BUSN Exam 4: test questions

Banking Act

A wave of bank failures occurred in the United States in the early 1930s as the economy sank into the Great Depression. Congress responded by passing the _____ of 1933.

Projects with potential for high returns generally have a low degree of uncertainty and risk.

False

Corporate bonds

Which of the following is a source of long-term funds for firms?

In the context of financial budgets, the capital expenditure budget:

identifies a firm's planned investments in major fixed assets and long-term projects.

The main disadvantage of financial leverage is that:

the cost of debt financing is now high.

Which of the following statements is true of current ratio?

A current ratio that is below 1.0 signifies a company's inability to pay its short-term liabilities with its current assets.

intangible asset

A famous musician sells the copyright of one of his songs to a record company for $2 million. In this scenario, the sale of the copyright of the song exemplifies the sale of a(n) _____.

preferred stock

A(n) _____ is a type of stock that gives its holder priority over common stockholders in terms of dividends and claims on assets.

bottom-up

Acloe Inc., a nutrition bar manufacturing company, plans to commence its budget preparation. The management of the organization comes to a consensus that it will use a budgeting approach that will encourage the active participation of the middle and supervisory managers and consider their suggestions while creating the budget. Acloe Inc. is most likely to adopt the _____ budgeting approach.

provides advice about pricing and marketing the securities and assists in finding potential buyers.

Almost all firms that go public enlist the help of an investment bank that specializes in helping firms issue new securities. Under a best efforts approach, the investment bank:

_____ are also sometimes called activity ratios.

Asset management ratios

Which of the following is a difference between managerial accounting and financial accounting?

Financial accounting is governed by a set of generally accepted accounting principles, whereas managerial accounting uses procedures developed internally that are not required to follow generally accepted accounting principles.

buy-and-hold

Jack receives a considerable sum of money by selling his property. He decides to invest this sum in a diversified set of securities. He plans to invest in these securities and retain them for a long time. He is optimistic that eventually the overall market conditions will rise, thus giving him a high return sometime in the future. Jack is using the _____ investment strategy.

unqualified opinion

Jenny, an external auditor from a public accounting firm, verified the financial statements of a real estate company. At the end of her review, Jenny did not find any discrepancies in the figures presented by the company or the accounting methods of the company. In this scenario, the independent auditor's report most likely offered a(n) _____.

financial markets

Markets that transfer funds from savers to borrowers are referred to as _____.

Direct investments from owners

Merith Qin, a textile company, relies on self-funding in order to sustain the promotion of its new product in the market. The company sold its newly issued stock and was able to amass a sizable amount of money to invest. Which of the following sources of long-term funds is being used by Merith Qin in the given scenario?

leverage ratios

Omnimenium, an automobile company, incurred a debt of $20 million for the fiscal year of 2016. The company used that money with an additional $20 million of its own to buy out a rival company. The ratio of the company's debt to its investment is 0.5. The given scenario illustrates the analysis of _____.

current assets

Pastello, a bakery in New Jersey, needs to sell all the goods in its inventory before they perish. The bakery owners, Mark and Julia, plan to use the cash received from selling the goods to open a new outlet of Pastello in a different locality. In this scenario, the goods stored in Pastello's inventory represent its _____.

debt ratio

The _____ is a common measure of leverage that compares liabilities to assets.

one additional term

The members of the Financial Accounting Standards Board (FASB) can be reappointed to serve "BLANK" additional term(s) after the completion of their first term.

if the firm skips a preferred dividend in one period, the amount it must pay the next period is equal to the dividend for that period plus the amount of the dividend it skipped in the previous period.

The preferred stock of a firm sometimes includes a cumulative feature. This means that:

In the context of accounting, which of the following best defines cost?

The value of what is given up in exchange for something else

internal auditor

While performing a financial analysis for his organization, Morris discovers that there has been mismanagement of employee funds over the past three months. He immediately reports this to his supervisors. In this scenario, Morris is most likely a(n) _____.

Machvile Corporation, a robotics company, decides to acquire Chancera Inc., a start-up company that operates within the same industry. To better assess its decision, the management of Machvile Corporation needs to find out the value of Chancera Inc.'s total assets. The management has information regarding Chancera Inc.'s liabilities and stockholders' equity. In this scenario, the management should most likely use the _____ to get the required information.

accounting equation

In the context of balance sheets, assets such as machinery, building, and equipment have a limited useful life, so accountants subtract _____ from the original value of these assets, to reflect the fact that these assets are being used up over time.

accumulated depreciation

Institutional investors:

amass huge pools of financial capital from various sources.

Reesa Mork is a multinational corporation that has good credit ratings. It issues promissory notes to other companies. Based on the given information in the scenario, it appears that Reesa Mork uses _____ as a short-term financing option to other companies.

commercial paper

A(n) _____ makes a profit by purchasing the receivables of a firm at a discount and collecting the full amount from the firm's customers.

factor

A _____ is one that is not based on a single assumed level of sales and enables managers to make meaningful comparisons between actual costs and budgeted costs.

flexible budget

An advantage of offering lenient credit terms is that it can help a firm:

increase in sales

A steel manufacturing company is going through a financial crisis because of which it is unable to pay its employees and suppliers their dues. The management of the company sells some of the fixed assets of the company to cover these expenses. In the context of the statement of cash flows, the company gets the required capital by engaging in _____.

investing activities

The main advantage of financial leverage is that:

it magnifies the financial return on the investment of stockholders when times are good.

Ponlinaytion, a clothing company, imports its raw materials from different countries. To cover the cost of expensive raw materials, Ponlinaytion takes a yearly loan of $5 million from Heritage Rimier, a finance company. The remaining budget is covered by the company itself. The given scenario indicates that the firm most likely relies on measuring _____ to decide how it finances its overall operations and growth by using different sources of funds.

leverage ratios

In the accounting equation, assets are equal to:

liabilities plus owner's equity

A _____ is an order to a broker to buy a specific stock only if its price is below a certain level, or to sell a specific stock only if its price is above a certain level.

limit order

In the context of the income statement of an organization, accountants use accrual-basis accounting when recognizing _____.

revenues

Poline Foods, a food processing company, needs to increase its declining cash inflow through its operating activities. In this context, Poline Foods is most likely to:

sell its goods or services

Duk Yu, a beverage company, buys its raw materials from Nessange, a fruits and vegetables exporting company, without making any payment at the time of purchase. Instead, Nessange allows Duk Yu to pay the total purchase amount within a period of six months. Which of the following short-term financing options is being used by Duk Yu in the given scenario?

trade credit