Questions and Answers of Principles Of Finance

What are major disadvantages of a sole proprietorship?
Discuss the role of corporate governance in attempting to minimize agency problems and ensuring that a company’s directors and management act in the best interest of the shareholders.
A stakeholder is someone who _______________.a. Is required to read a company’s annual reportb. Answers to a board of directorsc. Has a vested interest in a company’s successd. Is hired to do a
If a company wishes to limit the liability of some of its investing partners, what form of business might it consider? Explain briefly.
“An effective business leader will recognize the social and environmental responsibilities of their business as well as the eventual goal of achieving long-term, sustainable global development.”
In order to form a corporation, what is the most important document required?
An important component of a strong board of directors (BOD) is having members who are _______________.a. Former employees of the companyb. Able to write a strong corporate press releasec. Culturally
What is the difference between a shareholder and a stakeholder?
Which of the following is NOT a reason why a company needs good corporate governance?a. To avoid mismanagement of the companyb. To enable the company to raise capital more efficiently and mitigate
What group within a corporation has the primary responsibility for protecting the interests of shareholders?
Who ultimately runs the company operations for a large corporation?a. Shareholdersb. Board of directorsc. External auditorsd. Stakeholders
One of the ways in which companies attempt to mitigate short-term managerial focus is by offering managers _______________.a. Increased vacation timeb. Increased paid sick leavec. Stock optionsd.
Which of the following are used to ensure fiduciary responsibility? a. Auditsb. Press releasesc. End-of-year financial ledgersd. A letter from the board of directors
Briefly explain the concept of corporate governance.
What is the key component of agency theory, and why might this be more important to a public company than to one that is privately held?
Which of the following is NOT one of the roles of an audit committee?a. Aeviewing the work of the internal auditb. Reviewing systems of internal control.c. Ensuring that appropriate resources are
Which of the following is a major issue addressed in corporate governance?a. Improving banking relationsb. Ethics and its implementationc. Improving profits for shareholdersd. Expanding operations
Agency problems are essentially _______________.a. Conflicts of interestb. Problems with the IRSc. Fraudulent business activitiesd. Nepotism
The term ESG, when used in the context of corporate governance, refers to which of the following?a. Earnings, shareholders, and governanceb. Earnings, social, and general profitc. Environmental,
The term ESG, when used in the context of corporate governance, refers to which of the following?a. Self-evaluation and training for members of the board of directorsb. Hiring a prestigious
The Securities and Exchange Commission (SEC) requires that public corporations file which of the following financial reports on a quarterly basis?a. Form 10-Kb. Form 8-Qc. Form 10-Qd. Form Q
Investor relations has substantially more _______________.a. Regulatory obligations than standard public relations because of government-mandated financial and legal requirementsb. Personnel within a
The corporate press release is _______________.a. No longer an important component of modern investor relations strategyb. Not yet a thing of the past, though it is highly likely to be replaced by
International firms are _______________.a. Headquartered in a non-US country but have homogeneous profit centers with little differentiation in product or serviceb. Based in the United States but
Demand is the _______________.a. Amount of a good or service that consumers needb. Amount of a good or service that consumers want to purchase at the equilibrium pricec. Quantity of a good or service
Explain the difference between an increase in demand and an increase in quantity demanded.
You are planning a budget for an upcoming trip to Japan. Your hotel will cost 12,000 yen per night, and you will stay in the hotel for six nights. If the current exchange rate is, how much will the
Inflation is a general increase in the price level. If inflation is extremely high, hyperinflation is said to exist. The video Should Investors Prepare for Inflation or Hyperinflation? by TD
An increase in supply will lead to _______________.a. A lower equilibrium price and a lower equilibrium quantityb. A higher equilibrium price and a lower equilibrium quantityc. A higher equilibrium
You see that price of laptop computers is falling at the same time that the quantity of laptop computers is rising. Would you attribute this to a change in supply or a change in demand for computers?
Visit the Federal Reserve Bank of St. Louis’s FRED site. Create a graph that plots the unemployment rate for men and the unemployment rate for women since 1948. Turn recession shading on so that
What suggestions does the video provide to investors who want to protect the value of their savings from being negatively impacted by inflation? Do some research to find out how much inflation has
An increase in the price of a basket of goods is known as _______________.a. Inflationb. Falling GDPc. Rising GDPd. A change in quantity demanded
Outline the stages of the business cycle.
List the types of unemployment presented in the video, giving an example of each type.
The unemployment rate equals _______________.a. The number of people unemployed divided by the labor forceb. The number of people seeking work divided by the adult populationc. The number of people
Use a graph of the supply of loanable funds and demand for loanable funds to explain what will happen if the Federal Reserve increases the money supply. What would you expect to happen to the
Choose three countries and find out what unemployment has been in each of those countries over the past decade. Do you detect any patterns in the unemployment rates in those countries over time or
To be considered unemployed, an individual must be _______________.a. Out of workb. Actively seeking a jobc. Able to workd. All of the above
Your bank offers you a car loan with an interest rate of 6%. You expect inflation to be 2%. What is the real interest rate on this loan?
When measuring GDP, purchases are divided into the four broad categories of _______________.a. Interest rates, inflation, unemployment, and investmentb. Demand, inflation, interest rates, and
Which of the following economic environments would most likely be associated with a recession?a. Unemployment falling to 30-year lowb. GDP growing at an annual rate of 4.2%c. Unemployment increasing
You see that First National Bank is willing to make you a four-year $40,000 car loan with an interest rate of 4.2%. However, the same bank will charge you 16.5% interest on a credit card that it
A business cycle is measured from _______________.a. One peak to the next troughb. One trough to the next troughc. One trough to the next peakd. The time of the highest unemployment rate to the time
Last year, the exchange rate between the Korean won and the US dollar was . This year, the exchange rate is . Has the Korean won appreciated or depreciated over the past year? Explain.
The interest rate is the _______________.a. Rental cost of moneyb. Increase in the price of a market basket of goodsc. Measure of economic activityd. Speed at which the money supply is increasing
If the nominal interest rate is 9% and the rate of inflation is 2%, the real rate of interest is approximately _______________.a. 2/9%b. 7%c. 11%d. 18%
A foreign exchange rate is _______________.a. The rate of inflation in a foreign countryb. The amount of imports a country has relative to its exportsc. The price of one currency in terms of another
In 2020, the CPI in a country is 120. In 2021, the CPI in the same country is 126. This would mean that inflation is _______________.a. 5%b. 6%c. 26%d. 46%
Joe runs a small barbershop. Most of his customers pay with cash. He has only a few monthly expenses including wages for one employee and utilities. Which method of accounting should Joe use?
Padma’s Pools Inc. paid $500 for office supplies. What was the impact of this transaction on Padma’s cash flow?
In what ways do depreciation and capitalization impact the income statement? If you were an investor considering investing a large sum of money into a company, what questions would you ask or what
Which method of accounting must be used by publicly traded companies?a. Cash basisb. Accrual basisc. A hybrid of cash and accrual basisd. Modified accelerated basis
Which method of accounting generally provides the most accurate information on organizational performance (income or loss)?
Sally’s BigBox Store issued 1,000 shares of common stock with par value of $10 each and market value of $16 each in exchange for a new building. What was the impact of this transaction on Sally’s
If a company spends a large sum of cash to invest in equipment or another fixed asset, resulting in a loss that year on the income statement if they expense it, have they really experienced a loss?
Which two accounting principles directly support the accrual method of accounting?a. Periodicity, transparencyb. Historical cost, time periodc. Conservativism, going concernd. Expense recognition,
Under the accrual basis of accounting, when is an expense recorded?
Jose sells $500 worth of merchandise to a client on June 1. He delivers the product and invoices the customer on June 10. The customer pays Jose on July 9. What is Jose’s revenue for June and July,
When a business incurs an expense (office supplies, utilities, or wages, for example), is their cash flow the same in both timing and amount as the expense they recognize?
Which of the following account types has a normal debit balance?a. Cashb. Notes payablec. Wages payabled. Revenue
Describe the basic elements of a T-account.
Jamal’s Car Repair purchases a new piece of equipment with a 10-year useful life for $10,000. What is the impact to Jamal’s net income in the year of purchase if he expenses the equipment? If he
What are the key components necessary to calculate profit or loss for a business? Are they the same elements necessary to calculate cash flow?
Sara sells $100 worth of inventory to her client on credit on January 15. She delivers the inventory to the client on January 20. The client pays for the inventory of February 26. On what date should
What is double-entry accounting?
Mariela’s Shop had revenues of $10,000 and expenses of $6,000 and has cash on hand of $5,000. What is Mariela’s net income or net loss?
How is the book value of a fixed asset calculated?a. Original cost less accumulated depreciationb. Original cost divided by useful lifec. Market value less depreciation expensed. Depreciable base
What is the expense recognition principle?
Which of the following balance sheet item is classified as a fixed asset?a. Inventoryb. Goodwillc. Equipmentd. Accounts receivable
Why is ethics an important concept pertaining to revenue and expense recognition principles?
What is the formula to determine net income or net loss?a. Revenues less expensesb. Cash less expensesc. Revenues plus cashd. Revenues divided by expenses
What is the difference between a tangible and an intangible fixed asset? List common examples of each.
How is the cost of a fixed asset recorded and recognized over time?
_______________ own the securities that they buy or sell; when they engage in a financial transaction, they are trading from their own portfolio.a. Dealersb. Brokersc. Advisersd. Comptrollers
_______________ act as facilitators in a market, and they bring together buyers and sellers for a transaction.a. Dealersb. Brokersc. Advisersd. Comptrollers
_______________ is the study of the allocation of scarce resources, _______________ is devoted to the study of these decisions of allocation by small or individual entities, and _______________
_______________ is a short-term, unsecured security issued by corporations and financial insta. A Treasury billb. Commercial paperc. A negotiable certificate of depositd. A Treasury note
Which of the following is NOT an economy-wide macroeconomic variable used in macro-forecasting models?a. Inflationb. Unemploymentc. Economic growthd. CEO turnover
Which of the following is a measure of the performance of a firm’s daily operations?a. Gross profitb. Cost of goods soldc. Operating incomed. Net income
What is the difference between gross profit and net income?
In the video, you see two years of data for Imaginary Ltd. The company had the same sales and same operating profit in both years. However, its performance really wasn’t the same from one year to
In which section of the classified balance sheet would you find a note payable due in six months?a. Current assetsb. Current liabilitiesc. Noncurrent liabilitiesd. Common stock
If a classified balance sheet has total assets of $900,000 and total owner’s equity of $350,000, what must the company’s total liabilities be?
Big Box has the following accounts. In which section of its classified balance sheet does each belong?CashWages payableTaxes payableAccounts receivableRetained earningsCommon stockLandNote payable
Though the key elements of the income statement can be summarized as simply all the firm’s revenues and expenses, how would you describe the elements of the income statement in more detail? Assume
Which financial statement must be prepared first?a. Statement of retained earningsb. Balance sheetc. Statement of cash flowsd. Income statement
What key element of the income statement flows through to the balance sheet?
Big Box Outlet has $10,350 of supplies expense on its income statement. Does this mean that there must also be a supplies payable account balance of $10,350 on its balance sheet? Why or why not?
In the video, before the example started, a fair amount of discussion time was devoted to the accounting equation, double-entry accounting, and the past versus the present data. How do all of these
Which of the following represents earned capital on the statement of owner’s equity?a. Retained earningsb. Common stockc. Preferred stockd. Additional paid-in capital
What key columns are commonly found on the statement of owner’s equity?
What are the three key types of dividends a firm might distribute to their shareholders? Describe each.
Three key account types are represented on the balance sheet: assets, liabilities, and equity. Much like the income statement, however, there is a great deal more detail to a balance sheet than
Which section of the statement of cash flows reflects the cash generated from or used by a company’s day-to-day operations?a. Investing activitiesb. Financing activitiesc. Operating activitiesd.
Complete the common-size income statement for Big Box Outlet using the information below: Big Box Outlet Common-Size Income Statement Gross Sales Sales Returns & Allowances Net Sales Cost of
Ted’s firm reported net income for the current period of $65,750. Is it safe to assume that because Ted’s firm reported such a large net income, it has plenty of cash to fund its operations? Why
Big Box Outlet had an increase in its accounts payable account this period and a decrease in its accounts receivable, took out a long-term note payable, paid dividends to its shareholders, had
How do you calculate free cash flow (FCF)?a. Net income less dividendsb. Operating income less capital expendituresc. Gross profit less depreciationd. Net income plus interest
What useful insights does free cash flow (FCF) provide in financial analysis?

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