C214 OA EXAM (2022/2023) ACCURATE
QUESTIONS AND VERIFIED CORRECT SOLUTIONS
WITH EXPLANATIONS || 100% GUARANTEED PASS
<RECENT VERSION>
C214 Financial Management - Concept Review & Practice Questions
Module 1: Introduction to Finance & The Corporate Environment
1. What is the primary goal of financial management?
A) Maximize market share
B) Maximize the current stock price per share (or intrinsic value)
C) Minimize operational costs
D) Maximize employee satisfaction
Explanation: Financial theory states that the primary goal is to maximize
shareholder wealth, which is achieved by maximizing the value of the company's
stock.
2. What is an "agency problem" in a corporation?
A) A problem with government regulatory agencies
B) A conflict of interest between management and shareholders
C) An issue with the company's advertising agency
D) A problem with the corporate legal team
Explanation: Agency problem arises because managers (agents) may not always
act in the best interests of the owners (shareholders/principals).
3. Which of these is a key advantage of the corporate form of business
organization?
A) Limited liability for owners
B) Simple to establish
C) No double taxation
D) Limited life of the entity
Explanation: A corporation is a separate legal entity, so owners (shareholders) are
not personally liable for the company's debts.
,4. "Double taxation" refers to:
A) Corporations paying taxes twice on the same income.
B) Corporations paying income taxes and then shareholders paying personal taxes
on dividends received.
C) Shareholders paying taxes on both capital gains and dividends.
D) Companies being taxed at both state and federal levels.
Explanation: A corporation pays tax on its profits. When it distributes dividends
from after-tax profits, shareholders pay personal income tax on that dividend
income.
5. A market where new securities are originally issued to investors is called
the:
A) Secondary market
B) Primary market
C) Tertiary market
D) Dealer market
Explanation: The primary market is for new issues (e.g., IPOs). The secondary
market is where existing securities are traded among investors (e.g., NYSE,
NASDAQ).
Module 2: Financial Statements and Cash Flow
6. Which financial statement provides a snapshot of a firm's financial position
at a specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Explanation: The Balance Sheet shows Assets, Liabilities, and Equity on a specific
date.
7. The statement of cash flows is divided into which three main sections?
A) Operating, Investing, and Financing Activities
B) Assets, Liabilities, and Equity
C) Revenue, Expenses, and Profit
, D) Production, Marketing, and Administration
Explanation: These categories show where cash came from (e.g., operations,
issuing stock) and where it was spent (e.g., buying equipment, paying dividends).
8. Net Income is found on which financial statement?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Both A and B
Explanation: The Income Statement reports revenues, expenses, and profits over a
period of time, culminating in Net Income.
9. An increase in accounts receivable represents:
A) A source of cash
B) A use of cash
C) Neither a source nor a use of cash
D) An increase in shareholder equity
Explanation: When A/R increases, it means sales have been made on credit, but
cash has not been collected yet. This is a use of cash.
10. Retained Earnings on the balance sheet represent:
A) The amount of cash the company has in the bank.
B) The cumulative net income that has been reinvested in the company and not
paid out as dividends.
C) The par value of all common stock issued.
D) The profit from the most recent fiscal year.
Explanation: Retained Earnings is the portion of net income kept within the
company to fund future growth.
11. Depreciation is:
A) A cash expense.
B) A non-cash expense that reduces taxable income.
C) The cost of replacing old equipment.
D) A financing cash flow.
Explanation: Depreciation is an accounting allocation of a fixed asset's cost. It
QUESTIONS AND VERIFIED CORRECT SOLUTIONS
WITH EXPLANATIONS || 100% GUARANTEED PASS
<RECENT VERSION>
C214 Financial Management - Concept Review & Practice Questions
Module 1: Introduction to Finance & The Corporate Environment
1. What is the primary goal of financial management?
A) Maximize market share
B) Maximize the current stock price per share (or intrinsic value)
C) Minimize operational costs
D) Maximize employee satisfaction
Explanation: Financial theory states that the primary goal is to maximize
shareholder wealth, which is achieved by maximizing the value of the company's
stock.
2. What is an "agency problem" in a corporation?
A) A problem with government regulatory agencies
B) A conflict of interest between management and shareholders
C) An issue with the company's advertising agency
D) A problem with the corporate legal team
Explanation: Agency problem arises because managers (agents) may not always
act in the best interests of the owners (shareholders/principals).
3. Which of these is a key advantage of the corporate form of business
organization?
A) Limited liability for owners
B) Simple to establish
C) No double taxation
D) Limited life of the entity
Explanation: A corporation is a separate legal entity, so owners (shareholders) are
not personally liable for the company's debts.
,4. "Double taxation" refers to:
A) Corporations paying taxes twice on the same income.
B) Corporations paying income taxes and then shareholders paying personal taxes
on dividends received.
C) Shareholders paying taxes on both capital gains and dividends.
D) Companies being taxed at both state and federal levels.
Explanation: A corporation pays tax on its profits. When it distributes dividends
from after-tax profits, shareholders pay personal income tax on that dividend
income.
5. A market where new securities are originally issued to investors is called
the:
A) Secondary market
B) Primary market
C) Tertiary market
D) Dealer market
Explanation: The primary market is for new issues (e.g., IPOs). The secondary
market is where existing securities are traded among investors (e.g., NYSE,
NASDAQ).
Module 2: Financial Statements and Cash Flow
6. Which financial statement provides a snapshot of a firm's financial position
at a specific point in time?
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) Statement of Retained Earnings
Explanation: The Balance Sheet shows Assets, Liabilities, and Equity on a specific
date.
7. The statement of cash flows is divided into which three main sections?
A) Operating, Investing, and Financing Activities
B) Assets, Liabilities, and Equity
C) Revenue, Expenses, and Profit
, D) Production, Marketing, and Administration
Explanation: These categories show where cash came from (e.g., operations,
issuing stock) and where it was spent (e.g., buying equipment, paying dividends).
8. Net Income is found on which financial statement?
A) Balance Sheet
B) Income Statement
C) Statement of Cash Flows
D) Both A and B
Explanation: The Income Statement reports revenues, expenses, and profits over a
period of time, culminating in Net Income.
9. An increase in accounts receivable represents:
A) A source of cash
B) A use of cash
C) Neither a source nor a use of cash
D) An increase in shareholder equity
Explanation: When A/R increases, it means sales have been made on credit, but
cash has not been collected yet. This is a use of cash.
10. Retained Earnings on the balance sheet represent:
A) The amount of cash the company has in the bank.
B) The cumulative net income that has been reinvested in the company and not
paid out as dividends.
C) The par value of all common stock issued.
D) The profit from the most recent fiscal year.
Explanation: Retained Earnings is the portion of net income kept within the
company to fund future growth.
11. Depreciation is:
A) A cash expense.
B) A non-cash expense that reduces taxable income.
C) The cost of replacing old equipment.
D) A financing cash flow.
Explanation: Depreciation is an accounting allocation of a fixed asset's cost. It
