Production equipment is classified as:

		a net working capital item.
		a current liability.
		a current asset.
		a tangible fixed asset.
		an intangible fixed asset.

The matching principle states that:

		costs should be recorded on the income statement whenever those costs can be reliably determined.
		costs should be recorded when paid.
		the costs of producing an item should be recorded when the sale of that item is recorded as revenue.
		sales should be recorded when the payment for that sale is received.
		sales should be recorded when the earnings process is virtually completed and the value of the sale can be determined.

One advantage of the corporate form of organization is the:

		taxation of the corporate profits.
		unlimited liability for its shareholders.
		double taxation of profits.
		ability to raise larger sums of equity capital than other organizational forms.
		ease of formation compared to other organizational forms.

Pura Vida Markets is financed with 45 percent debt and 55 percent equity. This mixture of debt and equity is referred to as the firm's:

		capital structure management.
		capital budgeting.
		asset allocation.
		working capital.
		risk structure.

The accounting statement that measures the revenues, expenses, and net income of a firm over a period of time is called the:

		statement of cash flows.
		income statement.
		GAAP statement.
		balance sheet.
		net working capital schedule.

Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?

		DuPont rate
		External growth rate
		Sustainable growth rate
		Internal growth rate
		Cash flow rate

The primary goal of financial management is most associated with increasing the:

		dollar amount of each sale.
		traffic flow within the firm's stores.
		the fixed costs while lowering the variable costs.
		firm's liquidity.
		market value of the firm.

Margie opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Margie own if she is personally liable for all the store's debts?

		Sole proprietorship
		Limited partnership
		General partnership
		Corporation
		Joint stock company

Which one of these statements is true concerning the price-earnings (PE) ratio?

		A high PE ratio may indicate that a firm is expected to grow significantly.
		A PE ratio of 16 indicates that investors are willing to pay $1 for every $16 of current earnings.
		PE ratios are unaffected by the accounting methods employed by a firm.
		The PE ratio is classified as a profitability ratio.
		The PE ratio is a constant value for each firm.

Financial statement analysis:

		is primarily used to identify account values that meet the normal standards.
		is limited to internal use by a firm's managers.
		provides useful information that can serve as a basis for forecasting future performance.
		provides useful information to shareholders but not to debtholders.
		is enhanced by comparing results to those of a firm's peers but not by comparing results to prior periods.

The tax rate that determines the amount of tax that will be due on the next dollar of taxable income earned is called the:

		average tax rate.
		variable tax rate.
		marginal tax rate.
		fixed tax rate.
		ordinary tax rate.

Which one of the following is an intangible fixed asset?

		Inventory
		Machinery
		Copyright
		Account receivable
		Building

QUESTION 14

1. Net working capital is defined as

   		the depreciated book value of a firm's fixed assets.
   		the value of a firm's current assets.
   		available cash minus current liabilities.
   		total assets minus total liabilities.
   		current assets minus current liabilities.

Two friends, Will and Bill, decided to create a business together renting surfboards and paddle boats in California. Will and Bill will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

		Sole proprietorship
		Limited partnership
		Corporation
		Joint stock company
		General partnership

1. Shareholders equity is best defined as:

   		the residual value of a firm.
   		positive net working capital.
   		the net liquidity of a firm.
   		cash inflows minus cash outflows.
   		the cumulative profits of a firm over time.

Ratios that are based on financial statement values and used for comparison purposes are called:

		financial ratios.
		industrial statistics.
		equity standards.
		accounting returns.
		analytical standards.

Leon is the owner of a corner store. Which ratio should he compute if he wants to know how long the store can pay its bills given its current level of cash and accounts receivable? Assume all receivables are collectible when due.

		Current ratio
		Debt ratio
		Cash coverage ratio
		Cash ratio
		Quick ratio

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

		Limited partnership
		Corporation
		Sole Proprietorship
		General partnership
		Angel investors

The financial statement that summarizes a firm's accounting value as of a particular date is called the:

		income statement
		cash flow statement.
		liquidity position.
		balance sheet.
		periodic operating statement.