Chapter 1 Homework

Based on the recognition principle, revenue is recorded on the financial statements when the: I. payment is collected for the sale of a good or service. II. earnings process is virtually complete. III. value of a sale can be reliably determined .IV. product is physically delivered to the buyer.

2/3 only

Which one of the following is most apt to align management's priorities with shareholders' interests? A. Compensating managers with shares of stock that must be held for a minimum of three years B. Holding corporate and shareholder meetings at high end resort-type locations preferred by managers C. Allowing empyees to retire early with full retirement benefits D. Paying a specials management bonus on every fifth year of employments

A

Which one of the following correctly defines a common chain of command within a corporation? A. The controller reports direly to the CFO B. The treasurer reports directly to the board to the controller C. The credit manager reports direly to the controller D. The controller report directly to the cooperate treasurers E. The CFO reports directly to the board of directors

A,The controller reports direly to the CFO

Capital budgeting includes the evaluation of which of the following? A. - Size, timing, and risk of future cash flows B - Size of future cash flows only- Size and timing of future cash flows only C. - Risk and size of future cash flows only D. - Timing and risk of future cash flows only

A. - Size, timing, and risk of future cash flows

which one of the following is a working capital management decision? A. How much cash should the firm keep in reserve? B. What debt equity ratio is the best suited to the firm? C. What is the cost to debt financing D. Should the firm borrow money for five or for ten years

A. How much cash should the firm keep in reserve?

Which one of the following forms of business organization offers liability protection to some of its owners but not to all of its owners? A. Limited partnership B. General partnership C. LLC D. corp E. Sole Prop

A. Limited partnership

Margie opened a used bookstore and is both the 100% owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts? A. Sole prop B. General partnership C. Corp D. Joint stock Company E. Limited Part

A. Sole prop

An employee has a claim on the cash flows of Martin's Machines. This claim is defined as a claim by one of the firm's: A. Stakeholders B. Financiers C. Shareholders D. Provisional partners E. residual owners

A. Stakeholders

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: A. capital structure. B. capital budget. C. asset allocation. D. working capital. E. risk structure.

A. capital structure.

The Sarbanes Oxley act of 2002 has A. essentially made officers of publicly traded firms personally responsible for the firm's financial statements. B. -decreased the number of U.S. firms going public on foreign exchanges. E. -reduced the annual compliance costs of all publicly traded firms in the U.S. C. -greatly increased the number of U.S. firms that are going public for the first time. D. -decreased senior management's involvement in the corporate annual report.

A. essentially made officers of publicly traded firms personally responsible for the firm's financial statements.

A firm's liquidity level decreases when: A. inventory is purchased with cash B inventory is sold on credit. C. inventory is sold for cash. D. an account receivable is collected. E. proceeds from a long-term loan are received.

A. inventory is purchased with cash

Which one of the following terms is defined as the total tax paid divided by the total taxable income?

Average tax rate

Which one of the following statements is correct? A. All of the major stock exchanges are U.S. based. B -The primary purpose of the NYSE is to match buyers with sellers. C -OTC markets have a physical trading floor generally located in either New York City or Chicago. D -The NYSE was created by the National Association of Securities Dealers in the early 1930s. E -The Chicago Stock Exchange is a dealer market.

B -The primary purpose of the NYSE is to match buyers with sellers.

Which one of the following is a CAPITAL STRUCTURE DECISION? A. Determining the optimal inventory level B. Establishing the preferred debt-equity level C. Selecting new equipment to purchase D. Setting the terms of sale for credit sales E. Determining when supplies should be paid

B. Establishing the preferred debt-equity level

Will and Bill both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts? A. Limited partnership B. General partnership C. Joint stock company D. Sole Prop E. Corp

B. General partnership

security dealers A. match buyers with sellers. B. buy and sell from their own inventory. C. operate on a physical trading floor. D. operate exclusively in auction markets. E. are limited to trading non-listed stocks.

B. buy and sell from their own inventory.

All else held constant, the book value of owners' equity will decrease when: A.the market value of inventory increases. B. dividends exceed net income for a period. E. cash is used to pay an accounts payable. C. a long-term debt is repaid. D. taxable income increases.

B. dividends exceed net income for a period.

Which one of the following occupations best fits into the corporate area of finance? A. Mortgage broker B. Treasury bill analyst C. Chief financial officer D. Insurance risk manager E. Local bank manager

C. Chief financial officer

Matt and Alicia 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? A. Public company B. Sole Praetorship C. Corporation D. General Part E. Limited partnership

C. Corporation

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: A. Dealer market B. Primary Market C. Secord Market D. Over the counter market E. Tertiary market

C. Secord Market

Net capital spending is equal to: A. ending net fixed assets minus beginning net fixed assets plus depreciation. B. beginning net fixed assets minus ending net fixed assets plus depreciation. C. ending net fixed assets minus beginning net fixed assets minus depreciation. D. ending total assets minus beginning total assets plus depreciation. E. ending total assets minus beginning total assets minus depreciation

C. ending net fixed assets minus beginning net fixed assets minus depreciation.

One advantage of the corporates form of organization is the : A. Double taxation of profits B. Ease of formation compared to other orgzational forms C. Taxation of the corporates profits D. Ability to raise larger sums of equity capital than other organizational forms

D. Ability to raise larger sums of equity capital than other organizational forms

The potential conflict of interest between a firm owners and its managers is to as which type of conflict? A. Terroristic B. Structural C. Formative D. Agency E. Organizational

D. Agency

Which one of the following functions is generally a responsibility assigned to the corporate treasurer? A. Cost accounting E. Data processing B. Corporate taxes C. Financial accounting D. Capital expenditures

D. Capital expenditures

The matching principle states that: A. - costs should be recorded on the income statement whenever those costs can be reliably determined. B- sales should be recorded when the payment for that sale is received. C.- costs should be recorded when paid.- sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined. D. Costs of producing an item should be recorded when the sale of that item is recorded as revenue

D. Costs of producing an item should be recorded when the sale of that item is recorded as revenue

which one of the following is contained in the corporates bylaw A. State of incorporation B. Business purpose of the corporation C. Procedures for electing corporate directors D. Intended life of the corporation E. Number of authorized shares

D. Intended life of the corporation

The primary goal of financial management is to maximize: A. Current profits B. Market share C. Number of shares outstanding D. Market value of existing stock E. Revenue growth

D. Market value of existing stock

Highly liquid assets: A. increase the probability a firm will face financial distress. B. appear on the right side of a balance sheet. C. generally produce a high rate of return. D. can be sold quickly at close to full value. E. include all intangible assets.

D. can be sold quickly at close to full value.

Firms that compile financial statements according to GAAP: A. record income and expenses at the time they affect the firm's cash flows B. have no discretion of recording either revenue or expense items C. must record all expenses when incurred D. can still manipulate their earnings to some degree

D. can still manipulate their earnings to some degree

Which of the following is not a basic area of finance as described by the text? A. Corporate finance B. Investments C. Fintech D. International finance E. Accounting

E. Accounting

Which one of the following applies to a general partnership? A. The profits of the firm are taxed as a separate entity B. Each partner's liability for the firm/s bets is limited to each partner's investment in the firm C. The firm's operation must be controlled by a single partner D. The profit of a general partnership are taxed the same as those of a corporation E. Any one of the partners can be held solely liable for all the partnership's debt

E. Any one of the partners can be held solely liable for all the partnership's debt

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? A. Corporate finance B. International fiancé C. Private placements D. Capital management E. Investments

E. Investments

The issuer of a security must be involved in all _____ transactions involving that security. A. exchange-listed B. secondary market C. over-the-counter D. dealer market E. primary market

E. primary market

An auction market

Has a physical trading floor

Financial leverage

Increases the potential return to the stockholders

Jamie is employed as a currency trader in the Japanese yen market. Her job falls into which one of the following areas of finance?

International fiancé

Which one of the following is included in the market value of a firm but not in the book value?

Reputation of the firm

Which one of the following is the abbreviation for the U.S. government coding system that classifies a firm by its specific type of business operations? A SBC B SED C SIC D BID E BEC

SIC

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities. Decisions related to these accounts are referred to as​ A. Working capital management B. Fixed accounting structure C. Capital budgeting decisions D. Operating management E .Capital structure decisions.

Working capital management

Net working capital deceases when:

a dividend is paid to current sharesholders

cash flow to stockholder is defined as

dividend paid minus net new equity raised

When conducting a financial analysis of a firm, financial analysts: a) rely solely on accounting information. b) cannot use accounting information as it is historical. c) ignore accounting information but do use marketing information. d) assume the future will be a repeat of the past as reflected in the firm's accounting reports.e) frequently use accounting information. e) frequently use accounting

e) frequently use accounting

A sole proprietorship

has it profit taxed as personal income

Cash flow to creditors is defined as:

interest paid minus net new borrowing

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the: average tax rate. variable tax rate. marginal tax rate. fixed tax rate. ordinary tax rate.

marginal tax rate

which one of the following decrease net income but does not affect operating cash flow of a firm that owes no taxes for the current year?

noncash items

The market value of

of an asset tends to provide a better guide to the actual worth of that asset than does the book value.

Operating cash flow is defined as

the cash that a firm generates from its normal business activities.