Corporate Finance Exam 1 Review(Chpts 1-5)

Gino's Winery has net working capital of $29,800, net fixed assets of $64,800, current liabilities of $34,700 and long-term debt of $23,000. What is the value of the owner's equity?

$71,600 --> Owner's equity = net working capital + net fixed assets - long term debt = $29,800 + $64,800 - 23,000 = $71,600

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Agency

The Sarbanes-Oxley Act in 2002 was primarily prompted by which of the following in the 1990s?

Corporate accounting and financial fraud

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Corporation

The passage of the Tax Cuts and Jobs Act of 2017 created a revised progressive tax structure, which applies to all the following except:

Corporations

The goal of financial management is to increase the:

Current market value per share

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General Partnership

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Investments

Which one of the following statements correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances

Levi had an unexpected surprise when he returned home this morning. He found that a chemical spill from a local manufacturer had spilled over onto his property. The potential claim that he has against this manufacturer is that of a(n):

Stakeholder

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's:

Stakeholders

Which of the following statements about a limited partnership is correct?

There must be at least one general partner

The financial statement that summarizes a firm's accounting value as of a particular date is called the:

balance sheet

Which of the following has nearly the same meaning as free cash flow?

cash flow from assets

Net capital spending is equal to:

ending net fixed assets minus beginning net fixed assets plus depreciation

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the:

income statement

Cash flow to creditors is defined as:

interest paid minus net new borrowing

Generally Accepted Accounting Principles, as they relate to the Income Statement includes the recognition principle: to recognize revenue when the earnings process is virtually complete and the value of an exchange of goods or services is known or can be reliably determined. Which of the following statements is true with regard to this principle?

revenue is recognized at the time of sale. costs associated with the sale of that product likewise would be recognized at that time

The recognition principle states that:

sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined

The matching principle states that:

the costs of producing an item should be recorded when the sale of that item is recorded as revenue