WGU C214 Concepts Only Multi Choice
Version
Trading on the NYSE is executed without a specialist (i.e. a market maker). (T/F) -
ANS-False
Stocks and bonds are two types of financial instruments (T/F) - ANS-True
The matching principle in accrual accounting requires that: - ANS-Revenues be
recognized when the earnings process is complete and matches expenses to revenues
recognized.
A basic equation for the balance sheet is: - ANS-Equity = Assets - Liabilities
Why is the Balance Sheet known as a permanent statement? - ANS-Because the other
statements are reset at the end of the fiscal year
How do you calculate the change in Retained Earnings? - ANS-Net Income - Dividends
Which of the following is generally true? - ANS-Operating Income and EBIT are the
same
Which components are part of total assets? - ANS-Cash Accounts Receivable,
Inventory, Long Term Assets
Which components are part of current assets? - ANS-Inventory, Cash, Accounts
Receivable, Short Term Investments
Which components are part of Total Liabilities? - ANS-Bonds, Accounts Payable,
Mortgage
When Fixed Assets increase what happens to Cash? - ANS-Cash decreases
Which is the purpose of the statement of cash flows? - ANS-explains the change in
cash balance for one period of time
The OIROI (Operating Income Return on Investment) uses what elements on the
income statement? - ANS-EBIT, Total Assets
,Why would a company be interested in the TAT-Total Asset Turnover-ratio?
a - ANS-How efficient assets are at producing sales
Which of the following gives the largest effective rate (APY) - ANS-18.6% compounded
daily
What does the beta coefficient represent? - ANS-It is a statistically-derived measure of
volatility
Why is depreciation expense taken out of the net income calculation, yet added back at
the end? - ANS-Because depreciation expense is tax deductible
Why is the NPV preferred over the IRR? Pick Two - ANS-1-It measures the dollar value
2- It is harder to calculate
What does the Degree of Financial Leverage indicate? - ANS-The reliance on debt
If a company has a high degree of financial leverage, what does that tell us about the
firm's risk profile? - ANS-Higher profits to shareholders
What is the cash cycle? - ANS-The amount of time to regenerate cash
Why is float important to understand? - ANS-To time cash expenditures
What should a company do to manage its working capital? - ANS-Collect quickly and
pay slowly
What would be a source of information to determine Replacement Cost? - ANS-Building
Appraisal
What does the Sarbanes-Oxley Act require companies to do? - ANS-Have internal
control audits
FINRA (Financial Industry Regulatory Authority) does the following: (pick one) -
ANS-Prosecutes naughty stock brokers
If a product is made 100% domestically, what can affect its domestic market? -
ANS-International competition
, If a company makes its product in a foreign country where labor costs are much lower,
what happens? - ANS-Profits go up and domestic employment decreases.
If the value of a dollar increases, the price of imports: - ANS-Decreases
Why would a farmer buy a hedge when he signs a contract to sell produce overseas? -
ANS-To reduce currency risk
A basic equation for the balance sheet is: - ANS-Equity = Assets - Liabilities
Why is the Balance Sheet known as a permanent statement? - ANS-Because the other
statements are reset at the end of the fiscal year
How do you calculate the change in Retained Earnings? - ANS-Net Income - Dividends
Which of the following is generally true? - ANS-Operating Income and EBIT are the
same
Which components are part of total assets? - ANS-Cash Accounts Receivable,
Inventory, Long Term Assets
Which components are part of current assets?
a. Cash, Accounts Receivable, Property Plant & Equipment
b. Accounts Receivable, Accounts Payable, Inventory
c. Long Term Debt, Property Plant & Equipment, Common Stock
d. Inventory, Cash, Accounts Receivable, Short Term Investments - ANS-Inventory,
Cash, Accounts Receivable, Short Term Investments
Suppose the inventory turnover of a company is higher than the industry. Based on this
observation, which of the following is most likely? - ANS-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? - ANS-higher
If an investor knows the idiosyncratic risk, the investor knows the: - ANS-Beta
Coefficient
Why would we reject a project based on the NPV? - ANS-the NPV is a negative number
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