FINANCE TEST 1 PRACTICE TEST

24. Shareholders' equity:

E. represents the residual value of a firm.

41. Shareholders probably have the most interest in which one of the following sets of ratio.

E. return on equity and price-earnings

35. A common-size income statement is an accounting statement that expresses all of a firm's expenses as percentage of:

E. sales.

9. Which one of the following parties has ultimate control of a corporation?

E. shareholders

6. A general partner:

A. is personally responsible for all the partnership debts

47. What is the change in the net working capital from 2010 to 2011? (Use income statement and balance information on the screen)

B. $1,306

50. What is the cash flow from assets for 2011? (Use income statement and balance sheet on the screen)

A. $1,732

44. 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

26. The book value of a firm is:

B.based on historical cost.

1. Which one of the following is defined as a firm's short-term assets and its short-term liabilities?

A. working capital

46. The Burger Hut has sales of $29 million, total assets of $43 million, and total debt of $13 million. The profit margin is 11 percent. What is the return on equity?

B. 10.63 percent

42. Which one of the following statements is correct?

B. Financial statements are frequently used as the basis for performance evaluations.

8. Which one of the following best states the primary goal of financial management?

B. maximize the current value per share

33. Activities of a firm which require the spending of cash are known as:

B. uses of cash.

29. 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?

B.$780

11. Which one of the following is a primary market transaction?

Bsale of a new share of stock to an individual investor

43. A firm generated net income of $862. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

C. $882

15. The common set of standards and procedures by which audited financial statements are prepared is known as the:

C. Generally Accepted Accounting Principles.

2. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?

C. agency problem

13. Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?

C. balance sheet

39. On the Statement of Cash Flows, which of the following are considered operating activities?

C. cost of goods sold, decrease in accounts payable, and interest paid only

10. Which of the following parties are considered stakeholders of a firm:

C. employee and government

7. Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?

C. limited partnership

23. Which one of the following represents the most liquid asset (Think this one through)?

D. $100 of inventory that is sold today for $100 cash

45. Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?

D. 0.51

32. A firm uses 2011 as the base year for its financial statements. The common-size, base-year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?

D. 2011 inventory expressed as a percent of 2011 total assets

38. A firm uses 2011 as the base year for its financial statements. The common-size, base-year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?

D. 2011 inventory expressed as a percent of 2011 total assets

3. The _________ is ultimately responsible for overseeing the firm and its management.

D. Board of Directors

19. The _____ tax rate is equal to total taxes divided by total taxable income.

D. average

17. Noncash items refer to:

D. expenses which do not directly affect cash flows.

22. Cash flow from assets is also known as the firm's:

D. free cash flow.

28. Which one of these is most apt to be a fixed cost?

D. office salaries

49. What is the operating cash flow for 2011? (Use income statement and balance information on the screen)

E. $4,267

20. The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the:

E. cash flow to stockholders.

14. Net working capital is defined as:

E. current assets minus current liabilities.

4. The controller of a corporation generally reports directly to the:

E. vice president of finance.

30. A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230, and fixed assets are $3,910. What is the amount of the total liabilities?

E.$5,860

25. The higher the degree of financial leverage employed by a firm, the:

A. higher the probability that the firm will encounter financial distress.

16. Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

A. income statement

21. Which term relates to the cash flow which results from a firm's ongoing, normal business activities?

A. operating cash flow

31. A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400, current.

C. $18,700

37. The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:

C. Standard Industrial Classification code.

48. What is the amount of the noncash expenses for 2011? (Use income statement and balance information on the screen)

D. $1,611

36. The formula which breaks down the return on equity into three component parts is referred to as which one of the following?

D. Du Pont identity

12. Public offerings of debt and equity must be registered with which one of the following?

D. Securities and Exchange Commission

5. Which of the following accounts are included in working capital management?

D. accounts payable, accounts receivable, and inventory

34. The sources and uses of cash over a stated period of time are reflected on the:

D. statement of cash flows.

27. Which one of the following is true according to Generally Accepted Accounting Principles?

E. Costs of goods sold are recorded based on the matching principle.

40. If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:

E. has an equity multiplier of 1.0.

18. The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

E. marginal