exam one test bank

Which one of the following functions is generally a responsibility assigned to the corporate treasurer? -Corporate taxes -Cost accounting -Capital expenditures

Capital expenditures

The DuPont identity can be used to help a financial manager determine the: I. degree of financial leverage used by a firm. II. operating efficiency of a firm. III. utilization rate of a firm's assets. IV. rate of return on a firm's assets.

I, II, III, and IV

Based on the recognition principle, revenue is recorded on the financial statements when the: I. payment is collected for the sale of a good or service. II. earnings process is virtually complete. III. value of a sale can be reliably determined. IV. product is physically delivered to the buyer.

II and III only

Net working capital decreases when: -a dividend is paid to current shareholders. -depreciation increases. -depreciation increases.

a dividend is paid to current shareholders.

one advantage of the corporate form of organization is

ability to raise larger sums of equity capital than other organizational forms.

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods. However, Weil's board of directors rejects the acquisition offer. This is an example of: -an agency conflict -a compensation issue. -a corporate takeover.

an agency conflict.

Net working capital includes: -a land purchase. -an invoice from a supplier. -non-cash expenses.

an invoice from a supplier.

probably the least effective means of aligning management goals with shareholder interest is

automatically increasing management salaries on an annual basis

Probably the least effective means of aligning management goals with shareholder interests is: -the threat of a takeover of the firm. -automatically increasing management salaries on an annual basis. -basing all management bonuses on performance goals.

automatically increasing management salaries on an annual basis.

The financial statement that summarizes a firm's accounting value as of a particular date is called the: -balance sheet. -periodic operating statement. -cash flow statement.

balance sheet.

Security dealers:

buy and sell from their own inventory

An auction market: -has a physical trading floor. -handles primary market transactions exclusively.

has a physical trading floor.

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

income statement.

A limited liability company (LLC): -is a hybrid between a sole proprietorship and a partnership. -prefers its profits be taxed as personal income to its owners. -that meets the IRS criteria to be an LLC will be taxed like a corporation.

prefers its profits be taxed as personal income to its owners.

Shareholders' equity is best defined as: -the residual value of a firm. -the net liquidity of a firm. -cash inflows minus cash outflows.

the residual value of a firm.

One example of a primary market transaction would be the: -sale of 1,000 shares of newly issued stock by Alt Company to Miquel. -sale by Terry of 50,000 shares of stock to his brother. -sale of 100 shares of stock by Maria to her best friend

sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: -over-the-counter market. -secondary market. -primary market.

secondary market.

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. -shareholder. -debtholder.

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: -shareholders. -stakeholders.

stakeholders.

An agency issue is most apt to develop when: -a firm downsizes. -the control of a firm is separated from the firm's ownership. -the firm's owner is also its key manager.

the control of a firm is separated from the firm's ownership.

Common-size financial statements present all balance sheet account values as a percentage of: -total equity. -total assets. -last year's account value.

total assets.

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as: -capital budgeting decisions. -capital structure decisions. -working capital management.

working capital management.

Which one of the following statements is correct? -The NYSE was created by the National Association of Securities Dealers in the early 1930s. -OTC markets have a physical trading floor generally located in either New York City or Chicago. -The primary purpose of the NYSE is to match buyers with sellers.

The primary purpose of the NYSE is to match buyers with sellers.

Uptown Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's: -capital structure. -capital budget. -asset allocation.

capital structure.

Lester had $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as: -complex interest. -discounted interest. -compound interest.

compound interest.

Net working capital is defined as: -total assets minus total liabilities. -available cash minus current liabilities. -current assets minus current liabilities.

current assets minus current liabilities.

the goal of financial management is to increase the

current market value per share

Which one of the following is a capital structure decision? -Determining the optimal inventory level -Establishing the preferred debt-equity level -Selecting new equipment to purchase -Setting the terms of sale for credit sales -Determining when suppliers should be paid

Establishing the preferred debt-equity level

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 -Corporation -Sole proprietorship

General partnership

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? -General partnership -Limited partnership -Limited liability company

Limited partnership

Which one of the following is an advantage of being a limited partner? -Losses limited to capital invested -Unlimited profits without risk of incurring a loss

Losses limited to capital invested

What is the primary goal of financial management for a sole proprietorship? -Maximize net income given the current resources of the firm -Decrease long-term debt to reduce the risk to the owner -Minimize the tax impact on the proprietor -Maximize the market value of the equity -Minimize the reliance on fixed costs

Maximize the market value of the equity

The concept of marginal taxation is best exemplified by which one of the following? -Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes. -Burlington Centre paid no taxes last year due to carryforward losses. -The Blue Moon paid $2.20 in taxes for every $10 of revenue last year.

Mitchell's Grocer increased its sales by $52,000 last year and had to pay an additional $16,000 in taxes.

The Sarbanes Oxley act

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last year's interest earnings is called:

interest on interest

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the: -variable tax rate. -fixed tax rate. -marginal tax rate.

marginal tax rate.

Limited liability companies are primarily designed to: -allow a portion of their owners to enjoy limited liability while granting the other portion of their owners control over the entity. -spin off a wholly owned subsidiary. -provide limited liability while avoiding double taxation.

provide limited liability while avoiding double taxation.