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Finance: Multiple choice Questions

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1. The primary users of external financial reports are
a. Those who direct day to day operations of a business enterprise
b. Individuals who have an economic interest in the firm but who are not part of management
c. Managers of an enterprise who plan, implement plans, and control costs
d. None of the above

2. If a company has $15,000 in assets and $10,000 in equities, then liabilities are
a. $25,000
b. $10,000
c. $5,000
d. $0

3. A revenue account is increased with
a. Debits
b. Credits
c. Equities
d. None of the above

4. Expense items that have been incurred during a period but not recorded by the end of the period are:
a. Prepaid liabilities
b. Prepaid expenses
c. Deferred expenses
d. Unrecorded liabilities

5. A purchase of $900 of supplies on account was journalized and posted as $900 debit to Supplies on Hand and a $900 credit to Accounts Receivable. The entry to correct this error is
a. A $900 debit to accounts payable and a $900 credit to accounts receivable
b. A $900 debit to supplies on hand and a $900 credit to accounts payable
c. A $900 debit to accounts receivable and a $900 credit to accounts payable
d. A $900 debit to accounts receivable and a $900 credit to supplies on hand

6. The retained earnings balance of Werner Company was $46,800 on January 1, 2005. Net income for 2005 was $26,480. If retained earnings had a credit balance of $21,000 after closing entries were posted on December 31, 2005 and if additional stock of $13,000 was issued during the year, dividends paid during 2005 were:
a. $38,800
b. $52,280
c. $65,280
d. none of the above

7. If net purchases are $200,000 and beginning and ending accounts payable balances are $25,000 and $20,000, respectively, cash paid for purchases is
a. $195,000
b. $200,000
c. $205,000
d. $210,000

8. The tools of financial statement analysis are not â??staticâ? they have, and will continue, to evolve as the nature of doing business and/or the needs of financial statement users change
a. True
b. False

9.Which of the following costs would be LEAST likely to be a fixed cost:
a. Plant property taxes
b. Plant supervisorâ??s salary
c. Utilities costs
d. Executive salaries

10. Sales income minus total fixed costs is equal to:
a. Net income
b. Contribution margin
c. Gross margin
d. None of these choices

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Solution Preview

1 - b. Individuals who have an economic interest in the firm but who are not part of management
2 - c. ...

Solution Summary

The solution answers 10 multiple choice finance questions.

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Finance - Multiple Choice Questions

1. The ________ is a weighted average of the cost of funds which reflects the interrelationship of financing decisions.

1. 1. risk-free rate
2. 2. nominal cost
3. 3. risk premium
4. 4. cost of capital

2. The firm's optimal mix of debt and equity is called its

1. 1. optimal ratio.
2. 2. maximum wealth.
3. 3. target capital structure.
4. 4. maximum book value.

3. If a corporation has an average tax rate of 40 percent, the approximate annual, after-tax cost of debt for a 10-year, 8 percent, $1,000 par value bond selling at $1,150 is

1. 1. 4.8 percent.
2. 2. 3.6 percent.
3. 3. 6 percent.
4. 4. 8 percent.

4. A corporation has concluded that its financial risk premium is too high. In order to decrease this, the firm can

1. 1. decrease the proportion of common stock equity to decrease financial risk.
2. 2. increase short-term debt to decrease the cost of capital.
3. 3. increase the proportion of long-term debt to decrease the cost of capital.
4. 4. increase the proportion of common stock equity to decrease financial risk.

5.________ leverage is concerned with the relationship between sales revenue and earnings per share.

1. 1. Operating
2. 2. Financial
3. 3. Total
4. 4. Variable

6.Breakeven analysis is used by the firm

1. 1. none of these.
2. 2. Both to determine the level of operations necessary to cover all operating costs and to evaluate the profitability associated with various levels of sales.
3. 3. to determine the level of operations necessary to cover all operating costs.
4. 4. to evaluate the profitability associated with various levels of sales.

7.Noncash charges such as depreciation and amortization ________ the firm's breakeven point.

1. 1. understate
2. 2. decrease
3. 3. overstate
4. 4. do not affect

8.If a firm's fixed operating costs decrease, the firm's operating breakeven point will

1. 1. decrease.
2. 2. change in an undetermined direction.
3. 3. increase.
4. 4. remain unchanged.

9.________ is the potential use of fixed operating costs to magnify the effects of changes in sales on earnings before interest and taxes.

1. 1. Ratio analysis
2. 2. Operating leverage
3. 3. Total leverage
4. 4. Financial leverage

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