WGU C214 OA Q&A Checklist
Which will be larger: accrual taxes payable or accounting income tax expense
Correct Answer: Accounting tax expense will be higher; actual taxes based on IRS
rules will be lower
Which financial ratios measure "efficiency"? Correct Answer: Asset turnover and
Fixed Asset turnover
Which ratio is the best measure of a firm's ability to pay bills? Correct Answer:
Quick Ratio
Which decision requires using subjective estimates? Correct Answer: Economic
life of a new asset
What is the yield to maturity on a bond? Correct Answer: The return earned from
the purchase date to maturity
If a firm buys a 30-day CD, where is it carried on the balance sheet? Correct
Answer: Cash and ST in current assets
How does a "prudent investor" select investments? Correct Answer: Seeks the
highest return for "reasonable" amount of risk
What is the difference between WACC and CAPM's required return? Correct
Answer: CAPM includes only equity required return; WACC includes debt and
equity
What do points on the Efficient Frontier measure? Correct Answer: The maximum
return for a given level of risk; maximum Return-to-risk ratio
What is Beta? Correct Answer: Measure of volatility of a stock's risk relative to
the market
Why are accurate forecasts important? Correct Answer: Plan for resources to
support sales
Which leverage measure shows the impact of EBIT changes on pre-tax profit
(EBT)? Correct Answer: Financial leverage
, Which ratios are used in working capital management? Correct Answer: Cash
ratio, Current ratio - ratios containing current assets and/or current liabilities
Which ratio is used for valuing a private company? Correct Answer: Price-to-
earnings (PE) ratio
What are the 4 costs associated with holding inventory? Correct Answer: Product,
storage, holding, and opportunity
What risk is eliminated by a diversified portfolio? Correct Answer: Idiosyncratic
risk - risk affecting a single firm
What is the "secondary" market? Correct Answer: Investors trading securities
among themselves after initial issuance of securities
What are impacts of outsourcing? Correct Answer: Fewer jobs and lower priced
products
What are the impacts of tariffs? Correct Answer: Protects inefficient firms and
employees; higher product costs for consumers
Which item is transferred from the income statement to the balance sheet? Correct
Answer: Depreciation expense
If two companies use different inventory valuation methods, what is this called?
Correct Answer: An "accounting difference"
What securities are exempt from federal income taxation? Correct Answer:
Municipal bonds
Why would a firm prefer to issue debt rather than stock? Correct Answer: Deb has
a lower required return; debt interest is tax deductible; avoids dilution of
ownership
What happens to APY as the number of interest payment periods per year
increase? Correct Answer: APY increases
What is the present value of future cash flows of a stock called? Correct Answer:
Intrinsic Value
Which will be larger: accrual taxes payable or accounting income tax expense
Correct Answer: Accounting tax expense will be higher; actual taxes based on IRS
rules will be lower
Which financial ratios measure "efficiency"? Correct Answer: Asset turnover and
Fixed Asset turnover
Which ratio is the best measure of a firm's ability to pay bills? Correct Answer:
Quick Ratio
Which decision requires using subjective estimates? Correct Answer: Economic
life of a new asset
What is the yield to maturity on a bond? Correct Answer: The return earned from
the purchase date to maturity
If a firm buys a 30-day CD, where is it carried on the balance sheet? Correct
Answer: Cash and ST in current assets
How does a "prudent investor" select investments? Correct Answer: Seeks the
highest return for "reasonable" amount of risk
What is the difference between WACC and CAPM's required return? Correct
Answer: CAPM includes only equity required return; WACC includes debt and
equity
What do points on the Efficient Frontier measure? Correct Answer: The maximum
return for a given level of risk; maximum Return-to-risk ratio
What is Beta? Correct Answer: Measure of volatility of a stock's risk relative to
the market
Why are accurate forecasts important? Correct Answer: Plan for resources to
support sales
Which leverage measure shows the impact of EBIT changes on pre-tax profit
(EBT)? Correct Answer: Financial leverage
, Which ratios are used in working capital management? Correct Answer: Cash
ratio, Current ratio - ratios containing current assets and/or current liabilities
Which ratio is used for valuing a private company? Correct Answer: Price-to-
earnings (PE) ratio
What are the 4 costs associated with holding inventory? Correct Answer: Product,
storage, holding, and opportunity
What risk is eliminated by a diversified portfolio? Correct Answer: Idiosyncratic
risk - risk affecting a single firm
What is the "secondary" market? Correct Answer: Investors trading securities
among themselves after initial issuance of securities
What are impacts of outsourcing? Correct Answer: Fewer jobs and lower priced
products
What are the impacts of tariffs? Correct Answer: Protects inefficient firms and
employees; higher product costs for consumers
Which item is transferred from the income statement to the balance sheet? Correct
Answer: Depreciation expense
If two companies use different inventory valuation methods, what is this called?
Correct Answer: An "accounting difference"
What securities are exempt from federal income taxation? Correct Answer:
Municipal bonds
Why would a firm prefer to issue debt rather than stock? Correct Answer: Deb has
a lower required return; debt interest is tax deductible; avoids dilution of
ownership
What happens to APY as the number of interest payment periods per year
increase? Correct Answer: APY increases
What is the present value of future cash flows of a stock called? Correct Answer:
Intrinsic Value
