C214 Practice Questions
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C214 Financial Management
Study Guide Problems
09/06/19
The following questions are for practicing both calculations and concepts for C214 – Financial
Management. Some of the questions have been used in Topic Reviews in the Financial
Management e-text. This list of questions does not cover everything you may encounter in an
assessment. They are in the same order as the topics presented in the e-text. There is a
companion answer sheet available. For solutions, please see your Course Instructor.
Overview of Finance
1. Trading on the NYSE is executed without a specialist (i.e. a market maker).
True/False
2. Stocks and bonds are two types of financial instruments
True/False
3. The matching principle in accrual accounting requires that:
a.
Revenues be recognized when the earnings process is complete and
matches expenses to revenues recognized.
b. Expenses are matched to the year in which they are incurred
c. Revenues are matched to the year in which they are booked
d. Revenues should be large enough to match expenses
4.
A high-quality customer just purchased $500,000 worth of product from
your company. The contract calls for immediate delivery of the product
with a cash payment of $300,000 today and $200,000 to be paid 60
days.
The expense associated with the product is $300,000, of which
$100,000 has not been paid to your supplier. Under accrual based
accounting system, you will most likely report:
a. revenues of $300,000 and expenses of $300,000.
b. revenues of $300,000 and expenses of $200,000.
c. revenues of $500,000 and expenses of $300,000.
d. revenues of $500,000 and expenses of $200,000.
Income Statement/Balance Sheet
5. A firm reported retained earnings of $300 in 12/31/20x2. For 12/31/20x3,
the firm reports retained earnings of $400 and pays dividends of $25.
What was net income in 20x3?
a. 300
b. 400
c. 125
d. 100
6.
A basic equation for the balance sheet is:
a. Equity = Assets – Liabilities
b.
Liabilities = Equity + Assets
c. Assets = Liabilities – Equity
d. Assets = Equity – Liabilities
7. Why is the Balance Sheet known as a permanent statement?
a. Because the statement is sent to the SEC.
b. Because the other statements are reset at the end of the fiscal year
c. Because it is printed out and archived
d. Because it persists in the minds of the shareholders.
8. How do you calculate the change in Retained Earnings?
a. Ending Retained Earnings – Change in Cash
b. EBIT divided by Total Assets + Dividends
c. EBIT – Change in Cash – Dividends
d. Net Income – Dividends
9. Which of the following is generally true?
a. Gross Profit and Operating Income are the same
b. Cost of Goods Sold + Operating Expenses = Net Income
c. Operating Income and EBIT are the same
d. EBIT + Income Taxes = Net income
10. Which components are part of total assets?
a. Cash, Accounts Receivable, Short Term Debt
b. Cash Accounts Receivable, Inventory, Long Term Assets
c. Accounts Payable, Long Term Assets, Long Term Debt
d. Accounts Payable, Net Income, Equity
11. 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
12. Which components are part of Total Liabilities?
a. Accounts Payable, Accounts Receivable, Short Term Debt
b. Long Term Debt, Common Stock, Retained Earnings
c. Bonds, Accounts Payable, Mortgage
d. Common Stock, Long Term Debt, Short Term Investments
Statement of Cash Flows
13. Intel reported the following for 2014:
Net Income 100,000
Depreciation 20,000
Change in A/R 10,000
What is the cash flow from operating activities?
a. 100,000
b. 110,000
c. 120,000
d. (130,000)
14. Which of the following accounts are only included in Cash Flow from
Financing (CFF)?
a.
Accounts Receivable, Accrued Expenses, Net Income
b.
Dividends Paid, Property Plant and Equipment,
Cash
c.
Net Income, Common Stock, Accrued Expenses
d.
Common Stock, Dividends Paid, Bonds Payable
15. The Statement of Cash Flows is:
a.
Calculated for the same period of time as the Income Statement
b.
Is calculated based on the Income Statement and the changes in the
Balance Sheet
c.
Is one of the three basic accounting statements
d. All the above.
16. Intel reported the following for 2014:
Gross Equipment (1/1/14) 50,000
Gross Equipment (12/31/14) 65,000
Net income 100,000
Depreciation 20,000
What is the cash flow from investing activities for 2014?
a. 100,000
b.
80,000
c. (15,000)
d.
15,000
17.
What is the Cash Flow from Operations given the following information?
Net Income
450,000
Change in Accounts Receivable
120,000
Change in Inventory
- 90,000
Change in PP&E
60,000
Depreciation Expense
110,000
Change in Accounts Payable
50,000
Change in Accrued Expenses
- 75,000
Change in Common Stock
300,000
a. $570,000
b. $410,000
c. $505,000
d. $375,000
18. What is the Cash Flow from Investing?
Increase in Gross PP&E
125,000
Beginning Net PP&E
750,000
Ending Net PP&E
850,000
Depreciation Expense
25,000
a.
(850,000)
b. (125,000)
c.
150,000
d. (
75,000)
19. What is the Cash Flow from Investing?
Beginning Net PP&E
250,000
Ending Net PP&E
300,000
Depreciation Expense
40,000
Change in Long Term Investments
100,000
Change in Short Term Investments
50,000
a. 190,000 outflow
b. 150,000 inflow
c. 340,000 outflow
d.
90,000 inflow
20. What is the Cash Flow from Financing?
Accounts Payable
100,000
Accrued Expenses
50,000
Increase in Mortgage Payable
300,000
Decrease in Bonds Payable
75,000
Dividends Paid
80,000
a. 505,000
b. 225,000
c. 230,000
d. 145,000
21. When Fixed Assets increase what happens to Cash?
a. Cash stays the same
b. Cash increases
c. Cash decreases
d. Assets decrease
22.
Last year a firm recorded Net PP&E of $4,600 while this year the same
firm recorded Net PP&E of $4,500. If the depreciation expense for last
year and this year are $500 and $800 respectively, what is the CFI of the
company? (assume no asset disposals)
a. 100 outflow
b. 900 outflow
c. 100 inflow
d. 700 outflow
23. Which is the purpose of the statement of cash flows?
a. serves as the replacement for the income statement and balance sheet
b. explains the change in cash balance at one point in time
c. explains the change in cash over the course of the specified timeframe
d. both (a) and (b) above
24. Financial data for Intel is given below for 2014:
EBIT
1,000,000
Depreciation 30,000
Change in working capital (10,000)
Net capital expenditures 15,000
Tax rate 40%
Compute the Free Cash Flow for 2014
a. 610,000
b. 675,000
c. 625,000
d. 600,000
Financial Ratios
25.
Suppose the inventory turnover of a company is higher than the
industry.
Based on this observation, which of the following is most
likely?
a. The firm has lower liquidity than the industry average.
b.
The firm has too much inventory thus impairing overall liquidity.
c. The firm has too little inventory resulting in lost sales or stock-outs.
d. The firm has low sales volume.
26. Intel provides the following data for 2014:
A/R 600
Inventory 800
Fixed Assets 1,000
A/P 500
Long term debt 900
Common Stock 400
What is the current ratio?
a. 1.2
b. 1.5
c. 2.0
d. 2.8
27. If a company wishes to obtain a bank loan, will it want to have a higher
current ratio or a lower current ratio?
a. higher
b. lower
c. the same
d. it doesn’t matter
28. A company has cash of 100, accounts receivable of 250, inventory of 300,
and accounts payable of 300. What is the quick ratio?
a. 0.33
b. 2.17
c. 1.00
d. 1.17
29.
A company has cash sales of 200 and credit sales of 750. It’s average
accounts receivable is 90. What is the A/R turnover?
a. Turnover: 2.22
b. Turnover: 10.56
c. Turnover 8.33
d. Turnover 3.75
30. The OIROI (Operating Income Return on Investment) uses what elements
on the income statement?
a. Operating Income, EBIT, Total Liabilities
b. EBIT, Total Assets
c. Sales, Total Assets, Equity
d. Net Margin, Total Current Assets
31. Why would a company be interested in the TAT (Total Asset Turnover)
ratio?
a.
How efficient assets are at producing income
b.
What the turnover of sales is to liabilities
c. How efficient assets are at producing sales
d. How efficient assets are to liabilities and equity
32. If a company has current assets of 80 and fixed assets of 120, if Sales are
150 and EBIT is 35, what is the Fixed Asset Turnover?
a. 5.71
b. 2.29
c. 0.80
d. 1.25
33. If a company has current assets of 90 and fixed assets of 140, if it has
debt of 125, what is its debt ratio?
a. 1.12
b. 0.54
c. 1.36
d. 1.84
34. A company has sales of 300, expenses of 200 and interest expense of 25,
what is its Times Interest Earned ratio?
a. 2.00
b. 4.00
c. 1.75
d. 3.00
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