WGU C214 CONCEPTS ONLY MULTI CHOICE
VERSION WITH ANSWERS KEY
1. Trading on the NYSE is executed without a specialist (i.e., a market maker).
A. True
B. False
2. Stocks and bonds are two types of financial instruments.
A. True
B. False
3. The matching principle in accrual accounting requires that:
A. Revenues be recognized when the earnings process is complete and expenses be matched to
those revenues
B. Expenses are matched to the year in which they are incurred
C. Revenues are matched to the year in which they are booked
D. Revenues should be large enough to match expenses
4. A basic equation for the balance sheet is:
A. Equity = Assets − Liabilities
B. Liabilities = Equity + Assets
C. Assets = Liabilities − Equity
D. Assets = Equity − Liabilities
5. Why is the balance sheet known as a permanent statement?
A. Because the statement is sent to the SEC
B. Because the other statements are reset at the end of the fiscal year
C. Because it is printed and archived
D. Because it persists in the minds of shareholders
6. How do you calculate the change in retained earnings?
A. Ending Retained Earnings − Change in Cash
B. EBIT ÷ Total Assets + Dividends
,C. EBIT − Change in Cash − Dividends
D. Net Income − Dividends
7. Which of the following is generally true?
A. Gross Profit and Operating Income are the same
B. COGS + Operating Expenses = Net Income
C. Operating Income and EBIT are the same
D. EBIT + Income Taxes = Net Income
8. Which components are part of total assets?
A. Cash, Accounts Receivable, Short-Term Debt
B. Cash, Accounts Receivable, Inventory, Long-Term Assets
C. Accounts Payable, Long-Term Assets, Long-Term Debt
D. Accounts Payable, Net Income, Equity
9. Which components are part of current assets?
A. Cash, Accounts Receivable, Property Plant & Equipment
B. Accounts Receivable, Accounts Payable, Inventory
C. Long-Term Debt, PPE, Common Stock
D. Inventory, Cash, Accounts Receivable, Short-Term Investments
10. Which components are part of total liabilities?
A. Accounts Payable, Accounts Receivable, Short-Term Debt
B. Long-Term Debt, Common Stock, Retained Earnings
C. Bonds, Accounts Payable, Mortgage
D. Common Stock, Long-Term Debt, Short-Term Investments
11. When fixed assets increase, what happens to cash?
A. Cash stays the same
B. Cash increases
C. Cash decreases
D. Assets decrease
, 12. What is the purpose of the statement of cash flows?
A. Replaces the income statement and balance sheet
B. Explains the change in cash balance at one point in time
C. Explains the change in cash balance for one period of time
D. Both A and B
13. The OIROI (Operating Income Return on Investment) uses which elements?
A. Operating Income, EBIT, Total Liabilities
B. EBIT and Total Assets
C. Sales, Total Assets, Equity
D. Net Margin, Total Current Assets
14. Why would a company be interested in the Total Asset Turnover (TAT) ratio?
A. Measures asset efficiency at producing income
B. Compares sales to liabilities
C. Measures asset efficiency at producing sales
D. Measures efficiency relative to liabilities and equity
15. Which gives the largest effective annual rate (APY)?
A. 18.6% compounded yearly
B. 18.6% compounded monthly
C. 18.6% compounded weekly
D. 18.6% compounded daily
16. What does the beta coefficient represent?
A. Statistically derived measure of volatility relative to the market
B. Expected return minus growth rate
C. Volatility of the risk-free return
D. Expected return of preferred stocks
17. Why is depreciation added back in cash flow calculations?
A. Fixed assets remain on the balance sheet
B. It is not a current asset
C. It is a non-cash expense
D. It is tax deductible
VERSION WITH ANSWERS KEY
1. Trading on the NYSE is executed without a specialist (i.e., a market maker).
A. True
B. False
2. Stocks and bonds are two types of financial instruments.
A. True
B. False
3. The matching principle in accrual accounting requires that:
A. Revenues be recognized when the earnings process is complete and expenses be matched to
those revenues
B. Expenses are matched to the year in which they are incurred
C. Revenues are matched to the year in which they are booked
D. Revenues should be large enough to match expenses
4. A basic equation for the balance sheet is:
A. Equity = Assets − Liabilities
B. Liabilities = Equity + Assets
C. Assets = Liabilities − Equity
D. Assets = Equity − Liabilities
5. Why is the balance sheet known as a permanent statement?
A. Because the statement is sent to the SEC
B. Because the other statements are reset at the end of the fiscal year
C. Because it is printed and archived
D. Because it persists in the minds of shareholders
6. How do you calculate the change in retained earnings?
A. Ending Retained Earnings − Change in Cash
B. EBIT ÷ Total Assets + Dividends
,C. EBIT − Change in Cash − Dividends
D. Net Income − Dividends
7. Which of the following is generally true?
A. Gross Profit and Operating Income are the same
B. COGS + Operating Expenses = Net Income
C. Operating Income and EBIT are the same
D. EBIT + Income Taxes = Net Income
8. Which components are part of total assets?
A. Cash, Accounts Receivable, Short-Term Debt
B. Cash, Accounts Receivable, Inventory, Long-Term Assets
C. Accounts Payable, Long-Term Assets, Long-Term Debt
D. Accounts Payable, Net Income, Equity
9. Which components are part of current assets?
A. Cash, Accounts Receivable, Property Plant & Equipment
B. Accounts Receivable, Accounts Payable, Inventory
C. Long-Term Debt, PPE, Common Stock
D. Inventory, Cash, Accounts Receivable, Short-Term Investments
10. Which components are part of total liabilities?
A. Accounts Payable, Accounts Receivable, Short-Term Debt
B. Long-Term Debt, Common Stock, Retained Earnings
C. Bonds, Accounts Payable, Mortgage
D. Common Stock, Long-Term Debt, Short-Term Investments
11. When fixed assets increase, what happens to cash?
A. Cash stays the same
B. Cash increases
C. Cash decreases
D. Assets decrease
, 12. What is the purpose of the statement of cash flows?
A. Replaces the income statement and balance sheet
B. Explains the change in cash balance at one point in time
C. Explains the change in cash balance for one period of time
D. Both A and B
13. The OIROI (Operating Income Return on Investment) uses which elements?
A. Operating Income, EBIT, Total Liabilities
B. EBIT and Total Assets
C. Sales, Total Assets, Equity
D. Net Margin, Total Current Assets
14. Why would a company be interested in the Total Asset Turnover (TAT) ratio?
A. Measures asset efficiency at producing income
B. Compares sales to liabilities
C. Measures asset efficiency at producing sales
D. Measures efficiency relative to liabilities and equity
15. Which gives the largest effective annual rate (APY)?
A. 18.6% compounded yearly
B. 18.6% compounded monthly
C. 18.6% compounded weekly
D. 18.6% compounded daily
16. What does the beta coefficient represent?
A. Statistically derived measure of volatility relative to the market
B. Expected return minus growth rate
C. Volatility of the risk-free return
D. Expected return of preferred stocks
17. Why is depreciation added back in cash flow calculations?
A. Fixed assets remain on the balance sheet
B. It is not a current asset
C. It is a non-cash expense
D. It is tax deductible
