FIN 310 Exam 1
12. Which of the following is correct? A. Receivables turnover ratio depicts the company's frequency of cash collections. B. Inventory turnover ratio can be used to assess the company's frequency of selling inventory. C. Current ratio reflects the company's ability to pay current debt. D. All of the other options are correct.
D. All of the other options are correct.
18. Which of the following is a positive sign that a company is selling its inventory quickly? A. A low inventory turnover ratio. B. A high inventory turnover ratio. C. A low average days in inventory. D. Both a high inventory turnover ratio and a low average days in inventory
D. Both a high inventory turnover ratio and a low average days in inventory
15. Which one of the following functions should be assigned to the corporate treasurer rather than to the controller? A. Data processing B. Cost accounting C. Tax management D. Cash management E. Financial accounting
D. Cash management
38. The goal of financial management is to increase the: A. future value of the firm's total equity. B. book value of equity. C. dividends paid per share. D. current market value per share. E. number of shares outstanding.
D. current market value per share.
51. Which one of the following statements is correct? A. All secondary markets are dealer markets. B. All secondary markets are broker markets. C. All stock trades between existing shareholders are primary market transactions. D. All stock transactions are secondary market transactions. E. All over-the-counter sales occur in dealer markets.
E. All over-the-counter sales occur in dealer markets.
14. Which one of the following functions is generally a responsibility assigned to the corporate treasurer? A. Cost accounting B. Data processing C. Corporate taxes D. Financial accounting E. Capital expenditures
E. Capital expenditures
5. 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? A. Sole proprietorship B. Limited partnership C. Corporation D. Joint stock company E. General partnership
E. General partnership
3. The financial statement that summarizes a firm's accounting value as of a particular date is called the: A. income statement. B. cash flow statement. C. liquidity position. D. balance sheet. E. periodic operating statement
D. balance sheet.
2. Which of the following securities has a purely fixed claim against a firm's cash flows? A. preferred stock B. options C. common stock D. bonds E. None of the above.
D. bonds
23. Highly liquid assets: A. increase the probability a firm will face financial distress. B. appear on the right side of a balance sheet. C. generally produce a high rate of return. D. can be sold quickly at close to full value. E. include all intangible assets.
D. can be sold quickly at close to full value.
26. The debt to equity ratio is: A. 0.33. B. 0.77. C. 1.17. D. 1.30.
D. 1.30. $430/$330 = 1.30
7. The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict? A. Organizational B. Structural C. Formative D. Agency E. Territorial
D. Agency
18. Paid-in surplus is classified as: A. owners' equity. B. net working capital. C. a current asset. D. a cash expense. E. long-term debt.
A. owners' equity.
28. Market values: A. reflect expected selling prices given the current economic situation. B. are affected by the accounting methods selected. C. are equal to the initial cost minus the depreciation to date. D. either remain constant or increase over time. E. are equal to the greater of the initial cost or the current expected sales value
A. reflect expected selling prices given the current economic situation.
7. The following is an example of: A. Vertical analysis. B. Horizontal analysis. C. Diagonal analysis. D. Both vertical and horizontal analysis.
B. Horizontal analysis.
29. Which one of the following statements concerning the balance sheet is correct? A. Total assets equal total liabilities minus total equity. B. Net working capital is equal total assets minus total liabilities. C. Assets are listed in descending order of liquidity. D. Current assets are equal to total assets minus net working capital. E. Shareholders' equity is equal to net working capital minus net fixed assets plus long-term debt.
C. Assets are listed in descending order of liquidity.
45. An agency issue is most apt to develop when: A. a firm encounters a period of stagnant growth. B. a firm downsizes. C. the control of a firm is separated from the firm's ownership. D. the firm's owner is also its key manager. E. a firm is structured as a general partnership.
C. the control of a firm is separated from the firm's ownership.
35. The matching principle states that: A. costs should be recorded on the income statement whenever those costs can be reliably determined. B. costs should be recorded when paid. C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. D. sales should be recorded when the payment for that sale is received. E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
27. In a general partnership, each partner is personally liable for: A. only the partnership debts that he or she personally created. B. his or her proportionate share of all partnership debts regardless of which partner incurred that debt. C. the total debts of the partnership, even if he or she was unaware of those debts. D. the debts of the partnership up to the amount he or she invested in the firm. E. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.
C. the total debts of the partnership, even if he or she was unaware of those debts.
3. Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as: A. capital structure decisions. B. capital budgeting decisions. C. working capital management. D. operating management. E. fixed account structure
C. working capital management.
26. Which one of the following is included in the market value of a firm but not in the book value? A. Raw materials B. Partially built inventory C. Long-term debt D. Reputation of the firm E. Value of a partially depreciated machine
D. Reputation of the firm
37. Firms that compile financial statements according to GAAP: A. record income and expenses at the time they affect the firm's cash flows. B. have no discretion over the timing of recording either revenue or expense items. C. must record all expenses when incurred. D. can still manipulate their earnings to some degree. E. record both income and expenses as soon as the amount for each can be ascertained.
D. can still manipulate their earnings to some degree.
33. Given a profitable firm, depreciation: A. increases net income. B. increases net fixed assets. C. decreases net working capital. D. lowers taxes. E. has no effect on net income.
D. lowers taxes.
31. Net income increases when: A. fixed costs increase. B. depreciation increases. C. the average tax rate increases. D. revenue increases. E. dividends cease.
D. revenue increases.
39. The corporate tax structure in the U.S. is based on a: A. maximum tax rate of 38 percent. B. minimum tax rate of 10 percent. C. flat rate of 34 percent for the highest income earners. D. flat-rate tax. E. modified flat-rate tax.
E. modified flat-rate tax.
30. An income statement prepared according to GAAP: A. reflects the net cash flows of a firm over a stated period of time. B. reflects the financial position of a firm as of a particular date. C. distinguishes variable costs from fixed costs. D. records revenue when payment for a sale is received. E. records expenses based on the matching principle
E. records expenses based on the matching principle
8. 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: A. residual owners. B. shareholders. C. financiers. D. provisional partners. E. stakeholders.
E. stakeholders.
11. Cash flow to stockholders is defined as: A. cash flow from assets plus cash flow to creditors. B. operating cash flow minus cash flow to creditors. C. dividends paid plus the change in retained earnings. D. dividends paid minus net new equity raised. E. net income minus the addition to retained earnings
D. dividends paid minus net new equity raised.
22. A sole proprietorship: A. provides limited financial liability for its owner. B. involves significant legal costs during the formation process. C. has an unlimited life. D. has its profits taxed as personal income. E. can generally raise significant capital from non-owner sources.
D. has its profits taxed as personal income.
48. 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): A. general creditor. B. debtholder. C. shareholder. D. stakeholder. E. agent.
D. stakeholder.
36. The primary goal of financial management is to maximize: A. current profits. B. market share. C. current dividends. D. the market value of existing stock. E. revenue growth.
D. the market value of existing stock.
14. At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the dividend yield in fiscal year 2012? A. 1.79% B. 4.33% C. 13.43% D. 15.22% E. 17.76% F. None of the above.
A. 1.79% Dividend yield = 0.55/30.75 = 1.79%
17. Which of the following is a negative sign that a company is not selling its inventory quickly? A. A low inventory turnover ratio. B. A high inventory turnover ratio. C. A low average days in inventory. D. Both a high inventory turnover ratio and a low average days in inventory.
A. A low inventory turnover ratio.
53. Which one of the following parties can sell shares of ABC stock in the primary market? A. ABC company B. Any corporation, other than the ABC company C. Any institutional shareholder D. Any private individual shareholder E. Only officers and directors of ABC company
A. ABC company
5. Which one of the following terms is defined as the total tax paid divided by the total taxable income? A. Average tax rate B. Variable tax rate C. Marginal tax rate D. Absolute tax rate E. Contingent tax rate
A. Average tax rate
20. The acid-test ratio is most similar to the: A. Current ratio. B. Debt to equity ratio. C. Times interest earned ratio. D. Inventory turnover ratio
A. Current ratio
14. Which of the following ratios is most useful in evaluating solvency? A. Debt to equity ratio. B. Current ratio. C. Receivables turnover ratio. D. Inventory turnover ratio.
A. Debt to equity ratio.
11. Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance? A. International finance B. Financial institutions C. Corporate finance D. Capital management E. Personal finance
A. International finance
23. When a company pays a bill from a plumber for previous services on account: A. Its debt to equity ratio decreases. B. Its acid-test ratio always remains unchanged. C. Its current ratio always remains unchanged. D. All of the other options are correct.
A. Its debt to equity ratio decreases.
10. When conducting a financial analysis of a firm, financial analysts: A. cannot use accounting information as it is historical. B. rely solely on accounting information. C. frequently use accounting information. D. ignore accounting information but do use marketing information. E. assume the future will be a repeat of the past as reflected in the firm's accounting reports.
C. frequently use accounting information.
19. Shareholders' equity is best defined as: A. the residual value of a firm. B. positive net working capital. C. the net liquidity of a firm. D. cash inflows minus cash outflows. E. the cumulative profits of a firm over time.
A. the residual value of a firm.
8. Horizontal analysis examines trends in a company: A. Over time. B. Between income statement accounts in the same year. C. Between balance sheet accounts in the same year. D. Between income statement and balance sheet accounts in the same year.
A. Over time.
31. Which one of the following is contained in the corporate bylaws? A. Procedures for electing corporate directors B. State of incorporation C. Number of authorized shares D. Intended life of the corporation E. Business purpose of the corporation
A. Procedures for electing corporate directors
4. Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? A. Sole proprietorship B. Limited partnership C. Corporation D. Joint stock company E. General partnership
A. Sole proprietorship
5. Comparing operating expenses as a percentage of sales is an example of: A. Vertical analysis. B. Horizontal analysis. C. Diagonal analysis. D. Both vertical and horizontal analysis.
A. Vertical analysis
6. The following is an example of: A. Vertical analysis. B. Horizontal analysis. C. Diagonal analysis. D. Both vertical and horizontal analysis.
A. Vertical analysis.
1. Jenna has been promoted and is now in charge of all external financing. In other words, she is in charge of: A. capital structure management. B. asset allocation. C. risk management. D. capital budgeting. E. working capital management.
A. capital structure management.
2. 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: A. capital structure. B. capital budget. C. asset allocation. D. working capital. E. risk structure.
A. capital structure.
4. Mike just purchased a bond which pays $40 each year in interest. The $40 interest payment is also called the: A. coupon. B. par value. C. discount. D. call premium. E. yield. F. None of the above.
A. coupon.
10. Cash flow to creditors is defined as: A. interest paid minus net new borrowing. B. interest paid plus net new borrowing. C. operating cash flow minus net capital spending minus the change in net working capital. D. dividends paid plus net new borrowing. E. cash flow from assets plus net new equity.
A. interest paid minus net new borrowing.
22. A firm's liquidity level decreases when: A. inventory is purchased with cash. B. inventory is sold on credit. C. inventory is sold for cash. D. an account receivable is collected. E. proceeds from a long-term loan are received.
A. inventory is purchased with cash.
Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below. 27. HHF's debt to equity ratio is: A. 0.75. B. 1.13. C. 0.38. D. 1.80.
B. 1.13. $540/$480 = 1.13.
A partial balance sheet ($s in thousands) for Captain D's Seafood Inc. is shown below. 25. The current ratio is: A. 1.98. B. 1.58. C. 1.17. D. 0.66.
B. 1.58. $505/$320 = 1.58.
34. Nerf Mania reports net income of $500,000, net sales of $4,000,000, and average assets of $2,000,000. The return on assets is: A. 200%. B. 25%. C. 50%. D. 12.5%.
B. 25% $500,000/$2,000,000 = 25%.
15. Which of the following is a sign that a company can quickly turn its receivables into cash? A. A low receivables turnover ratio. B. A high receivables turnover ratio. C. A high average collection period. D. Both a low receivables turnover ratio and a high average collection period.
B. A high receivables turnover ratio.
16. Which of the following is a sign that a company cannot quickly turn its receivables into cash? A. A high receivables turnover ratio. B. A low receivables turnover ratio. C. A low average collection period. D. Both a high receivables turnover ratio and a low average collection period.
B. A low receivables turnover ratio.
9. Which one of the following has nearly the same meaning as free cash flow? A. Net income B. Cash flow from assets C. Operating cash flow D. Cash flow to shareholders E. Addition to retained earnings
B. Cash flow from assets
4. Which of the following is an example of vertical analysis? A. Comparing gross profit across companies. B. Comparing income statement items as a percentage of sales. C. Comparing debt with industry averages. D. Comparing the change in sales over time.
B. Comparing income statement items as a percentage of sales.
1. Which of the following is not a common type of comparison in accounting? A. Comparisons of sales growth between companies. B. Comparisons of earnings per share between companies. C. Comparisons over time. D. Comparisons to industry.
B. Comparisons of earnings per share between companies.
40. The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s? A. Increased stock market volatility B. Corporate accounting and financial fraud C. Increased executive compensation D. Increased foreign investment in U.S. stock markets E. Increased use of tax loopholes
B. Corporate accounting and financial fraud
6. 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? A. Limited partnership B. Corporation C. Sole proprietorship D. General partnership E. Public company
B. Corporation
19. The current ratio is calculated as: A. Current assets divided by noncurrent assets. B. Current assets divided by current liabilities. C. Current liabilities divided by noncurrent liabilities. D. Current liabilities divided by current assets.
B. Current assets divided by current liabilities.
11. Comparing changes in net income for one company over time is an example of: A. Vertical analysis. B. Horizontal analysis. C. Diagonal analysis. D. Both vertical and horizontal analysis.
B. Horizontal analysis.
42. Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002? A. Decrease the number of corporations that can be publicly traded B. Increase the protections against corporate fraud C. Limit secondary issues of corporate securities D. Increase the dividends paid to shareholders E. Increase the number of firms that "go dark"
B. Increase the protections against corporate fraud
24. Assuming a current ratio of 1.0, how will the purchase of inventory with cash affect the ratio? A. Increase the current ratio. B. No change to the current ratio. C. Decrease the current ratio. D. Could either increase or decrease the current ratio.
B. No change to the current ratio.
3. When using vertical analysis, we express balance sheet accounts as a percentage of: A. Sales. B. Total average assets. C. Total liabilities. D. Total stockholders' equity.
B. Total average assets
14. Net working capital includes: A. a land purchase. B. an invoice from a supplier. C. non-cash expenses. D. fixed asset depreciation. E. the balance due on a 15-year mortgage.
B. an invoice from a supplier.
54. Security dealers: A. match buyers with sellers. B. buy and sell from their own inventory. C. operate on a physical trading floor. D. operate exclusively in auction markets. E. are limited to trading non-listed stocks.
B. buy and sell from their own inventory.
15. Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital: A. had to increase. B. had to decrease. C. remained constant. D. could have either increased, decreased, or remained constant. E. was unaffected as the changes occurred in the firm's current accounts.
B. had to decrease.
2. The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the: A. statement of cash flows. B. income statement. C. GAAP statement. D. balance sheet. E. net working capital schedule.
B. income statement.
30. A corporation: A. is ultimately controlled by its board of directors. B. is a legal entity separate from its owners. C. is prohibited from entering into contractual agreements. D. has its identity defined by its bylaws. E. has its existence regulated by the rules set forth in its charter
B. is a legal entity separate from its owners.
25. The market value: A. of accounts receivable is generally higher than the book value of those receivables. B. of an asset tends to provide a better guide to the actual worth of that asset than does the book value. C. of fixed assets will always exceed the book value of those assets. D. of an asset is reflected in the balance sheet. E. of an asset is lowered each year by the amount of depreciation expensed for that asset.
B. of an asset tends to provide a better guide to the actual worth of that asset than does the book value.
5. Zack owns a bond that will pay him $35 each year in interest plus a $1,000 principal payment at maturity. The $1,000 principal payment is called the: A. coupon. B. par value. C. discount. D. yield. E. call premium. F. None of the above.
B. par value.
34. A limited liability company (LLC): A. is a hybrid between a sole proprietorship and a partnership. B. prefers its profits be taxed as personal income to its owners. C. that meets the IRS criteria to be an LLC will be taxed like a corporation. D. provides limited liability for some, but not all, of its owners. E. cannot be created for professional service firms, such as accountants and attorneys.
B. prefers its profits be taxed as personal income to its owners.
8. Operating cash flow is defined as: A. a firm's net profit over a specified period of time. B. the cash that a firm generates from its normal business activities. C. a firm's operating margin. D. the change in the net working capital over a stated period of time. E. the cash that is generated and added to retained earnings.
B. the cash that a firm generates from its normal business activities.
15. At the end of fiscal year 2011, Crane Industries, Inc.'s stock price was $30.75. A year later it was $34.88. Per share dividends over the year were $0.55, while earnings per share were $1.33. What was the percentage change in the share price in fiscal year 2012? A. 1.79% B. 4.33% C. 13.43% D. 15.22% E. 17.76% F. None of the above.
C. 13.43% Percentage change in share price = (34.88- 30.75)/30.75 = 4.13/30.75 = 13.43%.
21. The acid-test ratio is: A. The liquidity ratio divided by the equity ratio. B. Current assets minus inventory divided by current liabilities minus accounts payable. C. Cash, net receivables, and current investments divided by current liabilities. D. Cash divided by accounts payable.
C. Cash, net receivables, and current investments divided by current liabilities.
13. Which one of the following occupations best fits into the corporate area of finance? A. Mortgage broker B. Treasury bill analyst C. Chief financial officer D. Insurance risk manager E. Local bank manager
C. Chief financial officer
12. Which one of the following is an intangible fixed asset? A. Inventory B. Machinery C. Copyright D. Account receivable E. Building
C. Copyright
1. Which one of the following statements is false? A. Financial executives must design financial securities to meet the needs of the firm and its investors. B. Financial instruments are subject to full disclosure requirements. C. Financial instruments are greatly constrained by law and regulation. D. Financial instruments are claims against a company's cash flows and assets. E. None of the above.
C. Financial instruments are greatly constrained by law and regulation.
32. 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. A. I and II only B. I and IV only C. II and III only D. II and IV only E. I and III only
C. II and III only
23. Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? A. Sole proprietorship B. General partnership C. Limited partnership D. Limited liability company E. Corporation
C. Limited partnership
28. Which one of the following is an advantage of being a limited partner? A. Nontaxable share of any profits B. Control over the daily operations of the firm C. Losses limited to capital invested D. Unlimited profits without risk of incurring a loss E. Active market for ownership interest
C. Losses limited to capital invested
4. Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year? A. Indirect cost B. Direct cost C. Noncash item D. Period cost E. Variable cost
C. Noncash item
2. When using vertical analysis, we express income statement accounts as a percentage of: A. Net income. B. Gross profit. C. Sales. D. Total assets.
C. Sales.
22. Which of the following is not a solvency ratio? A. Time interest earned ratio. B. The debt to equity ratio. C. The current ratio. D. All of the other options are solvency ratios
C. The current ratio.
29. Which one of the following statements about a limited partnership is correct? A. All partners have their losses limited to their capital investment in the partnership. B. All partners are treated equally. C. There must be at least one general partner. D. Equity financing is easy to obtain and unlimited. E. Any partner can transfer his or her ownership interest without ending the partnership.
C. There must be at least one general partner.
57. A private placement is most apt to involve: A. a large number of private investors. B. only foreign investors. C. a life-insurance company. D. several private securities dealers. E. the U.S. Treasury department.
C. a life-insurance company
3. Which of the following securities has a purely residual claim against a firm's cash flows? A. preferred stock B. callable bonds C. common stock D. non-callable bonds E. None of the above.
C. common stock
33. Corporate shareholders: A. are proportionately liable for the firm's debts. B. are protected from all financial losses. C. have the ability to change the corporation's bylaws. D. receive tax-free distributions since all profits are taxed at the corporate level. E. have basically no control over the actual corporation.
C. have the ability to change the corporation's bylaws.
6. The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the: A. average tax rate. B. variable tax rate. C. marginal tax rate. D. fixed tax rate. E. ordinary tax rate
C. marginal tax rate.
17. Shareholders' equity is equal to: A. total assets plus total liabilities. B. net fixed assets minus total liabilities. C. net fixed assets minus long-term debt plus net working capital. D. net working capital plus total assets. E. total assets minus net working capital.
C. net fixed assets minus long-term debt plus net working capital.
7. Cash flow from assets is defined as: A. the cash flow to shareholders minus the cash flow to creditors. B. operating cash flow plus the cash flow to creditors plus the cash flow to shareholders. C. operating cash flow minus the change in net working capital minus net capital spending. D. operating cash flow plus net capital spending plus the change in net working capital. E. cash flow to shareholders minus net capital spending plus the change in net working capital.
C. operating cash flow minus the change in net working capital minus net capital spending.
50. 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: A. dealer market. B. over-the-counter market. C. secondary market. D. primary market. E. tertiary market
C. secondary market.
7. Which one of the following accurately orders the rate of return on financial securities from highest to lowest over most of recorded market history (the 1900-2015 period)? A. Short-term government bills, long-term corporate bonds, long-term government bonds, common stocks B. Long-term corporate bonds, long-term government bonds, common stocks, short-term government bills C. Common stocks, long-term government bonds, long-term corporate bonds, short-term government bills D. Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills E. Long-term corporate bonds, common stocks, short-term government bills, long-term government bonds F. None of the above.
D. Common stocks, long-term corporate bonds, long-term government bonds, short-term government bills
9. Which of the following is an example of horizontal analysis? A. Comparing COGS with sales. B. Comparing net income across companies. C. Comparing debt with equity. D. Comparing the growth in sales over time.
D. Comparing the growth in sales over time.
13. Which of the following ratios is most useful in evaluating liquidity? A. Return on assets. B. Return on equity. C. Debt to equity ratio. D. Current ratio.
D. Current ratio.
39. What is the primary goal of financial management for a sole proprietorship? A. Maximize net income given the current resources of the firm B. Decrease long-term debt to reduce the risk to the owner C. Minimize the tax impact on the proprietor D. Maximize the market value of the equity E. Minimize the reliance on fixed costs
D. Maximize the market value of the equity
36. Which one of these is correct? A. Depreciation has no effect on taxes. B. Interest paid is a noncash item. C. Taxable income must be a positive value. D. Net income is distributed either to dividends or retained earnings. E. Taxable income equals net income × (1 + Average tax rate).
D. Net income is distributed either to dividends or retained earnings.
13. Production equipment is classified as: A. a net working capital item. B. a current liability. C. a current asset. D. a tangible fixed asset. E. an intangible fixed asset
D. a tangible fixed asset.
9. 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: A. a corporate takeover. B. a capital structure issue. C. a working capital decision. D. an agency conflict. E. a compensation issue
D. an agency conflict.
12. 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? A. International finance B. Private placements C. Corporate finance D. Capital management E. Investments
E. Investments
25. Which one of the following statements correctly applies to a sole proprietorship? A. The business entity has an unlimited life. B. The ownership can easily be transferred to another individual. C. The owner enjoys limited liability for the firm's debts. D. Debt financing is easy to arrange in the firm's name. E. Obtaining additional equity is dependent on the owner's personal finances.
E. Obtaining additional equity is dependent on the owner's personal finances.
17. Capital budgeting includes the evaluation of which of the following? A. Size of future cash flows only B. Size and timing of future cash flows only C. Timing and risk of future cash flows only D. Risk and size of future cash flows only E. Size, timing, and risk of future cash flows
E. Size, timing, and risk of future cash flows
16. Which one of the following correctly defines a common chain of command within a corporation? A. The controller reports directly to the corporate treasurer. B. The treasurer reports directly to the board of directors. C. The chief financial officer reports directly to the board of directors. D. The credit manager reports directly to the controller. E. The controller reports directly to the chief financial officer.
E. The controller reports directly to the chief financial officer.
21. Net working capital decreases when: A. a new 3-year loan is obtained with the proceeds used to purchase inventory. B. a credit customer pays his or her bill in full. C. depreciation increases. D. a long-term debt is used to finance a fixed asset purchase. E. a dividend is paid to current shareholders.
E. a dividend is paid to current shareholders.
1. Net working capital is defined as: A. the depreciated book value of a firm's fixed assets. B. the value of a firm's current assets. C. available cash minus current liabilities. D. total assets minus total liabilities. E. current assets minus current liabilities.
E. current assets minus current liabilities.
41. The Sarbanes-Oxley Act of 2002 has: A. reduced the annual compliance costs of all publicly traded firms in the U.S. B. decreased senior management's involvement in the corporate annual report. C. greatly increased the number of U.S. firms that are going public for the first time. D. decreased the number of U.S. firms going public on foreign exchanges. E. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
E. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
24. Financial leverage: A. increases as the net working capital increases. B. is equal to the market value of a firm divided by the firm's book value. C. is inversely related to the level of debt. D. is the ratio of a firm's revenues to its fixed expenses. E. increases the potential return to the stockholders
E. increases the potential return to the stockholders
16. Net working capital increases when: A. fixed assets are purchased for cash. B. inventory is purchased on credit. C. inventory is sold at cost. D. a credit customer pays for his or her purchase. E. inventory is sold at a profit.
E. inventory is sold at a profit.
27. The market value of a firm's fixed assets: A. will always exceed the book value of those assets. B. is more predictable than the book value of those assets. C. in addition to the firm's net working capital reflects the true value of a firm. D. is decreased annually by the depreciation expense. E. is equal to the estimated current cash value of those assets.
E. is equal to the estimated current cash value of those assets.
52. The issuer of a security must be involved in all _____ transactions involving that security. A. exchange-listed B. secondary market C. over-the-counter D. dealer market E. primary market
E. primary market
35. Limited liability companies are primarily designed to: A. allow a portion of their owners to enjoy limited liability while granting the other portion of their owners control over the entity. B. provide the benefits of the corporate structure only to foreign-based entities. C. spin off a wholly owned subsidiary. D. allow companies to reorganize themselves through the bankruptcy process. E. provide limited liability while avoiding double taxation.
E. provide limited liability while avoiding double taxation.
34. The recognition principle states that: A. costs should be recorded on the income statement whenever those costs can be reliably determined. B. costs should be recorded when paid. C. the costs of producing an item should be recorded when the sale of that item is recorded as revenue. D. sales should be recorded when the payment for that sale is received. E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
E. sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.
