 |
| 1 | |
Financial risk occurs when a company does not generate sufficient income to satisfy the return desired by its owners. |
| | A) | True |
| | B) | False |
|
|
|
| 2 | |
When allocating the partnership income using interest and salary allowances, the amount of the income a partner is allocated depends on how much the partner was paid in salary and interest during the year. |
| | A) | True |
| | B) | False |
|
|
|
| 3 | |
The difference between the number of shares authorized and the number of shares issued in a corporation is the number of shares of treasury shares. |
| | A) | True |
| | B) | False |
|
|
|
| 4 | |
Par value is the fair value of a company's stock. |
| | A) | True |
| | B) | False |
|
|
|
| 5 | |
Perfect Seed Inc. has 23,000 shares of 5% $80 par value preferred stock issued of which there were 1,000,000 shares authorized and no shares in treasury. What is the maximum dividend per share on each preferred share? |
| | A) | $4.00 |
| | B) | $80.00 |
| | C) | $1.15 |
| | D) | Need to know the years in arrears to compute it. |
|
|
|
| 6 | |
The purpose of financial leverage is to generate a higher return for the owners and is achieved when: |
| | A) | the cost of using borrowed funds is less than the return generated by the borrowed funds |
| | B) | the interest rate on borrowed funds is more than the rate of return on owners' equity |
| | C) | the corporation has no debt financing |
| | D) | the firm generates the highest possible total income |
|
|
|
| 7 | |
Which of the following statements about the times interest earned ratio is true? |
| | A) | The lower the TIE ratio the greater the ability of the firm to service its debt. |
| | B) | A TIE of less than one means the company did not generate enough income to cover its interest. |
| | C) | The higher the TIE ratio the greater the risk of the company. |
| | D) | The higher the TIE ratio the lower the return on owners' equity. |
|
|
|
| 8 | |
The Gidson Corporation has $800,000 in assets and one liability in the form of a $600,000 note payable with a 7% annual interest rate. Assuming Gidson's tax rate is 20% and the firm generates a 16% return on its assets, Gail's rate of return on owners' equity is: |
| | A) | 16.8% |
| | B) | 8.6% |
| | C) | 43.0% |
| | D) | 34.4% |
|
|
|
| 9 | |
Widener Inc. declared and issued a stock dividend. What is the impact on the financial statements of this stock dividend? |
| | A) | Total shares issued decreases. |
| | B) | Total assets are lower. |
| | C) | Total liabilities are higher. |
| | D) | Total shares issued increases. |
|
|
|
| 10 | |
Brown Corporation has 500,000 shares of 9%, $40 par value cumulative preferred stock authorized, 100,000 shares issued, and 80,000 outstanding, as well as 1,300,000 shares of $10 par value common stock issued and outstanding. Dividends relative to the preferred stock are two years in arrears. If Brown declares a $2,000,000 dividend during the current period, the amount of the dividend applicable to the preferred and common stockholders is: |
| | A) | $864,000 and $1,136,000, respectively |
| | B) | $576,000 and $1,424,000, respectively |
| | C) | $1,080,000 and $920,000, respectively |
| | D) | $720,000 and $1,280,000, respectively |
|
|
|
| 11 | |
Doty Corporation has 2,000,000 shares of $1 par value common stock authorized. 600,000 shares have been sold to stockholders and 20,000 shares have been repurchased by Doty Corporation in the open market. How many shares does Doty have issued and outstanding? |
| | A) | 600,000 issued; 600,000 outstanding |
| | B) | 600,000 issued; 20,000 outstanding |
| | C) | 600,000 issued; 580,000 outstanding |
| | D) | 580,000 issued; 580,000 outstanding |
|
|
|
| 12 | |
On what statement is treasury stock found and how is it classified? |
| | A) | Balance Sheet as an asset |
| | B) | Balance Sheet as a reduction of stockholders' equity |
| | C) | Income Statement as an expense |
| | D) | Balance Sheet as a reduction of total liabilities |
|
|
|
| 13 | |
Once the board of directors declares a dividend, which of the following is the correct sequence of events that follow the date of declaration? |
| | A) | ex-dividend date, date of record, date of payment |
| | B) | date of record, ex-dividend date, date of payment |
| | C) | ex-dividend date, date of payment, date of record |
| | D) | date of payment, ex-dividend date, and date of record. |
|
|
|
| 14 | |
Dan, Glenn, and Finley are partners in Rollers Company. Their partnership income sharing agreement calls for Dan and Glen to receive salary allowances of $30,000 and $40,000, respectively. Any remaining income or loss is to be divided equally. If the company's income was $25,000, how would Finley's equity in the partnership change? |
| | A) | Decrease $15,000 |
| | B) | Increase $23,333 |
| | C) | Increase $8,333 |
| | D) | Not change because the income would have all been distributed to Dan and Glenn as a result of their salary allowances. |
|
|
|
| 15 | |
Sage, Rosemary and Thyme are partners in the Music Company. Their partnership income sharing agreement provides that Sage and Thyme are to receive salary allowances of $29,000 and $16,000, respectively, and that any remaining income or loss is to be divided equally among all partners. If the company's income was $39,000, Thyme's income (loss) from the partnership would be: |
| | A) | $14,000 |
| | B) | $16,000 |
| | C) | $18,000 |
| | D) | $29,000 |
|
|
.