1. The amount to be repaid at the end of the contract is termed as:
a. annual payment.
b. face value.
c. par value.
d. term value.
e. market value.
2. Which of the following is a court process which results in either the liquidation or reorganization of a company?
a. Leverage
b. Security agreements
c. Bankruptcy
d. Serial Debt
e. Factoring
3. Which of the following are excluded while creating a statement of cash flows?
a. Repaying long-term debt
b. Issuing common stock
c. Purchasing equipment
d. Declaring a stock splits
e. Borrowing money on a note
4. Which of the following is another name for face value?
a. Security
b. Covenant value
c. Callable value
d. Maturity value
e. Serial debt
5. Which of the following terms refers to a right which allows the creditor to repossess the property or force its liquidation if the debtor fails to make payments in a timely manner?
a. Convertible
b. Security
c. Swap
d. Interest rate
e. Callable
6. DreamWorks Corporation acquired a trademark in exchange for 3,000 shares of $1 par value common stock. Which of the following best describes this transaction?
a. Operating activity
b. Investing activity
c. Financing activity
d. Significant non-cash activity
e. Intangible activity
7. Which of the following refers to a company's ability to earn more on borrowed funds than the cost of related interest?
a. Covenants
b. Financial leverage
c. Turnover
d. Liquidity
e. Factoring
8. Which of the following terms indicates that the lender can swap the debt for the capital stock of the debtor?
a. Callable
b. Convertible
c. Covenant
d. Serial
e. Perpetuities
9. Which of the following is true of the method used to determine the cash flows from operating activities?
a. FASB prefers the indirect method over the direct method.
b. Under direct method, the calculation starts with the amount of net income.
c. Noncash expenses are considered in the calculation when using direct method.
d. The procedures involved in direct method can be used to calculate the cash flows from financing activities.
e. Both direct and indirect method arrives at the same total of operating cash flow.
10. When a company issues bonds to the general public, it becomes subject to the rules and regulations of the:
a. IASB.
b. EITF.
c. PCAOB.
d. SEC.
e. AICPA.
11. Venus Corporation, a multi-designer store paid income tax of $100,000 during the year 2014. Under which section of the statement of cash flows will this amount appear?
a. Operating activities
b. Investing activities
c. Financing activities
d. Significant non-cash activities
e. Contingent activities
12. Rufus Corporation manufactures and sells bicycles. During the year, Rufus sold $500,000 worth of its $1 par value common stock to the public. Which type of activity does this transaction represents on a statement of cash flows?
a. Equity
b. Investing
c. Financing
d. Significant non-cash
e. Operating
13. Which of the following is true of statement of cash flows?
a. It is not required to be presented under U.S. GAAP.
b. It connects income statement and balance sheet.
c. It is considered to be the least important financial statement by the investors.
d. It classifies cash flows into three different activities.
e. It uses ending T-account balances to determine the cash flows.
14. Specific terms related to a debt will be written into a(n):
a. loan indenture.
b. incorporation agreement.
c. loan certificate.
d. share certificate.
e. maturity certificate.
15. Which of the following is a disadvantage of financing with debt?
a. Interest expense increases tax liability.
b. It dilutes the ownership of a company.
c. It carries the risk of bankruptcy.
d. It reduces financial leverage.
e. Creditors become the owners of the company in the long run.
16. Which of the following is true of financial leverage?
a. It refers to an organization's ability to increase its reported net income by using equity financing.
b. It refers to an organization's ability to increase its reported net income by using debt financing.
c. It refers to an organization's ability to collect receivables faster than paying its dues.
d. A highly leveraged firm means that the company has a high dividend payout ratio.
e. A highly leveraged company means that most of its funds come from retained earnings.
17. Which of the following is true of interest expense?
a. It is added to operating profit of a company.
b. It increases the tax liability of a company.
c. It is a permanent expense of a company.
d. It helps in creating financial leverage for a company.
e. It is calculated based on the net income of a company.
18. Which of the following is an example of an operating activity?
a. Paying salaries to employees
b. Distributing cash dividends
c. Issuing common stock
d. Repaying a loan
e. Declaring a stock-split
19. Which of the following would be considered a cash equivalent?
a. Bank deposits
b. Money orders
c. Bank drafts
d. Money market funds
e. Currencies
20. Which of the following is an example of an investing activity?
a. Repurchasing common stock
b. Retiring short-term debt
c. Paying taxes
d. Receiving interest
e. Selling patents
21. Which of the following is an example of cash equivalents?
a. Saving accounts
b. Currencies
c. Bank drafts
d. Money orders
e. Treasury bills
22. Rufus Corporation manufactures and sells bicycles. During the year, Rufus sold bicycles to customers and collected $8,000,000 in cash. Which type of activity does this transaction represents on a statement of cash flows?
a. Operating
b. Investing
c. Selling
d. Significant non-cash
e. Promotion
23. Merlin Corporation reported revenue of $95,000 for 2019. Accounts receivable on 1/1/2019 were $20,000 and accounts receivable on 12/31/2019 were $14,000. Determine the amount of cash collecting by Merlin during 2019.
a. $89,000
b. $95,000
c. $115,000
d. $81,000
e. $101,000
24. Which of the following is an example of a financing activity?
a. Selling goods to customers for cash
b. Issuing stock to the public
c. Purchasing a franchise
d. Received dividends from investments
e. Paying interest on loan
25. Which of the following is a debt contract sold to public in general?
a. Bonds
b. Notes payable
c. Sales
d. Receivable account
e. Interest expense
26. Which of the following is a charge for using debt over time?
a. Interest
b. Leverage
c. Bankruptcy
d. Dividends
e. Bond
27. Companies that have adopted a strategy of being highly leveraged will have most of their funds from:
a. debt financing.
b. equity financing.
c. investment in subsidiary companies.
d. retained earnings.
e. sales revenue.
28. Which of the following would be an operating activity for a grocer?
a. Repaying a loan
b. Borrowing money to buy inventory
c. Buying a vehicle for personal use
d. Selling a bag of sugar
e. Whitewashing the shop
29. Which of the following is an advantage of financing with debt?
a. It creates operating leverage.
b. It reduces the risk of bankruptcy.
c. Debt cannot be eliminated.
d. Interest expense on the related debt is a tax deductible expense.
e. Bondholders can maintain their position indefinitely.
30. Which of the following statements is true?
a. Stock dividends and stock splits are included in the financing activities section of the statement of cash flow.
b. Growing companies normally expect cash flows from investing activities to be negative.
c. Investing activities section activities result from the primary function of the business.
d. Investors prefer to see a net outflow of cash from operating activities from year to year.
e. In years when a large dividend is distributed or debt is settled, the net figure for financing activities is more likely to be positive.
31. Which of the following would appear in cash flows from operations prepared using the direct method?
a. Cash received from issuance of stock
b. Cash paid for depreciation
c. Cash paid for inventory purchases
d. Cash dividends paid to shareholders
e. Cash paid to repurchase common stock
32. Which of the following is true of debt financing?
a. Debt is free of cost.
b. Debt does not financial leverage.
c. It is mandatory for a company to have debt.
d. Debt brings in risk.
e. Debt always leads to bankruptcy.
33. In the year 2015, Ben Smith Corporation declared and paid $20,000 cash dividends to its preferred stockholders. In the statement of cash flows, Ben Smith will show this amount as an outflow for a(n):
a. operating activity.
b. investing activity.
c. financing activity.
d. contingent activity.
e. brand building activity.
34. Which of the following would cause cash received from customers to be greater than the sales revenue?
a. Increase in interest expense
b. Increase in accounts payable
c. Decrease in accounts receivable
d. Decrease in noncash transaction
e. Decrease in the discount received
35. Carlson Company borrowed $24,000 on June 1, 2014 at an annual interest rate of 10%. Interest payments are made each June 1 and December 1. Which of the following is the journal entry Carlson would make to record the payment of interest on December 1, 2014?
a. Interest Expense: $1,200, Interest Payable: $1,200
b. Interest Expense: $600, Interest Payable: $600, Cash: $1,200
c. Interest Payable: $1,200, Cash: $1,200
d. Interest Expense: $1,200, Cash: $1,200
e. Interest Expense: $400, Interest Payable: $800, Cash: $1,200
36. In the year 2016, Suzie Corporation purchased a new building for its corporate headquarters. Where will the cash paid for this purchase appear on the statement of cash flows?
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Significant non-cash activities section
e. Diversification activities section
37. Which of the following terms refer to a promise made by the debtor to help ensure that adequate money will be available to make required payments when they come due?
a. Covenant
b. Face value
c. Serial debt
d. Callable value
e. Interest rate
38. Home mortgage is an example of a:
a. bond.
b. convertible debt.
c. serial debt.
d. callable debt.
e. covenant.
39. Olsen Company sells paper products to restaurants and stores across the country. Recently Olsen purchased a new machine for $100,000 by paying cash of $20,000 and signing a note payable for the remainder. How is this transaction reported on the statement of cash flows?
a. Financing activity-outflow of $100,000
b. Financing activity-outflow of $20,000
c. Operating activity- inflow of $20,000
d. Investing activity-outflow of $100,000
e. Investing activity-outflow of $20,000
40. Which of the following terms indicates that a debt can be fully repaid before the due date at the discretion of the borrower?
a. Convertible
b. Serial
c. Callable
d. Perpetuities
e. Security