Finance test one
Which one of the following will increase the cash flow from assets for a tax-paying firm, all else constant?
An increase in depreciation
Which one of the following applies to a general partnership?
Any one of the partners can be held solely liable for all of the partnership's debt. You Answered Each partner's liability for the firm's debts is limited to each partner's investment in the firm. The profits of a general partnership are taxed the same as those of a corporation. The profits of the firm are taxed as a separate entity. The firm's operations must be controlled by a single partner.
The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
Agency
Which one of the following is a capital structure decision?
Establishing the preferred debt-equity level
T/F Developing and using a budget is part of the "obtaining" component of financial planning.
FALSE
Types of risks associated with financial decisions may include:
Liquidity risk Income risk Correct! All of these choices are correct Inflation risk Personal risk
One aspect of financial planning is to make sure you maintain adequate insurance coverage for your needs. Which component of financial planning does this deal with?
Managing risk
What is the primary goal of financial management for a sole proprietorship?
Maximize the market value of the equity
Which one of the following correctly defines a common chain of command within a corporation?
Correct Answer The controller reports directly to the chief financial officer.
Security dealers:
Correct Answer buy and sell from their own inventory.
In a general partnership, each partner is personally liable for:
Correct Answer: the total debts of the partnership, even if he or she was unaware of those debts.
Which of the following is not a basic area of finance as described by the text?
Correct! Accounting
Raleigh BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as:
Correct! working capital management.
Working capital management includes which one of the following?
Determining which customers will be granted credit
Sophia Martinez wants to travel after she retires as well as pay off the balance of the loan she has on the home she owns. Which step in the financial planning process does this situation demonstrate?
Developing her financial goals
The current financial position of an individual or family is best presented with the use of a:
balance sheet
Which of the following items is something that would typically not be stored in a safe deposit box?
bank statements
The problem of bankruptcy is associated with misuse of credit in the _____________ component of financial planning.
borrowing
highly liquid assets
can be sold quickly at close to full value.
Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?
cash management
Which one of the following cash outflows should be listed first on a cash flow statement?
fixed expensises
When conducting a financial analysis of a firm, financial analysts:
frequently use accounting information.
Over the past year, a firm decreased its current assets and increased its current liabilities. As a result, the firm's net working capital:
had to decrease.
A sole proprietorship:
has its profits taxed as personal income.
Corporate shareholders:
have the ability to change the corporation's bylaws.
Ian Parr needs to store monthly statements from his bank, credit card company, and savings accounts. Where is the most appropriate place for Ian to store this information?
home file
The accounting statement that measures the revenues, expenses, and net income of a firm over a period is called the:
income statement
inflation is caused by
increased demand by consumers without increased supply.
The time value of money refers to:
increases in an amount of money as a result of interest earned.
financial leverage:
increases the potential return to the stockholders.
A corporation:
is a legal entity separate from its owners.
Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners?
limited partnership
Higher interest rates can be caused by:
lower money supply.
The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the
marginal tax rate.
The primary goal of financial management is most associated with increasing the:
market value of the firm
An example of a liquid asset is:
money in a checking account.
shareholders equity is equal to
net fixed assets minus long-term debt plus net working capital.
The issuer of a security must be involved in all _____________ transactions involving that security.
primary market
Limited liability companies are primarily designed to:
provide limited liability while avoiding double taxation.
The shareholders of Qiang'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:
agency conflict
the market value of:
an asset tends to provide a better guide to the actual worth of that asset than does the book value.
The amount of interest is determined by multiplying the amount in savings by the:
annual interest rate and the time period.
A major activity in the planning component of financial planning is:
anticipating spending through budgeting.
market values
reflect expected selling prices given the current economic situation.
The Sarbanes-Oxley Act:
requires the corporate officers to personally attest that the financial statements are a fair representation of the company's financial results.
The financial planning process concludes with efforts to:
review and revise your financial plan.
The uncertainty associated with every decision is referred to as:
risk
One example of a primary market transaction would be the:
sale of 1,000 shares of newly issued stock by Alt Company to Miquel.
The primary goal of financial management is to maximize:
the current value of existing stock
Shareholders' equity is best defined as:
the residual value of a firm
In a general partnership, each partner is personally liable for:
the total debts of the partnership, even if he or she was unaware of those debts
In a general partnership, each partner is personally liable for:
the total debts of the partnership, even if he or she was unaware of those debts.
A person's net worth is the difference between the value of the items owned and the amounts owed to others.
true
Discretionary income is money left over after paying for housing, food, and other necessities.
true
The 50/30/20 financial rule of thumb suggests that 30 percent of income be used for:
wants
An auction market:
Correct Answer has a physical trading floor.
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
The changing cost of money when borrowing is referred to as _____________ risk.
interest rate risk
Net working capital increases when
inventory is sold at a profit
Which one of the following parties can sell shares of ABC stock in the primary market?
ABC company
Maria is the sole proprietor of an antique store that is located in a rented warehouse. The store has an outstanding loan with the local bank but no other debt obligations. There are no specific assets pledged as security for the loan. Due to a sudden and unexpected downturn in the economy, the store is unable to generate sufficient funds to pay the loan payments due to the bank. Which of the following options does the bank have to collect the money it is owed? Sell the inventory and apply the proceeds to the debt Sell the lighting fixtures from the building and apply the proceeds to the debt Withdraw funds from Maria's personal account at the bank to pay the store's debt Sell any assets Maria personally owns and apply the proceeds to the store's debt
1, 3, and 4 only
Financial experts recommend monthly savings of:
5-10 percent
Which one of the following occupations best fits into the corporate area of finance?
CFO
Which one of the following functions is generally a responsibility assigned to the corporate treasurer?
Capital expenditures
Which one of the following is most apt to align management's priorities with shareholders' interests?
Compensating managers with shares of stock that must be held for a minimum of three years
Stella Jones likes to go to the movies once a week. When she is at the movies, she generally gets a large popcorn and a drink. Stella wants to be sure that she sets aside money each week so she can continue going to the movies. What type of goal would this be for Stella?
Consumable-product goal
When identifying alternative courses of action, possible courses of action include which of the following?
Continue with the same course of action
The Sarbanes-Oxley Act in 2002 was primarily prompted by which one of the following from the 1990s?
Corporate accounting and financial fraud
Which one of the following changes during a year will increase cash flow from assets but not affect the operating cash flow?
Increase in accounts payable
Which one of the following best describes the primary intent of the Sarbanes-Oxley Act of 2002?
Increase the protections against corporate fraud
_____________ goals relate to personal relationships, health, and education.
Intangible-purchase
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 of the following are considered to be personal financial statements?
Personal balance sheet and cash flow statement
Freddie Moore has developed a budget that he follows each month. Freddie has an envelope for each type of expenditure. After he cashes his paycheck, he puts the amount of cash in each envelope that he plans to spend on that category each month. What type of budget has Freddie created?
Physical budget
Which one of the following is contained in the corporate bylaws?
Procedures for electing corporate directors
Which of these is an example of an opportunity cost?
Saving and investing for the future reduces the amount you can spend now.
Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?
Sole proprietorship
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
Which one of the following statements is correct?
The Chicago Stock Exchange is a dealer market. OTC markets have a physical trading floor generally located in either New York City or Chicago. Correct Answer The primary purpose of the NYSE is to match buyers with sellers. All of the major stock exchanges are U.S. based. The NYSE was created by the National Association of Securities Dealers in the early 1930s.
Describe the relationship between the annual inflation rate and prices using the Rule of 72.
The Rule of 72 helps determine how fast prices (or your savings) will double using the following formula: 72/annual inflation rate = number of years it takes to double prices (or your savings).
Jordan and Carmen 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 of the following except:
corporations
the matching principle states:
costs of producing an item should be recorded when the sale of that item is recorded as revenue.
The goal of financial management is to increase the
current market value per share.
All else held constant, the book value of owners' equity will decrease when:
dividends exceed net income for a period.
net capital spending is
ending net fixed assets minus beginning net fixed assets plus depreciation.
The Sarbanes-Oxley Act of 2002 has:
essentially made officers of publicly traded firms personally responsible for the firm's financial statements.
A home file should be used for:
financial records for current needs
Determining your current financial situation is a part of which step in the financial planning process?
first
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
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:
secondary market
Copies of tax returns and supporting data should be kept for _____________ year(s).
seven
Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?
sole proprietorhsip
One aspect of financial planning is to make wise decisions using a plan as to what to purchase and when to purchase it. Which component of financial planning does this deal with?
spending
In most societies, the forces of_____________ set prices for securities, goods, and services.
supply and demand
operating cash flow is
the cash that a firm generates from its normal business activities.
Which of the following statements is false?
Acorns is a creative crowdfunding app, allowing smaller investors to join together to fund design ventures. advice based on mathematical rules or algorithms.
