Chapter 1 wk 1

Which year was the Sarbanes-Oxley Act enacted?

2002

liabilities+stockholder's equity

=Assets

Which of the following shows a snapshot of a firm's finances at a given point in time?

Balance sheet

A bad financial decision is defined as a decision that ______ owners' equity.

Decreases

Identify which assets last a long time and include items such as equipment, land, machinery, or buildings.

Fixed

Since ownership in a corporation can be dispersed over a huge number of stockholders, it can be argued that ______ effectively controls the firm

Management

Which of the following are general ways stockholders control the agency relationship with management?

Managerial compensation structures Threat of replacement

What is the main goal of financial management?

To maximize current share value

True or false: Accounting profit does not adequately account for cash flow.

True

Which of the following, according to the textbook, are possible financial goals for a company?

survival minimize costs maximize profits

When a corporation is formed, it is granted which of the following rights? (Check all that apply.)

- Legal Powers to sue - The ability to Issue stock - Provincial citizenship for Jurisdictional purposes

Sales- Costs

=Profit

Assets- Liabilities

=stockholders equity

The costs incurred due to a conflict of interest between stockholders and management are called ______ costs.

Agency

The relationship between stockholders and management can best be described as a(n) ______ relationship.

Agency

The left side of a balance sheet shows a firm's current and fixed ______.

Assets

A firm's balance sheet shows a snapshot of its finances ______.

At a point in time

Which of the following are examples of current assets?

Cash & Inventory

In large firms, financial activity is usually associated with which top officer?

Chief financial officer

Which of the following positions generally report to the chief financial officer (CFO)?

Controller Treasurer

Which of the following business forms is easiest to transfer ownership stakes in?

Corporation

The main job of a financial manager is to ______.

Create value for shareholders

The purpose of a firm is to ______.

Create value for the owner

Some of the cash flow generated by a firm goes back to the financial markets in the form of ______.

Dividends and debt payments

Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?

Enron WorldCom Tyco

The Securities Act of 1933 and the Securities____________ Act of 1934 provide the basic regulatory framework in the United States for the public trading of securities.

Exchange

The primary responsibility of financial managers is to increase the value of _____.

Existing shares of stock

True or false: Shareholders are the ONLY stakeholder in a firm as they are the owners.

False Reason: Correct. Employees, customers, suppliers, and even the government all have a financial interest in the firm.

What determines when a sale is recorded for accounting purposes?

Generally accepted accounting principles Reason: Correct. Generally Accepted Accounting Principles define when a sale is recorded for accounting purposes. Cash flow does not necessarily occur at the time of sale.

A sole proprietorship is a business that _______.

Is owned by one person

The life of a corporation ______.

Is unlimited

Since ________ and ownership are separated, a corporation's life is unlimited.

Management

In a shareholder-manager relationship, who is the agent?

Managers

Assuming interest rates are positive and are greater than the inflation rate, one dollar received today is worth _____ one dollar received next year.

More than

Current assets- current liabilities

Net working capital

The 1934 Securities Exchange Act restricts anyone who has access to ______ information from trading on that information.

Non-public

A sole proprietorship is a business owned by ______ person(s).

One

In many public companies,____________ is dispersed among many shareholders. This dispersion arguably means that management effectively controls the firm.

Ownership

How is ownership transferred in a corporation?

Ownership is transferred by gifting or selling shares of stock.

A business without separate legal authority formed by two or more people is known as a _____.

Partnership

Which of the following is true concerning government regulation?

Regulation can help ensure firms disclose relevant information to investors. Regulation can help reduce conflicts of interest between managers and shareholders. Regulation can be costly to a firm.

Because shareholders get paid last after all other obligations are satisfied, they are often called ______.

Residual owners

What happens when a firm creates value?

Shareholder wealth increases.

The owner of a corporation are called

Shareholders

Which of the following are owners of a corporation?

Shareholders

Agency costs refer to the costs of the conflict of interest between________ and_________

Shareholders and management

A current asset has a(n) ______ life.

Short

When would individuals prefer to receive cash flows?

Sooner rather than later

Which of the following can be used to encourage managers to act in the best interests of shareholders?

Stock options and bonuses Managerial compensation tied to performance

Which of the following can be used to encourage managers to act in the best interests of shareholders?

Stock options and bonuses Managerial compensation tied to performance Better prospects of promotion

Which of the following groups are considered as owners of a company?

Stockholder

A good financial decision will do which of the following?

increase the value of the firm's existing stock increase the market value of shareholders' equity

A corporation is a distinct ______ entity and as such can have a name and take advantage of the legal powers of natural persons.

legal