Principles of Accounting 2

1) Issued stock is:

A) Authorized shares of stock that can be sold.

B) Stock only sold to another company

C) Shares sold and in stockholders' possession

D) Stock sold to stockholders.

2) In the statement of cash flows, which event would cause net income to be increased?

A) A decrease in Inventory

B) An increase in Prepaid Insurance

C) A decrease in Accounts Payable

D) An increase in Accounts Receivable

3) Finished Goods Inventory appears on which of the following statements on the worksheet?

A) Statement of cost of goods manufactured and income statement

B) Statement of cost of goods manufactured and balance sheet

C) Income statement and balance sheet

D) Income statement and cost of goods sold statement

4) One reason a corporation might issue bonds rather than sell stock is that:

a. Bond interest is a tax-deductible expense

b. Interest rates are high

c. Dividends will lower the amount of tax due

d. Bondholders have claims at liquidation

5) For a corporation, bond interest:

a. Is treated the same as dividends for tax purposes.

b. Has no effect on earnings and therefore has no effect on income taxes

c. Reduces income tax by reducing earning

d. None of the above

6) Dividends paid to stockholders area:

a. Taxable to the recipient stockholder

b. Taxable to the corporation

c. Treated the same as bond interest

d. None of the above

7) If beginning and ending inventories are $20,000 and $30,000, respectively, and cost of goods sold is $400,000, what is the inventory turnover ratio?

a. 18

b. 16

c. 15.5

d. 15

8) Declaration of a cash dividend causes:

a. An increase in stockholders' equity

b. An increase in cash

c. An increase in liabilities

d. None of the above

9) The current ratio is:

a) Quick assets divided by current liabilities.

b) Assets divided by liabilities

c) Current assets divided by current liabilities

d) Net sales divided by current liabilities.

10) When the contract rate of interest on bonds is equal to the market rate of interest, bonds sell at:

a. A premium

b. Their face value

c. Their maturity rate

d. A discount

Principles of Finance

1) Of the following, which is NOT one of the four main areas of finance?

a. International finance

b. Corporate finance

c. Investments

d. All are considered main areas of finance.

2) ______________ is a major disadvantage of the corporate form of business.

a) Double taxation

b) Unlimited liability

c) Lack of ability to raise capital

d) Transfer of ownership

3) Everything else equal, an industry with more leverage will have a:

a. Higher return on assets

b. Higher return on equity

c. Lower return on equity

d. Both A & B

4) If you can earn 5.25% per year on your investments, how long will it take to double your money?

a. 6.31 years

b. 19.05 years

c. 13.55 years

d. There is not enough information to answer this question.

5) Travis bought a share of stock for $31.50 that paid a dividend of $.85 and sold six months later for $27.65. What was his dollar profit or loss and holding period return?

a. -$3.00, -9.52%

b. -$3.85, -12.22%

c. -$.85, -2.70%

d. -$3.85, -9.52%

6) If you were required to estimate the average return for one category of securities for the coming year, history tells us that you should have the greatest degree of confidence estimating which of the following?

a. Long-term government bonds

b. 3-month U.S. Treasury bills

c. Small-company stocks

d. Large-company stocks

7) Which of the following are not considered a part of the firm's capital structure?

a. Long-term debt

b. Retained earnings

c. Inventory

d. Preferred stock

8) Which of the following choices lists the least to most aggressive actions in the pursuit of overdue debt?

a. 1) A collection agency, 2) court action, 3) a letter requesting overdue payment

b. 1) Court action, 2) a collection agency, 3) a letter requesting overdue payment

c. 1) A letter requesting overdue payment, 2) count action, 3) a collection agency

d. 1) A letter requesting overdue payment, 2) a collection agency, 3) court action

9) John is in a high income-tax bracket and wishes to minimize current taxes payable. He also has a sizeable current income and prefers high growth rates to significant annual cash flow from his equity investments. Which of the following dividend polices would John most likely prefer if we assume that the dividend policy has no impact on the value of the firm and that the gains tax rate is lower than the ordinary tax rate?

a. High-dividend-payout policy

b. No-dividend-payout policy

c. Low-dividend-payout policy

d. John would be indifferent to all of the dividend policies

10) Which of the following would NOT be considered a cost of debt financing?

a. The required return on a bank loan

b. The required return on preferred stock

c. The yield-to-maturity of a bond issue

d. The required return on money borrowed from a venture capitalist.