1. Corporations establish goals in areas including finance, diversity, and social responsibility.
Match the corporate goal with the area that it
... [Show More] addresses.
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Environmental goal Create zero waste
Diversity goal Promote women and minorities
Financial goal Make a profitable investment for the company
Financial goal Switch to a freight company that provides a high volume discount
2. An analysis of a potential purchase of a new piece of equipment has been completed. The
analysis included a review of the initial cost of the equipment, annual operating expenses, and
the value of the expected increased production adjusted for the time value of money over the life
of the equipment.
Place the investments in the order they should be selected based on their valuation (from highest
to lowest value).
Select your answers from the pull-down list.
Correct
Answer
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2 Total costs of $700,000 and expected income $850,000 =1,550,000
3 Total costs of $500,000 and expected income of $700,000 = 1,200,000
1 Total costs of $700,000 and expected income $875,000 = 1,575,000
4 Total costs of $500,000 and expected income $600,000 = 1,100,000
A=L+E
Assets (whether permanent or liquid) are financed through liability
(debt) or equity (capital from owner/investors). Therefore, you should
always see the same dollar amount for both sides.
(Remember, ALE makes you lose your BALANCE.)
3. Classify each item as to whether it has or lacks a fundamental influence on valuation.
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Fundamental influence------------- Opportunity cost
Fundamental influence -------------- Cash flow
Not a fundamental influence-------- Taxable income
Not a fundamental influence--------- Revenue recognition
4. Which scenario illustrates the strong form of the efficient market hypothesis (EMH)?
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An investor is making an investment decision based on past market trading
information. This information includes stock prices and trading volume.
An investor is making an investment decision based on public information other than
stock prices and trading volume. This information includes accounting reports, news,
and analysts’ recommendations.
An investor is making an investment decision based on public information, as well as
private information that is known only to company insiders. This type of information is
also known as insider trading.
An investor is making an investment decision based how a company operates. This
information includes company management, company products, and news items.
5. A company’s accounting records include inflated numbers that give the company a higher net
income than its actual numbers. This overstatement was agreed upon by the company and its
auditors. This collusion between the company and its auditors would be caught rather quickly
due to regulations.
What agency regulates accounting practices between companies and their accounting firms?
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Public Company Accounting Oversight Board
U.S. Treasury
Financial Industry Regulatory Authority
Federal Reserve Board
6. In credit unions, boards of directors that hire executives are elected from among volunteering
members (whereas in commercial banks, they are hired by the stockholders from among nonmember outsiders).
Which agency problem with banks does this structure seek to eliminate?
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Between depositors and board of directors
Between suppliers and executives
Between owners and board of directors
Between board of directors and executives
7. Why is transferability of ownership relatively easy in the case of corporations?
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Corporations are large organizations.
The board of directors help shareholders trade stock.
Shareholders know one another and can trade stock with one another.
Stocks can be bought and sold in the stock market.
8. Match each account to the pair of financial accounting statements that it appears on.
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Balance sheet and statement of cash flows ---------------------- -Cash
Income statement and statement of cash flows------------------ Net income
Balance sheet and income statement ----------------------------- Retained earnings
9. How could a company that has a positive accounting income also be in trouble of going
bankrupt when looking at its cash balance?
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Accounting income does not take into account the cash that is needed to pay salaries
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and dividends.
The accounting income includes all transactions during the period.
The capital budget does not include the financing for new buildings and equipment.
The accounting income is equal to actual operating expenses.
10. Which section of the statement of cash flows includes such transactions as paying dividends
to shareholders, repurchasing common stock, and proceeds from the sale of long-term debt?
Correct
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Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Cash flows from supplemental data
11. Use the following income statement for the current year. Assume the sales are 35% higher
than the last year sales of $800,000.
Calculate the net income.
12. Assume that the cost of goods sold for 2012 increases 10% from the
previous year. Other expenses remain constant for 2012.
Gross Profit-Operating
Expenses=EBIT (AKA Operating
Profit/Income)
Gross Profit-Expenses=Net Income
$796,000-$92,000-$35,000-
$65,000=$604,000
Correct
Answer
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$604,000
$701,000
$532,000
$622,000 [Show Less]