FN 340 - Chapter 1-3 Exam 1

Although _____ _____ are often poor reflections of reality, they are often the best info available a) accounting numbers b) intrinsic values c) market valuations

a

Which ratios use some info that is not contained in financial statements? a) market value ratios b) liquidity ratios c) leverage ratios d) profitability ratios

a

______ financial statements provide for comparison of firms that differ in size a) standardized b) restated c) original d) compressed

a

a long-term liability represents a(n) _____. a) debt that is not due in the coming year b) obligation of the firm lasting over 1 month c) obligation of the firm lasting over 90 days d) debt that must be paid within the year

a

Current assets are defined as assets that can be turned into cash within ____ months. a) 12 b) 24 c) 6 d) 18

a 12

What is a primary concern for bank lending funds to a business for the short term? a) liquidity b) depreciation expense c) competition in the industry d) retained earnings

a liquidity

How is ownership transferred in a corporation? a) ownership is transferred by gifting or selling shares of stock b) ownership is transferred with prior approval from the board of directors c) ownership in a corporation cannot be transferred d) ownership can be transferred only if the firm is sold

a ownership is transferred by gifting or selling shares of stock

Increasing its non-cash liquid assets will enable a frim to do which of the following? a) increase its ability to meet ST obligations b) increase its ability to avoid financial distress c) reduce its investment in receivables and inventory d) increase its rate of return

a & b increase its ability to meet ST obligations & increase its ability to avoid financial distress

Which of the following reports to the CFO? a) Controller b) Director of marketing c) CEO d) Treasurer

a & b controller & treasurer

Inventory is a ___. a) part of working capital b) fixed asset c) current asset d) current liability e) LT liability

a & c part of working capital & current asset

A good financial decision aims at which of the following? a) increase market value of shareholders equity b) increase current dividends per share c) increase the cost of capital d) increase the value of the firm's existing stock

a & d increase market value of shareholders' equity & increase the value of the firm's existing stock

The short-run for a firm is the period of time during which ______. a) some costs are fixed b) output is fixed c) all costs are variable d) output can vary

a & d some costs are fixed & output can vary

Which of the following is true about the difference between the income statement and cash inflows and outflows? a)sales, on credit are accounts receivable rather than cash inflows until they are collected, which may be in a different period b) 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 c) income taxes are often deferred, so they amount on the income statement may not represent the amount of the check to the IRS d) depreciation expense is equal to the installment payment on the equipment being depreciated, so it is a cash outflow

a, b & c

Which of the following uses cash? a) increases in property, plant, and equipment b) decreases in accounts payable c) increases in inventory d) decreases in property, plant, and equipment e) decreases in accounts receivables

a, b & c

A treasurer's responsibilities typically include: a) making financial plans b) handing cash flows c) managing capital expenditures decisions d) financial accounting

a, b & c making financial plans, handling cash flows & managing capital expenditure decisions

The cash flow identity reflects the fact that: a) a firm generates cash through its various activities b) cash is either used to produce the product or service, pay creditors, or payout to the owners of the firm c) operating cash flow is the same as operating income d) cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders

a, b & d

Assets can be described as items that: a) provide market value to the firm b) generate revenue c) are always the same amount as firms liabilities d) a firm owns

a, b & d Provide market value to the firm, generate revenue & a firm owns

What does stockholders' equity represent? a) a fixed claim against the firms liabilities b) a residual claim against the book value of the firms assets c) a claim against all of the firm's assets d) a residual claim against the firm's liabilities

b

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the: a) common-law statements b) common-size statements c) common-base year statements

b

Whenever ______________ info is avaliable, it should be used instead of accounting data. a) any other b) market c) historical d) trivial

b

______ costs change as the output of the firms changes a) overhead b) variable c) fixed d) depreciation

b

Which one of these is considered to be the most liquid? a) land b) accounts receivables c) inventory d) equipment & machines

b Accounts receivable

The rules used by a corporation to regulate its existence are known as ______. a) restatements of facts b) bylaws c) articles of incorporation d) a legal settlement

b bylaws

A sole proprietorship is a business that _____ a) provides limited personal liability to its owner b) is owned by one person c) is organized with bylaws d) is similar to a limited partnership

b is owned by one person

The price at which willing buyers and sellers would trade is called ________ value. a) carrying b) market c) accounting d) book

b market

The owners of a corporation are called ____. a) bondholders b) stockholders c) government agents d) partners

b stockholders

The primary responsibility of the financial manager is to increase the value of ____. a) future profits b) the existing shares of stock c) their total compensation package d) current earnings

b the existing shares of stock

which of the following items are among the items used to compute the current ratio? a) equipment b) cash c) accounts payable d) earnings

b & c

Which of the following are included in a firm's capital structure? a) net sales b) LT debt c) equity d) current assets

b & c LT debt & equity

A common-size income statement helps compare financial results over time by controlling for changes in __. a) market share b) tax rates c) sales d) capital structure

c

Company A has 1800 shares outstanding and earned $2700 last year on assets of $2 million and equity $1.5 million. What is the PE ratio is the stock is currently selling at $18 per share? a) 10X b) 8.3x c) 12x d) 27x

c

Fixed costs are costs that will not change _____. a) until the time the business is profitable b) in the long run c) in the short run d) ever

c

If the company has inventory, the quick ratio will always be _____ than the current ratio. a)greater than b) equal to c) less than

c

The short run is _____. a) defined in 6 months b) defined as 1 year c) imprecise period of time d) defined as 1 month

c

What is depreciation? a) The market value of an asset minus the assets book value b) a systematic cash contribution to a company's checking account to fund a new asset c) a systematic expense of an asset-based on the assets estimated life d) the current market value of an asset minus the assets initial cost

c

The more debt a firm has, the greater its: a) degree of operating leverage b) retained earnings c) degree of financial leverage d) book value

c degree of financial leverage

Since ____ and ownership are separated, a corporations life is unlimited a) taxation b) debt c) management d) profitability

c management

A sole proprietor has ____ personal liability for all business debts and obligations a) no b) limited c) unlimited d) little

c unlimited

Which of these questions can be answered by reviewing a firms balance sheet? a) how much new income has the firms earned this period? b) how much of the firms net income was paid out in dividends? c) what is the total amount of assets the firms owns? d) how much debt is used to finance the firms ?

c & d

A common-size balance sheet expenses accounts as a percentage of _____ a) total Liabilities b) sales c) total equity d) total assets

d

Total capitalization equals total equity plus total: a) net income b) current assets c) EBIT d) LT debt

d

Capital budgeting is concerned with planning and managing a firms ____. a) LT liabilities b) current liabilities c) current assets d) LT investments

d LT investments

Under GAAP, US firms must carry assets at: a) market value b) fair value c) economic value d) book value

d book value

Assets are recorded at historical cost, not market value, because: a) you have to pay to obtain assets b) assets are not valuable to a firm c) costs are more valuable than assets d) it is hard to keep up with the market value

d 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 a natural person a) patriotic b) illegal c) retributive d) legal

d legal

When a corporation raises funds in the financial markets, the transaction occurs on the: a) offering market b) secondary market c) options exchange d) primary market

d primary market

Who is entitled to the residual value of a firm's cash flows? a) bond holders b) suppliers c) the internal revenue service d) shareholders

d shareholders

Which of these are generally considered to be short-run fixed costs? a) rent payments for a warehouse b) property taxes c) income taxes d) management salaries e) management bounuses

a, b & c

Which of these items do NOT appear on a balance sheet? a) favorable economic conditions b) good management c) knowledge that has no patent d) accounts payable

a, b & c favorable economic conditions, good management & knowledge that has no patent

Which of the following are period costs? a) administrative expenses b) selling costs c) cost of goods sold d) general expenses

a, b & d

Financial manager use a common-size income statement to determine ___. a) the firms current capital structure b) which costs are rising or falling as a percentage of sales c) the firms sources and uses of cash d) the percentage of income invested in each type of asset

b

The officer responsible for corporate tax reporting is the _____. a) treasurer b) controller c) chief operating officer d) ombudsman

b controller

If management has been unsuccessful at creating value for the company's stockholders, the market-to-book ratio will be ____. a) rising b) greater than 1 c) very high d) less than 1

d

On a balance sheet, total assets must always equal total liabilities plus _____. a) retained earnings b) fixed assets c) net working capital d) shareholders' equity

d

The EBITDA ratio is similar in spirit to: a) quick ratio b) Dupont identity c) Inventory turnover d) PE ratio

d

A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account? a)Accounts payable b) stockholder's equity c) retained earnings d) accounts receivable

d Accounts receivables

Whose responsibility is it to create value for a firm? a) shareholders b) legislators c) stakeholders d) management

d management

In financial markets, debt and ______ securities are bought and sold.

equity

What does GAAP stand for?

generally accepted accounting principle