WGU C214 OA Q&A Checklist 2023| 110
Questions and Answers| Graded A+
Which will be larger: accrual taxes payable or accounting income tax expense - -
Accounting tax expense will be higher; actual taxes based on IRS rules will be lower
-Which financial ratios measure "efficiency"? - -Asset turnover and Fixed Asset
turnover
-Which ratio is the best measure of a firm's ability to pay bills? - -Quick Ratio
-Which decision requires using subjective estimates? - -Economic life of a new asset
-What is the yield to maturity on a bond? - -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? - -Cash and ST in
current assets
-How does a "prudent investor" select investments? - -Seeks the highest return for
"reasonable" amount of risk
-What is the difference between WACC and CAPM's required return? - -CAPM includes
only equity required return; WACC includes debt and equity
-What do points on the Efficient Frontier measure? - -The maximum return for a given
level of risk; maximum Return-to-risk ratio
-What is Beta? - -Measure of volatility of a stock's risk relative to the market
-Why are accurate forecasts important? - -Plan for resources to support sales
-Which leverage measure shows the impact of EBIT changes on pre-tax profit (EBT)? -
-Financial leverage
-Which ratios are used in working capital management? - -Cash ratio, Current ratio -
ratios containing current assets and/or current liabilities
-Which ratio is used for valuing a private company? - -Price-to-earnings (PE) ratio
-What are the 4 costs associated with holding inventory? - -Product, storage, holding,
and opportunity
-What risk is eliminated by a diversified portfolio? - -Idiosyncratic risk - risk affecting a
single firm
, -What is the "secondary" market? - -Investors trading securities among themselves
after initial issuance of securities
-What are impacts of outsourcing? - -Fewer jobs and lower priced products
-What are the impacts of tariffs? - -Protects inefficient firms and employees; higher
product costs for consumers
-Which item is transferred from the income statement to the balance sheet? - -
Depreciation expense
-If two companies use different inventory valuation methods, what is this called? - -An
"accounting difference"
-What securities are exempt from federal income taxation? - -Municipal bonds
-Why would a firm prefer to issue debt rather than stock? - -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? - -
APY increases
-What is the present value of future cash flows of a stock called? - -Intrinsic Value
-If market price is greater than intrinsic value, should you buy or sell? - -Sell
-In event of bankruptcy, what is the order of claims settlement? - -Secured debt, senior
debt, subordinated debt, preferred stock, common stock
-What is a spontaneous account? - -One that changes with the level of sales - current
assets & liabilities
-What is a discretionary account? - -One that changes due to the management
decision- bonds outstanding
-If the financial ratios of 2 firms are compared, what is it called? - -Cross-sectional
analysis
-How can a firm encourage customers to pay early? - -"Discounts" for early payment
-If a loan does not require collateral, what is it called? - -Unsecured loan
-What transaction do firms use to offset foreign exchange risk? - -Hedging
-If the debt ratio increases, what is the likely impact on ROE? - -It increases
Questions and Answers| Graded A+
Which will be larger: accrual taxes payable or accounting income tax expense - -
Accounting tax expense will be higher; actual taxes based on IRS rules will be lower
-Which financial ratios measure "efficiency"? - -Asset turnover and Fixed Asset
turnover
-Which ratio is the best measure of a firm's ability to pay bills? - -Quick Ratio
-Which decision requires using subjective estimates? - -Economic life of a new asset
-What is the yield to maturity on a bond? - -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? - -Cash and ST in
current assets
-How does a "prudent investor" select investments? - -Seeks the highest return for
"reasonable" amount of risk
-What is the difference between WACC and CAPM's required return? - -CAPM includes
only equity required return; WACC includes debt and equity
-What do points on the Efficient Frontier measure? - -The maximum return for a given
level of risk; maximum Return-to-risk ratio
-What is Beta? - -Measure of volatility of a stock's risk relative to the market
-Why are accurate forecasts important? - -Plan for resources to support sales
-Which leverage measure shows the impact of EBIT changes on pre-tax profit (EBT)? -
-Financial leverage
-Which ratios are used in working capital management? - -Cash ratio, Current ratio -
ratios containing current assets and/or current liabilities
-Which ratio is used for valuing a private company? - -Price-to-earnings (PE) ratio
-What are the 4 costs associated with holding inventory? - -Product, storage, holding,
and opportunity
-What risk is eliminated by a diversified portfolio? - -Idiosyncratic risk - risk affecting a
single firm
, -What is the "secondary" market? - -Investors trading securities among themselves
after initial issuance of securities
-What are impacts of outsourcing? - -Fewer jobs and lower priced products
-What are the impacts of tariffs? - -Protects inefficient firms and employees; higher
product costs for consumers
-Which item is transferred from the income statement to the balance sheet? - -
Depreciation expense
-If two companies use different inventory valuation methods, what is this called? - -An
"accounting difference"
-What securities are exempt from federal income taxation? - -Municipal bonds
-Why would a firm prefer to issue debt rather than stock? - -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? - -
APY increases
-What is the present value of future cash flows of a stock called? - -Intrinsic Value
-If market price is greater than intrinsic value, should you buy or sell? - -Sell
-In event of bankruptcy, what is the order of claims settlement? - -Secured debt, senior
debt, subordinated debt, preferred stock, common stock
-What is a spontaneous account? - -One that changes with the level of sales - current
assets & liabilities
-What is a discretionary account? - -One that changes due to the management
decision- bonds outstanding
-If the financial ratios of 2 firms are compared, what is it called? - -Cross-sectional
analysis
-How can a firm encourage customers to pay early? - -"Discounts" for early payment
-If a loan does not require collateral, what is it called? - -Unsecured loan
-What transaction do firms use to offset foreign exchange risk? - -Hedging
-If the debt ratio increases, what is the likely impact on ROE? - -It increases
