Series 65 Unit 7 Checkpoint Exam

Which of the following equations correctly shows the relationship between the items on a company's balance sheet? A) Assets = liabilities + stockholders' equity B) Assets + liabilities = net worth C) Assets = liabilities − net worth D) Assets = stockholders' equity − liabilities

A. Assets = liabilities + stockholders' equity The stockholders' equity, sometimes referred to as net worth, equals the difference between the company's assets and its liabilities (assets − liabilities = stockholders' equity). This formula is often restated as assets = liabilities + stockholders' equity.

In order to be in compliance with SEC reporting rules, a company will typically file a Form 10-Q how many times during its fiscal year? A) Three times B) One time C) Four times D) Two times

A. Three times

A commentator on a cable news show mentions that the capital structure of the Lowveh Corporation is highly leveraged. This means that the company A) has significant long-term debt. B) has issued employee stock options. C) has very little default risk. D) is in arrears on its cumulative preferred stock dividends.

A. has significant long-term debt.

Under SEC rules, Form 8-K must be filed A) promptly. B) within 15 business days of the event. C) within 4 business days of the event. D) within 10 business days of the event.

C. within 4 business days of the event.

All of the following appear on a corporation's balance sheet as fixed assets except A) real estate. B) computer equipment. C) furniture. D) inventory.

D. inventory.

An analyst wishing to view a good consolidated indicator of a business's cash inflow and outflow would most likely ask to look at A) the statement of cash flows. B) the consolidated income statement. C) the working capital. D) the current ratio.

A. the statement of cash flows.

When an analyst adds back the current year's depreciation to the net income, she is computing the company's A) net value of fixed assets. B) cash flow from operations. C) earnings per share. D) cash flow from investments.

B. cash flow from operations. computed by adding the year's depreciation deduction to the net income.

If a client has 100 shares of XYZ publicly traded stock and it undergoes a split, afterward the client will have A) a proportionately increased interest in XYZ company. B) no effective change in the value of the ownership share. C) a proportionately decreased interest in XYZ company. D) a greater role in the daily management of the company.

B. no effective change in the value of the ownership share.

When a company recognizes a sale only when payment is made, it is using which form of accounting? A) Audited B) Cash C) Double entry D) Accrual

B. Cash In the cash method, sales and expenses are recognized when the money changes hands. With accrual accounting, the date of the transaction is used.

An analyst wishing to check on the most recent financial performance of an SEC-registered issuer would probably examine the A) Form 10-Q. B) Form 8-K. C) Form 10-K. D) Schedule 13D.

A. Form 10-Q.

All of the following are considered to be components of cash flow except A) financing activities. B) banking activities. C) operating activities. D) investing activities.

B. banking activities. There is no such term as banking activities in the context of cash flow. Cash flow is generated through financing (issuing stock or bonds), investing (profits from investments), and operations of the entity (the most significant of all).

An analyst reviewing a company's financial statements would examine the footnotes to A) identify the authors of quoted information. B) determine the average age of the receivables. C) compute the net worth. D) discover any pending legal action against the company.

D. discover any pending legal action against the company.

All of the following corporate actions would have the effect of increasing the firm's net worth except A) issuing convertible debentures. B) issuing convertible preferred stock. C) issuing common stock. D) purchasing some of the corporation's outstanding bonds at a discount.

A. issuing convertible debentures. Issuing a debt security, such as a debenture, will bring in cash (an asset) but will be offset by an equal amount: the debt. Therefore, the net worth will remain the same. Issuing any equity security, preferred or common, increases the owners' equity (net worth). Being able to pay off a debt at a discount means that the current asset (cash) went down less than the long-term liability (the bond), resulting in an increase to net worth. LO 7.b