Fin 200: Week 2 Quiz

1. Agency theory examines the relationship between the
A. Shareholders of the firm and the firm’s investment banker
B. Owners of the firm and the managers of the firm.
C. Shareholders and the firm’s transfer agent
D. Board of directors and large institutional investors.
Answer:   C

2. The partnership form of an organization
A. Avoids the double taxation of earning and dividends found in the corporate form of organization.
B. Usually provides limited liability to the partners.
C. Simplifies decision making.
D. Has unlimited life.
Answer:   A

3. The primary disadvantage of accrual accounting is that
A. It does not match revenues and expenses in the period in which they are incurred.
B. It does not appropriately measure accounting profit.
C. It does not adequately show the actual cash flow position of the firm
D. It does not recognize accounts receivable.
Answer:   C

4. A firm’s purchase of plant and equipment would be considered a
A. Use of cash for financing activities
B. Use of cash for operating activities
C. Use of cash for investment activities
D. Source of cash for investment activities.
Answer:   C

5. Total asset turnover indicates the firm’s
A. Liquidity
B. Debt position
C. Profitability
D. Ability to use its assets to generate sales.
Answer:   D

6. Asset utilization ratios
A. Relate balance sheet assets to income statement sales.
B. Are most important to stockholders
C. Measures the firm’s ability to generate a profit on sales.
D. Measure how much cash is available for reinvestment into current assets.
Answer:   A

7. Refer to the figure above.   The firm’s fixed asset turnover ratio is
A. 2.0x
B. 0.5x
C. 1.3x
D. 1.6x
Answer:   A

8. ABC Co. has an average collection period of 60 days.   Total credit sales for the year were $3,000,000.   What is the balance in accounts receivable at year-end?
A. $50,000
B. $500,000
C. $80,000
D. $100,000
Answer:   B