WGU Financial Management C214 Review plus Pre-
Assessment 112 Questions with Verified Answers
Trading on the NYSE is executed without a specialist (i.e. a market maker). -
CORRECT ANSWER False
Stocks and bonds are two types of financial instruments - CORRECT ANSWER True
The matching principle in accrual accounting requires that: - CORRECT ANSWER
Revenues be recognized when the earnings process is complete and matches
expenses to revenues recognized
A basic equation for the balance sheet is: - CORRECT ANSWER Assets = Liabilities +
Equity
Why is the Balance Sheet known as a permanent statement? - CORRECT ANSWER
Because the other statements are reset at the end of the fiscal year
How do you calculate the change in Retained Earnings? - CORRECT ANSWER Net
Income - Dividends
Which of the following is generally true? - CORRECT ANSWER Operating Income
and EBIT are the same
Which components are part of total assets? - CORRECT ANSWER Cash Accounts
Receivable, Inventory, Long Term Assets
,Which components are part of current assets? - CORRECT ANSWER Inventory,
Cash, Accounts Receivable, Short Term Investments
Which components are part of Total Liabilities? - CORRECT ANSWER Bonds,
Accounts Payable, Mortgage
When Fixed Assets increase what happens to Cash? - CORRECT ANSWER Cash
decreases
Which is the purpose of the statement of cash flows? - CORRECT ANSWER explains
the change in cash balance for one period of time
Suppose the inventory turnover of a company is higher than the industry. Based
on this observation, which of the following is most likely? - CORRECT ANSWER The
firm has too little inventory resulting in lost sales or stock-outs.
If a company wishes to obtain a bank loan, will it want to have a higher current
ratio or a lower current ratio? - CORRECT ANSWER higher
The OIROI (Operating Income Return on Investment) uses what elements on the
income statement? - CORRECT ANSWER EBIT, Total Assets
Why would a company be interested in the TAT(Total Asset Turnover) ratio? -
CORRECT ANSWER How efficient assets are at producing sales
, You are contemplating buying an annual bond or a semi-annual bond. Is there any
difference in the price if the bond has the same data: 1,000 face value with a 4%
coupon rate. The bonds mature in 5 years having identical YTMs of 4.8%. Why is
there a price difference? - CORRECT ANSWER Price is lower with additional
compounding periods
One of your friends is recommending a stock if it sells for more than $165.00 per
share. The growth rate is 4% and the latest dividend was $6.00. You are expecting
an 11% return. Why should you buy or not buy the stock? - CORRECT ANSWER Not
Buy - The calculated price is too low
If an investor knows the idiosyncratic risk, the investor knows the: - CORRECT
ANSWER Beta Coefficient
Why is depreciation expense taken out of the net income calculation, yet added
back at the end? - CORRECT ANSWER Because depreciation expense is tax
deductible
Why is the NPV preferred over the IRR? Pick Two - CORRECT ANSWER It measures
the dollar value, It is more reliable
When a company uses more leverage as evidenced by a higher degree of either
financial or operating leverage, what effect does it have on changes in
profitability? - CORRECT ANSWER Higher leverage leads to higher profitability for a
given sales level
What does the Degree of Financial Leverage indicate? - CORRECT ANSWER The
reliance on debt
Assessment 112 Questions with Verified Answers
Trading on the NYSE is executed without a specialist (i.e. a market maker). -
CORRECT ANSWER False
Stocks and bonds are two types of financial instruments - CORRECT ANSWER True
The matching principle in accrual accounting requires that: - CORRECT ANSWER
Revenues be recognized when the earnings process is complete and matches
expenses to revenues recognized
A basic equation for the balance sheet is: - CORRECT ANSWER Assets = Liabilities +
Equity
Why is the Balance Sheet known as a permanent statement? - CORRECT ANSWER
Because the other statements are reset at the end of the fiscal year
How do you calculate the change in Retained Earnings? - CORRECT ANSWER Net
Income - Dividends
Which of the following is generally true? - CORRECT ANSWER Operating Income
and EBIT are the same
Which components are part of total assets? - CORRECT ANSWER Cash Accounts
Receivable, Inventory, Long Term Assets
,Which components are part of current assets? - CORRECT ANSWER Inventory,
Cash, Accounts Receivable, Short Term Investments
Which components are part of Total Liabilities? - CORRECT ANSWER Bonds,
Accounts Payable, Mortgage
When Fixed Assets increase what happens to Cash? - CORRECT ANSWER Cash
decreases
Which is the purpose of the statement of cash flows? - CORRECT ANSWER explains
the change in cash balance for one period of time
Suppose the inventory turnover of a company is higher than the industry. Based
on this observation, which of the following is most likely? - CORRECT ANSWER The
firm has too little inventory resulting in lost sales or stock-outs.
If a company wishes to obtain a bank loan, will it want to have a higher current
ratio or a lower current ratio? - CORRECT ANSWER higher
The OIROI (Operating Income Return on Investment) uses what elements on the
income statement? - CORRECT ANSWER EBIT, Total Assets
Why would a company be interested in the TAT(Total Asset Turnover) ratio? -
CORRECT ANSWER How efficient assets are at producing sales
, You are contemplating buying an annual bond or a semi-annual bond. Is there any
difference in the price if the bond has the same data: 1,000 face value with a 4%
coupon rate. The bonds mature in 5 years having identical YTMs of 4.8%. Why is
there a price difference? - CORRECT ANSWER Price is lower with additional
compounding periods
One of your friends is recommending a stock if it sells for more than $165.00 per
share. The growth rate is 4% and the latest dividend was $6.00. You are expecting
an 11% return. Why should you buy or not buy the stock? - CORRECT ANSWER Not
Buy - The calculated price is too low
If an investor knows the idiosyncratic risk, the investor knows the: - CORRECT
ANSWER Beta Coefficient
Why is depreciation expense taken out of the net income calculation, yet added
back at the end? - CORRECT ANSWER Because depreciation expense is tax
deductible
Why is the NPV preferred over the IRR? Pick Two - CORRECT ANSWER It measures
the dollar value, It is more reliable
When a company uses more leverage as evidenced by a higher degree of either
financial or operating leverage, what effect does it have on changes in
profitability? - CORRECT ANSWER Higher leverage leads to higher profitability for a
given sales level
What does the Degree of Financial Leverage indicate? - CORRECT ANSWER The
reliance on debt
