Midterm Practice Questions

Chapter 7 bankruptcy priority of claims

1. specific property pledged 2. trustee's costs 3. pre-trustee involuntary liquidation expenses 4. wages earned 3 months prior to filing 5. unpaid benefit contributions owed 6 months prior 6. unsecured claims for customer deposits 7. taxes due 8. unfunded pension plan liabilities up to 30% of book value of common/preferred equity 9. general unsecured creditors 10. preferred stockholders 11. common stockholders

"In case of bankruptcy, what is the order of payment for the following: 1-Bankruptcy Trustee, 2-Senior Debt, 3- Common Shareholders, 4-Taxes owed, 5-Subordinated bond holders"

2, 1, 4, 5, 3

"Upon entering into an interest rate swap with a notional principal of $10,000,000, what is the initial amount of money the counterparties must exchange at the beginning of the swap? " A. $0 B. $5,000,000 C. The future value of $10,000,000 D. $10,000,000 discounted

A. $0

The Glass Steagal Act was basically repealed through which act of Congress? A. Allowing Financial Holding Companies B. Abolishing Regulation Q in the Dodd Frank Act C. Allowing for the Fed to price its services through the Monetary Control Act D. Passing of Sarbanes Oxley

A. Allowing Financial Holding Companies

All of these are attributes of Jumbo CDs except A. CDs must be held to maturity B. They are negotiable instruments with a secondary market C. The minimum denomination is $100,000 D. The funds invested are exposed to bankruptcy risk over the FDIC amount

A. CDs must be held to maturity

What is a ramification of overly strict credit? A. Company may decline trade credit to customers who are an acceptable credit risk. B. Company has improved sales opportunities. C. Company may grant trade credit to customers who are an unacceptable credit risk. D. May increase risk of late payments and bad debt expenses.

A. Company may decline trade credit to customers who are an acceptable credit risk.

Which two accounts vary spontaneously as sales levels change, and why do they change? A. Current assets (credit sales) and current liabilities (fewer assets or more liabilities) B. Inventories (JIT) and long-term liabilities (CapEx) C. Common stock (dividends) and long-term liabilities (CapEx) D. Current assets (credit sales) and long-term assets (capacity expansion)

A. Current assets (credit sales) and current liabilities (fewer assets or more liabilities)

A company is interested in lowering its overall banking costs, managing netting, pooling, re-invoicing, and centralizing FX exposure at headquarters. Which of the following options will accomplish this? A. In-house banking B. Shared service center C. Company processing center D. Automated clearing house

A. In-house banking

A company enters into a cash flow hedge to offset fluctuations in the value of foreign currency transactions occurring in two years. How should the company record the gains and/or losses on the cash flow hedge in the current year? A. The hedged gains and losses are reported in comprehensive income B. The hedged gains and losses are reported in current period income C. The hedged gains and losses are reported in current period income together with the offsetting gains and losses of the foreign currency D. The hedged gains and losses are reported in comprehensive income together with the offsetting gains and losses of the foreign currency

A. The hedged gains and losses are reported in comprehensive income

When it comes to Audit Opinions, firms would like A. Unqualified B. Adverse C. Disclaimed D. Qualified with explanation

A. Unqualified

Which is NOT a source of cash for a company? A. Depreciation expense B. An increase in Accounts Receivables C. A decrease in Inventory D. Paying your bills later

B. An increase in Accounts Receivables

Which of the following is a ratio that is often used by commercial banks to measure a company's leverage and does not include the effect of assets that are difficult to value or are NOT easily converted to cash? A. Long-term debt to capital B. Debt to tangible net worth C. Total liabilities to total assets D. Cash flow to total debt

B. Debt to tangible net worth

Which of the following are important uses of variance analysis in comparing actual cash flows with projected cash flows? I. Identifying unanticipated changes in inventory II. Enhancing short-term investment income III. Validating a capital budget IV. Identifying delays in accounts receivable collections A. I and II only B. I and IV only C. II and IV only D. I, II, III, and IV

B. I and IV only

"ABC Company offers a discount of 2/10, net 30 to its customers. ABC factored its accounts receivables with an outside vendor, under a with recourse arrangement. What impact might this have on the company? " A. Increase days sales outstanding B. Improve cash conversion cycle C. Reduce bad debt expense D. More customers may take the discount

B. Improve cash conversion cycle

Which is sometimes used if a subsidiary's currency is expected to appreciate relative to the parent company's currency? A. Leading B. Lagging C. Netting D. Re-invoicing

B. Lagging

A company is experiencing the following long-term trend on a month-over-month basis: Sales are increasing by $100,000, a 15% increase. Accounts receivable are increasing by $5,000, a 1% increase. Accounts payable are increasing by $20,000, a 4% increase. Labor expenses are increasing by $40,000, a 3% increase. With all other income, expenses, long-term assets and liabilities remaining stable, this trend would MOST LIKELY prompt what action by the company? A. Financing working capital requirements B. Repaying short-term debt C. Reducing labor costs D. Factoring accounts receivable

B. Repaying short-term debt

When utilizing a Factor to sell your receivables, all could be true except A. You will sell the receivables at a discount off of face amount B. They must be sold without recourse back to the selling company C. Factors can have recourse back to the selling company if customers do not pay D. Factoring can assist in raising cash for a company

B. They must be sold without recourse back to the selling company

Checks and balances with regards to Treasury activities are important because A. Treasurers have a certification that must be upheld B. Treasurers deal with the cash of the company in all aspects C. The auditors will review all treasury activities and ensure ethical behavior D. Ethics are actually not paramount for treasury staff

B. Treasurers deal with the cash of the company in all aspects

The items listed below are some of the reasons to use caution if reducing A/R and inventory conversion or extending A/P deferral periods. - production stoppages from poor material or parts - A/P stretched past due - lost trade discounts - higher vendor charges from small orders or slow payment What is another of these reasons? A. Overly loose credit and collection standards B. Won't sell to customers with good credit who are a bit slow in paying C. Excessive reliance on short-term bank credit D. Insufficient reliance on A/P

B. Won't sell to customers with good credit who are a bit slow in paying

All are multicurrency account stipulations EXCEPT A. the base currency in which the account is denominated. B. the currencies not accepted. (All others are accepted.) C. the spread over spot rate to use in exchanging each currency back to the base currency. D. the value date to apply to debits and credits for each transaction type and currency

B. the currencies not accepted. (All others are accepted.)

The Quantitative Easing done by the Federal Reserve during the great recession used which monetary policy tool?

Buying bonds by the Federal Open Market Operations of the Fed

Using the info below what is the Days Receivables (DR)? Annual Revenue $158,000.00 Annual Cost of Goods Sold $92,400.00 Cash Flow from Operations $850.00 Ending Inventory $23,600.00 Ending Accounts Receivable $19,300.00 Ending Accounts Payable $16,950.00 A. $2,988.08 B. $298.50 C. $44.59 D. $76.24

C. $44.59 DR = AR/Revenue x 365

Using the info below what is the Days Inventory (DI)? Annual Revenue $158,000.00 Annual Cost of Goods Sold $92,400.00 Cash Flow from Operations $850.00 Ending Inventory $23,600.00 Ending Accounts Receivable $19,300.00 Ending Accounts Payable $16,950.00 A. $446.32 B. $1,429.07 C. $93.23 D. $508.20

C. $93.23 DI = Inventory/COGS x 365

What is a benefit of using in-house banks in international treasury management? A. Manages international treasury management investments but not debts B. Replaces netting, pooling, and re-invoicing C. Aggregates many small transactions into fewer larger ones D. Decentralizes FX exposures

C. Aggregates many small transactions into fewer larger ones

What is characteristic of a relaxed current asset investment strategy? A. Company has low levels of cash. B. Company has low levels of A/R. C. Company has less risk due to higher cash holdings. D. Company has higher investment returns than those with a restrictive strategy.

C. Company has less risk due to higher cash holdings.

Breaking the buck refers to A. The Federal Reserve issuing more dollars int eh economy B. The allowance of MMF to have a NAV less than $1 C. Not permitting MMF to go below $1 NAV in most circumstances D. Not allowing stocks and bonds to go below $1 in value

C. Not permitting MMF to go below $1 NAV in most circumstances

The matching principle in regards to accrual accounting is A. Recognize revenues when they are paid B. Recognize revenues when they are earned C. Recognize the expenses incurred to generate earned revenues D. Recognize expenses paid to support revenues earned

C. Recognize the expenses incurred to generate earned revenues

The Monetary Control Act of 1980 assisted in loosening the economy by A. Allowing MMF to compete with checking accounts B. Allowing more competition among banks C. Reducing float int eh payment system D. Having the Federal Reserve charge for its services

C. Reducing float int eh payment system

Which procure-to-pay step initiates the inventory period and which order-to-cash step ends it? A. Send and receive PO. B. Ship and receive goods and invoice. C. Send and receive payment. D. Reconcile and account.

C. Send and receive payment.

A company is based in the United States and has an operating subsidiary in Germany. With a stable U.S. dollar and a depreciating euro, the company's cash manager may elect to: A. Pool excess funds in the United States to offset German deficits B. Implement a dollar-based multilateral netting system C. Start leading receivables from the German subsidiary D. Establish a multicurrency account in the United States

C. Start leading receivables from the German subsidiary

What is characteristic of a restrictive current asset investment strategy? A. Company maintains high levels of current assets relative to sales. B. Raw materials investment is significant. C. The just-in-time approach is commonly used. D. A/R balances are kept high.

C. The just-in-time approach is commonly used.

Using the info below what is the Days Payables (DP)? Annual Revenue $158,000.00 Annual Cost of Goods Sold $92,400.00 Cash Flow from Operations $850.00 Ending Inventory $23,600.00 Ending Accounts Receivable $19,300.00 Ending Accounts Payable $16,950.00 A. $262.15 B. $93.23 C. $39.16 D. $66.96

D. $66.96 DP = AP/COGS x 365

In addition to verifying incoming payments and authorizing payments, vouchering has a three-way match of an invoice against what? A. Inventory level and payment receipt B. Inventory level and receiving or shipping information C. Approved PO and payment receipt D. Approved PO and receiving or shipping information

D. Approved PO and receiving or shipping information

Company XYZ is a manufacturer of industrial equipment and has enjoyed a large percentage increase in profits from a small increase in revenues. Sales recently plummeted resulting in steep decline in profitability. Which of the following BEST describes the cost structure of the company? A. Low contribution margin B. High financial leverage C. Low variable costs D. High operating leverage

D. High operating leverage

Company ABC is a restaurant chain that has enjoyed a surge in customers dining with not much of a profitability increase in the last couple of years. Following a bad restaurant review, customer traffic deteriorated with not much change in profitability. Which of the following BEST describes the cost structure of the company? A. Low variable costs B. Economies of scale C. Low financial leverage D. Low operating leverage

D. Low operating leverage

XYZ Company has a well established commercial paper (CP) program that they use to fund operations. The company is expanding by purchasing a new factory. The CFO is worried about the time and expense needed to issue long-term debt and decides to use the funds they raise in the CP market to pay for the purchase of the factory. This strategy will be successful if: A. An interest rate swap is used B. A credit default swap is employed C. A commodities future is purchased D. The yield curve remains upward sloping

D. The yield curve remains upward sloping

The delay between when a payment is initiated and __________ is __________ A. seller's/payee's account is credited; disbursement float B. seller's/payee's account is debited; collection float C. buyer's/payor's account is credited; collection float D. buyer's/payor's account is debited; disbursement float

D. buyer's/payor's account is debited; disbursement float

Identify the following forecasting horizons Used by financial institutions and rating agencies for credit analysis

Long-term

Identify the following forecasting horizons Used as a benchmark to compare actual to projected cash flows on the cash budget

Medium-term

Identify the following forecasting horizons Used to determine the company's need for short-term credit or availability of funds for short-term investing

Medium-term

Identify the following forecasting horizons Used to establish and manage target balances for bank compensation

Short-term

Identify whether changes in each of the balance sheet accounts is a source or use of funds on the statement of cash flows.Decrease in an asset

Source of Funds

Identify whether changes in each of the balance sheet accounts is a source or use of funds on the statement of cash flows.Increase in a liability

Source of Funds

Identify whether changes in each of the balance sheet accounts is a source or use of funds on the statement of cash flows. Increase in an asset

Use of Funds

Identify whether changes in each of the balance sheet accounts is a source or use of funds on the statement of cash flows.Decrease in a liability

Use of Funds

Which 4 ratios help determine the extent to which a company was leveraged? a. total liabilities to total assets b. times interest earned c. long-term debt to capital d. debt to equity e. debt to tangible net worth f. fixed charge coverage

a, c, d, e

Complete the percentage-of-sales pro forma statement forecasting steps: 1. Forecast _______ 2. Calculate projected ending cash balance by projecting (step 1) cash impact 3. Compare projected ending and target ______ and adjust pro forma statement to show fund source for shortfall or investment of surplus a. 1. Income statement and balance sheet; 3. Cash balance b. 1. Cash flow statement; 3. Cash balance c. 1. Income statement and balance sheet; 3. Profit d. 1. Cash flow statement; 3. Profit

a. 1. Income statement and balance sheet; 3. Cash balance

Which is true? a. FinCEN enforces counter-money laundering legislation and provides intelligence for investigations & prevention strategies? b. The FDIC provides deposit insurance and acts as a trustee for failed banks but does not supervise depository institutions. c. Dodd-Frank phased out the "dual nature" of the US banking system.

a. FinCEN enforces counter-money laundering legislation and provides intelligence for investigations & prevention strategies?

"MCA, Inc. upgraded the treasury workstation that had been in place for two years and used data from that 24-month period to develop a new short-term forecast. A trend factor was applied to controlled disbursements of 97% on a month-by-month basis and the variance to actual disbursements is less than 1%. Which of the following model validation techniques was utilized? " a. In-sample validation b. Documentation validation c. Ongoing validation d. Comparison validation

a. In-sample validation

A commercial bank is an FI that a. accepts deposits and makes commercial loans b. must limit its services to depository accounts and credit services c. specializes in the handling and investment of funds d. does not need a federal or state charter in the US

a. accepts deposits and makes commercial loans

Why do service industry ratios differ from manufacturing industry ratios? a. balance sheets have higher current assets, especially A/R b. service firms have higher debt c. supply costs are always low d. asset turnover is more important than profit margin

a. balance sheets have higher current assets, especially A/R

These are some of the reasons for the popularity of SSCs (shared service center): - internal service provider/vendor - less duplication - standardized processes - quality & timeliness - strategic flexibility - internal controls What is another reason? a. shared funding & mgmt b. familiarity w/ local laws, customs c. only one sight for entire global firm d. never treated as a vendor

a. shared funding & mgmt

Which validation method tests a forecast using data that were not used to develop it, i.e., using 30 months of data for the forecast and the last 6 months of a three-year period to test? a. In-sample validation b. Out-of-sample validation c. Ongoing validation d. Documentation of the process

b. Out-of-sample validation

An analyst for a landscaping company wants to adjust her cash-flow forecast to account for the seasonality of outflows. How can this be accomplished? a. Simple moving average b. Regression analysis c. Accounts receivable balance pattern d. Contingency forecasting

b. Regression analysis

How are liabilities and debt different? a. debt refers to an amount owed, regardless of form b. accounts payable is a liability but not a debt c. liability refers only to obligations that require interest payments and is considered a subset of debts d. notes payable is a liability but not a debt

b. accounts payable is a liability but not a debt

The Red Flags Rule applies to FIs and creditors w/ what types of consumer accounts? a. accounts that hold funds for OBSA b. accounts that permit multiple payments or transactions c. foreign bank accounts held by US taypayers d. accounts for corporate signers with a consolidated FBAR filed by their organization

b. accounts that permit multiple payments or transactions

The items listed below are some of the primary global financial market regulators/standard setters. - financial stability board - bank for international settlements - european payments council & SEPA - european securities and markets authority - int'l association of deposit insurers - int'l organization of securities commissions - financial action task force - int'l association of insurance supervisors - int'l swaps and derivatives association Which is another? a. international organization for standardization b. central banks c. united nations

b. central banks

What can a treasury professional discover by monitoring individual accounts receivable? a. errors or delays in payments by credit card that are slowing collections b. customers that delay payment intentionally until follow-up is initiated c. change in financial condition that may result in slower payments and require extension of longer credit terms d. increase in receivables that affects liquidity

b. customers that delay payment intentionally until follow-up is initiated

Which should be considered relevant cash flows for a proposed capital investment? (Choose 2) a. cash flow that was incurred in the past (sunk cost) b. deductible expenses and taxes that affect future cash flows c. cash flows that will be earned with or without the capital investment d. depreciation that can be claimed w/ one alternative but not the other

b. deductible expenses and taxes that affect future cash flows d. depreciation that can be claimed w/ one alternative but not the other

These items are some of the primary treasurer responsibilities: - treasury strategy, policies - daily liquidity & cash - short- & long-term investing - external financing - relationships - payments - reporting/compliance oversight What is another responsibility? a. credit & A/R b. financial risk management c. tax management & reporting d. investor relations

b. financial risk management

Which type of brokerage would be appropriate for a firm that wants the broker to manage its investment portfolios and generally needs to transact in large blocks of securities? a. full-service retail broker b. full-service institutional broker c. discount retail broker d. discount institutional broker

b. full-service institutional broker

How do treasury's plan assessments affect projected cash flow streams in budgeting? a. in calculating adequate funds & liquidity b. in determining impact on debt covenants and credit ratings c. in managing financing of LT assets through debt and equity issues d. treasury is not directly or indirectly responsible for budgeting

b. in determining impact on debt covenants and credit ratings

Which is a step in arriving at the projected closing cash position a. Start with the next period's closing available bank balance b. Deduct the expected settlement sin collection and concentration accounts c. Deduct projected disbursement totals d. Find historical data on clearing of disbursements from non-controlled disbursement accounts

c. Deduct projected disbursement totals

"The treasury manager of a chain of clothing stores wants to develop a medium-term forecast. Management plans to open two new stores, and anticipates same-store sales to increase by 15%. Which of the following items can be predicted with the highest degree of certainty? " a. Taxes on stock options b. New product sales c. Fixed bond interest payment d. Refranchising proceeds

c. Fixed bond interest payment

Which of the following is true for full service banks that offer both underwriting/distribution and investment advisory or management functions? a. "bringing someone over the wall" is a clear violation of SEC regulations b. distribution and underwriting is buy side c. buy & sell side transactions should be separated by a "wall" to prevent each party from getting and acting on MNPI d. possession of MNPI constitutes a crime

c. buy & sell side transactions should be separated by a "wall" to prevent each party from getting and acting on MNPI

Net income adjusted for the following gains and losses not reported on the income statement is called what? - unrealized gains and losses on investments - minimum pension liability adjustments - foreign currency translation adjustments - changes in market values of instruments qualifying as hedges a. operating income b. other income and expenses c. comprehensive income d. retained earnings

c. comprehensive income

Which approach to monitoring and managing banking system safety and soundness has a moral hazard? a. minimum capital levels for banks in a country (ratio of capital to at-risk assets and tiered capital) b. impairment of capital rules c. deposit insurance d. regulate monitoring and surveillance

c. deposit insurance

What is the difference between operating leverage and financial leverage? a. operating leverage is the result of total costs in operations b. financial leverage magnifies the impact of changes in sales on EBIT c. financial leverage results from fixed financing costs (interest) d. operating leverage magnifies the results of changes in EBIT on net income

c. financial leverage results from fixed financing costs (interest)

How do common-size statements enable direct financial comparisons of different size firms? a. expenses as a percentage of profits reveals who has the best expense controls b. asset categories as a % of revenues can be compared c. liability categories as a % of total assets can be compared d. cash flow elements as a % of net income can be compared

c. liability categories as a % of total assets can be compared

Some of the major objectives of treasury management include: - maintain liquidity - maintain access to short-, medium-, and long-term financing - manage investments - manage risk - manage info & technology - collaborate internally & manage external parties What is another one of these objectives? a. prioritize investments for profit b. perform financial planning & analysis c. optimize cash resources d. set organizational strategy

c. optimize cash resources

In the US, which state is the recipient of unclaimed or abandoned rebates or gift cards? a. state where transaction occurred b. state that is residence of organization holding the property c. state that is residence of customer being escheated d. state where the unclaimed asset is listed on the books

c. state that is residence of customer being escheated

which agencies are required to regulate OTC derivatives to reduce excessive risk taking? a. FDIC & DOJ b. FSOC & FINRA c. CFPB & secret service d. CFTC & SEC

d. CFTC & SEC

The items listed below are some of the best practices in cash forecasting. What is another of these practices? - Use appropriate detail - Use appropriate platform - Invest the appropriate amount of resources - Validate the forecast - Cooperate and communicate - Ensure the forecast is usable a. If a sophisticated treasury forecasting system exists, use it for all forecasts b. Allow each business unit to develop terminology and expectations c. Accuracy is always more important than timeliness d. Disclose assumptions

d. Disclose assumptions

"A daily short-term forecast and variance analysis for LMN, Inc. is updated with relevant trends and actual data every Monday. Upon review, the treasurer assessed that sales were higher than forecasted, inventory was up and yields being earned on excess cash were lower. The MOST important reason for this cash forecast process is: " a. Financial control b. Managing costs c. Capital budgeting d. Liquidity management

d. Liquidity management