C214 Financial Management Exam Questions With Answers

C214 Financial Management Exam Questions With 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 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 - ANSWER True matching principal - ANSWER Principal requiring that expenses incurred in an accounting period are matched with revenue. Accrual Accounting - ANSWER 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 - ANSWER Revenues be recognized when the earning process is complete ad matches expenses to revenues recognized A basic equation for the balance sheet is - ANSWER Equity = Assets - liabilities current assets - ANSWER items that can or will be converted into cash within one year fixed assets (or plant assets) - ANSWER 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 - ANSWER Property, plant, and equipment, a part of fixed assets on the balance sheet. Owner's Equity - ANSWER the amount of the business that belongs to the owners minus any liabilities owed by the business stock sold and retained earnings fixed assets - ANSWER Long-term assets that are relatively permanent such as land, buildings, or equipment. accumulated depreciation, net PPE Gross Fixed Assets - ANSWER 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 - ANSWER 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 - ANSWER 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 - ANSWER An amount earned by a corporation and not yet distributed to stockholders. liability - ANSWER (n.) a debt; something disadvantageous, accrual, accounts payable Accruals - ANSWER revenues earned or expenses incurred before cash has been exchanged