
E. Is the liquidation value of the firm.
21. Analysts prefer the following three valuation methods over all others:
A. EVA, cash flow multiplier and sales multiplier
B. Enterprise value, discounted cash flow, and sales multiple
C. Sales multiple, earnings multiple, and discounted cash flow
D. EVA, return on equity and discounted cash flow
E. Enterprise value, earnings multiple, and sales multiple
22. Since it is based on cash flows, the discounted cash flow (DCF) method of valuation has the added advantage that it is not subject to the bias of different:
A. Discount rates.
B. Internal rates of return.
C. Monetary systems.
D. Accounting policies for determining total assets and net income.
23. The multiplier used in an earnings-based method of valuation of a firm is often estimated from the price-to-earnings ratios of the stocks of comparable:
A. Taxable entities.
B. Industries.
C. Firms.
D. For-profit firms.
E. Publicly-held firms.
24. Which one of the following items is not a measure of a company’s liquidity?
A. Accounts receivable turnover.
B. Return on equity.
C. Quick ratio.
D. Cash flow ratio.
E. Day’s sales in inventory.
25. Which one of the following forms of compensation is a based upon the achievement of performance goals for current the period?
A. Perk.
B. Stock option.
C. Performance shares.
D. Bonus.
E. Salary.
26. Which one of the following forms of compensation includes special services and benefits for the employee?
A. Perk.
B. Stock option.
C. Performance shares.
D. Bonus.
E. Salary.
27. A method for determining a bonus based upon the performance of the unit is a(n):
A. Segment-based pool.
B. Unit-based pool.
C. Firm-based pool.
D. Activity-based pool.
E. Function-based pool.
28. A method for determining a bonus based upon the performance of the firm is a(n):
A. Segment-based pool.
B. Unit-based pool.
C. Firm-based pool.
D. Activity-based pool.
E. Volume-based pool.
29. All of the following are listed as common payment options for bonus compensation plans except:
A. Performance shares.
B. Current bonus.
C. Deferred bonus.
D. Preferred bonus.
E. Stock options.
30. The profit multiplier is used to measure:
A. Efficiency.
B. Effectiveness.
C. Net revenue.
D. Collectability.
E. Accountability.
31. Each one of the following is a method for directly measuring the value of a firm’s equity except:
A. The discounted cash flow method.
B. Market value.
C. Sales multiple.
D. Earnings-based valuation.
E. Enterprise value.
32. Which one of the following refers to the firm’s ability to pay its current operating expenses and maturing debt?
A. Discounted cash flow.
B. Liquidity.
C. Earnings base.
D. Profitability.
E. Purchasing power.
33. Which one of the following develops the value of the firm as the discounted present value of the firm’s net free cash flows?
A. Discounted cash flow method.
B. Liquidity method.
C. Multiples-based method.
D. Profitability method.
E. Purchasing power method.
34. A deferred bonus consists of:
A. Cash only.
B. Stock only.
C. Cash and/or stock.
D. Membership in a fitness club.
35. Which one of the following computes value based on annual earnings?
A. Discounted cash flow method.
B. Liquidity method.
C. Multiples-based method.
D. Profitability method.
E. Market value method.
36. Jackson Supply Company has a 2 to 1 current ratio. This ratio would increase to more than 2 to 1 if the company:
A. Purchased a marketable security for cash.
B. Wrote off an uncollectible receivable.
C. Sold merchandise on account that earned a normal gross margin.
D. Purchased inventory on account.
37. Benefits include all of the following except:
A. Travel.
B. Life insurance.
C. Medical benefits.
D. Membership in a fitness club.
E. Performance shares.
38. A current bonus consists of:
A. Cash only.
B. Stock only.
C. Cash and/or stock.
D. Membership in a fitness club.
39. In service firms, improvement in long term profitability is best measured by all the following except:
A. Staff utilization.
B. Net revenues.
C. Collections of customer accounts.
D. Materials usage.