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Finance / Accounting (35 Questions)

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1. The ____________ provides a financial summary of the firm's operating results during a specified period.
a) Statement of cash flows
b) Statement of retained earnings
c) Balance sheet
d) Income statement

2. When calculating the proportion of revenue that finds its way into profits, it is often appropriate to add back debt interest to net income. The ratio which best describes this is:
a) net profit margin
b) return on assets
c) operating profit margin (aka Return on Sales)
d) return on equity

3. The capital expenditures budget is an example of an operating budget.
a) True
b) False

4. The _________ is a position statement that shows where the company stands in financial terms at a specific date.
a) statement or retained earnings
b) statement of cash flows
c) income statement
d) balance sheet

5. A system that relies on electronic impulses, not paper documents, to transfer cash is known as:
a) electronic remittance
b) electronic imaging
c) electronic mail
d) electronic funds transfer

6. Treasury stock should be included in an organization's total number of outstanding shares.
a) True
b) False

7. The role of the financial manager includes all of the following EXCEPT:
a) preparation of financial statements
b) reselling IPO (initial public offering) stock securities to the public
c) raising capital
d) cash management

8. During the closing process, revenue and expense accounts are closed to:
a) owner's equity
b) dividends
c) retained earnings
d) income summary

9. The cash conversion cycle is the period between a firm's payment for materials, and collection on its sales.
a) True
b) False

10. Expenses should be recorded in the period in which they are used up. This is referred to as:
a) The Matching Principle
b) Book Value
c) Market Value
d) The Realization Principle

11. The revenue recognition principle states that revenue should be recorded:
a) when the sale is made
b) when payment is received
c) A or B
d) None of the above

12. Cash management helps to do all of the following EXCEPT:
a) avoid unnecessarily large amounts of idle cash
b) ensures low levels of accounts receivable write-offs
c) accurately account for cash
d) prevent theft and fraud

13. An analysis of economic and market conditions plus forecasts of customer needs from marketing personnel are components of the:
a) sales budget
b) capital expenditures budget
c) production budget
d) cash budget

14. The final step in the financial budget is the preparation of the:
a) budgeted income statement
b) budgeted balance sheet
c) cash budget
d) master budget

15. All of the following are characteristics of internal accounting information except:
a) measures of efficiency and effectiveness
b) identity of decision maker
c) historical in nature
d) these are all characteristics of internal accounting information

16. Steve Smith, owner of Steve's Bowling Alley, incurs a total salary expense of $4,000 for the period November 16-November 30. However, since payday is Friday, Steve pays his employees for this period on December 2. The salary expense would be recognized:
a) At year-end
b) On November 30
c) On December 2
d) Steve can choose between November 30 or December 2

17. A(n) _________ describes your product, the potential market, the production method, and the resources?time, money, employees, plant, and equipment?needed for success.
a) business plan
b) operating budget
c) prospectus
d) master budget

18. Steve Smith, the owner of Steve's Bowling Alley, purchased 300 new bowling balls for $10,000. The bowling balls have a useful life of 5 years. Assuming straight-line depreciation, what would be the expense entry in year six?
a) $10,000
b) $2,000
c) $0
d) none of the above

19. The asset turnover ratio is classified as a(n):
a) liquidity ratio
b) efficiency ratio
c) profitability ratio
d) market value ratio

20. The short-term financing strategy of stretching payables is preferable to bank loans to improve a firm's cash flow position.
a) True
b) False

21. Properly done, the ___________ ensures that all cash transactions have been accounted for and that the bank and book records of cash are correct.
a) statement of cash flows
b) bank reconciliation
c) cash reconciliation
d) bank statement

22. Steve Smith, the owner Steve's Bowling Alley, purchased 500 pairs of bowling shoes for $7,500. He paid for the shoes on account. The journal entry to record this transaction would be:
a) Debit "Retained Earnings" for $7,500; Credit "Tools and Equipment - shoes" for $7,500
b) Debit "Cash" for $7,500; Credit "Tools and Equipment - shoes" for $7,500
c) Debit "Tools and Equipment - shoes" for $7,500; Credit "Accounts Payable" for $7,500
d) No entry is required until the account is paid.

23. Steve Smith, the owner of Steve's Bowling Alley, generated $30,000 in total sales during the month of November, and incurred $5,000 in expenses. He allows several "regular" customers to pay on account. Sales on account for the month of November were equal to $5,000. The amount that Steve should record as net income for the month of November is:
a) $5,000
b) $20,000
c) $25,000
d) $30,000

24. Current assets minus current liabilities is known as:
a) credit scoring
b) payment float
c) discount interest
d) net working capital

25. The primary purpose in preparing a budget is
a) cash planning and profit planning
b) for risk analysis
c) for cash planning
d) for profit planning

26. Steve Smith, owner of Steve's Bowling Alley, purchased a 12-month rental storage unit in December for the upcoming year, beginning January 1. The rental contract costs $12,000, and he paid in cash. The journal entry to record this transaction on January 31 would be:
a) Debit "prepaid rental unit" for $12,000; Credit "Cash" for $12,000
b) Debit "rental expense" for $1,000; Credit "prepaid rental unit" for $1,000
c) Debit "prepaid rental unit" for $1,000; Credit "rental expense" for $1,000
d) No January entry is required. The entry should only be recorded in December.

27. Financial budgets include the cash budget, budgeted income statement, budgeted balance sheet, and the general and administrative expense budget.
a) True
b) False

28. The debt ratio is computed by:
a) dividing total assets by total liabilities
b) dividing current liabilities by total liabilities
c) dividing current assets by current liabilities
d) dividing total liabilities by total assets

29. Net income appears on which two financial statements?
a) income statement and statement of owner's equity
b) balance sheet and statement of cash flows
c) statement of owner's equity and balance sheet
d) income statement and balance sheet

30. Check kiting, a form of legal float, can help a firm to increase cash flow.
a) True
b) False

31. A firm with a total debt ratio of 0.60 indicates:
a) they are financed with 60% debt, 40% equity
b) they are financed with 60% equity, 40% debt
c) they are financed with 60% long-term debt, 40% short-term debt
d) they are financed with 60% short-term debt, 40% long-term debt

32. Partnerships:
a) own and manage the business
b) have unlimited liability
c) pool resources such as knowledge and capital
d) all of the above

33. The legal contract setting forth the purpose of the business and how it is to be financed, managed and governed is:
a) a bond indenture
b) a debenture
c) the articles of incorporation
d) a promissory note

34. A distinct disadvantage of corporations is:
a) the ease with which corporations can be established
b) the owners manage and run the business
c) the owners and business are taxed separately
d) none of the above

35. In a sole proprietorship, the law protects the personal assets of the owner from creditors of the business.
a) true
b) false

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Solution Summary

Thirty-five finance definition type problems are solved. No explanations are provided for the answers.

See Also This Related BrainMass Solution


1. A company's ability to pay its suppliers on time is best measured by its
a. Current ratio
b. Operating margin
c. Asset turnover ratio

2. A company's profitability on shareholders' investment is measured by its
a. Quick ratio
b. Return on equity
c. Debt/equity ratio
d. Asset turnover ratio

3. For the year 2002, a corporation earns $20,000 in revenues, incurs $8,000 in operating costs excluding depreciation, has $3,000 in depreciation, and invests $5,000 in a new factory. The corporate income tax rate is 35%. What is after-tax income for 2002?

4. Monsters and Mazes Comic Books, Inc. had net income after taxes of $256,000. The company had $32,000 in depreciation expenses and $35,000 in interest expenses. Assuming a tax rate of 37%, what was the operating cash flow for Monsters and Mazes?
5. Food Inc. had an outstanding year. Their year-end total capital was $60,000,000; they earned a net income of $5,100,000, paid $2,400,000 in taxes, and $900,000 in interest expense. Assuming an after-tax cost of capital of 8%, calculate Food Inc.'s EVA.
6. Help Rutgers Pride Corporation find their cash flow from assets using the data below:
OCF= $230,000
Depreciation expense= $20,000 Assets: 1/1/2004 12/31/2004
Quick Assets $80,000 $95,000
Inventory $120,000 $145,000
Fixed Assets $200,000 $250,000
Total Assets $400,000 $490,000
Current Liabilities $180,000 $210,000

(Question 7-8) In 2004, Sundance Inc. had 2,000,000 in sales, 600,000 cost of goods sold, and the following current assets information.(to get a denominator of financial ratios please use average of two ending balance)
Current Assets
December 31, 2004 December 31, 2003
Cash 800000 600000
Accounts Receivables 180000 160000
Inventory 100000 80000
Total Current Assets 1,080,000 840,000

7. Find the accounts receivables turnover and average collection period for 2004. What do these ratios tell us about Sundance Inc?

8. Find the inventory turnover and days in inventory for 2004. What do these ratios tell us about Sundance Inc?

(Question 9-12) Given below is financial information for Rutgers Ice Cream
Rutgers Ice Cream
2008 Income Statement
Sales $11,000
Cost of goods sold 5,800
Depreciation 900
EBIT 4,300
Interest paid 800
Taxable income 3,500
Taxes (34%) 1,190
Net income $ 2,310
Addition to retained earnings $ 1,700
Dividends 610

Rutgers Ice Cream
Balance Sheets ending December 31, 2007 and 2008
2007 2008 2007 2008
Asset Liabilities and Owners Equity
Current Assets Current Liabilities
Cash $500 $315 Accounts payable $800 $710
Receivables 905 1,827 Notes payable 250 410
Inventory 3,015 4,718 Other 310 318
Total 1,360 1,438
Fixed Assets Long-term debt 4,325 4,000
Net Plant & Equip. 9318 8998 Owner's equity



15858 Common Stock
Capital Surplus
Retained Earnings
13738 1467

9. What is the ROE for 2008 (to get a denominator please do not use average but use the number at the end of year)?
10. What is the average collection period for 2008 (to get a denominator please do not use average but use the number at the end of year)?
11. What is the debt ratio for 2007 (to get a denominator please do not use average but use the number at the end of year)?
12. What was the cash flow to creditors for 2008?

(Question 13-16) Given below is financial information for Sullivan's Slushie Incorporated.

Sullivan's Slushy Incorporated
Income Statement For the Years Ended December 31, 2005 and 2004
. 2005 2004
Sales $3,550,000 $3,340,000
Cost of Goods Sold 1,750,000 1,662,000
Other Expenses 276,500 220,000
Depreciation 80,000 66,000
EBIT $1,443,500 $1,392,000
Interest Expense 243,000 306,500
EBT $1,200,500 $1,085,500
Taxes (35%) 420,175 379,925
Net Income $780,325 $705,575
Dividends $108,000 $74,000

Calculate the following using the information given in Sullivan's Slushies Incorporated's financial statements. Also, give a brief 1 to 2-sentence explanation of what each value tells us about the company. Remember to show all work.
13. Operating Cash flow for the year 2005:

14. Net Capital Spending (Change in Fixed Assets) for the year 2005:

15. Change in NWC for the year 2005:

16. Cash flow from assets for the year 2005:
(Question 17-18) Joe Scavone's brewery had operating revenue of $150,000,000 this year. Their total expenses were 73% of sales, and they are in the 35% tax-bracket. Scavone brewery had $342,000,000 in total assets at year-end last year but increased this amount 14% throughout this current year. To finance the purchase of these assets, Scavone brewery issued $50,000,000 in debt and pays 10% interest on that debt each year. They expect to maintain a debt-to-equity ratio of .32.
17. Construct an income statement for Scavone breweries.

18. What is Joe Scavone's ROE?

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