All publicly held corporations are regulated by what government organization?

A) The Financial Accounting Standards Board.

B) The Commission on Accounting Procedures.

C) The Accounting Principles Board.

D) The Securities and Exchange Commission.

Answer: D

The disadvantages of the corporate form of business include:

A) Ability to transfer ownership.

B) Additional taxes.

C) Limited liability.

D) Ability to raise capital.

Answer: B

Common stockholders usually have all of the following rights except:

A) To receive dividends when declared.

B) To share in the distribution of assets.

C) To elect board of directors.

D) To participate in the day-to-day operations.

Answer: D

Which of the following stages of equity financing comes last in the traditional order of progression?

A) Investment by friends and family of the founders.

B) Investment by the founders of the business.

C) Initial public offering (IPO).

D) Outside investment by "angel" investors and venture capital firms.

Answer: C

Which of the following is a reason that a corporation would prefer to issue stock instead of bonds?

A) Dividend payments can be deducted for income tax purposes but interest payments cannot.

B) Expansion is accomplished without surrendering ownership control.

C) The risk of going bankrupt is less.

D) All of the other answer choices are correct.

Answer: C

Which of the following is a disadvantage of an S Corporation?

A) Double Taxation

B) Liability

C) Restrictions on number of stockholders

D) Inability to transfer ownership

Answer: C

Which of the following stages of equity financing comes first in the traditional order of progression?

A) Investment by friends and family of the founders.

B) Initial Public Offering.

C) Investment by the founders of the business.

D) Outside investment by "angel" investors and venture capital firms.

Answer: C

Which of the following is not a true statement?

A) The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.

B) Leverage enables a company to earn a higher return using debt than without debt.

C) Return on assets is calculated as net income divided by the ending balance for total assets.

D) The times interest earned ratio compares interest expense with income available to pay interest charges.

Answer: C

In terms of total sales, assets, and earnings, the dominant form of business organization is a:

A) Sole proprietorship.

B) Partnership.

C) Corporation.

D) Limited liability company (LLC).

Answer: C

A company's balance sheet reports total liabilities of $2,000,000. The debt to equity ratio is 2.5. What is the company's stockholders' equity?

A) $800,000

B) $320,000

C) $1,000,000

D) $2,000,000

Answer: A

Which of the following accounts is not reported in the stockholders' equity section of the balance sheet?

A) Treasury Stock.

B) Common Stock.

C) Sales Revenue.

D) Retained Earnings.

Answer: C

The times interest earned ratio is calculated as

A) Interest expense/Net income.

B) Net income/Interest expense.

C) (Net income + interest expense + tax expense)/Interest expense.

D) Interest expense/(Net income + interest expense + tax expense).

Answer: C

A company reports net income of $250,000. The return on assets for the year is 20%. What is the company's average total assets for the year?

A) $1,250,000

B) $1,000,000

C) $1,500,000

D) $250,000

Answer: A

Financial leverage is best measured by which of the following ratios?

A) The debt to equity ratio.

B) The return on equity ratio.

C) The times interest earned ratio.

D) The return on assets ratio.

Answer: A

Which of the following is true regarding a company assuming more debt?

A) Assuming more debt is always bad for the company.

B) Assuming more debt is always good for the company.

C) Assuming more debt can be good for the company as long as they earn a return in excess of the rate charged on the borrowed funds.

D) Assuming more debt reduces leverage.

Answer: C

A company's balance sheet reports stockholders' equity of $400,000, total liabilities of $600,000, and total assets of $1,000,000. What is the company's debt to equity ratio?

A) 1.5

B) 0.66

C) 2.5

D) 1.0

Answer: A

The balance sheet of Montezuma reports total assets of $900,000 and $1,100,000 at the beginning and end of the year, respectively. The net income for the year is $100,000. What is Montezuma's return on assets?

A) 10%

B) 11%

C) 9%

D) 25%

Answer: A

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually

Underwater Experiences issues a bond due in 5 years with a stated interest rate of 6% and a face value of $100,000. Interest payments are made semi-annually. The market rate for this type of bond is 5%. What is the issue price of the bond (rounded to nearest whole dollar)? (Use a financial calculator or Excel)

A) $102,323.

B) $84,557.

C) $104,376.

D) $100,000.

Answer: C

The balance sheet of Sub America reports total assets of $400,000 and $450,000 at the beginning and end of the year, respectively. The return on assets for the year is 10%. What is Sub America's net income for the year?

A) $42,500.

B) $45,000.

C) $4,250,000.

D) $85,000.

Answer: A

A company's balance sheet reports stockholders' equity of $800,000. The debt to equity ratio is 2.5. What is the amount of the company's total liabilities?

A) $2,000,000

B) $320,000

C) $1,000,000

D) $800,000

Answer: A