FIN 320 Principles of Finance Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. What is the primary goal of financial management in a corporation?
A. Maximizing sales revenue
B. Minimizing taxes
C. Maximizing shareholder wealth
D. Increasing the number of employees
Answer: C. Maximizing shareholder wealth
Rationale: The primary financial management objective is to maximize the
value of the owners' investment, generally reflected in the market value of
the firm's shares.
2. Which financial statement reports a company's revenues and
expenses over a period of time?
,A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
Answer: B. Income statement
Rationale: The income statement summarizes revenues, expenses, gains,
and losses during a specified accounting period and determines net
income.
3. Which financial statement provides a snapshot of a company's assets,
liabilities, and equity at a specific date?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Answer: C. Balance sheet
Rationale: The balance sheet presents the firm's financial position at a
particular point in time using the accounting equation: Assets = Liabilities +
Equity.
4. What does the time value of money principle state?
,A. Money has the same value regardless of when it is received
B. A dollar received today is generally worth more than a dollar received in
the future
C. Future dollars are always worth more than current dollars
D. Inflation has no effect on money's value
Answer: B. A dollar received today is generally worth more than a dollar
received in the future
Rationale: Money available today can be invested to earn a return, so a
current dollar generally has greater economic value than the same dollar
received later.
5. Which of the following is an example of a current asset?
A. Building
B. Common stock
C. Accounts receivable
D. Long-term debt
Answer: C. Accounts receivable
Rationale: Accounts receivable are amounts owed by customers and are
normally expected to be collected within the firm's operating cycle or one
year.
6. What is the basic accounting equation?
, A. Assets = Revenue − Expenses
B. Assets = Liabilities + Equity
C. Equity = Assets + Liabilities
D. Liabilities = Assets + Revenue
Answer: B. Assets = Liabilities + Equity
Rationale: The accounting equation expresses the relationship between
what a firm owns, what it owes, and the owners' residual claim.
7. Which ratio primarily measures a firm's ability to meet short-term
obligations?
A. Debt-to-equity ratio
B. Return on equity
C. Current ratio
D. Asset turnover ratio
Answer: C. Current ratio
Rationale: The current ratio compares current assets with current liabilities
and is commonly used to evaluate short-term liquidity.
8. If a company has current assets of $200,000 and current liabilities of
$100,000, what is its current ratio?
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. What is the primary goal of financial management in a corporation?
A. Maximizing sales revenue
B. Minimizing taxes
C. Maximizing shareholder wealth
D. Increasing the number of employees
Answer: C. Maximizing shareholder wealth
Rationale: The primary financial management objective is to maximize the
value of the owners' investment, generally reflected in the market value of
the firm's shares.
2. Which financial statement reports a company's revenues and
expenses over a period of time?
,A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
Answer: B. Income statement
Rationale: The income statement summarizes revenues, expenses, gains,
and losses during a specified accounting period and determines net
income.
3. Which financial statement provides a snapshot of a company's assets,
liabilities, and equity at a specific date?
A. Income statement
B. Statement of cash flows
C. Balance sheet
D. Statement of retained earnings
Answer: C. Balance sheet
Rationale: The balance sheet presents the firm's financial position at a
particular point in time using the accounting equation: Assets = Liabilities +
Equity.
4. What does the time value of money principle state?
,A. Money has the same value regardless of when it is received
B. A dollar received today is generally worth more than a dollar received in
the future
C. Future dollars are always worth more than current dollars
D. Inflation has no effect on money's value
Answer: B. A dollar received today is generally worth more than a dollar
received in the future
Rationale: Money available today can be invested to earn a return, so a
current dollar generally has greater economic value than the same dollar
received later.
5. Which of the following is an example of a current asset?
A. Building
B. Common stock
C. Accounts receivable
D. Long-term debt
Answer: C. Accounts receivable
Rationale: Accounts receivable are amounts owed by customers and are
normally expected to be collected within the firm's operating cycle or one
year.
6. What is the basic accounting equation?
, A. Assets = Revenue − Expenses
B. Assets = Liabilities + Equity
C. Equity = Assets + Liabilities
D. Liabilities = Assets + Revenue
Answer: B. Assets = Liabilities + Equity
Rationale: The accounting equation expresses the relationship between
what a firm owns, what it owes, and the owners' residual claim.
7. Which ratio primarily measures a firm's ability to meet short-term
obligations?
A. Debt-to-equity ratio
B. Return on equity
C. Current ratio
D. Asset turnover ratio
Answer: C. Current ratio
Rationale: The current ratio compares current assets with current liabilities
and is commonly used to evaluate short-term liquidity.
8. If a company has current assets of $200,000 and current liabilities of
$100,000, what is its current ratio?
