Question 1

Depreciation expense is used to:

Accepted Answer

A)  allocate costs to all departments of the firm. 
B)  determine when an asset is fully paid off. 
C)  allocate historical cost over the life of an asset. 
D) equate the historical cost and market values of an asset. 
A)  allocate costs to all departments of the firm. 
B)  determine when an asset is fully paid off. 
C)  allocate historical cost over the life of an asset. 
D) equate the historical cost and market values of an asset.

Question 2

According to the U.S. tax code at the beginning of 2014, the highest marginal tax rate for personal taxpayers is:

Accepted Answer

A)  25.0%. 
B)  28.5%. 
C)  35.0%. 
D) 39.6%. 
A)  25.0%. 
B)  28.5%. 
C)  35.0%. 
D) 39.6%.

Question 3

A major goal of the Sarbanes-Oxley Act is to:

Accepted Answer

A)  increase transparency in the financial reporting of a firm's activities. 
B)  require firms to provide common-size balance sheets to shareholders. 
C)  lower corporate tax rates. 
D) require U.S. firms to abide by international accounting standards. 
A)  increase transparency in the financial reporting of a firm's activities. 
B)  require firms to provide common-size balance sheets to shareholders. 
C)  lower corporate tax rates. 
D) require U.S. firms to abide by international accounting standards.

Question 4

An increase in depreciation expense will (other things equal):

Accepted Answer

A)  increase net income. 
B)  decrease net income. 
C)  increase taxable income. 
D) decrease the market value of assets. 
A)  increase net income. 
B)  decrease net income. 
C)  increase taxable income. 
D) decrease the market value of assets.

Question 5

The gathering of related revenues and expenses into the same period, regardless of when they were incurred, is:

Accepted Answer

A)  cash-basis accounting. 
B)  market-value accounting. 
C)  book-value accounting. 
D) accrual accounting. 
A)  cash-basis accounting. 
B)  market-value accounting. 
C)  book-value accounting. 
D) accrual accounting.

Question 6

The principal reason for excluding many intangible assets from the balance sheet is that they are difficult to value.

Accepted Answer

A) True 
 B)False

Question 7

Businesses that aggressively exploit any means possible to increase current earnings may cross over into fraudulent account practices.

Accepted Answer

A) True 
 B)False

Question 8

What is the change in cash for a firm with the following: $10,000 cash flow from operations, $1,600 cash used for new investment, a reduction in the level of debt of $2,000, $1,000 in cash dividends, and $200 in depreciation expense?

Accepted Answer

A)  $5,600 
B)  $9,600 
C)  $9,400 
D) $5,400 
A)  $5,600 
B)  $9,600 
C)  $9,400 
D) $5,400

Question 9

What is the fundamental difference between IFRS and GAAP?

Accepted Answer

A)  GAAP relies more on general principles but ignores the spirit of those principles. 
B)  GAAP relies more on specific rules and the spirit of the rules. 
C)  GAAP relies more on specific rules but not the spirit of the rules. 
D) GAAP relies more on general principles as well as the spirit of those rules. 
A)  GAAP relies more on general principles but ignores the spirit of those principles. 
B)  GAAP relies more on specific rules and the spirit of the rules. 
C)  GAAP relies more on specific rules but not the spirit of the rules. 
D) GAAP relies more on general principles as well as the spirit of those rules.

Question 10

Which one of the following is not a requirement imposed by the Sarbanes-Oxley Act?

Accepted Answer

A)  Accounting firms may not offer other services to companies they audit. 
B)  Any one individual is prohibited from serving as the chairman of a firm's board of directors for more than 5 years. 
C)  A board's audit committee must consist of directors who are independent of the firm's management. 
D) Management must certify that the financial statements present a fair view of the firm's financial position. 
A)  Accounting firms may not offer other services to companies they audit. 
B)  Any one individual is prohibited from serving as the chairman of a firm's board of directors for more than 5 years. 
C)  A board's audit committee must consist of directors who are independent of the firm's management. 
D) Management must certify that the financial statements present a fair view of the firm's financial position.

Question 11

Current period depreciation expense is listed:

Accepted Answer

A)  on the balance sheet. 
B)  in the investment section of the cash flow statement. 
C)  on the income statement. 
D) on neither the balance sheet nor the income statement; it is a noncash expense. 
A)  on the balance sheet. 
B)  in the investment section of the cash flow statement. 
C)  on the income statement. 
D) on neither the balance sheet nor the income statement; it is a noncash expense.

Question 12

A balance sheet may be considered backward-looking from the perspective that it:

Accepted Answer

A)  works backward, starting with net income. 
B)  records historic, not current values. 
C)  cannot forecast the future. 
D) records costs over many previous periods. 
A)  works backward, starting with net income. 
B)  records historic, not current values. 
C)  cannot forecast the future. 
D) records costs over many previous periods.

Question 13

An increase in the accounts receivable balance increases the cash flow of a firm.

Accepted Answer

A) True 
 B)False

Question 14

Net working capital is calculated by taking the difference between:

Accepted Answer

A)  total assets and total liabilities. 
B)  inventory and accounts payable. 
C)  current assets and current liabilities. 
D) cash and accounts payable. 
A)  total assets and total liabilities. 
B)  inventory and accounts payable. 
C)  current assets and current liabilities. 
D) cash and accounts payable.

Question 15

An asset's liquidity is determined by how readily the asset can be converted to an appropriate amount of cash.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements correctly compares international accounting standards?

Accepted Answer

A)  The standards are becoming less similar over time. 
B)  The standards are typically more lenient in the United States. 
C)  The standards are stricter in the United States in some regards. 
D) Balance sheets differ, but income statements are similar in all countries. 
A)  The standards are becoming less similar over time. 
B)  The standards are typically more lenient in the United States. 
C)  The standards are stricter in the United States in some regards. 
D) Balance sheets differ, but income statements are similar in all countries.

Question 17

Retained earnings result from:

Accepted Answer

A)  the sale of additional shares of stock to investors. 
B)  income not paid to shareholders. 
C)  an excess of assets over liabilities. 
D) market values that exceed book values. 
A)  the sale of additional shares of stock to investors. 
B)  income not paid to shareholders. 
C)  an excess of assets over liabilities. 
D) market values that exceed book values.

Question 18

What is the marginal tax rate for a corporation with $60,000 of taxable income and an average tax rate of 18% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $50,000?

Accepted Answer

A)  15% 
B)  33% 
C)  18% 
D) 25% 
A)  15% 
B)  33% 
C)  18% 
D) 25%

Question 19

Which of the firm's financial statements most clearly recognizes the payment for new equipment?

Accepted Answer

A)  Balance sheet 
B)  Income statement 
C)  Statement of cash flows 
D) Common-size balance sheet 
A)  Balance sheet 
B)  Income statement 
C)  Statement of cash flows 
D) Common-size balance sheet

Question 20

One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life.

Accepted Answer

A) True 
 B)False

Exam 3: Accounting and Finance

Depreciation expense is used to:

According to the U.S. tax code at the beginning of 2014, the highest marginal tax rate for personal taxpayers is:

A major goal of the Sarbanes-Oxley Act is to:

An increase in depreciation expense will (other things equal):

The gathering of related revenues and expenses into the same period, regardless of when they were incurred, is:

The principal reason for excluding many intangible assets from the balance sheet is that they are difficult to value.

Businesses that aggressively exploit any means possible to increase current earnings may cross over into fraudulent account practices.

What is the change in cash for a firm with the following: $10,000 cash flow from operations, $1,600 cash used for new investment, a reduction in the level of debt of $2,000, $1,000 in cash dividends, and $200 in depreciation expense?

What is the fundamental difference between IFRS and GAAP?

Which one of the following is not a requirement imposed by the Sarbanes-Oxley Act?

Current period depreciation expense is listed:

A balance sheet may be considered backward-looking from the perspective that it:

An increase in the accounts receivable balance increases the cash flow of a firm.

Net working capital is calculated by taking the difference between:

An asset's liquidity is determined by how readily the asset can be converted to an appropriate amount of cash.

Which of the following statements correctly compares international accounting standards?

Retained earnings result from:

What is the marginal tax rate for a corporation with $60,000 of taxable income and an average tax rate of 18% if the next-lowest marginal tax rate of 15% covers taxable incomes up to $50,000?

Which of the firm's financial statements most clearly recognizes the payment for new equipment?

One reason for the difference between profits and cash is that the cost of capital equipment is spread over the forecast life.

Goals and Governance of the Corporation

Financial Markets and Institutions

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

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