CHAPTER 1
1. As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
TRUE
2. Inflation is assumed to be a temporary problem that does not affect financial decisions.
FASLE
3. Financial capital is composed of long-term plant and equipment, as well as other tangible investments.
FASLE
4. Recently, the emphasis of financial management has been on the relationship between risk and return.
TRUE
5. Which of the following did not contribute to the financial crisis?
D. All of the options contributed to the financial crisis
6. What should be the primary goal of financial management?
C. Maximizing shareholder wealth
7. Which of the following is NOT addressed by the Dodd-Frank Act?
A. Liquidation of non-bank financial companies such as insurance companies.
8. One of the major advantages of a sole proprietorship is
D. low operating costs.
9. Corporate governance is the
A. relationship and exercise of oversight by the board of directors of the company.
10. Agency theory examines the relationship between the
B. owners of the firm and the managers of the firm.
11. The Sarbanes-Oxley Act was passed in an effort to
D. control corrupt corporate financial behavior.
12. When a corporation uses the financial markets to raise new funds, the sale of securities is made in the
1
,A. primary market.
13. A corporate restructuring can result in
D. All of the options are true.
14. The Internet has affected the financial markets by
D. All of the options are true.
CHAPTER 2
15. The income statement is the major device for measuring the profitability of a firm over a period of time.
TRUE
16. Sales minus cost of goods sold is equal to earnings before taxes.
FASLE
17. Gross profit margin is a measurement of how much gross profit a company generated from the amount of
sales it earned.
TRUE
18. A balance sheet represents the assets, liabilities, and owner's equity of a company at a given point in time.
TRUE
19. Accumulated depreciation shows up in the income statement, while depreciation expense shows up on the
balance sheet.
FASLE
20. Which of the following is not subtracted in arriving at operating income?
B. Cost of goods sold
21. Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares
outstanding on December 31, 2015. On January 1, 2016, the firm issued 50,000 new shares. The company
took the proceeds from these new shares as well as other operating improvements and earned $937,500
earnings after taxes in 2016. Earnings per share for the year 2016 were
B. $2.68. ($937,500/(50,000+300,000))
22. Consider the following information for Ball Corp.
2
, What is the operating profit for Ball Corp.?
C. $130,000
23. A firm has $4,000 in its common stock account and $10,000 in its paid-in capital account. The firm issued
1,000 shares of common stock. What is the par value of the common stock?
B. $10 per share
24. Earnings per share is
D. net income minus preferred dividends divided by number of shares outstanding.
25. Which of the following would not be classified as a current asset?
B. Plant property and equipment
26. Asset accounts on the balance sheet are listed in order of
A. liquidity.
27. How many of the following balance sheet items are classified as a current asset or current liability?
Retained earnings
Accounts payable
Plant and equipment
Inventory
Common stock
Bonds payable
Accrued wages payable
Accounts receivable
Preferred stock
B. Four of these items.
28. Which account represents the cumulative earnings of the firm since the firm started, minus dividends paid?
C. Retained earnings
29. The statement of cash flows does not include which of the following sections?
B. Cash flows from sales activities
30. Which of the following is an outflow of cash?
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1. As finance emerged as a new field, much emphasis was placed on mergers and acquisitions.
TRUE
2. Inflation is assumed to be a temporary problem that does not affect financial decisions.
FASLE
3. Financial capital is composed of long-term plant and equipment, as well as other tangible investments.
FASLE
4. Recently, the emphasis of financial management has been on the relationship between risk and return.
TRUE
5. Which of the following did not contribute to the financial crisis?
D. All of the options contributed to the financial crisis
6. What should be the primary goal of financial management?
C. Maximizing shareholder wealth
7. Which of the following is NOT addressed by the Dodd-Frank Act?
A. Liquidation of non-bank financial companies such as insurance companies.
8. One of the major advantages of a sole proprietorship is
D. low operating costs.
9. Corporate governance is the
A. relationship and exercise of oversight by the board of directors of the company.
10. Agency theory examines the relationship between the
B. owners of the firm and the managers of the firm.
11. The Sarbanes-Oxley Act was passed in an effort to
D. control corrupt corporate financial behavior.
12. When a corporation uses the financial markets to raise new funds, the sale of securities is made in the
1
,A. primary market.
13. A corporate restructuring can result in
D. All of the options are true.
14. The Internet has affected the financial markets by
D. All of the options are true.
CHAPTER 2
15. The income statement is the major device for measuring the profitability of a firm over a period of time.
TRUE
16. Sales minus cost of goods sold is equal to earnings before taxes.
FASLE
17. Gross profit margin is a measurement of how much gross profit a company generated from the amount of
sales it earned.
TRUE
18. A balance sheet represents the assets, liabilities, and owner's equity of a company at a given point in time.
TRUE
19. Accumulated depreciation shows up in the income statement, while depreciation expense shows up on the
balance sheet.
FASLE
20. Which of the following is not subtracted in arriving at operating income?
B. Cost of goods sold
21. Allen Lumber Company had earnings after taxes of $750,000 in the year 2015 with 300,000 shares
outstanding on December 31, 2015. On January 1, 2016, the firm issued 50,000 new shares. The company
took the proceeds from these new shares as well as other operating improvements and earned $937,500
earnings after taxes in 2016. Earnings per share for the year 2016 were
B. $2.68. ($937,500/(50,000+300,000))
22. Consider the following information for Ball Corp.
2
, What is the operating profit for Ball Corp.?
C. $130,000
23. A firm has $4,000 in its common stock account and $10,000 in its paid-in capital account. The firm issued
1,000 shares of common stock. What is the par value of the common stock?
B. $10 per share
24. Earnings per share is
D. net income minus preferred dividends divided by number of shares outstanding.
25. Which of the following would not be classified as a current asset?
B. Plant property and equipment
26. Asset accounts on the balance sheet are listed in order of
A. liquidity.
27. How many of the following balance sheet items are classified as a current asset or current liability?
Retained earnings
Accounts payable
Plant and equipment
Inventory
Common stock
Bonds payable
Accrued wages payable
Accounts receivable
Preferred stock
B. Four of these items.
28. Which account represents the cumulative earnings of the firm since the firm started, minus dividends paid?
C. Retained earnings
29. The statement of cash flows does not include which of the following sections?
B. Cash flows from sales activities
30. Which of the following is an outflow of cash?
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