FIN 3000 CH
Which term applies to the mixture of debt and equity maintained by a firm?
Capital structure
Which of the following is an example of a noncash item on an income statement?
Depreciation
It is sometimes argued that, left to themselves, managers tend to minimize the amount of resources over which they have control.
False
A supplier may look at the size of _____ to see how promptly the firm pays its bills.
accounts payable
The relationship between stockholders and management can best be described as a(n) ______ relationship.
agency
In the long run, ________ are variable.
all costs
The more debt a firm has, the greater its:
degree of financial leverage
Holding too many liquid assets can be harmful for a firm because such assets are generally _____.
less profitable
The last (residual) claimants to be paid by a firm are the ______.
stockholders
If you make an extra $1,000 in income and your marginal tax rate is 30 percent while your average tax rate is 20 percent, then you will pay an extra ______ in taxes. Multiple choice question. $2
$300
Rank the ease (from easiest to hardest) of turning the following assets into cash.
1. cash equivalents 2. accounts receivable 3. inventory 4. plant and equipment
Which one of these is a correct version of the balance sheet equation?
Assets = Liabilities + Stockholders' equity
Which of the following are examples of short-run fixed costs?
Bond interest Rent
Which of these items do NOT appear on a balance sheet?
Good management Knowledge that has no patent Favorable economic conditions
What is the main goal of financial management?
To maximize current value per share of existing stock
The five main areas of finance are corporate finance, investments, financial institutions, international finance, and __________
fintech
The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.
flat
In a ___________ partnership, all the partners share in gains or losses, and all have unlimited liability for all partnership debts, not just some particular share.
general
Changes in capital spending can be negative when the acquisition of fixed assets is ______ the sale of fixed assets.
less than
Businesses are motivated to organize as corporations because stockholders in a corporation have _______ liability for corporate debts.
limited
A positive operating cash flow indicates that the firm is generating enough cash to ______.
pay operating costs
Managers who are successful in pursuing _____ will be in greater demand in the labor market and thus command higher salaries.
stockholder goals
Noncash items do not affect _____.
cash flow
Which of the following companies were involved in corporate scandals that led to Sarbanes-Oxley?
Tyco WorldCom Enron
A limited liability company is taxed like a ______ and its owners have ____ liability.
partnership; limited
The advantages and disadvantages of a partnership are basically the same as those of a _____.
proprietorship
______ are frequently used to encourage key managers to maximize the value of the firm's stock.
Stock options
True or false: Free cash flow is the total of cash flow that the firm can distribute to creditors and to stockholders.
True
True or false: Long-term liabilities are not due in the current year (from the date of the balance sheet).
True
Which of the following is not an important question that must be asked when starting a firm? What long-term investments should you take on? How will you manage your everyday financial activities? Where will you get the long-term financing to pay for your investment? Which type of operating system should you use for your computers?
Which type of operating system should you use for your computers?
The short run is a period when there are ______ costs.
both fixed and variable
Because ownership in a corporate is spread over a huge number of shareholders, it can be argued that ____________ effectively controls the firm.
management
The relative ease of transferring ownership, the limited liability for business debts, and the unlimited life of the business are why the corporate form is superior to sole proprietorships or partnerships for _____.
raising cash
A sole proprietor has ______ personal liability for all business debts and obligations.
unlimited
The liability of a shareholder in a corporation is limited to which of these?
The amount the shareholder invested in the corporation
True or false: Cash flows to the firm from the financial markets.
True
If a firm's net working capital goes from $150 in 2020 to $130 in 2021, then the change in net working capital is:
−$20
Under GAAP, U.S. firms must carry assets at:
book value
A long-term liability represents a(n) _____.
debt that is not due in the coming year
In a large corporation, the _____ would be responsible for answering the three main questions that must be asked when starting a firm.
financial manager
If you earn an extra $100 of taxable income this year and owe taxes of $34 on that income, then your marginal tax rate is _____ percent.
34
The controller is responsible for which of the following tasks?
Tax payments Financial accounting
Which of the following are considered stakeholders in a company?
Suppliers Government Employees
If you hire a real estate company to sell your house, you are most apt to encounter which one of the following?
Agency problem
Which of the following can be used to encourage managers to act in the best interests of shareholders?
Better prospects of promotion Managerial compensation tied to performance
In recent years, U.S. accounting standards have become more closely tied to _____.
IFRS
Assets are listed on a balance sheet in which order?
In order of decreasing liquidity
Which one of the following is a primary market transaction?
Sale of a new share of stock from a corporation to an individual investor
Which of the following is true about the difference between the income statement and cash inflows and outflows?
Sales on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period. Income taxes are often deferred, so the amount on the income statement may not represent the amount of the check to the IRS. Cost of raw materials purchased on credit are accounts payable rather than cash outflows until they are paid, which may be in a different period.
Which one of the following parties would be the last party to receive payment if a firm were to close? Assume all parties have a legitimate claim on the firm's assets.
Shareholders
Who is entitled to the residual value of a firm's cash flows?
Shareholders
In a limited partnership, a limited partner's liability for business debts is ______.
limited to his/her cash contribution to the partnership
Since ________ and ownership are separated, a corporation's life is unlimited.
management
A business without separate legal authority formed by two or more people is known as a _____.
partnership
The possible goal of profit maximization _____.
can be achieved by cost-cutting would probably be the most commonly sighted goal for a business
What is depreciation?
A systematic expensing of an asset based on the asset's estimated life
True or false: Finance is mainly important to study if you are planning a career in finance.
false
James is an owner of J & Jo Company. If he wants to find out the cash flow of his bakery, he should look into the firm's _____.
financial statements
A decrease in depreciation expense ______ earnings per share.
increases
A sole proprietorship is a business that _______.
is owned by one person
The life of a corporation ______.
is unlimited
Corporations in other countries are often called:
joint stock companies. public limited companies.
The shareholders are the _____ in line to receive payment when a firm is forced to sell assets to pay off debt.
last
In a __________ partnership, one or more general partners will run the business and have unlimited liability, but there will be one or more ________ partners who will not actively participate in the business.
limited, limited
Capital budgeting is concerned with planning and managing a firm's _____.
long-term investments
Net working capital equals current assets ______ current liabilities.
minus
Book value of assets is generally:
not what the assets are actually worth
A sole proprietorship is a business owned by ______ person(s).
one
A company's _____ cash flows reflect whether its cash flows from business operations can cover its everyday cash outflows.
operating
Cash generated from a firm's normal business activities is called _____.
operating cash flow
Most equity shares of large firms in the U.S. trade on:
organized auction markets
An income statement reflects activity that occurs _____ while a balance sheet reflects values ____.
over a period of time; as of a specific date
An LLC is essentially a hybrid of ___________ and corporation.
partnership
Net capital spending is equal to ending net fixed assets minus beginning net fixed assets ____.
plus depreciation
A __________ is the authority to vote someone else's stock.
proxy
Stockholders are entitled to only what is left after employees, suppliers, and creditors are paid, which makes them _____ owners.
residual
The corporate goal involving bankruptcy avoidance, stability, and safety relate to controlling ___________
risk
The owners of a corporation are called ______.
stockholders
Firms that are poorly managed are more attractive as acquisitions. This form of threat known as a __________ motivates managers to act in the stockholders' best interests.
takeover
Organized auction markets include:
the New York Stock Exchange
In a corporation, the stockholders elect _____, who then select the managers.
the board of directors
Most importantly, assets provide ______ to the firm.
value
Another name for short-term financial management is ___ management.
working capital
If ending net fixed assets are $100, beginning net fixed assets are $60, and depreciation is $10, then the net capital spending is ____.
$50
If a firm's net working capital goes from $150 in 2020 to $130 in 2021, then the change in net working capital is:
-20
A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?
Accounts receivable
Which one of these is considered to be the most liquid?
Accounts receivable
Which of the following is included in working capital?
Accounts receivable Current (short-term) assets Accounts payable
In March, Al's paid cash for a video game for the store's inventory. In April, it sold the game on credit. In May, Al's received payment for the sale. Based on matching principle, the expense should be recorded in ___ and the income should be reported in ____.
April; April
______ budgeting is the process of making and managing expenditures on long-term assets.
Capital
Which of the following parties are not considered stakeholders of a firm?
Competitors
Which corporate officer is responsible for accurate financial reporting of the firm's activities?
Controller
Which of the following positions generally report to the chief financial officer (CFO)? Chief executive officer (CEO) Director of marketing Controller Treasurer
Controller Treasurer
What are the two basic classifications under which most potential financial goals fall?
Controlling risk Earning or increasing profits
A general partnership has which of the following characteristics?
Each owner has unlimited liability for all firm debts. It is difficult to transfer ownership.
Why is it important for accounting standards to become more comparable across countries?
Increasing globalization of business makes it necessary to understand financial reporting by firms that follow other accounting standards.
Which one of the following represents what a firm owns at a given point in time?
Its assets
Which of these items do NOT appear on a balance sheet?
Knowledge that has no patent Favorable economic conditions Good management
Which one of the following complies with GAAP?
Matching revenues with expenses
How is ownership transferred in a corporation?
Ownership is transferred by gifting or selling shares of stock.
Which one of the following would cause a cash outflow from a corporation?
Paying dividends
Which one of the following is a cash flow from a corporation into the financial markets?
Payment of loan interest
How is income defined?
Revenue minus expenses
The aim of the act known as _____ is to protect investors form corporate abuse.
SOX
On which side of the balance sheet do liabilities appear?
The right side
Which of the following are included in the fixed asset portion of a balance sheet?
Trademarks Buildings
______ costs change as the output of the firm changes.
Variable
Liquidity refers to the ease of changing _____.
assets to cash
The fact that the balance sheets are listed at _____ means that there is no necessary connection between the total assets and the value of the firm.
at cost
The two types of secondary markets include _________ markets and dealer markets.
auction
A company's ______ tax rate is its tax bill divided by its total taxable income, and its ______ tax rate is the tax rate it pays on the next dollar of income.
average; marginal
A __________ corporation is for profit, and has the legal attributes of accountability, transparency, and purpose.
benefit
Residual value is the amount left over after paying ________________.
bondholders accounts payable other debt holders
A corporation receives cash from financial markets by selling ______ and ______.
bonds stocks
It is argued that, left to themselves, managers would tend to maximize the amount of resources over which they have control or, more generally, ____________ power or wealth.
corporate
Joint stock company is another name for what is referred to as a ________ in the United States.
corporation
The ___________ is the most important form, in terms of size, of business organization in the United States.
corporation
A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n):
corporation.
If a firm's current assets are $100 and its current liabilities are $80, then its net working capital is:
$20
If ending net fixed assets are $100, beginning fixed assets are $40, and depreciation is $10, then the change in capital spending is _____.
$70
The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.
21%
What does stockholders' equity represent?
A residual claim against the book value of the firm's assets. (The book value of the firm's assets less the book value of its liabilities.)
Which of the following are fixed assets?
Land Plant Buildings
When a corporation is formed, it is granted which of the following rights?
Legal powers to sue State citizenship for jurisdictional purposes The ability to issue stock
Which of the following are classified as liabilities on a firm's balance sheet?
Notes payable Accounts payable
What are two classifications of costs used by financial accountants?
Product costs Period costs
Which one of these is the most illiquid?
Fixed assets
Which one of these is an important mechanism used by unhappy stockholders to replace current management?
Proxy fight
Forming a corporation involves preparing articles of incorporation and a set of ________
bylaws
The rules used by a corporation to regulate its existence are known as _________.
bylaws
The need to monitor management actions is an example of a(n) __________ (direct/indirect) agency cost. Listen to the complete question
direct
The purpose of a(n) ______ is to measure performance over a set period of time.
income statement
For financial managers, the accounting value of the stock is not an especially important concern; it is the _________ value that matters.
market
The price at which willing buyers and sellers would trade is called ____ value.
market
The ___________ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.
matching
Cash flow to stockholders is dividends paid _________ (minus/plus) net new equity raised.
minus
What should you keep in mind when examining an income statement?
time and costs cash versus non-cash items GAAP
Free cash flow is better described as ____.
total distributable cash flow
A benefit corporation is for profit, and has the legal attributes of accountability, _____, and purpose.
transparency
The officer responsible for managing the firm's cash flows is the ______.
treasurer
Which of the following is a variable cost in the short run?
Raw materials used in production.
Which of the following are examples of short-run fixed costs? Multiple select question. Rent
Rent Bond interest
Which of the following is a current asset?
Inventory
From the stockholders' perspective, what is the primary purpose of awarding stock options to managers?
To increase shareholders' wealth
What is the purpose of the income statement?
To measure performance over a set period of time
The corporate tax code is _____.
extremely complicated
The financial manager acts in the shareholders' best interests by making decisions that increase the value of _____.
the stock
When looking at the income statement, the financial manager should keep in mind GAAP, cash versus noncash items, and _________ and costs.
time
An organization must prepare ______ and bylaws when forming a corporation.
articles of incorporation
On the balance sheet, assets are listed at their _____ value.
book
Determining the number of shares of stock to issue is an example of a ______ decision.
capital structure
The statement of cash flow explains changes in _____.
cash and equivalents
Depreciation is the accountant's estimate of the cost of ______ used up in the production process.
equipment
The five main areas of finance are corporate finance, _____, financial institutions, international finance, and fintech.
investments
Assets are recorded at historical cost, not market value, because _____.
it is hard to keep up with the market value
A corporation is a distinct ______ entity and as such can have a name and take advantage of the legal powers of natural persons.
legal
In general, revenue should be recognized at the time of ___________ , which is not necessarily the same time as the money is collected.
sale
If your tax bill is $200 and your taxable income is $2,000, then your average tax rate is _____ percent.
10
The federal government taxes which of the following?
Corporate earnings and shareholder dividends
Why is positive net working capital important?
It means the firm should have sufficient cash to meet its current obligations.
In a shareholder-manager relationship, who is the agent?
Managers
True or false: Taxes can be a large cash outflow for a corporation.
True
In a large corporation, the financial manager is primarily responsible for:
long-term investment decisions. financial aspects of operations, such as collections of accounts receivables. financing decisions.
When a corporation raises funds in the financial markets, the transaction occurs on the _____.
primary market
True or false: Operating cash flow includes capital spending and working capital requirements.
False
In addition to the importance of finance for marketing, accounting, and management careers, finance is also now considered a _____ discipline, especially at the graduate level.
STEM
How is the average income tax rate computed?
Total tax bill/Total taxable income
Which of the following are among the most important questions to be asked when a business is started?
Where will long-term financing be obtained to pay for investments? What long-term investments should be made? How will everyday financial activities be handled?
Cash flow to ___________ is interest paid less net new borrowing.
creditors
The cash flow identity states that cash flow from assets equals cash flows to ____.
creditors and stockholders
Due to the extreme costs of SOX, hundreds of public firms have chosen to "go ________," meaning their shares are no longer traded on the major stock exchanges.
dark
A bad financial decision is defined as a decision that ______ owners' equity.
decreases
A treasurer's responsibilities typically include:
managing capital expenditure decisions. making financial plans. handling cash flows.
The ______ tax rate is the tax rate paid on the next dollar of income.
marginal
The goal of a for-profit business is to ______ existing owners' equity.
maximize
Corporate profits are taxed twice, first at the corporate level when they are earned and again at the _________ level when they are paid out.
personal
In large firms, financial activity is usually associated with which top officer?
Chief financial officer
Which one of the following statements regarding corporations is correct?
Corporations can have an unlimited life.
Which of the following show why a corporation is the most important form of business?
Corporations can sue and be sued. A corporation is a separate legal entity with the ability to acquire and exchange property. Corporations can enter into contracts.
How are assets on a balance sheet listed?
In order of decreasing liquidity
Which one of the following questions is least likely to be addressed by financial managers?
In which region of the country should a new product be launched?
Which of the following are true of a sole proprietorship?
It is the simplest type of business to form. A proprietorship has a limited life.
What is a primary concern for a bank lending funds to a business for the short term?
Liquidity
The Sarbanes-Oxley Act requires corporate officers to do which of the following?
List any deficiencies in internal controls Confirm the validity of the annual financial report Accept responsibility for material errors in the annual report
Which of the following are included in a firm's capital structure?
Long-term debt Equity
Whose responsibility is it to create value for a firm?
Management
Which of the following, according to the textbook, are possible financial goals for a company?
Maximize profits Minimize costs Survival
Which one of the following best states the primary goal of financial management?
Maximize the current value per share
Which of the following will be found in the liabilities section of a firm's balance sheet?
Notes payable Long-term bonds issued by the firm
Which of the following are important when considering a partnership?
Personal liability for firm debts Taxation of partnership income Fund raising limitations
_________ costs include such things as raw materials, direct labor expense, and manufacturing overhead.
Product
__________ costs include such things as raw materials, direct labor expense, and manufacturing overhead.
Product
Which one of these provides a manager an incentive to perform well?
Promotions
In finance, the value of a firm depends on its ability to generate ______.
cash flows
Accounting profit ____ cash flow.
differs from
Some of the cash flow generated by a firm goes back to the financial markets in the form of ______.
dividends and debt payments
In financial markets, debt and ________ securities are bought and sold.
equity
Accountants usually distinguish between _____ costs and _____ costs.
product; period
The primary responsibility of financial managers is to increase the value of _____.
the existing shares of stock
Current assets are defined as assets that can be turned into cash within ______ months.
twelve
A partnership must have at least _______ owners.
two
_____ buy and sell for themselves, at their own risk.
Dealers
Which of the following do not directly affect cash flow?
Depreciation
True or false: Ownership in the corporate form is difficult to transfer.
False
True or false: The Sarbanes-Oxley Act provides incentives for companies to go public in US markets.
False
True or false: The corporate tax code is simplistic and makes good economic sense
False
True or false: Under SOX, corporate officers must declare annual reports contain zero omissions.
False
Increasing its noncash liquid assets will enable a firm to do which of the following?
Increase its ability to meet short-term obligations Increase its ability to avoid financial distress
The use of financial leverage can:
Increase the chance of financial distress and business failure. Increase the potential reward for investors. Greatly magnify both gains and losses.
A good financial decision aims at which of the following?
Increase the market value of shareholders' equity Increase the value of the firm's existing stock
__________ refers to the speed and ease with which an asset can be converted to cash.
Liquidity
Which are true concerning product costs
Product costs are reported as costs of goods sold. Product costs contain both fixed and variable costs.
Which of these are generally considered to be short-run fixed costs?
Property taxes Management salaries Rent payments for a warehouse
According to GAAP, when is income reported?
When it is earned or accrued
When is revenue recognized on an income statement?
When the earnings process is virtually completed When the value of an exchange of goods or services can be reliably determined
When is revenue recognized on an income statement?
When the value of an exchange of goods or services can be reliably determined When the earnings process is virtually completed
Which of the following is not an important question that must be asked when starting a firm?
Which type of operating system should you use for your computers?
Assets can be described as items that _____.
a firm owns generate revenue provide market value to the firm
The cash flow identity reflects the fact that:
cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. a firm generates cash through its various activities. cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders.
The matching principle of GAAP requires revenues be matched with _____.
expenses
Fixed costs are costs that will not change ______.
in the short run
If you think of the balance sheets as a snapshot, then the _____ can be thought of as a video covering the period between before and after pictures.
income statement
The accounting equation shows that stockholders' equity equals assets ______ liabilities.
minus
Noncash items are expenses that directly affect _____ but do not directly affect ______.
net income; cash flow
Indirect agency costs are often due to lost ______.
opportunities
The goal of the for-profit business is to maximize ___________ equity.
owners
The difference between the total assets and total liabilities is shareholders' or _________ equity.
owners'
Inventory is a:
part of working capital. current asset.
When one owner of a security sells the security to another person, the transaction takes place in the _________ market
secondary
Costs that do not change in the short run arise because of ______.
fixed commitments
Period costs are the costs that are allocated to a specific ______.
interval of time
A ______ is someone other than an owner or a creditor who potentially has a claim of the cash flows of a firm.
stakeholder
An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____.
statement of cash flows
What does GAAP stand for?
Generally accepted accounting principles
What are the two factors that impact whether managers will act in the best interest of stockholders?
How closely management goals align with stockholder goals and the way managers are compensated
Which one of the following questions is a working capital management decision?
How much inventory should the company keep on hand?
The total of cash flow to creditors and cash flow to stockholders is called _____.
cash flow from assets
Net working capital is __________ (negative/positive) when current assets exceed current liabilities.
positive
Which is true of taxes?
They can be one of the largest cash outflows a firm experiences.
Which one of these motivates managers to make good decisions?
Threat of a hostile takeover
Which of the following are current assets?
Inventory Accounts receivable
Which of the following are period costs?
Administrative expenses Selling costs General expenses
______ income is money earned after interest and taxes.
Net
