Section 5 Intro to buisness test

The face value of a bond or its initial sales price is typically:

$1,000

Which of the following would not be a fixed asset for the Sprocket and Widget Manufacturing Company?

$5,000 in T-bills

Which of the following was passed to limit the ability of credit card issuers to raise rates, limit credit to young adults, and give people more time to pay bills?

Credit Card Accountability Responsibility and Disclosure Act

_____ money refers to paper money that is not readily convertible to a precious metal such as gold.

Fiat or flat

The two biggest stock markets in the United States are the:

New York Stock Exchange and the NASDAQ market.

The amount of money budgeted for the purchase of long-term assets is called the:

capital budget

Which of the following characteristics of money refers to the ability of a dollar bill to be handled hundreds of times without significant wear and tear?

durability

Net income is:

earnings after all taxes and other expenses are paid.

Corporations usually employ _____ to help sell their securities in the primary market.

investment banking firms

A money market fund is a special type of mutual fund that:

invests in short-term debt securities issued by large corporations.

Which of the following is considered as an owners' equity account?

preferred stock

Stockholders who receive preference in the distribution of a firm's dividends but cannot vote are called:

preferred stockholders

The Troubled Asset Relief Program (TARP) allowed the U.S. Treasury to:

purchase up to $250 billion of senior preferred shares of banks securities.

Which of the following is not a tool used by the Federal Reserve Board to implement its monetary policy?

regulate income tax

Bookkeeping is only one aspect of accounting and involves the recording of routine, day-to-day business transactions.

true

Current liabilities refers to a firm's financial obligations to short-term creditors, which must be repaid within one year.

true

If the par value of a stock is $2 and the offering price of the stock is $5, the capital in excess of par is:

$3.00

Do-It-Yourself Home Repair Shop started the accounting period with $10,000 worth of shovels in inventory. During the accounting period, it purchased $5,000 worth of shovels and sold $7,500 worth. What is its cost of goods sold in this scenario?

$7,500

_____ is the process of analyzing what fixed assets, projects, and investments will earn profits for a firm beyond the costs necessary to fund them.

Capital budgeting

_____ are issued by commercial banks and brokerage companies, available in minimum amounts of $100,000, and which may be traded prior to maturity.

Commercial certificates of deposits

Which of the following acts restricted commercial banks from engaging in certain high-risk trading activities and also raised the required capital that banks must hold on their balance sheets?

Dodd-Frank Act

Which of the following was NOT an issue during the 2007-2008 financial crisis?

Expanding capital base

A trade term of "2/10 net 30" means that purchasing organization may take a 2 percent discount from the invoice amount is it makes payment by the 30th day after receiving the bill.

False

An operating lease is a long term contract that shows up on the balance sheet as an asset and a liability.

False

Common stock is a safer investment than preferred stock.

False

Equity financing involves taking on long-term liabilities while debt financing attracts new owners.

False

Investment bankers offer short-term loans at substantially higher interest rates than banks.

False

Stockholders' equity includes common stock, secured bonds, and dividend yield.

False

The par value is the guaranteed percentage of face value that the company will pay to the bond owner every year.

False

When the federal reserve board (Fed) buys securities, it decreases the money in circulation.

False

Which of the following statements is true of eurodollar market?

It is used by companies to invest idle cash in international markets.

Which of the following involves paying a fee for usage rather than owning the asset?

Leasing

Based on the qualitative assessments, which of the following potential investment projects is the most risky?

introducing a new product in a foreign market

Which of the following actions did the federal reserve take during the most recent financial crisis?

it kept the interest rates low to stimulate the economy.

Which of the following types of bonds offer relatively high rates of interest because they have higher inherent risks?

junk bonds

According to the scenario presented in the text, the debts Anna's Flowers owes to the Small Business Administration and her company's suppliers represent _____.

liabilities

A debit card:

looks like a credit card but works like a check.

Because having idle cash on hand is undesirable, a manager may choose to invest the extra cash in temporary investments called:

marketable securities

One of the primary goals of financial managers who focus on current assets and liabilities is to:

maximize returns on inventory

If a person invests in a firm that pools funds from a large number of people and buys and professionally manages stock from a number of diversified companies, that person is investing in a(n):

mutual fund

Which of the following institutions is similar to a savings and loan association except that it is owned by its depositors?

mutual savings banks

The acronym NOW, when used in financial institutions, stands for ____ and is a type of interest-bearing checking account.

negotiable order of withdrawal

the primary business of savings and loan associations (S&Ls) is to:

offer savings accounts

A CPA has the right to:

officially express an unbiased opinion about the accuracy of a firm's financial statements.

The owners' contributions to a company and all earnings retained to finance continued growth and product development are

owners equity

The dollar amount printed on a stock certificate is known as its:

par value

Insurance companies protect their clients against financial losses from certain specified risks in exchange for a fee, called a(n):

premium

The _____ is the interest rate commercial bank lenders change their best customers for short-term loans.

prime rate

If Linda Wilson borrows $20,000 to buy a car and ends up paying the lender a total of $24,000, the $20,000 represents the:

principal

Vikram Patel is an accountant who is employed by a large department store chain in the tax department. He is probably a(n):

private accountant

Return on assets and return on equity are examples of _____ ratio.

profitability

The ratio that reflects a company's liquidity after excluding inventory is _____ ratio.

quick

Information found on the company's income statement and balance sheet is extracted from these documents and examined more closely through the use of:

ratio analysis

Accounting refers to a process of:

recording, measuring, and interpreting financial data.

When a company wants to place a value on a physical asset for its balance sheet, it must:

reduce the value by the amount the asset has depreciated.

As a medium of exchange, money:

reduces the need for bartering

Of the following potential investment projects, the project that poses the least risk is:

repairing old equipment

A money market fund differs from the money market account offered by banks primarily in that the former:

represents a pool of funds; not just specialized, individual checking account.

All of the following could be expense accounts EXCEPT:

retained expense

Billy Banker has to decide whether to lend the Safe Toy Company $10,000 to pay suppliers. He will:

review the company's financial statements

An accounting term that is synonymous with revenue is:

sales.

A boat manufacturer orders 50 units of fiberglass material, promising to pay the supplier at a later date. The boat manufacturer will record the amount to be paid as a(n):

secured loan

In some countries with very high inflation rates, citizens must spend their money as fast as they receive it in order to keep it from losing any more of its value. Under these conditions, money is said to lack:

stability

When inflation is very high, money is no longer a(n) _____ means of exchange.

stable

The financial statement that explains how a firm's cash changed from the beginning of the accounting period to the end is called the:

statement of cash flows

When used to accumulate wealth, money functions as a:

store of value.

Savings accounts are also known as:

time deposits

Which of the following is a reason why companies use a lockbox?

to speed up cash collection from customers

Good money managers strive to keep just enough cash on hand to pay employee wages and utility bills. This cash is called:

transaction balances

A bond can be transferred from one owner to another.

true

A checking account is also called a demand deposit account.

true

Accounting is the recording, measurement, and interpretation of financial information.

true

All business transactions can be classified as assets, liabilities, or owner's equity.

true

Assets are a firm's economic resources.

true

Certificates of deposit are accounts with funds that usually can not be withdrawn before the end of the pre-determined maturity period without paying a penalty

true

The Federal Reserve Board regulates U.S. financial institutions.

true

The Federal Reserve provides national check processing.

true

The federal reserve board regulates U.S. financial institutions.

true

Under the Troubled Asset Relief Program (TARP), most of the big banks in the U.S. either needed a cash infusion from the U.S. treasury or were forced to sell preferred stock to the Treasury in order to stay in business.

true

Unsecured loans are backed by the borrowers' good reputation and prior credit rating.

true

When the financial statements are completed and an accountant has attested that the firm followed GAAP, a firm's books are said to be "closed," and the accounting cycle begins anew for the next accounting period.

true

_____ are also called debentures and are not backed by specific collateral.

unsecured bonds

To carry out its function of controlling the supply of money in the economy, the Federal Reserve board:

uses monetary policy.

Mutual savings banks are similar to savings and loan associations except that they are owned by their depositors.

True

Rapid advances and technological innovations are requiring the banking industry to change.

True

The market value of common stock is the price at which it is currently trading.

True

Transaction balances refer to cash kept on hand by a firm to pay everyday expenses.

True

The financial document that has been likened to a snapshot of how the company's finances are doing at that moment is called a(n):

balance sheet

Unlike an income statement, the _____ represents an accumulation of all of a company's transactions.

balance sheet

A nonbanking financial institution that buys and sells stocks, bonds, and other securities for its customers is called a(n):

brokerage firm

Which of the following actions would the Federal Reserve Board take first if it wanted to increase the money supply in the economy?

buy government securities

A money market account differs from an interest-bearing checking account in that the owners of a money market account:

can write only a limited number of checks each month.

CPA stands for:

certified public accountant

The federal reserve board provides all of the following services EXCEPT:

collecting taxes and enforcing internal revenue code.

The oldest and largest of all financial institutions are:

commercial banks

_____ is a written promise from one company to another to pay a certain amount of money.

commercial paper

_____ is the single most important source of capital for most new companies.

common stock

Which of the following is NOT a type of pension fund?

insurance company life insurance plans

Which of the following is true of bookkeeping?

Bookkeeping involves recording information that accountants require to analyze a firm's financial position.

_____ allows financial institutions to reduce costs by facilitating "paperless" transactions.

Automated teller machine

Which of the following equations is equivalent to the accounting equation?

Owners' equity = assets - liabilities

All of the following represent assets EXCEPT:

a bank loan

What is the last step that must be done before a firm's books can be closed for an accounting cycle?

A CPA must attest that good principles were used in the preparation of the document.

Which of the following is money that an organization owes to suppliers for goods and services?

Accounts payable

What is meant by the term owners' equity?

All the money that the firm has that does not need to be paid back

Which of the following equations is correct?

Profit margin = net income/sales.

What are the fundamentals of the accounting process?

The accounting equation and the double-entry bookkeeping system

_____ are reinvested in the assets of the firm and belong to the owners in the form of equity.

Retained earnings

_____ are marketable securities that are short-term debt obligations sold by the U.S. government to raise money.

T-bills

Which of the following statements is true of floating-rate bonds?

They do not have fixed interest payments.

Which of the following is NOT true of private accountants?

They express an official unbiased opinion regarding the accuracy of a client's financial statements.

Which of the following statements is true of bonds?

They must be repaid according to the terms set in the indenture.

Advantages of direct deposits of paychecks and other income to consumers include convenience, safety, and potential interest earnings.

True

Which of the following is a long-term debt instrument that requires the issuer to repay the lender regular interest payments until the loan is repaid on or before the specified maturity rate?

a bond

Which of the following is an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request?

a line of credit

Which of the following is an example of a long-term liability?

a serial bond

Which of the following is a liability in a balance sheet?

accounts payable

Which of the following is a current asset?

accounts receivable

_____ is an account showing money owed to a company by its clients or customers.

accounts recievable

All of a firm's unpaid financial obligations are occasionally consolidated into an account called:

accrued expenses

Credit cards:

allow cardholders to pay for transactions at a later date.

A forensic accountant:

analyzes financial documents in search of fraudulent entries or financial misconduct.

The federal reserve board is primarily responsible for:

creating a stable environment for economic growth.

Employees of a local school conduct their financial transactions through the same financial institution that they also own. The financial institution is more likely to be a(n):

credit union

The major difference between banks and credit unions is that:

credit unions are owned and controlled by depositors

Maurice was asked to extend trade credit to a restaurant she hadn't serviced before. She asked to see its balance sheet to determine if it could pay its bills. She divided its current assets by current liabilities to get its:

current ratio

If a company is relying on borrowing and credit too extensively, this will probably be reflected in _____ ratio.

debt utilization

Long-term liabilities:

debts that will be repaid over a number of years.

When the Federal Reserve board sells investments, it:

decreases the money supply

When the federal reserve board increases the reserve requirements, it:

decreases the money supply

The process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to use is called _____.

depreciation

The cash return as a percentage of a stock's price is called its:

dividend yield

The over-the-counter securities market:

does not have a central location

Money must be very difficult to counterfeit; it means that it should be hard to:

duplicate illegally

The net income of a company is equal to the total revenue minus:

expenses and taxes.

A finance company that buys other companies' accounts receivable is known as a(n):

factor

A credit union is owned and controlled by the government.

false

Highly successful and rapidly growing companies can easily make payments to employees, suppliers, and lenders even if they have an inadequate cash flow.

false

In accounting, a ledger is a time-ordered list of accounting transactions.

false

Interest expenses include the indirect costs of borrowing money.

false

It's certain the banks will continue to grow bigger over the next 10 years.

false

Lockbox systems are beneficial to companies regardless of the number of checks they receive from customers every business day.

false

The longer a project or asset is expected to last, the lesser is its potential risk.

false

The principal is the amount of money a business pays to use a bank's funds.

false

The terms accounting and bookkeeping are interchangeable because they mean almost the same thing.

false

When the federal reserve board (fed) raises the discount rate, it is easier to borrow money.

false

The accounting cycle includes all of the following, EXCEPT:

generating annual reports

When a company invests a lot of money in a particular project, it is concerned about the amount of risk involved. In general, if the expected life of a project is longer, its potential risk is:

greater

In general, the longer the term of a certificate of deposit, the:

higher its interest rate

Profitability ratios are used to measure:

how much income (net or operating) a firm generates relative to its assets, equity, and sales.

_____ and _____ are measures that are used to measure stock market performance.

indexes; averages