Principles of Managerial Finance - Quiz 1

Question 1

The Financial Accounting Standards Board (FASB) is the federal regulatory body that governs the sale and listing of securities.

Answer 1

FALSE

Question 2

GAAP is the accounting profession’s rule-setting body.

Answer 2

FALSE

Question 3

Generally accepted accounting principles are authorized by the Financial Accounting
Standards Board (FASB).

Answer 3

TRUE

Question 4

The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight
Board (PCAOB) which is a not-for-profit corporation that oversees auditors of public
corporations

Answer 4

TRUE

Question 5

The Sarbanes-Oxley Act of 2002 was passed to eliminate many of the disclosure and conflict of-interest problems of corporations.

Answer 5

TRUE

Question 6

The Sarbanes-Oxley Act of 2002 established the Private Company Accounting Oversight
Board (PCAOB) which is a for-profit corporation that oversees CEOs of public corporations.

Answer 6

FALSE

Question 7

Publicly owned corporations with more than $10 million assets and 2,000 or more
stockholders are required by the Securities and Exchange Commission (SEC) to a form known as
a 10-K annually

Answer 7

TRUE

Question 8

The letter to stockholders is the primary communication from management in an annual
report.

Answer 8

TRUE

Question 9

Common stock dividends paid to stockholders equal the earnings available for common
stockholders divided by the number of shares of common stock outstanding.

Answer 9

FALSE

Question 10

The income statement is a financial summary of a firm’s operating results during a specified
period while the balance sheet is a summary statement of a firm’s financial position at a given
point in time.

Answer 10

TRUE

Question 11

The common stock entry in balance sheet is the par value of common stock.

Answer 11

TRUE

Question 12

Paid-in capital in excess of par represents the proceeds in excess of par value received from
the original sale of common stock.

Answer 12

TRUE

Question 13

Earnings per share represents amount earned during the period on each outstanding share of
common stock.

Answer 13

TRUE

Question 14

Net fixed assets represent the difference between gross fixed assets and the amount of
depreciation expense from the most recent year.

Answer 14

FALSE

Question 15

Earnings per share results from dividing earnings available for common stockholders by the
number of shares of common stock authorized.

Answer 15

FALSE

Question 16

Retained earnings represent the cumulative total of all earnings, net of dividends, that have
been retained and reinvested in the firm since its inception.

Answer 16

TRUE

Question 17

The balance sheet is a statement which balances a firm’s assets (what it owns) against its debt
(what it owes) and its equity (what is provided by owners).

Answer 17

TRUE

Question 18

The amount paid in by the original purchasers of common stock is shown by two entries in
the firm’s balance sheet—common stock and paid-in capital in excess of par on common stock.

Answer 18

TRUE

Question 19

The original price per share received by the firm on a single issue of common stock is equal
to the sum of the common stock and paid-in capital in excess of par accounts divided by the
number of shares outstanding.

Answer 19

TRUE

Question 20

The statement of cash flows reconciles the net income earned during a given year, and any
cash dividends paid, with the change in retained earnings between the start and end of that year.

Answer 20

FALSE

Question 21

The statement of cash flows provides insight into a firm’s operating, investment, and
financing cash flows and reconciles them with changes in its cash and marketable securities
during the period of concern.

Answer 21

TRUE

Question 22

A U.S. parent company’s foreign equity accounts are translated into dollars using the
historical rate or average rate based on the company’s discretion.

Answer 22

FALSE

Question 23

A U.S. parent company’s foreign retained earnings are not adjusted for currency movements
to reflect each year’s operating profits or losses.

Answer 23

FALSE

Question 24

The Financial Accounting Standards Board (FASB) Standard No. 52 mandates that U.S.-
based companies translate their foreign-currency-denominated assets and liabilities into dollars
using the current rate (translation) method.

Answer 24

TRUE

Question 25

A firm’s annual stockholders’ report ________.

Answer 25

B) summarizes and documents the firm’s financial activities during the past year

Question 26

The rule-setting body, which authorizes generally accepted accounting principles is the
________.

Answer 26

B) FASB

Question 27

Accounting practices and procedures used to prepare financial statements are called
________.

Answer 27

C) GAAP

Question 28

The federal regulatory body governing the sale and listing of securities is called the
________.

Answer 28

D) SEC

Question 29

The stockholders’ annual report must include ________.

Answer 29

B) an income statement

Question 30

The 2002 Sarbanes-Oxley Act was designed to ________.

Answer 30

B) eliminate the many disclosure and conflict-of-interest problems of corporations

Question 31

The 2002 law that established the Public Company Accounting Oversight Board (PCAOB)
was called ________.

Answer 31

D) the Sarbanes-Oxley Act

Question 32

The Public Company Accounting Oversight Board (PCAOB) ________.

Answer 32

A) is a not-for-profit corporation that oversees auditors of public corporations

Question 33

The stockholder’s report includes ________.

Answer 33

D) a statement of retained earnings

Question 34

Total assets less net fixed assets equals ________.

Answer 34

B) current assets

Question 35

A(n) ________ provides a financial summary of a firm’s operating results during a specified
period.

Answer 35

A) income statement

Question 36

Gross profit is ________.

Answer 36

D) sales revenue minus cost of goods sold

Question 37

Operating profit is ________.

Answer 37

A) gross profit minus operating expenses

Question 38

Net profit after taxes is ________.

Answer 38

D) EBIT minus interest and taxes

Question 39

Operating profit is known as ________.

Answer 39

B) earnings before interest and taxes

Question 40

Earnings available for common stockholders is calculated as net profits ________.

Answer 40

B) after taxes minus preferred dividends

Question 41

Which of the following is a current liability?

Answer 41

C) notes payable

Question 42

Which of the following represents a current asset?

Answer 42

C) marketable securities

Question 43

Which of the following is a fixed asset?

Answer 43

A) land

Question 44

The net value of fixed assets is also called its ________.

Answer 44

C) book value

Question 45

Retained earnings on the balance sheet represents the ________.

Answer 45

D) cumulative total of all earnings reinvested in the firm

Question 46

The ________ represents a summary statement of a firm’s financial position at a given point
in time.

Answer 46

B) balance sheet

Question 47

The statement of cash flows ________.

Answer 47

C) provides insight into a firm’s operating, investment, and financing cash flows