C214 - Financial Management Exam
Actual Questions with Complete
Solution 2024/2025
Trading on the NYSE is executed without a specialist (i.e. a market maker). ✔✔False
Accruals ✔✔are expenses a firm owes but hasn't paid yet. (Like wages - the employee has
worked, but his check hasn't been cut yet.)
Which of the following best describes the guiding principle for revenue recognition within
accrual accounting system: ✔✔Revenue is reported when the earnings process is complete
A high-quality customer just purchased $500,000 worth of product from your company. The
contract calls for immediate delivery of the product with a cash payment of $300,000 today and
$200,000 to be paid 60 days. The expense associated with the product is $300,000, of which
$100,000 has not been paid to your supplier. Under accrual based accounting system, you will
most likely report:
revenues of $300,000 and expenses of $300,000.
revenues of $500,000 and expenses of $300,000.
revenues of $500,000 and expenses of $200,000. ✔✔Revenues of $500,000 and expenses of
$300,000.
Solution: Under accrual accounting system, you record the revenues when the earnings process is
complete and match the expense with the revenues. In this case, we delivered the product and
have a contract for payment with a high-quality firm. Hence, the earnings process is complete
(including reasonable assurance of payment) so the firm will recognize $500,000 in revenue.
On the balance sheet, Gross Fixed Assets represent: ✔✔The original cost of the fixed assets
currently owned by the firm.
A firm purchased equipment three years ago for $500,000. The equipment is the only fixed asset
the firm has ever owned. If the firm claimed depreciation of $20,000 the first year, $35,000 the
second year and $32,500 the third year, the Gross Fixed Assets should be equal to:
$445,000
$480,000
$500,000
$412,000 ✔✔$500,000
Solution: GROSS fixed assets represent the original cost of the firm's fixed assets before
accumulated depreciation.
,What is the most liquid asset? ✔✔Money first and then Of the major components comprising
current assets (i.e., cash, marketable securities, accounts receivable, and inventory), inventory is
usually the least liquid.
CFO ✔✔Operational decisions for a company include what to produce, how to produce it, whom
to sell it to, whom to use for suppliers, etc. CFO measures the net cash impact of operating
decisions.
CFI ✔✔Investing activities involve decisions concerning the purchase and sale of long-term
assets, such as conveyor belts or the construction of new production facilities. CFI measures the
net cash impact of investing decisions.
CFF ✔✔Financing decisions deal with the issuance of debt and equity, the repayment of debts or
repurchase stock, and the payment of dividends. CFF measures the net cash impact of financing
decisions.
market makers ✔✔securities dealers who "make markets" by offering to buy or sell certain
securities at stated prices
NYSE (New York Stock Exchange) ✔✔a stock exchange based in New York City that is
considered the largest equities-based exchange in the world, based on total market capitalization
of its listed securities.
Stocks ✔✔shares of ownership in a company, Equity
Bonds ✔✔Certificates of debt that carry a promise to buy back the bonds at a higher price. Debt
financial instruments ✔✔Assets consisting of cash, accounts receivable, an ownership interest,
or a contractual right to receive or obligation to deliver cash or another financial instrument.
stock markets, insurance, gold standard, limited liability corporations
Stocks and Bonds are two types of financial instruments ✔✔True
matching principal ✔✔Principal requiring that expenses incurred in an accounting period are
matched with revenue.
Accrual Accounting ✔✔A type of accounting that records the impact of a business event as it
occurs, regardless of whether the transaction affected cash.
The matching principal in accrual accounting requires that ✔✔Revenues be recognized when the
earning process is complete ad matches expenses to revenues recognized
A basic equation for the balance sheet is ✔✔Equity = Assets - liabilities
, current assets ✔✔items that can or will be converted into cash within one year
fixed assets (or plant assets) ✔✔Long-term or relatively permanent tangible assets such as
equipment, machinery, and buildings that are used in the normal business operations and that
depreciate over time.
PP&E ✔✔Property, plant, and equipment, a part of fixed assets on the balance sheet.
Owner's Equity ✔✔the amount of the business that belongs to the owners minus any liabilities
owed by the business
stock sold and retained earnings
fixed assets ✔✔Long-term assets that are relatively permanent such as land, buildings, or
equipment. accumulated depreciation, net PPE
Gross Fixed Assets ✔✔Also called PP&E (Property, Plant and Equipment) or Gross PP&E.
These assets are on the books at their historical cost (what the company originally paid for them).
Also called CAPEX (capital expenditures).
Accumulated Depreciation ✔✔Depreciation is a non-cash expense - It's just there to give the
company a tax break. So whenever you're calculating cash flows, don't count it (or add it back
in).
Net Fixed Assets ✔✔Also called Net PP&E. This is simply the total "on the books" of Fixed
Assets. It's calculated by subtracting Accumulated Depreciation from Gross Fixed Assets.
retained earnings ✔✔An amount earned by a corporation and not yet distributed to stockholders.
liability ✔✔(n.) a debt; something disadvantageous, accrual, accounts payable
Accruals ✔✔revenues earned or expenses incurred before cash has been exchanged
Accumulated Depreciation ✔✔The sum of all the depreciation expense recorded to date for a
depreciable asset.
Advantages of accrual-based accounting ✔✔
non cash expense ✔✔Any expense like depreciation and amortization that is not an actual cash
flow but is recorded in the financial statements.
Owner's Equity Common Stock Stocks ✔✔are a piece of ownership in the company. When
someone buys a stock, that money goes into Owner's Equity Retained Earnings Net Income
(found on the Income Statement) is the money the company made after all the expenses are paid.
It will stay in the company (Retained Earnings), or get distributed to owners (Dividends).
Actual Questions with Complete
Solution 2024/2025
Trading on the NYSE is executed without a specialist (i.e. a market maker). ✔✔False
Accruals ✔✔are expenses a firm owes but hasn't paid yet. (Like wages - the employee has
worked, but his check hasn't been cut yet.)
Which of the following best describes the guiding principle for revenue recognition within
accrual accounting system: ✔✔Revenue is reported when the earnings process is complete
A high-quality customer just purchased $500,000 worth of product from your company. The
contract calls for immediate delivery of the product with a cash payment of $300,000 today and
$200,000 to be paid 60 days. The expense associated with the product is $300,000, of which
$100,000 has not been paid to your supplier. Under accrual based accounting system, you will
most likely report:
revenues of $300,000 and expenses of $300,000.
revenues of $500,000 and expenses of $300,000.
revenues of $500,000 and expenses of $200,000. ✔✔Revenues of $500,000 and expenses of
$300,000.
Solution: Under accrual accounting system, you record the revenues when the earnings process is
complete and match the expense with the revenues. In this case, we delivered the product and
have a contract for payment with a high-quality firm. Hence, the earnings process is complete
(including reasonable assurance of payment) so the firm will recognize $500,000 in revenue.
On the balance sheet, Gross Fixed Assets represent: ✔✔The original cost of the fixed assets
currently owned by the firm.
A firm purchased equipment three years ago for $500,000. The equipment is the only fixed asset
the firm has ever owned. If the firm claimed depreciation of $20,000 the first year, $35,000 the
second year and $32,500 the third year, the Gross Fixed Assets should be equal to:
$445,000
$480,000
$500,000
$412,000 ✔✔$500,000
Solution: GROSS fixed assets represent the original cost of the firm's fixed assets before
accumulated depreciation.
,What is the most liquid asset? ✔✔Money first and then Of the major components comprising
current assets (i.e., cash, marketable securities, accounts receivable, and inventory), inventory is
usually the least liquid.
CFO ✔✔Operational decisions for a company include what to produce, how to produce it, whom
to sell it to, whom to use for suppliers, etc. CFO measures the net cash impact of operating
decisions.
CFI ✔✔Investing activities involve decisions concerning the purchase and sale of long-term
assets, such as conveyor belts or the construction of new production facilities. CFI measures the
net cash impact of investing decisions.
CFF ✔✔Financing decisions deal with the issuance of debt and equity, the repayment of debts or
repurchase stock, and the payment of dividends. CFF measures the net cash impact of financing
decisions.
market makers ✔✔securities dealers who "make markets" by offering to buy or sell certain
securities at stated prices
NYSE (New York Stock Exchange) ✔✔a stock exchange based in New York City that is
considered the largest equities-based exchange in the world, based on total market capitalization
of its listed securities.
Stocks ✔✔shares of ownership in a company, Equity
Bonds ✔✔Certificates of debt that carry a promise to buy back the bonds at a higher price. Debt
financial instruments ✔✔Assets consisting of cash, accounts receivable, an ownership interest,
or a contractual right to receive or obligation to deliver cash or another financial instrument.
stock markets, insurance, gold standard, limited liability corporations
Stocks and Bonds are two types of financial instruments ✔✔True
matching principal ✔✔Principal requiring that expenses incurred in an accounting period are
matched with revenue.
Accrual Accounting ✔✔A type of accounting that records the impact of a business event as it
occurs, regardless of whether the transaction affected cash.
The matching principal in accrual accounting requires that ✔✔Revenues be recognized when the
earning process is complete ad matches expenses to revenues recognized
A basic equation for the balance sheet is ✔✔Equity = Assets - liabilities
, current assets ✔✔items that can or will be converted into cash within one year
fixed assets (or plant assets) ✔✔Long-term or relatively permanent tangible assets such as
equipment, machinery, and buildings that are used in the normal business operations and that
depreciate over time.
PP&E ✔✔Property, plant, and equipment, a part of fixed assets on the balance sheet.
Owner's Equity ✔✔the amount of the business that belongs to the owners minus any liabilities
owed by the business
stock sold and retained earnings
fixed assets ✔✔Long-term assets that are relatively permanent such as land, buildings, or
equipment. accumulated depreciation, net PPE
Gross Fixed Assets ✔✔Also called PP&E (Property, Plant and Equipment) or Gross PP&E.
These assets are on the books at their historical cost (what the company originally paid for them).
Also called CAPEX (capital expenditures).
Accumulated Depreciation ✔✔Depreciation is a non-cash expense - It's just there to give the
company a tax break. So whenever you're calculating cash flows, don't count it (or add it back
in).
Net Fixed Assets ✔✔Also called Net PP&E. This is simply the total "on the books" of Fixed
Assets. It's calculated by subtracting Accumulated Depreciation from Gross Fixed Assets.
retained earnings ✔✔An amount earned by a corporation and not yet distributed to stockholders.
liability ✔✔(n.) a debt; something disadvantageous, accrual, accounts payable
Accruals ✔✔revenues earned or expenses incurred before cash has been exchanged
Accumulated Depreciation ✔✔The sum of all the depreciation expense recorded to date for a
depreciable asset.
Advantages of accrual-based accounting ✔✔
non cash expense ✔✔Any expense like depreciation and amortization that is not an actual cash
flow but is recorded in the financial statements.
Owner's Equity Common Stock Stocks ✔✔are a piece of ownership in the company. When
someone buys a stock, that money goes into Owner's Equity Retained Earnings Net Income
(found on the Income Statement) is the money the company made after all the expenses are paid.
It will stay in the company (Retained Earnings), or get distributed to owners (Dividends).
