Self Test: Multiple Choice

You can find the answers on the last page of this book.

  1. 15-1 Which formula is the fundamental accounting equation?

    1. Owners' equity=assets+liabilities

    2. Assets=liabilities+owners' equity

    3. Owners' equity=assets÷liabilities

    4. Liabilities−assets=owners' equity

  2. 15-2 The role of a financial manager can best be described as

    1. outlining a company’s short- and long-term needs.

    2. identifying the sources and uses of funds for company operations.

    3. monitoring cash flow and investing excess funds.

    4. All of the above.

  3. 15-3 Ted White owns Soup & Salad Café. The terms of his last order for produce were 3/15 net 60. The total amount of the order is $1,500. How much will Ted pay if he pays within two weeks?

    1. $1,500.

    2. $1,300.

    3. $1,455.

    4. $1,440.

  4. 15-4 Gormley Paper Products, Inc., is a privately held company with no intentions of going public or being managed by an outside group. It is looking to build a new manufacturing facility in another state. It is considering all of its financing options. Which would be a viable possibility for raising the necessary funds for the long-range project?

    1. Issuing bonds

    2. Issuing stock

    3. Seeking venture capital

    4. All of the above

  5. 15-5 Cash flow management is important for which business?

    1. Spring Mountain Ski Shop, which operates between November and March

    2. Lederach Tea Room, which serves breakfast and lunch all year

    3. Tailwinds Airlines, which just had its first stock offering

    4. All of the above

  6. 15-6 Financial accounting is the process of

    1. producing budgets and financial documents for managers.

    2. producing financial documents for outside investors.

    3. auditing corporate financial statements.

    4. preparing federal tax returns.

  7. 15-7 Which is not measured in a statement of cash flows?

    1. Cash Flow from Sales

    2. Cash Flow from Investing

    3. Cash Flow from Financing

    4. Cash Flow from Operations

  8. 15-8 Hunter Wentworth is reviewing last quarter’s financial statements and realizes that there has been an increase in working capital. The most likely cause for an increase in working capital is a(n)

    1. decrease in long-term liabilities and an increase in total assets.

    2. increase in current assets and a decrease in current liabilities.

    3. decrease in current assets and an increase in current liabilities.

    4. increase in long-term liabilities and a decrease in total assets.

  9. 15-9 Which of the following reflects a company’s financial leverage?

    1. Gross profit margin

    2. Operating profit margin

    3. Debt-to-equity ratio

    4. Earnings per share

  10. 15-10 Maureen found an old barn that would be a perfect location for her restaurant and catering business. She opened a Kickstarter account to begin to raise funds for the business. Maureen is taking advantage of

    1. crowdfunding.

    2. microloans.

    3. peer-to-peer lending.

    4. social media investing.

True/False

You can find the answers on the last page of this book.

  1. 15-11 Factoring can be a good source of cash by selling accounts receivable.

    1. □ True or □ False

  2. 15-12 A risk of using credit cards to finance business activities for a sole proprietor is that a default could ruin the owner’s personal credit.

    1. □ True or □ False

  3. 15-13 A project budget includes all the costs necessary to operate an organization, including inventory, sales, manufacturing, marketing, and operating expenses.

    1. □ True or □ False

  4. 15-14 A ratio analysis can be used to better compare companies of different sizes.

    1. □ True or □ False

  5. 15-15 The statement of cash flows is analogous to a checkbook register because it records the cash generated by a business.

    1. □ True or □ False

Critical Thinking Questions

  1. An image shows a star blue icon.15-16 Jason owns a sandwich deli that offers delivery service. Because of the quality of the service and the sandwiches, Jason is experiencing increased demand for his products, especially in his town’s business district. He now wants to buy a food truck to operate from 10:00 am to 2:00 pm in the business district and stop his delivery service.

    1. What methods of financing, if any, should Jason consider to purchase the food truck?

    2. What information will Jason need to help make his decision?

    3. How might the financing decisions change if Jason also decides to open another store in the neighboring residential area?

  2. An image shows a star blue icon.15-17 What are the key financial statements, and what is the importance of financial statements? What information does each contain? Which statement do shareholders typically find most useful? Why? What about independent contractors considering working with a firm?

  3. An image shows a star blue icon.15-18 The text lists only a few ratios that are used to analyze financial statements. Research three more ratios, explain how they are calculated, and explain why they are important to financial analysis.

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