FINC QUIZ 1

Sole Proprietorship

Advantages-Easiest to start, Least regulated, Single owner keeps all the profits, Taxed once as personal income Disadvantages-Limited to life of owner, Equity capital limited to owner's personal wealth, Unlimited liability, Difficult to sell ownership interest

Public offerings of debt and equity must be registered with which one of the following? A. New York Board of Governors B. Federal Reserve C. NYSE Registration Office D. Securities and Exchange Commission E. Market Dealers Exchange

D. Securities and Exchange Commission

Which type of business organization has all the respective rights and privileges of a legal person? A. sole proprietorship B. general partnership C. limited partnership D. corporation E. limited liability company

D. corporation

Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends. A. I and II only B. II and III only C. I, III, and IV only D. I, II, and III only E. I, II, III, and IV

E. I, II, III, and IV

Which of the following is (are) included in the market value of a firm but are excluded from the firm's book value? I. value of management skills II. value of a copyright III. value of the firm's reputation IV. value of employee's experience A. I only B. II only C. III and IV only D. I, II, and III only E. I, III, and IV only

E. I, III, and IV only

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate. A. mean B. residual C. total D. average E. marginal

E. marginal

Indirect agency costs

management's tendency to forgo risky or expensive projects that could be justified from a risk-return standpoint.

A firm has sales of $2,190, net income of $174, net fixed assets of $1,600, and current assets of $720. The firm has $310 in inventory. What is the common-size statement value of inventory? A. 13.36 percent B. 14.16 percent C. 19.38 percent D. 30.42 percent E. 43.06 percent

A. 13.36 percent Common-size inventory = $310/($1,600 + $720) = 13.36 percent

During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by $75, and decreased its accounts payable by $40. How did these three accounts affect the firm's cash flows for the year? A. $245 use of cash B. $165 use of cash C. $95 use of cash D. $95 source of cash E. $165 source of cash

C. $95 use of cash Net Use of Cash= $130+$40-$75=$95

Al's Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit? A. 74.19 days B. 84.76 days C. 121.07 days D. 138.46 days E. 151.21 days

C. 121.07 days Inventory turnover = $628,300/$208,400 = 3.014875 Days in inventory = 365/3.014875 = 121.07 days

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values. A. increase in the cash ratio B. increase in the net working capital to total assets ratio C. decrease in the quick ratio D. decrease in the cash coverage ratio E. increase in the current ratio

C. decrease in the quick ratio

Financial Statement

balance sheet income statement statement of cash flow footnotes accountant's letter management discussion & analysis

Treasurer

oversees cash management, credit management, capital expenditures, and financial planning

Controller

oversees taxes, cost accounting, financial accounting and data processing

Three major forms of an organization

sole proprietorship, partnership, corporation

Direct agency costs

the purchase of something by management that can't be justified from a risk-return standpoint, monitoring costs.

Which of the following are included in current liabilities? I. note payable to a supplier in eight months II. amount due from a customer next month III. account payable to a supplier that is due next week IV. loan payable to the bank in fourteen months A. I and III only B. II and III only C. I, II, and III only D. I, III, and IV only E. I, II, III, and IV

A. I and III only

A general partner: A. is personally responsible for all the partnership debts. B. has no say over a firm's daily operations. C. faces double taxation whereas a limited partner does not. D. has a maximum loss equal to his or her equity investment. E. receives a salary in lieu of a portion of the profits.

A. is personally responsible for all the partnership debts.

Corporation

Advantages- Limited liability, Unlimited life, Separation of ownership and management, Transfer of ownership is easy, Easier to raise capital Disadvantages-Double taxation (income taxed at the corporate rate and then dividends taxed at the personal rate)

Partnership

Advantages-Two or more owners, More capital available, Relatively easy to start, Income taxed once as personal income Disadvantages- Unlimited liability, General partnership, Limited partnership, Partnership dissolves when one partner dies or wishes to sell, Difficult to transfer ownership

A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets? A. $710 B. $780 C. $990 D. $2,430 E. $2,640

B. $780 Current assets = $520 + $190 + $70 = $780

Which of the following are current assets? I. patent II. inventory III. accounts payable IV. cash A. I and III only B. II and IV only C. I, II, and IV only D. I, II and IV only E. II, III, and IV only

B. II and IV only

Which of the following represent cash outflows from a corporation? I. issuance of securities II. payment of dividends III. new loan proceeds IV. payment of government taxes A. I and III only B. II and IV only C. I and IV only D. I, II, and IV only E. II, III, and IV only

B. II and IV only

Which one of the following is a capital budgeting decision? A. determining how many shares of stock to issue B. deciding whether or not to purchase a new machine for the production line C. deciding how to refinance a debt issue that is maturing D. determining how much inventory to keep on hand E. determining how much money should be kept in the checking account

B. deciding whether or not to purchase a new machine for the production line

Which one of the following is a primary market transaction? A. sale of currently outstanding stock by a dealer to an individual investor B. sale of a new share of stock to an individual investor C. stock ownership transfer from one shareholder to another shareholder D. gift of stock from one shareholder to another shareholder E. gift of stock by a shareholder to a family member

B. sale of a new share of stock to an individual investor

Which one of the following statements concerning a sole proprietorship is correct? A. A sole proprietorship is designed to protect the personal assets of the owner. B. The profits of a sole proprietorship are subject to double taxation. C. The owner of a sole proprietorship is personally responsible for all of the company's debts. D. There are very few sole proprietorships remaining in the U.S. today. E. A sole proprietorship is structured the same as a limited liability company.

C. The owner of a sole proprietorship is personally responsible for all of the company's debts.

It is easier to evaluate a firm using financial statements when the firm: A. is a conglomerate. B. has recently merged with its largest competitor. C. uses the same accounting procedures as other firms in the industry. D. has a different fiscal year than other firms in the industry. E. tends to have many one-time events such as asset sales and property acquisitions.

C. uses the same accounting procedures as other firms in the industry.

Which one of the following statements concerning net working capital is correct? A. Net working capital increases when inventory is purchased with cash. B. Net working capital must be a positive value. C. Total assets must increase if net working capital increases. D. A decrease in the cash balance may or may not decrease net working capital. E. Net working capital is the amount of cash a firm currently has available for spending.

D. A decrease in the cash balance may or may not decrease net working capital.

3. Which of the following accounts are included in working capital management? I. accounts payable II. accounts receivable III. fixed assets IV. inventory A. I and II only B. I and III only C. II and IV only D. I, II, and IV only E. II, III, and IV only

D. I, II, and IV only

Which one of the following is an agency cost? A. accepting an investment opportunity that will add value to the firm B. increasing the quarterly dividend C. investing in a new project that creates firm value D. hiring outside accountants to audit the company's financial statements E. closing a division of the firm that is operating at a loss

D. hiring outside accountants to audit the company's financial statements

Which one of the following is a source of cash? A. increase in accounts receivable B. decrease in notes payable C. decrease in common stock D. increase in accounts payable E. increase in inventory

D. increase in accounts payable

Which one of the following terms is defined as the mixture of a firm's debt and equity financing? A. working capital management B. cash management C. cost analysis D. capital budgeting E. capital structure

E. capital structure

Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management? A. increase in the amount of the quarterly dividend B. decrease in the per unit production costs C. increase in the number of shares outstanding D. decrease in the net working capital E. increase in the market value per share

E. increase in the market value per share

Which one of the following parties has ultimate control of a corporation? A. chairman of the Board B. board of directors C. chief executive officer D. chief operating office E. shareholders

E. shareholders