Thomas Company Compiled the Following Information from Its Financial Records

question 53

Multiple Choice

Thomas Company compiled the following information from its financial records for the year ending December 31, 2014:
$\begin{array}{ll}\text {Research and development costs incurred during 2014 }& \$1,200,000\\\text {Total assets }&5,200,000 \\\text { Current liabilities, interest bearing}&300,000 \\\text {Current liabilities, noninterest-bearing }& 800,000\\\text {Net income }&950,000 \\\text { Sales}&11,300,000 \\\text {Interest expense }&670,000 \\\text {Cost of capital }& 10\%\\\text {income tax rate }& 30\%\\\end{array}$

Thomas' amortization policy is 4 years. How much is the accounting distortion adjustment to invested capital when calculating EVA?

• A) $900,000
• B) $300,000
• C) $840,000
• D) $630,000
• Material from the appendix to the chapter is marked with an asterisk (*).

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Definitions:

Supply-Side Economics

Main tenets: economic role of federal government is too large; high tax rates and government regulations hurt the incentives of individuals and business firms to produce goods and services.

Systematic Error

refers to a consistent, predictable error present in the results of measurements or experiments due to flaw in the measurement system.

Rational Expectations

A theory in economics suggesting that individuals make decisions based on their rational outlook, available information, and past experiences.

Adaptive Expectations

A theory in economics that expectations of future events are constructed based on past events and that agents adjust slower to new information.