Multiple-Choice Questions

1. Which one of the following is not a cash equivalent?

a. 30-day certificate of deposit

b. 60-day corporate commercial paper

c. 90-day U.S. Treasury bill

d. 180-day note issued by a local or state government

2. Business activity is best described as:

a. Predictable

b. Lacking deviation

c. Cyclical

d. Noncyclical

3. The five primary activities of a business generally consist of:

a. Receiving assets, selling assets, issuing financial statements, collecting cash, and making cash disbursements

b. Receiving assets, purchasing assets, selling goods or services, collecting cash from customers, and repaying owners and creditors

c. Receiving cash, disbursing cash, buying assets, issuing dividends, and paying off liabilities

d. Making a profit, issuing financial statements, repaying debts, issuing dividends to shareholders, and complying with laws and regulations

4. Effective cash management and control includes all of the following except:

a. The use of a petty cash fund

b. Bank reconciliations

c. Short-term investments of excess cash

d. Purchase of stocks and bonds

5. Cash management principles do not include:

a. Paying suppliers promptly

b. Delaying payment of suppliers

c. Speeding up collection from customers

d. Earning the greatest return possible on excess cash

6. Which one of the following statements is true?

a. Good cash management practices dictate that a company should maintain as large a balance as possible in its cash account.

b. Sound internal control practice dictates that cash disbursements should be made by check, unless the disbursement is very small.

c. The person handling the cash should also prepare the bank reconciliation.

d. Petty cash can be substituted for a checking account to expedite the payment of all disbursements.

7. Investments in equity securities are deemed to be ‘‘passive’’ if:

a. 100 percent of the firm’s stock is owned

b. Between 50 percent and 100 percent of the firm’s stock is owned

c. Between 20 percent and 50 percent of the firm’s stock is owned

d. Less than 20 percent of the firm’s stock is owned

8. Equity and debt investments that management intends to sell in the future, but not necessarily in the near term, are called:

a. Trading securities

b. Available-for-sale securities

c. Debt securities

d. Stock securities

9. When the market value of a company’s available-for-sale securities is lower than its cost, the difference should be:

a. Shown as a liability

b. Shown as a valuation allowance subtracted from the historical cost of the investments

c. Shown as a valuation allowance added to the historical cost of the investments

d. No entry is made, the securities are shown at historical cost