ANSWER F - Multi Choice Version 220 Q/A Trading on the NYS...

WGU C214 Concepts Only Multi Choice Version 2024/25

220 Q/A

Trading on the NYSE is executed without a specialist (i.e. a market maker). (T/F) -

ANSWER F

Stocks and bonds are two types of financial instruments (T/F) - ANSWER T

The matching principle in accrual accounting requires that:

• Revenues be recognized when the earnings process is complete and matches

expenses to revenues recognized.

• Expenses are matched to the year in which they are incurred
• Revenues are matched to the year in which they are booked
• Revenues should be large enough to match expenses - ANSWER

a

A basic equation for the balance sheet is:

• Equity = Assets - Liabilities
• Liabilities = Equity + Assets
• Assets = Liabilities - Equity
• Assets = Equity - Liabilities - ANSWER a 1 / 4

Why is the Balance Sheet known as a permanent statement?

• Because the statement is sent to the SEC.
• Because the other statements are reset at the end of the fiscal year
• Because it is printed out and archived
• Because it persists in the minds of the shareholders. - ANSWER

b How do you calculate the change in Retained Earnings?

• Ending Retained Earnings - Change in Cash
• EBIT divided by Total Assets + Dividends
• EBIT - Change in Cash - Dividends
• Net Income - Dividends - ANSWER d

Which of the following is generally true?

• Gross Profit and Operating Income are the same
• Cost of Goods Sold + Operating Expenses = Net Income
• Operating Income and EBIT are the same
• EBIT + Income Taxes = Net income - ANSWER c

Which components are part of total assets?

• Cash, Accounts Receivable, Short Term Debt
• Cash Accounts Receivable, Inventory, Long Term Assets
• Accounts Payable, Long Term Assets, Long Term Debt
• Accounts Payable, Net Income, Equity - ANSWER b

Which components are part of current assets?

• Cash, Accounts Receivable, Property Plant & Equipment
• Accounts Receivable, Accounts Payable, Inventory
• Long Term Debt, Property Plant & Equipment, Common Stock
• Inventory, Cash, Accounts Receivable, Short Term Investments -

ANSWER d 2 / 4

Which components are part of Total Liabilities?

• Accounts Payable, Accounts Receivable, Short Term Debt
• Long Term Debt, Common Stock, Retained Earnings
• Bonds, Accounts Payable, Mortgage
• Common Stock, Long Term Debt, Short Term Investments - ANSWER

c When Fixed Assets increase what happens to Cash?

• Cash stays the same
• Cash increases
• Cash decreases
• Assets decrease - ANSWER c

Which is the purpose of the statement of cash flows?

• serves as the replacement for the income statement and balance sheet
• explains the change in cash balance at one point in time
• explains the change in cash balance for one period of time
• both (a) and (b) above - ANSWER c

The OIROI (Operating Income Return on Investment) uses what elements on the income statement?

• Operating Income, EBIT, Total Liabilities
• EBIT, Total Assets
• Sales, Total Assets, Equity
• Net Margin, Total Current Assets - ANSWER b

Why would a company be interested in the TAT(Total Asset Turnover) ratio?

• How efficient assets are at producing income
• What the turnover of sales is to liabilities
• How efficient assets are at producing sales 3 / 4

• How efficient assets are to liabilities and equity - ANSWER

c Which of the following gives the largest effective rate (APY)

• 18.6% compounded monthly
• 18.6% compounded daily
• 18.6% compounded weekly
• 18.6% compounded yearly - ANSWER b

What does the beta coefficient represent?

• It is a statistically-derived measure of volatility
• It is the Expected Return minus the Growth Rate
• It is the volatility of the Risk Free Return
• It is the expected return for a basket of preferred stocks - ANSWER

a Why is depreciation expense taken out of the net income calculation, yet added back at the end?

• Because fixed assets should remain on the balance sheet
• Because depreciation is not a current asset
• Because depreciation is a non-cash liability
• Because depreciation expense is tax deductible - ANSWER

d Why is the NPV preferred over the IRR? Pick Two

• It has a higher dollar value
• It measures the dollar value
• It is more reliable
• It is harder to calculate - ANSWER b, c
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