MHR 523 Study Guide - Final Guide: Toronto–Dominion Bank, Td Canada Trust, Td Waterhouse
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Question 1
Identify the item below that is not one of the four different types of data processing activities.
| deleting | ||
| reading | ||
| creating | ||
| using |
Question 2
All of the following are advantages of an ERP system except
| ERPs permit manufacturing plants to receive new orders in real time. | ||
| in an ERP, data input is captured or keyed once. | ||
| it takes considerable experience and training to use an ERP system effectively. | ||
| ERPs permit management to gain greater visibility into every area of the enterprise. |
Question 3
Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?
| relevant | ||
| reliable | ||
| complete | ||
| timely | ||
| understandable | ||
| verifiable | ||
| accessible |
Question 4
An ERP system might facilitate the purchase of direct materials by all of the following except
| preparing a purchase order when inventory falls to reorder point. | ||
| routing a purchase order to a purchasing agent for approval. | ||
| communicating a purchase order to a supplier. | ||
| selecting the best supplier by comparing bids. |
Question 5
Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)
| entity. | ||
| attribute. | ||
| field. | ||
| record. |
Question 6
Which of the following is not considered a source document?
| A copy of the company's shipping document. | ||
| A copy of the company's ledger. | ||
| A copy of the company's sales journal. | ||
| A copy of the company's financial statements. |
Question 7
In an ERP system, the module used to record data about transactions in the disbursement cycle is called
| financial. | ||
| order to cash. | ||
| customer relationship management. | ||
| purchase to pay. |
Question 8
Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in
| goal conflict. | ||
| information overload. | ||
| decreased value of information. | ||
| goal congruence. |
Question 9
________ are examples of activities that constitute inbound logistics.
| Activities that transform inputs into final products or services | ||
| Activities that provide post-sale support to customers | ||
| Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells | ||
| Activities that help customers to buy the organization's products or services |
Question 10
In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems?
| the revenue cycle | ||
| the expenditure cycle | ||
| the human resources / payroll cycle | ||
| the financing cycle |
Question 11
The collection of customer payment is part of which transaction cycle?
| the human resources cycle | ||
| the production cycle | ||
| the revenue cycle | ||
| the expenditure cycle |
Question 12
Which of the following is an example of source data automation?
| POS (point-of-sale) scanners in retail stores | ||
| a bill of lading | ||
| a subsidiary ledger | ||
| a utility bill |
Question 13
All of the following are guidelines for developing a good coding system except
| be as sophisticated as possible to promote usage. | ||
| be consistent with its intended use. | ||
| be flexible to allow for growth. | ||
| be consistent with the company's organization structure. |
Question 14
What is a key decision that needs to be made with regards to borrowing money from lenders?
| the location | ||
| pro forma income statement | ||
| how much capital to acquire | ||
| job descriptions |
Question 15
Identify the false statement below.
| A service company does not have an inventory system. | ||
| Retail stores do not have a production cycle. | ||
| Financial institutions have installment-loan cycles. | ||
| Every organization should implement every transaction cycle module. |
Question 16
The chart of accounts of a fast-food restaurant would probably include
| a list of customers. | ||
| a list of financial statement accounts. | ||
| a list of vendors. | ||
| a list of employees. |
Question 17
Which statement below regarding the AIS is false?
| Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports. | ||
| The AIS must be able to provide managers with detailed and operational information about the organization's performance. | ||
| Both traditional financial measures and operational data are required for proper and complete evaluation of performance. | ||
| The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data. |
Question 18
In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?
| well-designed paper forms | ||
| turnaround documents | ||
| source data automation | ||
| sequentially numbered bills |
Question 19
Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of
| verifiability. | ||
| truthful. | ||
| relevance. | ||
| reliability. |
Question 20
Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the data about each Japanese fan represents a(n)
| entity. | ||
| attribute. | ||
| field. | ||
| record. |
In early January 2009, David Johnstone received the draft 2008 financial statements for Strong Tie and began to question the companyâs performance when compared to previous years. How were profits holding up, given the intense price competition in the industry? Were attempts to lower costs through more automation paying off? Were the current problems in the U.S. housing market going to continue to reduce demand for connectors? How would lenders react to this poor performance? Was the companyâs financing in danger?After discussing the matter with company accountant Audrey Johnstone, it was decided that an outside consultant should be hired to provide an independent analysis of the companyâs recent performance and to provide suggestions for future action.
COMPANY BACKGROUND:Strong Tie Ltd., located in Winnipeg, Manitoba, designed and manufactured the standardized and customized structural connectors used to reinforce wood joints in the construction of decks, fences, houses and other structures. Strong Tie was a family-owned corporation founded in 1946 by Bill Johnstone to capitalize on the high demand for housing as returning World War II veterans married and began families. Bill Johnstone died in 1975 but passed the business on to his son David, who continued to operate the business along with his three daughters, Ellen, Elizabeth and Audrey. David served as CEO, while Ellen Johnstone, P.Eng, was responsible for product design and production; Elizabeth Johnstone, CSP, managed marketing, sales and distribution; and Audrey Johnstone, CA, managed the companyâs finances. The Johnstone family was a pillar of the Winnipeg business community, making sizeable donations to local charities and sport teams.
The standardized connectors were designed in Winnipeg based on input from architects, draftsmen and builders. The production process was highly automated with metal cutting, stamping and drilling machines completing most of the tasks. Human intervention was required to transfer work-in-process between stations, to feed machines and to pack, store and distribute the end products. This automation had allowed production to remain in Canada to date despite fierce competition from low-wage countries, particularly China. Customized connectors were produced based on specifications provided by the customer.
Production of these units was more labour-intensive, but margins were still significantly higher as contractors were prepared to pay a premium to have their special needs met.
Strong Tie prided itself on its product design capabilities. Designers in Winnipeg consistently generated an array of new standardized connectors that improved on existing products or addressed newly identified industry needs. These products were described in detail in terms of dimension, strength (load-bearing weights and steel gauge) and installation on the companyâs website or in a paper catalogue located in stores â both were of very high quality. Strong Tie also had a reputation among construction professionals as providing innovative solutions to unique design requests and being able to produce customized products in a timely manner at a reasonable price.
Standardized products were distributed through all national home improvement chains in North America including Home Depot, Loweâs, Rona, Home Hardware, Eagle and Sears. Most local chains catering to contractors also carried the standardized products and accepted requests for customized connectors, which they then forwarded to Strong Tie. Strong Tie was estimated to have a 60 per cent market share, which had fallen from 70 per cent in recent years. Universal Connector, a U.S. firm based in Ohio, was estimated to have a 30 per cent and growing share; it offered a similar array of standardized products and customized design services. The remainder of the market was served by five Chinese producers whose market share had grown considerably in the last five years, although they had yet to enter the customized product segment. Universal Connector had closed a number of its U.S. manufacturing facilities in recent years and replaced them with new facilities in China, which put considerable downward pressure on industry prices. Currently, Strong Tie priced its products at a premium to its competitors because of its industry leadership.
All sales were on terms Net 60. Large accounts such as Home Depot had a reputation of stretching their payments past the due date because of their buying power, while contractors frequently delayed payments due to cash flow problems. All purchases, which were primarily steel, were on terms 2/10, Net 60. Metal prices varied considerably, and the trend over 2006 to 2008 was for these prices to rise due to increasing demand from emerging market countries, particularly Brazil, Russia, India and China. Strong Tie had attempted to adopt just-in-time inventory practices to help reduce its raw material, work-in-process and finished goods inventory levels.
The Johnstone family maintained excellent relations with its unionized workforce, which was represented by the United Steel Workers of America. They prided themselves on paying generous wages and providing their workers with excellent health care, disability and pension benefits. The company had never had a strike and was currently negotiating a new collective agreement to take effect in three months on April 1, 2009.
In recent years, Strong Tie had been investing heavily in factory automation to improve its competitiveness. Automatic feeders and packaging equipment had been purchased to further reduce labour costs, and new computers and software had helped to speed up the design of high-margin customized connectors. A new, more automated warehouse had also been constructed.
FINANCIAL STATEMENTS: Exhibits 1 and 2 contain the income statements and balance sheets for Strong Tie for the last three years.
FINANCIAL BENCHMARKS: Reliable industry average information was not available for Strong Tieâs Chinese competitors, but comparable ratios were available for Universal Connector, a public company, in 2008. These ratios are contained in Exhibit 3.
FINANCING: Strong Tie had a $2,000,000, five-year, revolving credit agreement with the Bank of Nova Scotia, which was used to finance the companyâs working capital requirements as well as a number of individual term loans to finance fixed assets.
The revolving credit agreement was committed, so as long as the loan conditions were met, financing was guaranteed. The loan had to be secured 100 per cent by accounts receivable and inventory. The receivables were primarily with large retail chains that were in good financial health, so the Bank of Nova Scotia was prepared to lend 90 per cent of their value. They were also willing to lend 60 per cent of the value of the finished goods and work-in-process inventory because of a strong re-sale market and the short production process. The bank would only lend 40 per cent of the value of raw materials inventory due to general instability in the commodities market. The revolving credit agreement had to be paid down to zero at least once per year.
All loans required that the company maintain a Current Ratio of 1.5 or higher, a Cash Flow Coverage Ratio of 1.0 or higher and a Long-term Debt to Total Capitalization Ratio of 40 per cent or less. Audited quarterly and annual financial statements also had to be provided to the bank each quarter.
As the sole owner of the corporation, David Johnstone did not take a salary, but his three daughters received over $1,000,000 in salary and bonuses each year. Preferred dividends of $500,000 were paid out to Mr. Johnstoneâs sister Katherine, who chose not to participate in the management of the business but was promised a regular income by her late father in lieu of receiving a share of the business. These dividends had to be paid unless the company entered bankruptcy.
| exhibit 1 | |||
| income statement | |||
| 2006 | 2007 | 2008 | |
| net sales | 16,200.00 | 17,450.00 | 16,500.00 |
| cost of good sold | 10,445.00 | 11,956.00 | 11,950.00 |
| gross profit | 5,755.00 | 5,494.00 | 4,550.00 |
| selling and admin | 3,054.00 | 3,130.00 | 3,379.00 |
| depreciation | 396.00 | 720.00 | 756.00 |
| operating income | 2,305.00 | 1,644.00 | 415.00 |
| other income | |||
| interest income | 21.00 | 10.00 | 2.00 |
| other exp. | |||
| interest exp. | 246.00 | 291.00 | 407.00 |
| income before taxes | 2,080.00 | 1,363.00 | 10.00 |
| income taxes | 624.00 | 409.00 | 3.00 |
| net income | 1,456.00 | 954.00 | 7.00 |
| Exhibit 2 | Balance Sheet | ||
| 2006 | 2007 | 2008 | |
| current assets | |||
| cash | 234.00 | 122.00 | 61.00 |
| temporaru inve. | 1,034.00 | 488.00 | 99.00 |
| accounts receivable | 3,250.00 | 3,450.00 | 2,854.00 |
| raw materials inventory | 1,025.00 | 1,350.00 | 1,395.00 |
| WIP inventory | 200.00 | 38.00 | 42.00 |
| finished goods inventory | 2,030.00 | 1,700.00 | 1,200.00 |
| prepaid exp. | 182.00 | 143.00 | 188.00 |
| total current assets | 7,955.00 | 7,391.00 | 5,839.00 |
| fixed assets | |||
| land plant and equip. | 4,893.00 | 7,076.00 | 9,590.00 |
| Less: accum Dep. | 1,380.00 | 2,100.00 | 2,856.00 |
| net land plant and equo | 3,513.00 | 4,976.00 | 6,734.00 |
| total assets | 11,468.00 | 12,367.00 | 12,573.00 |
| current liabilities | |||
| account payable | 534.00 | 543.00 | 500.00 |
| income taxes payable | 54.00 | 35.00 | 23.00 |
| current portion of long term debt | 1,000.00 | 1,145.00 | 1,340.00 |
| total current liabilities | 1,588.00 | 1,723.00 | 1,863.00 |
| long-term Liabilities | 3,190.00 | 3,500.00 | 4,059.00 |
| shareholdrs equity | |||
| common share | 1,350.00 | 1,350.00 | 1,350.00 |
| retained earnings | 5,340.00 | 5,794.00 | 5,301.00 |
| total shreholders equity | 6,690.00 | 7,144.00 | 6,651.00 |
| total liabilities and shareholcers equity | 11,648.00 | 12,367.00 | 12,573.00 |
| exhibit 3 | benchmark ratios | |
| curernt ratio | 4.00 | |
| cash ratio | 0.50 | |
| raw material turnover in days | 31 days | |
| WIP turnover in days | 3 days | |
| finished goods turnover in days | 51 days | |
| a/r turnover in days | 63 days | |
| a/p turnover in days | 11 days | |
| cash converseion cycle | 137 days | |
| fixed asset turnover | 4.10 | |
| total asset turnover | 1.70 | |
| long-term debt to total capitalization | 35% | |
| cash flow coverage | 2.00 | |
| gross profit margin | 32% | |
| operating profit margin | 16% | |
| net profit margin | 10% | |
| ROA | 17% | |
| ROE | 28% | |
THE REQUIREMENT QUESTION
How were profits holding up, given the intense price competition in the industry? Were attempts to lower costs through more automation paying off? Were the current problems in the U.S. housing market going to continue to reduce demand for connectors? How would lenders react to this poor performance? Was the companyâs financing in danger?