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Exam IV: Ch 15-18
ECN 1015 - Intro to Business in a Market Economy
40
Business
Undergraduate 1
11/14/2016

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Term
A. Managerial accountant.
Definition
1. Benjamin works in the accounting department for a textbook publishing firm preparing budgets and reporting production costs. He is a:
A. Managerial accountant.
B. Financial accountant.
C. Tax accountant
D. Auditor.
Term
A. Income Statement
Definition
2. The Balance Sheet, the Statement of Cash Flows, and the _____ are three key financial statements prepared by accountants.
A. Income Statement
B. Statement of Retained Earnings
C. Statement of Changes in Financial Position
D. Trial Balance
Term
D. Owner's Equity equals $32,000.
Definition
3. The Balance Sheet for Renuvation LLC shows assets totaling $107,000 and liabilities totaling $75,000. Which of the following statements is correct?
A. Owner's Equity equals $182,000.
B. Current Assets are worth $32,000.
C. Net Income for the period is $32,000.
D. Owner's Equity equals $32,000.
Term
A. current assets listed on Jepson's balance sheet.
Definition
4. At the time the Jepson Plumbing Supply prepared its financial statements, it had several customers who bought goods over the past three months on its "90 days same as cash" credit plan. These customers had not yet paid their bills, but they have good credit ratings and Jepson is confident that they will make their payments on time. The amount these credit customers owe would show up as part of the:
A. current assets listed on Jepson's balance sheet.
B. current liabilities listed on Jepson's balance sheet.
C. a deferred cash flow on Jepson's statement of cash flows.
D. unrealized revenue reported on Jepson's income statement.
Term
B. negative cash flow.
Definition
5. Monica noted that she disbursed $6,347 in payments for operations in her travel agency and received $6,189 in cash receipts for services rendered. She had no cash receipts or disbursements from investments or financing activities. Thus, Monica had a:
A. positive disbursement.
B. negative cash flow.
C. bad debt allowance.
D. tax credit payment.
Term
D. Perform an independent audit.
Definition
6. Taylor Casual, a chain of retail clothing stores, wants to assure investors and other outsiders that its financial statements are accurate. One way to do so would be to hire a public accounting firm to:
A. Produce an internal audit.
B. Take over all of its accounting functions.
C. Provide a "generally accepted practices" endorsement.
D. Perform an independent audit.
Term
B. Bookkeeping involves recording financial information, while accounting is concerned with classifying, summarizing, and interpreting this information.
Definition
7. A comparison of bookkeeping and accounting indicates that:
A. The two are virtually the same in practice.
B. Bookkeeping involves recording financial information, while accounting is concerned with classifying, summarizing, and interpreting this information.
C. Bookkeeping is more useful for small businesses while accounting is more useful for large businesses.
D. Accounting is a subsystem of the process of bookkeeping.
Term
A. assets.
Definition
8. As Hector was packing to return to State University after his summer vacation, he realized that he owned many valuable things such as a laptop computer, a stereo system, and a DVD player. An accountant would list all of these as Hector's:
A. assets.
B. liabilities.
C. owners' equity.
D. intangibles.
Term
B. liabilities.
Definition
9. Keith will graduate from Southern State University this year. He has accumulated $18,000 in student loans during his four years at college. An accountant would classify the loans as:
A. assets.
B. liabilities.
C. owners' equity.
D. intangibles.
Term
A. income statement
Definition
10. Many business decisions are made in hopes of improving a firm's "bottom line." Which of the following financial statements will reveal a firm's "bottom line"?
A. income statement
B. balance sheet
C. statement of cash flows
D. trial balance
Term
D. purchasing a building to be used for office space
Definition
11. Which of the following represents a capital expenditure?
A. issuing paychecks to workers
B. paying for advertising on a local radio station
C. purchasing raw materials to be used in the production of a firm's product
D. purchasing a building to be used for office space
Term
B. debt
Definition
12. When Liberty Industries renegotiated their loan agreement, they borrowed an additional $2 million. The new loan requires Liberty to repay the new amount in nine months. Liberty's activity represents _____ financing.
A. equity
B. debt
C. revitalized
D. secured
Term
C. three percent discount if they pay in fifteen days.
Definition
13. Maryland Nursery offers customers credit terms of 3/15 net 30. This gives customers a:
A. fifteen percent discount if they pay in three days.
B. three percent discount if they pay in thirty days.
C. three percent discount if they pay in fifteen days.
D. fifteen percent discount if they pay in thirty days.
Term
B. owner of
Definition
14. By purchasing stock in Entertainment Today, Veronica has become a(n) _____ the company.
A. creditor of
B. owner of
C. general partner of
D. venture capitalist in
Term
D. Initial Public Offering (IPO)
Definition
15. Arborview Plant Science Company has invented a drought resistant grass seed that only needs watering three times each year. In order to expand distribution world wide, the company whose product produces lush green foliage needs a large amount of funding - fast! The handful of seed scientists that own the company decides to offer shares of stock to general investors. This first-time offering is a(n):
A. Stock Equity Commission (SEC)
B. Stock Fund Offering (SFO)
C. Broad Based Offering (BBO)
D. Initial Public Offering (IPO)
Term
C. Undercapitalization.
Definition
16. Susan started a cake decorating business that failed. She is convinced that she lacked the necessary funds to promote her business and get it off the ground. Susan experienced:
A. Inadequate financial control.
B. Undervalued inventory.
C. Undercapitalization.
D. A cash flow issue.
Term
C. short-term forecast.
Definition
17. Liberty Electronics wants to predict how much money it can make this coming year. Liberty would benefit from developing a:
A. master budget.
B. consolidated income statement.
C. short-term forecast.
D. statement of cash flows.
Term
D. equity
Definition
18. With plans to build a $50 million theme park, Extreme Entertainment, Inc. intends to finance this project through the sale of additional shares of ownership in their firm. Selling new shares of stock represents _____ financing.
A. retained
B. debt
C. initial offering
D. equity
Term
A. line of credit
Definition
19. The financial manager of Carolina Graphics negotiated a _____ with her bank that allows Carolina to borrow up to $50,000 without collateral. This arrangement eliminates the need to renegotiate the terms of the loan and complete new paper work each time Carolina borrows money. The preapproved short-term loan agreement is contingent upon the bank having the funds available.
A. line of credit
B. factor agreement
C. cash flow conversion
D. renewable income option
Term
C. factoring
Definition
20. Vitale Jewelers obtains needed short-term funds by selling its accounts receivable to the Friendly Finance Company. Friendly Finance usually pays Vitale about 80% of the value of the receivables. Vitale Jewelers utilizes _____ as a means of raising short-term funds.
A. trade credit
B. revolving credit agreements
C. factoring
D. receivable draft agreements
Term
B. secondary market.
Definition
21. Shareholder Jones sells 100 shares of Very Vegetarian Corporation stock to Investor Smith. This transaction takes place in the:
A. primary market.
B. secondary market.
C. initial offerings market.
D. security resale market.
Term
C. bond.
Definition
22. The corporate certificate issued to an investor that has loaned money to the corporation or government is called a:
A. common stock.
B. preferred stock.
C. bond.
D. debt document
Term
A. $100 interest per year and $1,000 in the year 2015.
Definition
23. The ABC Corporation issues a $1,000 bond, with an interest rate of 10%, and a maturity date of 2015. This creates a liability for the ABC Corporation to pay the bondholder:
A. $100 interest per year and $1,000 in the year 2015.
B. 10% of the selling price of the bond.
C. an interest payment equal to the dividend payment distributed to the common stockholders.
D. $1,100 annually until the year 2015.
Term
A. Regis
Definition
24. Regis and Kelly plan to invest in corporate securities. While Regis plans to retire next year on his 65th birthday, Kelly is celebrating her first job after college and her 22nd birthday. Which of the two investors would be well advised to choose a more conservative investment strategy?
A. Regis
B. Kelly
C. A conservative investment strategy is always the best strategy.
D. It depends on whether they want to invest in stocks or bonds.
Term
C. $500.
Definition
25. After buying 100 shares of common stock in the It's All Good Corporation for $20 per share, Popeye later sold the same shares for $25 per share. Popeye's capital gain on the total transaction is:
A. $5.
B. $50.
C. $500.
D. $2,500.
Term
B. $50
Definition
26. Before the announcement of a three-for-one stock split, the selling price for a share of stock in Olympia Oil Refineries was $150 per share. Immediately after the stock split, the probable price per share is:
A. $450.
B. $50.
C. $350.
D. $150.
Term
B. blue chip
Definition
27. The stock of well-known, high quality firms, such as Coca-Cola, General Electric, and Procter & Gamble, fit the characteristics of stocks, because investors can almost always be assured a dividend and consistent stock price appreciation.
A. growth
B. blue chip
C. income
D. callable
Term
B. they are backed by the full faith and credit of the federal government.
Definition
28. U.S. government bonds are considered a secure investment because:
A. the interest rates are protected from inflation and tied to the consumer price index.
B. they are backed by the full faith and credit of the federal government.
C. the interest rates are higher than for corporate bonds of equal duration.
D. if they are lost or stolen the federal government promises to replace them when the proof of purchase is provided.
Term
B. mutual fund.
Definition
29. To reduce the risk of investing in an individual stock, an ownership position in many different companies can be achieved by purchasing shares in a(n):
A. indexed security.
B. mutual fund.
C. diversification bond.
D. stock cooperative.
Term
A. show the direction of the market over time.
Definition
30. Daily reporting of the Dow Jones Industrial Average serves to:
A. show the direction of the market over time.
B. distort short-term fluctuations for the financial community.
C. identify the beginning of a recession in the economy.
D. disclose the average price of a share of stock on the major exchanges.
Term
D. an increase in the rate of inflation.
Definition
31. President Dude, the leader of the island nation of Jaylo, refuses to raise taxes, but wants to expand many government services and increase the size of the Jaylo armed forces. He plans to pay for all of the desired expenditures by printing more money. If President Dude carries out his plan by rapidly increasing the supply of money, Jaylo will likely experience:
A. a severe recession.
B. reduced private sector spending.
C. widespread surpluses of goods and services.
D. an increase in the rate of inflation.
Term
B. $24 million
Definition
32. The Megabux National Bank currently has deposits of $200 million. If the Fed establishes a reserve requirement of 12 percent, Megabux National must hold reserves of against its deposits.
A. $12 million
B. $24 million
C. $176 million
D. $200 million
Term
A. banks borrowing funds from the Fed will now pay 6% on the amount they borrow.
Definition
33. The Fed plans to raise the discount rate to 6%. This indicates that:
A. banks borrowing funds from the Fed will now pay 6% on the amount they borrow.
B. banks must hold funds in their vault or on deposit with the Fed equal to at least 6% of their deposits.
C. the Fed will pay 6% on any securities issued by the federal government during the current time period.
D. the amount of money in circulation can be no more than 6% greater than the amount of gold held in reserve by the government.
Term
C. reduce the reserve requirement.
Definition
34. To stimulate the economy during a recession, the Fed would:
A. cut taxes.
B. increase the discount rate.
C. reduce the reserve requirement.
D. sell government securities.
Term
A. should be protected because their account is fully insured by the FDIC.
Definition
35. After Bill and Jillian deposited nearly $30,000 in a savings account at Farmers National Bank, the bank failed and filed for bankruptcy. Because the Farmers National Bank was an FDIC member bank, Bill and Jillian's savings:
A. should be protected because their account is fully insured by the FDIC.
B. can recover up to $20,000, but they will probably lose the rest since their deposits exceed the maximum coverage offered by the FDIC.
C. will lose their savings because the FDIC only insures business deposits.
D. will be eligible to recover 80 percent of the value of their deposit, less a $2,500 deductible.
Term
D. Savings account deposits
Definition
36. Which of the following is included in the M-2 definition of the money supply but not the M- 1 definition?
A. Currency
B. Checking account deposits
C. Traveler's checks
D. Savings account deposits
Term
B. banks during banking emergencies.
Definition
37. The Federal Reserve fulfills its role as a "lender of last resort" when it loans funds to:
A. small businesses that are unable to obtain loans from other sources.
B. banks during banking emergencies.
C. major corporations that are on the verge of bankruptcy.
D. the federal government when deficits exceed borrowing limits set by Congress.
Term
B. The World Bank
Definition
38. Which of the following institutions primarily finances economic development projects in less-developed countries?
A. The International Monetary Fund
B. The World Bank
C. The International Development Administration
D. The International Reserve Bank
Term
A. The International Monetary Fund
Definition
39. Which of the following institutions monitors the monetary policies of member nations to ensure a global monetary system that works best for all nations?
A. The International Monetary Fund
B. The World Bank
C. The International Development Administration
D. The International Reserve Bank
Term
B. the U.S. money supply.
Definition
40. The Fed Chairman is in control of:
A. the world's money supply.
B. the U.S. money supply.
C. fiscal policy.
D. the IMF
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