Archives: Quiz

The premium of warrants tends to decrease as the stock price rises. Long-term capital gains are taxed at a higher tax rate than dividends. Answer: FALSE The tax on capital gains and dividends is the same. A negative aspect of […]

Fiscal policy involves government spending and taxation policies. A limited partnership can be either private or public in nature. Answer: TRUE A public offering generally involves much larger total amounts and has gone through the complex and rigorous process of […]

For a hedge to work, the futures contract must continue until actual delivery takes place. When monopolies exist, they are almost always found in mature industries. Answer: TRUE Monopolies are almost always found in mature industries. The major functions of […]

The greatest profit, and the greatest risk, arises from trying to identify an acquisition candidate before the announcement. A stock split has no effect on the par value of a stock. Answer: FALSE Tests examining the impact of such events […]

Points above the efficient frontier have superior risk-return characteristics to those along the efficient frontier, but are not part of the feasible set. High coupon bonds will usually have higher durations than low coupon bonds of the same maturity. Answer: […]

American depository receipts allow foreign stocks to be traded in the United States markets very similarly to U.S. stocks. Correlations of foreign stock market movements to U.S. stock market movements show that the period from 1997 to 2002 had higher […]

An ascending term structure reflects the view that rates will increase in the future. Money market funds represent a vehicle to buy short-term fixed-income securities through a mutual fund arrangement. Answer: TRUE Money market funds represent a vehicle to buy […]

Under-pricing of new stock issues helps ensure the investment banker that the issue will be fully subscribed to at the initial market price. Stock index futures contracts are limited to the Dow Jones Industrial Average. Answer: FALSE Currently, futures and […]

An increase in assets is considered a source of funds. A public utility is likely to appeal to an income-oriented, conservative investor. Answer: TRUE Conservative investors are usually income-oriented and are attracted by the slow capital growth but high dividend-paying […]

The riskiness of an investment is measured by the dispersion of possible outcomes. Slow, steady, predictable growth in the money supply over the long-term is a positive sign of economic growth. Answer: TRUE Refer to Figure 5.5. Figure 5.5 summarizes […]

The bond market is dominated by institutional investors. No one in a limited partnership arrangement has unlimited liability. Answer: FALSE A general partner forms the limited partnership and has unlimited liability for the partnership liabilities. Divergence between advances and declines […]

The method of starting the stock valuation process with an analysis of the economy is referred to as the bottom-up approach. Limited liability is particularly important in real estate because mortgage debt obligations may exceed the net worth of participants. […]

Even though Korea and China have markets bigger than some markets in developed countries, they are considered to be emerging markets because they have low per-capita gross domestic product. The requirements for an exchange listing tend to be highly restrictive. […]

Convertible bonds tend to pay better interest rates than straight bonds, since convertibles are of lower risk. Minimum maintenance standards require that a margined investor always maintains the initial margin position. Answer: FALSE Minimum maintenance standards are usually 25%. The […]

One way of maintaining growth when domestic markets have become saturated is to expand into markets overseas. The Beaver and Altman bankruptcy studies found that firms can survive at least two years once they declare bankruptcy. Answer: FALSE The Beaver […]

The quantity theory of money states that as the supply of money increases relative to the demand for money, people will make adjustments in their portfolios of assets. First, they will buy bonds, stocks, and then real assets. Industry life […]

In the last few years (since 2006), the trade deficit has increased dramatically. The Options Clearing Corporation functions as a middleman or broker, bringing together writers and buyers of options. Answer: FALSE Much of the liquidity and ease of operation […]

Victor Company issued bonds with a $250,000 face value and a 6% stated rate of interest on January 1, 2016. The bonds carried a 5-year term and sold for 95. Victor uses the straight-line method of amortization. Interest is payable […]

The following balance sheet information is provided for Victor Company: What is the company’s working capital? A.$3,810 B.$9,810 C.$18,610 D.$26,840 Compute the amount of cash a company will receive from the following bond issues. a) _______________ Issued $200,000 of 5-yr, […]

Oregon Company provided the following income statement for 2014 and 2015: Required: (a) Perform vertical analysis on Oregon’s income statements for 2014 and 2015. (b) Comment on the results, comparing 2014 to 2015. Phipps Corporation overstated its ending inventory on […]

On January 1, 2016, The Hanover Corporation issued $70,500 of 8%, 5-year bonds at 97. Hanover uses the straight-line method of bond discount amortization. The interest payments are due on December 31 each year. The journal entry used to record […]

Gomez Co. had beginning inventory of $2,400 and ending inventory of $1,200. The cost of goods sold was $9,600. Based on this information, Gomez Co. must have purchased inventory amounting to: A.$8,400. B.$9,600. C.$10,800. D.$13,200. Hartford Company borrowed $20,000 on […]

The Cost of Goods Sold account is classified as: A.a liability. B.an asset. C.a contra asset. D.an expense. Jing Company was started on January 1, 2016 when it issued common stock for $50,000 cash. Also, on January 1, 2016 the […]

Kier Company issued $200,000 in bonds on January 1, 2016. The bonds were issued at face value and carried a 4-year term to maturity. They had a 6 % stated rate of interest that was payable in cash on December […]

What event and inventory method may have produced the following journal entry? A.A return of goods by a customer under the perpetual inventory method. B.A sale of goods under the periodic inventory method. C.A return of goods by a customer […]

Hernandez Company began business operations and experienced the following transactions during 2016: 1) Issued common stock for $50,000 cash. 2) Provided services to customers for $125,000 on account. 3) Purchased $2,500 of supplies on account. 4) Paid $30,000 cash to […]

Indicate whether each of the following statements about financial statement analysis is true or false. _____ a) Comparing percentages derived from financial statement analysis has the drawback of varying materiality levels. _____ b) The materiality of accounting information refers to […]

Blake Company loaned Jiminez Corporation $18,000 on October 1, 2016. The 8-month note carried a 6% rate of interest. Required: a) How will Blake report the note and interest on its 2016 income statement, balance sheet, and statement of cash […]

Assume that you are considering purchasing some of a company’s long-term bonds as an investment. Which of the company’s financial statement ratios would you probably be most interested in? A. Debt to assets ratio B. Debt to equity C. Plant […]

Dividends paid by a company are shown on the A.income statement. B.statement of changes in stockholders’ equity. C.statement of cash flows. D.the statement of changes in stockholders’ equity and the statement of cash flows. Indicate whether each of the following […]

On January 1, 2016, Kincaid Company’s Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $31,000 and $500, respectively. During the year Kincaid reported $72,500 of credit sales. Kincaid wrote off $550 of receivables as uncollectible in 2016. […]

Indicate whether each of the following statements about financial statement analysis is true or false. _____ a) Both dividends and earnings performance are indicators of the value of a company’s stock. _____ b) The most widely quoted measure of a […]

For 2016, The Oscar Company records depreciation expense of $12,000 on its income statement and $9,000 of MACRS depreciation on its tax return. Which of the following answers is correct regarding the difference between the two figures? A.Net income is […]

Assume the perpetual inventory method is used. 1) Green Company purchased merchandise inventory that cost $64,000 under terms of 2/10, n/30 and FOB shipping point. 2) The company paid freight cost of $2,400 to have the merchandise delivered. 3) Payment […]

A debit entry A.increases assets. B.increases expenses. C.decreases liabilities. D.increases assets, expenses, and liabilities. Under what condition should a pending lawsuit be recognized as a liability on a company’s balance sheet? A.The amount can be reasonably estimated. B.The outcome is […]

Indicate whether each of the following statements is true or false. _____ a) Financial statement ratios permit comparisons over time and among different companies. _____ b) Knowledge of financial statement analysis techniques is useful to stockholders and creditors but not […]

Indicate whether each of the following statements regarding internal controls is true or false. _____ a) The Sarbanes-Oxley Act of 2002 requires public companies to evaluate their internal controls and report those findings with SEC filings. _____ b) The Sarbanes-Oxley […]

Statler Corporation has beginning and ending accounts payable balances of $400 and $800, respectively. Inventory had beginning and ending balances of $700 and $600, respectively. If cost of goods sold was $2,800, how much cash was spent to purchase inventory? […]

In the reconciliation of the June bank statement, a deposit made on June 30 did not appear on the June bank statement. In preparing the bank reconciliation, this deposit in transit should be: A.subtracted from the unadjusted book balance. B.added […]

Wholesale companies sell goods primarily to other businesses. The indirect method for preparing the operating activities section of the statement of cash flows begins with the amount of sales revenue reported on the income statement. Answer: False Feedback: The indirect […]

Posting is the process of determining the balance in an account by subtracting debits and credits. A benefit of corporations is that they are free from double taxation. Answer: False Feedback: Double taxation is a disadvantage of corporations. For many […]

For a company that uses the allowance method, the write-off of an uncollectible account receivable is an asset use transaction. Preparing a bank reconciliation is a requirement to obtain an unqualified audit opinion, but is not an important internal control […]

All journal entries made related to bank reconciliations include an expense or revenue account. Two of the steps in the accounting cycle are adjusting the accounts and closing the accounts. Answer: True Net sales is calculated by subtracting cost of […]

When the direct method is used to prepare the operating activities section of the statement of cash flows, cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported. The cost […]

Using the allowance method of accounting for uncollectible receivables requires an estimate of the amount of receivables that will not be collected. In preparing a bank reconciliation, typical adjustments to the bank balance are deposits in transit and outstanding checks. […]

Davis Corporation borrowed $50,000 on January 1, 2016. The loan is for a ten-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal […]

The operating cycle is the length of time that a company spends acquiring inventory to sell. Merchandising businesses include retail companies and manufacturing companies. Answer: False After closing, all income statement accounts have non-zero balances. Answer: False The debt to […]

The party that issues a promissory note is known as the A.lender. B.maker. C.borrower. D.lender and maker. Total debt is accounts payable ($4,310) salaries payable ($10,030) and bonds payable ($9,000); total assets are equal to total liabilities and stockholders’ equity: […]

Consider the one-way ANOVA table. How many groups (treatment levels) are included in the study? Consider the following partial analysis of variance table from a randomized block design with 10 blocks and 6 treatments. What is the calculated F statistic […]

In the past, of all the students enrolled in Basic Business Statistics, 10 percent earned an A, 20 percent earned a B, 30 percent earned a C, 20 percent earned a D, and the rest either failed or withdrew from […]