C214 - Financial Management Exam Questions and Answers

C214 - Financial Management Exam Questions and Answers Trading on the NYSE is executed without a specialist (i.e. a market maker). - Answer- False Accruals - Answer- 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: - Answer- 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. - Answer- 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: - Answer- 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 - Answer- $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? - Answer- 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 - Answer- 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 - Answer- 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 - Answer- 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 - Answer- securities dealers who "make markets" by offering to buy or sell certain securities at stated prices NYSE (New York Stock Exchange) - Answer- 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 - Answer- shares of ownership in a company, Equity Bonds - Answer- Certificates of debt that carry a promise to buy back the bonds at a higher price. Debt financial instruments - Answer- Assets consisting of cash, accounts