Pre-employment Screening Test/ Version A
As part of EGE's recruitment process you are required to pass the pre-screening test. Candidates who do, will receive a call back for an in person interview.
Questions and Answers
- 1.
Which of the following statements is most correct? A market is likely to exhibit perfect competition when:
- A.
Sellers have market-pricing power.
- B.
Each firm is perceived to produce goods or services with unique characteristics.
- C.
the share of each firm’s minimum efficient scale is small relative to market demand.
Correct Answer
C. the share of each firm’s minimum efficient scale is small relative to market demand.Explanation
A market is likely to exhibit perfect competition when the share of each firm's minimum efficient scale is small relative to market demand. In perfect competition, there are many small firms in the market, and none of them have significant market power. Each firm's production level is relatively small compared to the overall market demand, which ensures that no single firm can influence the market price. This condition allows for free entry and exit of firms, perfect information, and homogeneous products, leading to a competitive market environment.Rate this question:
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- 2.
Which of the following statements is least correct? A limitation of the Consumer Price Index (CPI) as a measure of inflation is:
- A.
Its failure to adequately account for changes in product quality
- B.
Its bias toward newer products, which are likely to be more expensive.
- C.
That it tends to overestimate inflation where substitutes exist for goods experiencing price rises.
Correct Answer
B. Its bias toward newer products, which are likely to be more expensive.Explanation
The given answer states that a limitation of the Consumer Price Index (CPI) as a measure of inflation is its bias toward newer products, which are likely to be more expensive. However, this statement is least correct because the CPI actually has a bias towards older products, which are more likely to be cheaper due to technological advancements and improvements in production efficiency. This bias towards older products can lead to an underestimation of inflation.Rate this question:
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- 3.
Which of the following statements is least correct?
- A.
Gross domestic product (GDP) excludes goods produced by citizens outside of the country..
- B.
Gross national product (GNP) includes services produced by foreigners within the country
- C.
Gross domestic product (GDP) is generally preferred by analysts over gross national product (GNP).
Correct Answer
B. Gross national product (GNP) includes services produced by foreigners within the countryExplanation
The given answer is correct because it accurately states that Gross national product (GNP) includes services produced by foreigners within the country. GNP measures the total value of goods and services produced by the citizens of a country, both domestically and abroad. It includes services produced by foreigners within the country because they contribute to the overall economic activity of the nation. However, GDP only considers goods and services produced within the country's borders, excluding any production by citizens outside of the country. Therefore, the statement that GNP includes services produced by foreigners within the country is least correct among the given options.Rate this question:
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- 4.
Victory Construction LLC leases a crane that would likely be in use for another 15 years. Under which of the following circumstances might the lease most likely be classified as an operating lease under US GAAP?Which one do you like?
- A.
The lease term is 5 years
- B.
A bargain purchase option exists
- C.
The lessor gains ownership of the asset at the end of the lease.
Correct Answer
A. The lease term is 5 yearsExplanation
According to US GAAP, a lease is classified as an operating lease if the lease term is less than the major part of the economic life of the asset. In this case, the lease term is 5 years, which is less than the expected remaining useful life of the crane (15 years). Therefore, the lease is most likely to be classified as an operating lease under US GAAP.Rate this question:
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- 5.
Carrywell LLC, a luggage producer based in Dayton, Ohio, is preparing its annual financial reports under US GAAP. There is concern that an older assembly line might need to be repaired and the following information is produced: • Cost = $1,400,000 • Accumulated depreciation = $ 920,000 • Estimated net sale value = $ 460,000 • Expected future net cash flow = $ 55,000 p.a. • Life of equipment = 9 years •Salvage value = $ 0 Based on this information, the impairment loss to be recognized by Carrywell is closest to:
- A.
$0
- B.
$20,000
- C.
. $30,000
Correct Answer
A. $0Explanation
The impairment loss is calculated by comparing the carrying amount of the asset to its recoverable amount. The carrying amount is the cost of the asset minus the accumulated depreciation, which in this case is $1,400,000 - $920,000 = $480,000. The recoverable amount is the higher of the estimated net sale value and the present value of expected future net cash flows, which in this case is $460,000. Since the carrying amount is higher than the recoverable amount, an impairment loss should be recognized. However, the impairment loss is calculated as the carrying amount minus the recoverable amount, which in this case is $480,000 - $460,000 = $20,000. Therefore, the correct answer is $20,000.Rate this question:
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- 6.
Which of the following strategies might be used if a company wanted to reduce the level of revenues it recognizes in the current period?
- A.
Increasing its allowance for sales returns
- B.
Reclassifying inventory as “sold but held”
- C.
. Setting shipping terms as “FOB destination”
Correct Answer
C. . Setting shipping terms as “FOB destination”Explanation
Setting shipping terms as "FOB destination" means that the ownership and responsibility for the goods transfer to the buyer at the destination. This means that the company can delay recognizing the revenue until the goods reach the buyer's location, effectively reducing the level of revenues recognized in the current period. By doing so, the company can manipulate its financial statements to show lower revenues, which may be beneficial for various reasons such as tax planning or meeting certain financial targets.Rate this question:
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- 7.
In regard to nonrecurring items, which of the following statements is most accurate? Income and expense items that are unusual in nature, but that are likely to reoccur:
- A.
Should be ignored when considering forecasts.
- B.
Should be recorded as a separate line item under IFRS.
- C.
Should be recorded as a separate line item under US GAAP.
Correct Answer
B. Should be recorded as a separate line item under IFRS.Explanation
Income and expense items that are unusual in nature, but likely to reoccur, should be recorded as a separate line item under IFRS. This means that these nonrecurring items, although not part of regular operations, are still significant enough to warrant separate disclosure in financial statements prepared in accordance with International Financial Reporting Standards. This allows users of the financial statements to better understand the financial performance and potential impacts of these items on future periods.Rate this question:
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- 8.
In the most recent year, Becker Superstores LLC produced net income of $356,000 and earnings before interest and tax (EBIT) of $582,000. It had an EBIT margin of 12.7%, an asset turnover of 0.94 times, and leverage of 3.20. Based on this information, Becker Superstores’ return on assets is closest to:
- A.
7.3%
- B.
19.5%
- C.
23.4%
Correct Answer
A. 7.3%Explanation
The return on assets (ROA) is calculated by multiplying the EBIT margin by the asset turnover. The EBIT margin is 12.7% and the asset turnover is 0.94 times. Multiplying these two values gives us 0.127 * 0.94 = 0.11938. To convert this to a percentage, we multiply by 100, resulting in 11.938%. However, this is not one of the answer choices. Therefore, the closest answer is 7.3%.Rate this question:
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- 9.
Company D sells only one product and in the most recent quarter made sales of 15,000 units at $260 each. The total variable costs for the quarter were $2,625,000 and total fixed costs were $560,000. Furthermore, total financial costs for the quarter were $317,000 and the corporate tax rate was 40%. Based on this information, Company D’s degree of operating leverage is closest to:
- A.
1.78
- B.
1.80
- C.
3.20
Correct Answer
A. 1.78Explanation
The degree of operating leverage (DOL) measures the sensitivity of a company's operating income to changes in sales volume. It is calculated by dividing the percentage change in operating income by the percentage change in sales. In this case, we can use the formula DOL = (Sales - Variable Costs) / Operating Income.
From the given information, we can calculate the operating income by subtracting the variable costs and fixed costs from the sales. Operating Income = (Sales - Variable Costs) - Fixed Costs.
Operating Income = (15,000 * $260) - $2,625,000 - $560,000 = $3,900,000.
Now we can calculate the DOL using the formula DOL = (Sales - Variable Costs) / Operating Income.
DOL = (15,000 * $260) / $3,900,000 = 1.733.
Therefore, the closest value to the calculated DOL of 1.733 is 1.78.Rate this question:
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- 10.
Which of the following is least likely to be a benefit of conservatism in regard to applying accounting standards?
- A.
Protection for regulators.
- B.
Reduction in potential litigation.
- C.
Reduction in total income tax expense over time.
Correct Answer
C. Reduction in total income tax expense over time.Explanation
Conservatism in applying accounting standards typically focuses on being cautious and prudent in recognizing and reporting financial information. While it may provide benefits such as protection for regulators and reduction in potential litigation, it is least likely to result in a reduction in total income tax expense over time. This is because conservatism tends to err on the side of caution, which may lead to higher provisions for taxes and expenses, ultimately increasing the income tax expense.Rate this question:
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- 11.
Which of the following stakeholder groups is least likely to have operational influence of a company?
- A.
Creditors
- B.
Managers
- C.
Regulators
Correct Answer
A. CreditorsExplanation
Creditors are least likely to have operational influence over a company because their primary role is to provide financial resources to the company in the form of loans or credit. While they have the power to influence the company's financial decisions and may impose certain conditions on the use of funds, they typically do not have direct control or influence over day-to-day operations. On the other hand, managers are responsible for running the company's operations, making operational decisions, and overseeing the daily activities. Regulators, such as government agencies, have the authority to set rules and regulations that companies must comply with, thus exerting operational influence.Rate this question:
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- 12.
Bell Engines, a UK-based manufacturer has recently concluded the following transactions: • Issued GBP 30 million in new bonds • Purchased new factory for GBP 20 million These transactions might best be described as:
- A.
financing activities only.
- B.
Operating and investing activities, respectively.
- C.
Financing and investing activities, respectively
Correct Answer
C. Financing and investing activities, respectivelyExplanation
The issuance of GBP 30 million in new bonds is a financing activity because it involves raising funds from external sources. The purchase of a new factory for GBP 20 million is an investing activity because it involves the acquisition of a long-term asset. Therefore, the transactions can be described as financing and investing activities, respectively.Rate this question:
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- 13.
Company Y sells one product and has the following expected sales and costs information for the following year: Sale price $1.80 per unit Contribution margin $0.36 per unit Fixed sales costs $42,000 Fixed nonsales costs $66,000 Based on this information, the breakeven level of revenues is closest to:
- A.
$300,000
- B.
$432,000
- C.
$540,000
Correct Answer
C. $540,000Explanation
The breakeven level of revenues is the point at which a company's total revenue equals its total costs, resulting in zero profit. To calculate the breakeven point, we need to consider the fixed costs and the contribution margin. The fixed costs are the costs that do not change with the level of sales, which in this case is $108,000 ($42,000 + $66,000). The contribution margin is the amount of revenue that contributes to covering the fixed costs and generating profit, which in this case is $0.36 per unit.
To find the breakeven level of revenues, we divide the fixed costs by the contribution margin: $108,000 / $0.36 = $300,000. Therefore, the closest answer is $300,000.Rate this question:
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- 14.
Pure Health Diagnostics (PHD) has recently acquired a new MRI machine from a similar business by exchanging with them two X-ray systems that are no longer in use. It costs PHD EUR 2,000 to ship and install the secondhand MRI machine to make it ready for use. The cost of the X-ray systems was EUR 120,000 each and one has accumulated depreciation of EUR 20,000 and the other has accumulated depreciation of EUR 15,000. If the fair value of the secondhand MRI machine is EUR 204,000, which of the following statements is most correct?
- A.
PHD’s net assets will decrease.
- B.
PHD will recognize a gain on the income statement.
- C.
PHD will not recognize any gain or loss on the income statement
Correct Answer
B. PHD will recognize a gain on the income statement.Explanation
PHD will recognize a gain on the income statement because the fair value of the secondhand MRI machine (EUR 204,000) is greater than the net book value of the X-ray systems (EUR 120,000 - EUR 20,000 - EUR 15,000 = EUR 85,000). This difference between the fair value and the net book value represents a gain for PHD, which will be recognized on the income statement. The cost of shipping and installing the MRI machine (EUR 2,000) is not relevant to determining the gain.Rate this question:
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- 15.
Which of the following statements is most correct? Sovereign bonds:
- A.
Are backed by the sovereign’s banking industry
- B.
Can be issued only in the sovereign’s domestic currency.
- C.
Are issued in different forms including floating-rate and inflation-linked.
Correct Answer
C. Are issued in different forms including floating-rate and inflation-linked.Explanation
The correct answer is that sovereign bonds are issued in different forms including floating-rate and inflation-linked. This means that sovereign bonds can have varying interest rates that fluctuate with market conditions, or they can be linked to inflation rates. This provides flexibility for investors and allows governments to tailor their bond issuances to meet their financing needs.Rate this question:
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