FIN-602 Exam 1 (Ch 1, 2, 3) Revision Quiz PDF

CHAPTER – 1: QUIZ QUESTIONS AND ANSWERS (MULTIPLE CHOICE) : 1. Which of the following legal forms of organization is most expensive to organize? Answer : Corporations 2. Which of the following is a routine way that boards try to align the interest of managers and stockholders?...

CHAPTER – 1: QUIZ QUESTIONS AND ANSWERS (MULTIPLE CHOICE) : 1. Which of the following legal forms of organization is most expensive to organize? Answer : Corporations 2. Which of the following is a routine way that boards try to align the interest of managers and stockholders? Answer : tie management compensation to the performance of the company’s common stock price 3. Which of the following is an example of agency cost? Answer : failure to make an investment that would make shareholders wealthier 4. Corporate governance refers to --------. Answer : the rules, processes, and laws by which companies are operated, controlled, and regulated 5. Agency costs are --------. Answer : costs that shareholders bear because managers pursue their own interest rather than acting in the interest of the shareholders 6. Which of the following legal forms of organizations is characterized by unlimited liability?  Answer : Sole Proprietorship 7. Wealth maximization as the goal of a firm implies enhancing the wealth of --------. Answer : the firm’s stockholders 8. Under which of the following legal forms of organization is ownership readily transferable? Answer : Corporations 9. Which of the following is the strength of a corporation? Answer : limited liability 10. The primary goal of a financial manager is --------. Answer : maximizing wealth 11. Investors who are risk averse will make risky investments as long as they expect compensation for doing so. Answer : True 12. The responsibility managing day-to-day operations and carrying out corporate policies belong to the --------.  Answer : Chief Executive Officer 13. A corporation’s stockholders elect its CEO. Answer : False 14. Which of the following is true of stakeholder? Answer : They are groups having a economic link to a firm 15. The amount earned during the accounting period on each outstanding share of common stock is called --------. Answer : earnings per share 16. An effective ethics program --------. Answer : can enhance a corporation’s value CHAPTER – 2 : QUIZ QUESTIONS AND ANSWERS (MULTIPLE CHOICE) : 1. The balance sheet is a statement which balances the firm’s assets (what it owns) against its debt (what it has borrowed). Answer: False 2. GAAP is the accounting profession’s rule-setting body. Answer : False 3. The income statement is a financial summary of the firm’s operating results during a specified period while the balance sheet is a summary statement of the firms financial position at a given point in time. Answer: True 4. The statement of cash flows provides insight into the firm’s assets and liabilities and reconciles them with changes in its cash and marketable securities during the period of concern. Answer : False 5. Firms that require funds from external sources can obtain them --------. Answer : Through Financial institutions CHAPTER – 3 : QUIZ QUESTIONS AND ANSWERS (MULTIPLE CHOICE) : 1. The 2002 Sarbanes-Oxley Act was designed to ---------. Answer : eliminate the many disclosure and conflict-of-interest problems of corporations 2. In 2018, Target Corp. reported sales of $71.9 billion, cost of goods sold of $51.1 billion, operating profit of $4.3 billion, and net income of $2.9 billion. Target has no preferred stock outstanding, it’s operating profit margin that year was --------. Answer : 6.0% 3. Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of $ 50,000. There were 100,000 shares outstanding and no interest expense. What was Candy Corporation’s earnings per share? Answer : $7.42 4. Which of the following ratios is difficult for the creditors of a firm to analyze from the published financial statements? Answer : average payment period 5. Which of the following is used to analyze a firm’s financial performance over different years?  Answer : time-series analysis 6. A firm with sales of $ 1,000,000, net profits after taxes of $ 30,000, total assets of $1,500,000, and common stockholders’ investment pf $750,000 has a return on equity of --------. Answer : 4 percent 7. The -------- ratio reflects how much investors are willing to pay for a company’s stock per dollar of earnings that company generates. Answer : price/earnings 8. A(n) -------- provides a financial summary of a firm’s operating results during a specific period. Answer : income statement 9. Which of the following is used to analyze a firm’s financial performance over different years? Answer : time-series analysis 10. The -------- is a popular approach for evaluating profitability in relation to sales by expressing each item on the income statement as percent of sales. Answer : common-size income statement 11. If the only information you are given about Ryan Corporation, a large public company in business for many years, is that it has a current ratio of 2.9, what could you infer from this?  Answer : it can likely meet its short-term obligations without difficulty. 12. Two frequently cited ratios of profitability that can be read directly from the commonsize income statement are --------. Answer : the gross profit margin and the net profit margin 13. The -------- ratio measures the return earned on the common stockholders’ investment in the firm. Answer : return on equity 14. Accounting practices and procedures used to prepare financial statements are called ------ --. Answer : GAAP 15. A firm with total asset turnover lower than industry standard may have --------. Answer : excessive debt 16. Time-series analysis is often used to ---------. Answer : assess developing trends 17. Paid-in capital in excess of par represents the amount of proceeds --------.  Answer : in excess of the par value from the original sale of common stock 18. A firm has a year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firm’s retained earnings balance at 2015 year end is --------. Answer : $240,000 19. Book value per share is the ratio of --------. Answer : common stock equity to number of outstanding common shares 20. Paid-in capital in excess of par represents the amount of proceeds --------. Answer : in excess of the par value from the original sale of common stock 21. ABC Corp, extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was --------. Answer : 57 days 22. The -------- measures a firms ability to pay contractual interest payments. Answer : times interest earned 23. The -------- measures the overall effectiveness of management in generating profits with its available assets. Answer : return on total assets 24. The two basic measures of liquidity are --------. Answer : current ratio and quick ratio 25. The 2002 Sarbanes-Oxley Act was designed to --------. Answer : eliminate the many disclosure and conflict-of-interest problems of corporations 26. The -------- ratio may indicate poor collections procedure or a relaxed credit policy. Answer : average collections period 27. The -------- ratio indicates the efficiency with which a firm uses its assets to generate sales. 28. Answer : total asset turnover 29. Which of the following is a fixed asset? Answer : Land  NUMERICALS : 1. In 2018, Target Corp, reported sales of $71.9 billion, cost of goods sold, $51.1 billion, operating profit of $4.3 billion. Target has no preferred stock outstanding, its operating profit margin that year was --------. Answer : 6.0 % 2. A firm has year-end retained earnings balance of $220,000 for 2014. The firm reported net profits after taxes of $50,000 and paid dividends of $30,000 in 2015. The firms retained earnings balance at 2015 year end is --------. Answer : $ 240,000 3. Candy Corporation had pretax profits of $1.2 million, an average tax rate of 34 percent, and it paid preferred stock dividends of $50,000. There were 100,000 shares outstanding and no interest expense. What was Candy Corporations earnings per share? Answer : $7.4 4. A firm with sales of $1,000,000, net profits after taxes of $30,000, total assets of $1,500,000 and common stockholders’ investment of $750,000 has a return on equity of - -------. Answer : 4% 5. ABC Corp extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was --------. Answer : 57 days 6. In the month of August, a firm had total cash receipts of $10,000, total cash disbursements of $8,000 depreciation expense of $1,000 and a beginning cash balance of $500. The ending cash balance for August total is --------. Answer : $2,500