Business Final Exam - Ethics, Time Value, Capital Investment, Cash Flow Statements

Which of the following is a cost of credit:

a. Fidelity bonds

b. Discounts

c. Rebates

d. Finance charges

d. Finance charges

Which of the following explains what credit is:

a. The amount charged for use of a credit card

b. An arrangement to buy now, pay later

c. The amount due after a partial credit payment

d. A legal claim to an item of property

b. An arrangement to buy now, pay later

Caitlin has three credit cards. She receives her credit-card statement for one of the cards and has to decide how to pay the $500 she spent with that card. To pay the least for use of the credit, she should pay with __________ and make the __________ payment.

a. cash; full

b. another card; minimum

c. another card; full

d. cash; minimum

a. cash; full

One of the reasons that businesses and consumers use credit is because it provides

a. reassurance

b. collateral

c. interest

d. convenience

d. convenience

What type of credit account gives the customer a credit limit at the time the account is opened and allows the customer to make payments over a period of time or to pay off the total amount due each month?

a. Installment

b. Revolving

c. Regular

d. Budget

b. Revolving

On January 3, Anna mailed her credit-card payment, which was due on January 5. The credit-card issuer received the payment on January 7. What most likely appeared on Anna's credit-card statement the following month?

a. Processing charge

b. Late fee

c. Over-limit fee

d. Application charge

b. Late fee

Individuals charging only the amount they can afford to pay in full every month is an example of

a. saving money for the future

b. a way to avoid identity theft

c. the wise use of cred

d. making a cash transaction

c. the wise use of cred

An advantage to businesses of offering credit is that credit customers

a. are not as price-conscious as cash customers

b. can often save money on purchases

c. buy few impulse items

d. buy less readily than cash customers

a. are not as price-conscious as cash customers

When Armand is comparing his checkbook balance with his bank statement, he must make sure that he has subtracted the ____________ from his checkbook.

a. transaction fees

b. accumulated interest

c. check numbers

d. payroll deposits

a. transaction fees

Chloe is preparing her income tax return for the first time. She is a receptionist, does not own any land or real estate, and has not inherited any money from a deceased relative within the last tax year. She will only be taxed on

a. purchases

b. property

c. wealth

d. earnings

d. earnings

Matt is balancing his checkbook for the first time. He compares the checks he has written over the last month with those listed on his statement and finds that all of his checks have cleared. Next, he verifies that his latest paycheck, which he deposited the previous day, is on the list. It is not, so he adds it to his statement balance. After this, he should

a. subtract any interest

b. consider everything done

c. call the bank for a new statement

d. subtract fees and charges

d. subtract fees and charges

Reconciling a personal bank statement is the process of determining any differences between the bank statement balance and the

a. deposit slips

b. canceled checks

c. checkbook balance

d. balance sheet

c. checkbook balance

Why is it important to read and reconcile bank statements?

a. To calculate interest

b. To withdraw excess money

c. To balance an account

d. To make a deposit

c. To balance an account

Governments pay for public services such as police protection, road repairs, and public education by

a. collecting taxes

b. establishing embargoes

c. regulating the business cycle

d. mandating donations

a. collecting taxes

If an accountant decides to "fudge the numbers" in a financial statement,

a. the company will lose efficiency.

b. the accountant is breaking the law.

c. the accountant is practicing due care.

d. the company's stocks will perform better.

b. the accountant is breaking the law.

Accountants have a responsibility to strive for continuous improvement and excellence to effectively serve their clients. In other words, accountants must adhere to the principle of

a. due care.

b. full disclosure.

c. transparency.

d. the public interest.

a. due care.

The tendency to respond to situations based on how those situations are posed or viewed is known as

a. framing.

b. groupthink.

c. obedience to authority.

d. overoptimism and overconfidence.

a. framing.

Glenn is investing $1,000 today and must decide which investment will make him the most money in the next 10 years. Which investment should he choose?

a. An investment that receives 10% simple interest annually

b. An investment that receives 5% simple interest semi-annually

c. An investment that receives 5% interest compounded annually

d. An investment that receives 5% interest compounded semi-annually

d. An investment that receives 5% interest compounded semi-annually

How much money do you need to deposit into a savings account today to have $500 in two years? The interest rate for the savings account is three percent.

a. $471.30

b. $485.44

c. $492.11

d. $499.07

a. $471.30

You've just won the lottery! You have to choose between receiving $10,000 today or $50,000 in 20 years. Using a present value table, you find that the present value of $1 received 20 years from now with an interest rate of 10% is $.149. What is the present value of the $50,000?

a. More than $10,000

b. Less than $10,000

c. Exactly equal to $10,000

d. Approximately $10,000, depending on the form of the payments

b. Less than $10,000

Which of the following is important to consider when calculating the value of money that has been invested:

a. Cash flow

b. Credit report

c. Time factor

d. Exchange rate

c. Time factor

A business buying land and building a new facility is an example of a(n)

a. financial plan.

b. monetary threat.

c. operating expense.

d. capital investment.

d. capital investment.

A small restaurant wants to expand, but first it needs to raise funds. John wants to raise capital through debt financing, but his partner, Damien, isn't sure that's a good idea. What is one downside of debt financing that Damien could cite to prove his point to John?

a. Shareholders will own part of their business.

b. They will need to sell stock in their business.

c. They will have to pay interest on the borrowed amount.

d. They will be required to repay the money immediately.

c. They will have to pay interest on the borrowed amount.

Calculate the dollar amount of the firm's capital structure for $1.5 million if 45% is equity and 55% is debt.

a. $600,625 equity; $800,875 debt

b. $600,675 equity; $800,825 debt

c. $625,000 equity; $875,000 debt

d. $675,000 equity; $825,000 debt

d. $675,000 equity; $825,000 debt

To understand whether producing additional units of a product would be a good idea, businesses need to determine

a. net profit.

b. total output.

c. total revenue.

d. marginal revenue.

d. marginal revenue.

Why does a business conduct a break-even analysis?

a. To determine a product's possible range of profit

b. So it can receive a tax break from the government

c. So it can evaluate product sales from the previous year

d. To determine the approximate consumer demand levels

a. To determine a product's possible range of profit

What information does a business always need to have when it conducts a break-even analysis?

a. Variable costs and fixed costs

b. Fixed costs and depreciation rates

c. Production time and variable costs

d. Production time and depreciation rates

a. Variable costs and fixed costs

Calculate a business's cash flow if it has cash receipts of $345,675, operating expenses of $312,480, and taxes of $7,500.

a. $25,695

b. $31,240

c. $33,195

d. $34,570

c. $33,195

When preparing a cash flow statement, what is a business's cash flow for a month if it has monthly sales of $30,000, salaries of $9,500, other operating expenses of $14,250, and income from investments of $1,150?

a. $7,400

b. $15,750

c. $30,650

d. $64,900

a. $7,400

What is the purpose of ethics?

a. Ethics help people know how to do what is right.

b. Ethics prevent problems from occurring.

c. Ethics are a substitute for rules and laws.

d. Ethics are punishments for those who make mistakes.

a. Ethics help people know how to do what is right.

Which of the following is an example of a task performed by a managerial accountant:

a. Auditing

b. Creating balance sheets

c. Developing budgets

d. Purchasing

c. Developing budgets

Financial accountants provide information primarily to

a. competitors.

b. investors.

c. employees.

d. suppliers.

b. investors.

Being ethical is especially critical for those whose careers involve providing __________ and handling __________.

a. important services; sensitive information

b. advice; legal matters

c. marketing data; clients

d. documents; medical information

a. important services; sensitive information

Which of the following is most likely to be a consequence for a business that neglects its financial information:

a. Competitors will perform better.

b. Salespeople might not be prepared.

c. The target market might not be reached.

d. A business might exceed its budget.

d. A business might exceed its budget.

Ethics help __________ the roles and responsibilities of all accountants.

a. differentiate

b. standardize

c. integrate

d. minimize

b. standardize

What is the relationship between ethics and decision-making?

a. Ethics are a framework for good decision-making.

b. Ethics make decision-making difficult.

c. Ethical principles often conflict with the right decision.

d. Decision-making helps form ethical principles.

a. Ethics are a framework for good decision-making.

Why should a company's stakeholders care about ethical accounting practices?

a. Ethics limit stakeholders' exposure to risk.

b. Ethics ensure that the company will be profitable.

c. Only unethical stakeholders lose money.

d. Ethics challenge stakeholders to perform better.

a. Ethics limit stakeholders' exposure to risk.

Which of the following examples demonstrates the relationship between ethics and efficiency:

a. A company wastes hours of paid time reviewing ethical guidelines.

b. A company's code of ethics helps accountants respond to dilemmas quickly.

c. Accountants who follow ethics save time because they never make mistakes.

d. Efficient business practices always lead to ethical behavior.

b. A company's code of ethics helps accountants respond to dilemmas quickly.

If an accountant decides to "fudge the numbers" in a financial statement,

a. the accountant is practicing due care.

b. the company's stocks will perform better.

c. the accountant is breaking the law.

d. the company will lose efficiency.

b. the company's stocks will perform better.

If an accountant keeps well-organized, accurate financial records, their company is likely to

a. develop smarter business plans.

b. commit tax evasion.

c. struggle with decision-making.

d. guarantee a profit.

a. develop smarter business plans.

After learning that her accountant treated another customer unethically, Bethany decided to hire a different firm for the next year. This is an example of how

a. ethics affect customer loyalty.

b. ethics reduce legal liability.

c. customers control a company's ethical policies.

d. accountants cannot control customer satisfaction.

a. ethics affect customer loyalty.

To figure out what ethics look like in different situations, accountants should look to

a. rules.

b. a code of ethics.

c. laws.

d. their managers.

b. a code of ethics.

Accountants must take ownership of their roles and be accountable for the values of the profession. This example illustrates the ethical principle of

a. confidentiality.

b. transparency/full disclosure.

c. the public interest.

d. responsibility.

d. responsibility.

Evelyn refused to overstate earnings, even though she was instructed to do so by her supervisor. Evelyn is demonstrating

a. integrity.

b. confidentiality.

c. objectivity/independence.

d. transparency/full disclosure.

a. integrity.

Which of the following is an example of the principle of transparency/full disclosure:

a. A company regularly sends its accountants to professional development conferences.

b. An accounting firm cannot hire Catherine, because her husband works for one of its clients.

c. Tristan adds notes to his financial statements to explain a new company policy.

d. Russell always completes his financial statements on time and without mistakes.

c. Tristan adds notes to his financial statements to explain a new company policy.

Which ethical accounting principle requires that accountants always strive to improve and do the best they can?

a. Confidentiality

b. Due care

c. Objectivity/Independence

d. Responsibility

b. Due care

Marty's accounting firm just took on a new client—the company where Marty's father used to work before he retired. Marty is risking his

a. objectivity/independence.

b. due care.

c. confidentiality.

d. integrity.

a. objectivity/independence.

When preparing her company's budget, Tatiana's manager told her that the company would be merging with another company. To maintain her ethics, Tatiana should

a. report this information to the SEC.

b. make sure the merger benefits the public interest.

c. maintain her independence.

d. keep this information confidential.

d. keep this information confidential.

An accountant should consider how their work affects society as a whole. This is an example of which ethical principle?

a. The public interest

b. Objectivity/Independence

c. Confidentiality

d. Integrity

a. The public interest

Which of the following is a task that might be undertaken by a finance professional:

a. Managing communications with customers and suppliers

b. Determining whether a new product line will be profitable

c. Keeping records of transactions

d. Hiring and training new employees

b. Determining whether a new product line will be profitable

Why are ethics especially important to those who work in finance?

a. Ethics prevent companies from ever losing money.

b. People who work in finance are naturally unethical.

c. Ethics challenge companies to reduce operating expenses.

d. Unethical behavior in finance leads to catastrophic results.

d. Unethical behavior in finance leads to catastrophic results.

Why do finance professionals continue to act unethically despite the consequences?

a. They are greedy and only care about making as much money as they can.

b. They are always rewarded for their unethical behavior.

c. The finance field is full of temptations and pressures to be unethical.

d. There are no legal consequences for unethical actions.

c. The finance field is full of temptations and pressures to be unethical.

When unethical decisions come from the top of an organization, it is difficult to go against them. This is an example of

a. short-term gratification.

b. sunk costs.

c. obedience to authority.

d. overoptimism and overconfidence.

c. obedience to authority.

The tendency to behave in the same way that everyone else does is __________, whereas __________ occurs when people make decisions together in a way that discourages individual responsibility or creativity.

a. conformity; groupthink

b. groupthink; incrementalism

c. conformity; framing

d. framing; incrementalism

a. conformity; groupthink

When Penny started her job, she believed that lying was completely wrong. However, after two years, she has started to exaggerate financial projections and now believes that lies are only wrong when they cause direct harm. This is an example of

a. self-interest.

b. obedience to authority.

c. conformity.

d. incrementalism.

d. incrementalism.

Nico knows he would never do anything unethical, but he is sure that all of his coworkers are tempted at one point or another. Nico is demonstrating

a. overoptimism and overconfidence.

b. short-term gratification.

c. framing.

d. loss aversion.

a. overoptimism and overconfidence.

It is difficult to make decisions that can cause you harm, which is why financial professionals often act unethically due to

a. loss aversion.

b. self-interest

c. conformity.

d. sunk costs.

b. self-interest

The tendency to respond to situations based on how those situations are posed or viewed is known as

a. groupthink.

b. framing.

c. obedience to authority.

d. overoptimism and overconfidence.

b. framing.

Rita knows she will get a bonus if she pushes for her company to go through with a merger, but she also knows that in the long term, this merger might threaten her job. If Rita supports the merger, she is likely motivated by

a. sunk costs.

b. overoptimism and overconfidence.

c. short-term gratification.

d. incrementalism.

c. short-term gratification.

Collin's company just broke ground on a new plant, but after analyzing economic trends, Collin knows that they will likely lose money on the investment. He tries to convince himself and others that the plant will be profitable anyway. This demonstrates the effects of

a. sunk costs.

b. conformity.

c. self-interest.

d. obedience to authority.

a. sunk costs.

Which of the following is an example of loss aversion:

a. Agreeing with what everyone else is saying

b. Making a decision that benefits your own interests

c. Justifying money that has already been spent

d. Covering up decisions that cost you money

d. Covering up decisions that cost you money

Ethical principles can help people who work in finance

a. generate large revenues.

b. protect their own interests.

c. avoid unethical pitfalls.

d. avoid being caught acting unethically.

c. avoid unethical pitfalls.

Which of the following is an ethical principle that gives finance professionals the ability to make judgments without favoritism or self-interest:

a. Competence

b. Fairness

c. Transparency

d. Rule of law

b. Fairness

Dean always keeps financial information private and secret unless it's absolutely necessary not to. He is practicing

a. competence.

b. self-regulation.

c. diligence.

d. confidentiality.

d. confidentiality.

Which of the following is an example of rationalization that might be used in finance:

a. "I'm not sure this is the right decision."

b. "My colleagues seem more prepared than I do."

c. "Everyone else is doing it."

d. "I don't care what anyone thinks."

c. "Everyone else is doing it."

Angelica has determined that many of her colleagues are acting unethically. Whom should she talk to first?

a. Her supervisor

b. The colleagues involved

c. Top company executives

d. The authorities

b. The colleagues involved

When approaching someone about their unethical behavior, finance professionals should avoid

a. being accusatory.

b. telling the truth.

c. being direct.

d. talking in specific terms.

a. being accusatory.

What does it mean to play the devil's advocate?

a. Being highly critical of everything that others say

b. Always recommending the unethical course of action

c. Staying quiet during discussions or arguments

d. Arguing against a position to validate that position

Evelyn tried to talk to Lin about his unethical behavior, but Lin brushed her off. What should Evelyn do?

a. Take her concerns to a higher-level executive

b. Ignore Lin's behavior until someone else notices

c. Gossip about Lin's actions with other colleagues

d. Tell the media about her ethical concerns

a. Take her concerns to a higher-level executive