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personal financial planning

Questions and Answers of Personal Financial Planning

What does the price to earnings ratio measure? (a) The "multiple" that the stock market places on a firm's earings (b) The relationship between dividends and market prices (c) The earnings for one
Which profit margin measures the overall operating efficiency of the firm? (a) Gross profit margin. (b) Operating profit margin. (c) Net profit margin. (d) Return on equity. 25, which ratio or ratios
Why is the fixed charge coverage ratio a broader measure of a firm's coverage capabilities than the times interest earned ratio? (a) The fixed charge ratio indicates how many times the firm can cover
Why is the amount of debt is a company's capital structure important to the financial analyst (a) Debt implies risk.(b) Debt is less costly than equity (c) Equity is riskier than deb (d) Debt is
What do the asset turnover ratios measure? (a) The liquidity of the firm's current assets. (b) Management's effectiveness in generating sales from investments inets (c) The overall efficiency and
What does an increasing collection period for sooounts receivable suggest about a firm's credit policy? (a) The credit policy is too restrictive (b) The firm is probably losing qualified customers
Why is the quick ratio a more rigorous test of short-run solvency than the current ratio? (a) The quick ratio considers only cash and marketable securities a current assets (b) The quick ratio
What is a limitation common to both the current and the quick ratio? (a) Accounts receivable may not be truly liquid Inventories may not be truly liquid. (b) (c) Marketable securities are not liquid.
What is the most widely used liquidity ratio? (a) Quick ratio (b) Current ratio (c) Inventory terr (d) Debt ratio
What is a serious limitation of financial ratio? (a) Ratios are screening devices (b) Ratios can be used only by themselves (c) Ratios indicate weaknesses only. (d) Ratios are not predictive.
What do liquidity ratio measure? (a) A firm's ability to meet cash needs as they arise. (b) The liquidity of fixed (c) The overall performance of a firm. (d) The extent of a firm's financing with
Which of the following is not a tool or technique used by a financial statement analys? (a) Common-size financial statements (b) Trend analysis (c) Random sampling analysis (d) Industry compariso
What information can be gained from sources such as Industry Norms and Key Business Ratios, Annual Statement Studies, Analyst's Handbook, and Industry Surveys? (a) The general economic condition. (b)
What type of information found in supplementary schedules is required for inclusion in an annual report? (a) Segmental data (b) Inflation data.(c) Material litigation and management photographs. (d)
Which of the following would be helpful to an analyst evaluating the performance of a firm? (a) Understanding the economic and political environment in which the company operates (b) Reviewing the
What information does the auditor's report contain? (a) The results of operations (b) An unqualified opinion (c) An opinion as to the fairness of the financial statements (4) A detailed coverage of
What is an investor's objective in financial statement analysis? (a) To determine if the firm is risky. (b) To determine the stability of earings (c) To determine changes necessary to improve future
What is a creditor's objective is performing an analysis of financial statements? (a) To decide whether the borrower has the ability to repay interest and principal on borrowed funds. (b) To
What is the first step in an analysis of financial statement? (a) Check the auditor's report (b) Check references containing financial information (c) Specify the objectives of the analysis (d) Do a
How have companies been able to manipulate the information on the statement of cash flows? (a) Companies cannot manipulate cash flow information. (b) Some companies recorded vendor financing
Which of the following statements is false? (a) If a firm uses operating leases extensively, the analyst should investigate the impact of those leases on leverage ratios (b) The analyst should read
Why would a firm repurchase its own common stock? (a) The firm believes their stock is undervaleed and purchases it as an investment (b) The firm purchase stock to be used in employee stock option
What must be true for an item to be classified as an extraordinary item? (a) The item must be both unusual and infrequent in nature. (b) The item must be either unusual or infrequent in nature. (c)
What information cannot be found in the notes to the financial statements regarding income taxes? (3) A reconciliation of the United States federal statutory tax rate to the company's effective tax
Which of the following is not classified as a nonoperating revenue or expense? (a) Interest income. (b) Equity income or loss (c) Gains or losses on the sales of assets (d) Salaries expense
If the assumed pension interest rate assumption is lowered, the anal pension cost will increase (c) If the assumed pension interest rate assumption is increased, the annual pension cost will increase
Which of the following statements is true? (a) (b) The quality issues of pension accounting have been largely eliminated by the issuance of FASB Statement No.
What is meant by the term "cookie-jar accounting"? (a) The abuse that occurs when companies create reserve accounts for the purpose of setting aside funds in good years and then shifting the reserve
Which of the following statements is fake? (a) The straight-line method of depreciation is lower in quality than other methods, in most cases, because it does not reflect the economic reality of
How does the recording of fulfillment costs cause a quality of financial reporting issue? (a) Many companies record fulfillment costs as operating expenses when they should be recorded as
Which method of inventory is generally thought to produce the highest quality of earnings? (A) FIFO (b) LIFO (c) Average col (d) All of the above 6 When does a base LIFO layer liquidation occ (a) A
Where can information about sales price and volume changes be found? (a) On the face of the income statement. (b) In the notes to the financial statements (c) On the balance sheet. (d) In the
Which of the following is a technique for boosting revenues? (a) Follow the "35-day month practice" in which the books are kept open longer than the month end in ceder to record est sales (b) Record
When should revenue be recognized, assuming generally accepted accounting principles are followed? (a) Revenue should be recognized when cash is collected from the customer (b) Revenue should be
What is the change in cash? (a) ($3,000) (b) $3,000 (c) $2,000 ($2,000) (4)
What is net cash flow from financing activities? (a) $15,000 (b) ($15,000) (c) $17,000 (d) ($14,000)
What is net cash flow from investing activities? (a) $14,000 (b) ($14,000) (c) $21,000 (d) ($16,000)
What is net cash flow from operating activities? 4,000 (a) ($3,000) (b) ($1,000) (c) $5,000 (d) $13,000
Which of the following could lead to cash flow problems? (a) Obsolete inventory, accounts receivable of inferior quality, casing of credit by suppliers. (b) Slow-moving inventory, accounts receivable
Why has cash flow from operations become increasingly important as an analytical tool? (a) Inflation has distorted the meaningfulness of net income (b) High interest rates can put the cost of
How is it possible for a firm to be profitable and still go bankrupt? (a) Eamings have increased more rapidly than sales. (b) The firm has positive net income but has failed to generate cash from
Which of the following current assets is included in the adjustment of net income to obtain cash flow from operating activities? (a) Accounts receivable (b) laventory (c) Prepaid expenses (d) All of
Which statement is true for gains and losses from capital asset sales? (a) They do not affect cash and are excluded from the statement of cash flows (b) They are included in cash flows from operating
Which of the following items is included in the adjustment of net income to obtain cash flow from operating activities? (a) Depreciation expense for the period. (b) The change in deferred taxes (e)
What are internal sources of cash? Cash inflows from operating activities. Cash inflows from investing activities. (c) Cash inflows from financing activities. (d) All of the above. (b)
An outflow of coh would result from which of the following? (a) The decrease in an asset account other than cash. (b) The increase in a liability account. (c) The decrease in a liability account. (d)
As inflow of cash would result from which of the following? (a) The increase in an asset account other than cash. (b) The decrease in an asset account other than cash. (c) The decrease in an equity
Which method of calculating cash flow from operations requires the adjustment of net income for deferrals, accruals, noncash, and nonoperating expenses? (a) The direct method. (b) The indirect
How would the repayment of debt principal be classified? (a) Operating outflow (b) Operating info (e) Investing outflow (d) Financing outflow.
How would the sale of a building be classified? (a) Operating outflow (b) Operating inflow. (c) Investing info (d) Financing inflow.
Which of the following statements is false? (a) Publicly held companies may choose to prepare either a statement of cash flows or a statement of changes in financial position. (b) The statement of
Match the following terms with the correct definitions: (a) Depreciation. (b) Depletion. (c) Amortization. (d) Gross profit. (e) Operating profit. (f) Net profit. (g) Equity method. (h) Cost method.
Which of the following cause(s) a change in the retained earnings account balance? (a) Prior period adjustment.pero (b) Payment of dividends. (c) Net profit or loss. (d) All of the above.
What accounts can be found on a statement of stockholders' equity? (a) Investments in other companies. (b) Treasury stock, accumulated other comprehensive income, and retained earnings. (c) Market
What causes a firm to record a change in accounting principle? (a) Voluntary changes in accounting principles and changes mandated by the FASB or the SEC when new rules are implemented. (b) Selling a
Why should the effective tax rate be evaluated when assessing earnings? (a) It is important to understand if earnings have increased due to tax techniques as opposed to positive changes in core
Why is it important to evaluate increases and decreases in operating expenses?(a) Increases in operating expenses may indicate inefficiencies and decreases in operating expenses may be detrimental to
How are companies required to report total comprehensive income? (a) On the face of the income statement. (b) In a separate statement of comprehensive income. (c) In its statement of stockholders'
Match the following terms to the correct definitions. |||| (a) Consolidated financial statements. (b) Current assets. (c) Depreciation. (d) Deferred taxes. (e) Allowance for doubtful accounts. (f)
Dot's Delicious Donuts has the following accounts on its balance sheet: (1) Current assets. (2) Property, plant, and equipment. (3) Intangible assets. (4) Other assets. (5) Current liabilities. (6)
Listed below are balance sheet accounts for Elf's Gift Shop. Mark current accounts with "C" and noncurrent accounts with "NC." (a) Long-term debt. (b) Inventories. (c) Accounts payable. (d) Prepaid
What does the additional paid-in capital account represent? (a) The difference between the par and the stated value of common stock.stock. (b) The price changes that result for stock trading
Which statement is false? (a) Deferred taxes are the product of temporary differences in the recognition of revenue and expense for taxable income relative to reported income. (b) Deferred taxes
How can a reserve account be abused by management? (a) Management can intentionally overestimate the reserve account to decrease earnings or underestimate the reserve account to increase earnings.(b)
Which group of items would most likely be included in the other assets account on the balance sheet? (a) Inventories, marketable securities, bonds. (b) Land held for investment purposes and long-term
As of January 1, 2002, how is goodwill evaluated? (a) Goodwill must be amortized over a 40-year period. (b) No goodwill is to be recognized after January 1, 2002. (c) Companies should determine if
Why is the method of valuing inventory important? (a) Inventory valuation is based on the actual flow of goods. (b) Inventories always account for more than 50% of total assets and therefore have a
Which of the following securities would be classified as marketable securities in the current asset section of the balance sheet? (a) Commercial paper, U.S. Treasury bills, land held for investment.
Why might the use of accelerated depreciation rather than straight-line depreciation produce earnings of higher quality? (a) Accelerated depreciation more accurately reflects financial reality
Which of the following is not generally considered to be a one-time, non- recurring, or nonoperating item? (a) A gain on the sale of a business. (b) An accounting change. (c) An extraordinary item.
Why was the implementation of FASB Statement No. 142, "Goodwill and Other Intangible Assets," confusing? (a) The rule allowed companies to borrow money without recording the debt. (b) The rule
Which of the following statements is true? (a) GAAP-based financial statements are prepared according to the cash basis of accounting. (b) GAAP-based financial statements are prepared according to
What do the choices and estimates relating to depreciation affect? (a) Gross fixed assets on the balance sheet and depreciation expense on the income statement. (b) Accumulated depreciation on the
Why could depreciation expense be considered a discretionary item? (a) Management must estimate the useful life of the asset. (b) A salvage value must be estimated. (c) Management must select a
What is the allocation of the cost of fixed assets called? (a) Fixed cost allocation. (b) Salvage value. (c) Depreciation. (d) Matching revenues and expenses.
Which of the following statements is false? (a) The Sarbanes-Oxley Act of 2002 was the cause of the demise of Arthur Andersen. (b) The FASB and the IASB are working closely to develop a set of
Why should an individual learn to read and interpret financial state- ments? (a) Understanding financial statements will guarantee at least a 20% return on investments. (b) An individual need not
Under the CFP Board’s Rules of Conduct, violations of the Rules of Conduct may subject a certificant or registrant to discipline. Which of the following is true with respect to any such
Orenthal James Sampson lost a wrongful death lawsuit and was ordered to pay the plaintiff $5 million dollars. As a result of the lawsuit, Mr. Sampson filed for bankruptcy. Which of the following
Phyllis had three credit cards stolen. Before she realized they were stolen, the following amounts were already fraudulently charged:How much is Phyllis’ expected liability for the fraudulent
During a period of recession /contraction, which of the following would be true? 1. The supply of goods and services would be decreasing. 2. Interest rates would be decreasing. 3. Unemployment would
Which of the following is/are considered a disadvantage(s) of probate? 1. The process can result in delays. 2. The process may be expensive. 3. The process provides clear title to heirs and legatees.
Which of the following are advantages of allowing property to pass through the probate process? 1. Assets do not need to be retitled if they pass though probate. 2. There are limitations on
A tenancy by the entirety may be terminated in which of the following ways? 1. Death, whereby the survivor takes the entire estate. 2. Mutual agreement. 3. Divorce, which converts the estate into a
Which of the following is an undivided ownership in the property that, upon death of one owner, automatically passes to the surviving owner? 1. Tenants by the Entirety. 2. Tenants in Common. 3.
Cobalt, a calendar-year S corporation, was incorporated in 2010. The company had the following taxable income and distributions each year:Cobalt has a single shareholder. His original basis in the
At the beginning of the current year, Donna's basis in her partnership interest was$100,000. At the end of the year, Donna received a K-1 from the partnership that showed the following
An S corporation has the following information for the taxable year:Bill is a 20 percent owner of the S corporation and he performs services for the business as an employee. What is Bill’s
Basis may be used to determine a tax- payer's depreciation deductions.a. Trueb. False
The purpose of basis is to make sure that income is taxed twice.a. Trueb. False
Identify items that decrease basis.
Identify items that increase basis.
Define the cost basis of an asset.
Identify the uses of basis.
Define the purpose of basis.
For federal income tax purposes, nonre- fundable credits are used before refund- able credits.a. Trueb. False
Nonrefundable tax credits can reduce the tax on taxable income to zero and can generate a tax refund.a. Trueb. False
A personal exemption is allowed for each person who qualifies as a depen- dent of the taxpayer.a. Trueb. False
Identify various tax credits.
Identify how the tax on taxable income is calculated.

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