WGU C214 Concepts Only Multi Choice Version

Trading on the NYSE is executed without a specialist (i.e. a market maker). (T/F)

F

Stocks and bonds are two types of financial instruments (T/F)

T

The matching principle in accrual accounting requires that:

a. Revenues be recognized when the earnings process is complete and matches expenses to revenues recognized.

b. Expenses are matched to the year in which they are incurred

c. Revenues are matched to the year in which they are booked

d. Revenues should be large enough to match expenses

a

A basic equation for the balance sheet is:

a. Equity = Assets - Liabilities

b. Liabilities = Equity + Assets

c. Assets = Liabilities - Equity

d. Assets = Equity - Liabilities

a

Why is the Balance Sheet known as a permanent statement?

a. Because the statement is sent to the SEC.

b. Because the other statements are reset at the end of the fiscal year

c. Because it is printed out and archived

d. Because it persists in the minds of the shareholders.

b

How do you calculate the change in Retained Earnings?

a. Ending Retained Earnings - Change in Cash

b. EBIT divided by Total Assets + Dividends

c. EBIT - Change in Cash - Dividends

d. Net Income - Dividends

d

Which of the following is generally true?

a. Gross Profit and Operating Income are the same

b. Cost of Goods Sold + Operating Expenses = Net Income

c. Operating Income and EBIT are the same

d. EBIT + Income Taxes = Net income

c

Which components are part of total assets?

a. Cash, Accounts Receivable, Short Term Debt

b. Cash Accounts Receivable, Inventory, Long Term Assets

c. Accounts Payable, Long Term Assets, Long Term Debt

d. Accounts Payable, Net Income, Equity

b

Which components are part of current assets?

a. Cash, Accounts Receivable, Property Plant & Equipment

b. Accounts Receivable, Accounts Payable, Inventory

c. Long Term Debt, Property Plant & Equipment, Common Stock

d. Inventory, Cash, Accounts Receivable, Short Term Investments

d

Which components are part of Total Liabilities?

a. Accounts Payable, Accounts Receivable, Short Term Debt

b. Long Term Debt, Common Stock, Retained Earnings

c. Bonds, Accounts Payable, Mortgage

d. Common Stock, Long Term Debt, Short Term Investments

c

When Fixed Assets increase what happens to Cash?

a. Cash stays the same

b. Cash increases

c. Cash decreases

d. Assets decrease

c

Which is the purpose of the statement of cash flows?

a. serves as the replacement for the income statement and balance sheet

b. explains the change in cash balance at one point in time

c. explains the change in cash balance for one period of time

d. both (a) and (b) above

c

The OIROI (Operating Income Return on Investment) uses what elements on the income statement?

a. Operating Income, EBIT, Total Liabilities

b. EBIT, Total Assets

c. Sales, Total Assets, Equity

d. Net Margin, Total Current Assets

b

Why would a company be interested in the TAT(Total Asset Turnover) ratio?

a. How efficient assets are at producing income

b. What the turnover of sales is to liabilities

c. How efficient assets are at producing sales

d. How efficient assets are to liabilities and equity

c

Which of the following gives the largest effective rate (APY)

a. 18.6% compounded monthly

b. 18.6% compounded daily

c. 18.6% compounded weekly

d. 18.6% compounded yearly

b

What does the beta coefficient represent?

a. It is a statistically-derived measure of volatility

b. It is the Expected Return minus the Growth Rate

c. It is the volatility of the Risk Free Return

d. It is the expected return for a basket of preferred stocks

a

Why is depreciation expense taken out of the net income calculation, yet added back at the end?

a. Because fixed assets should remain on the balance sheet

b. Because depreciation is not a current asset

c. Because depreciation is a non-cash liability

d. Because depreciation expense is tax deductible

d

Why is the NPV preferred over the IRR? Pick Two

a. It has a higher dollar value

b. It measures the dollar value

c. It is more reliable

d. It is harder to calculate

b, c

What does the Degree of Financial Leverage indicate?

a. The firms cash balance

b. The cost of financed assets

c. The reliance on debt

d. The reliance on assets

c

If a company has a high degree of financial leverage, what does that tell us about the firm's risk profile?

a. Low Risk

b. Appropriate Risk

c. Higher ability to pay debt

d. Higher profits to shareholders

d

What is the cash cycle?

a. The speed of collecting cash from customers

b. The amount of cash kept in banks

c. The comparison of debt to cash

d.The amount of time to regenerate cash

d

Why is float important to understand?

a. To know how to keep the company profitable

b. To know why the company needs cash

c. To determine when to buy fixed assets

d. To time cash expenditures

e. None of the above

d

What should a company do to manage its working capital?