Corporate Finance
Chapter Exam Questions
Course Introduction
Corporate Finance explores the fundamental principles and techniques used by corporations to manage their financial resources effectively. The course covers topics such as capital budgeting, valuation methods, risk management, capital structure, dividend policy, and financial planning. Students will learn how financial managers make investment and financing decisions to maximize shareholder value, analyze financial statements, and understand the role of financial markets and institutions. Through case studies and practical examples, learners gain insights into mergers and acquisitions, initial public offerings, and other key financial strategies within a corporate context.
Recommended Textbook
Corporate Financial Accounting 12th Edition by Carl S. Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Indicate how the following transactions affect the accounting equation:
(a)The purchase of supplies on account.
(b)The purchase of supplies for cash.
(c)Cash dividends paid to stockholders.
(d)Revenues received in cash.
(e)Revenues received on account.
Answer: (a)Assets increase;liabilities increase
(b)No effect
(c)Assets decrease;stockholders' equity decrease
(d)Assets increase;stockholders' equity increase
(e)Assets increase;stockholders' equity increase
Q2) Financial accounting provides information to all users,while the main focus for managerial accounting is to provide information to the management.
A)True
B)False
Answer: True
Q3) Owners' rights to assets rank ahead of creditors' rights to assets.
A)True
B)False
Answer: False
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) An overpayment error was discovered in computing and paying the wages of a Jamison Tree Trimming employee.When Jamison receives cash from the employee for the amount of the overpayment,which of the following entries will Jamison make?
A)Cash,debit;Wages Expense,credit
B)Wages Payable,debit;Wages Expense,credit
C)Wages Expense,debit,Cash,credit
D)Cash,debit;Wages Payable,credit
Answer: A
Q2) The normal balance of the dividends account is a debit.
A)True
B)False
Answer: True
Q3) In which of the following types of accounts are decreases recorded by credits?
A)liabilities
B)retained earnings
C)dividends
D)revenues
Answer: C
Q4) Prepare a journal entry on October 12 for the fees earned on account,$14,600.
Answer: 11ea906a_d1c4_575a_aec7_59d824a6a683_TB2051_00
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Indicate whether the following error would cause the adjusted trial balance totals to be unequal.If the error would cause the adjusted trial balance totals to be unequal,indicate whether the debit or credit total is higher and by how much.
Answer: The adjustment for accrued fees of $1,170 was journalized as a debit to Accounts Receivable for $1,170 and a credit to Fees Earned for $1,107. The total will be unequal with the debit total higher by $63 ($1,170 - $1,107).
Q2) Adjusting entries affect at least one
A)income statement account and one balance sheet account
B)revenue and the dividends account
C)asset and one stockholders' equity account
D)revenue and one capital stock account
Answer: A
Q3) By matching revenues and expenses in the same period in which they incur
A)net income or loss will always be underestimated.
B)net income or loss will always be overestimated.
C)net income or loss will be properly reported on the income statement
D)net income or loss will not be determined.
Answer: C
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The trial balance may be listed on the work sheet instead of being prepared separately.
A)True
B)False
Q2) Real accounts are permanent accounts.
A)True
B)False
Q3) The retained earnings statement begins with the beginning balance followed by
A)net income (loss)and dividends
B)net income (loss)and issuances of capital stock
C)issuances of capital stock and dividends
D)issuances of capital stock,net income (loss),and dividends
Q4) On the work sheet,the capital stock and dividends account balances are extended to the Balance Sheet columns.
A)True
B)False
Q5) Any twelve-month accounting period adopted by a company is known as its fiscal year.
A)True
B)False
Page 6
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) If the merchandise costs $3,500,insurance in transit costs $250,tariff costs
$75,processing the purchase order by the purchasing department costs $50,and the company receiving dock personnel cost $25,what is the total cost charged to the merchandise?
A)$3,825
B)$3,850
C)$3,875
D)$3,500
Q2) In recording the cost of merchandise sold for cash,based on data available from perpetual inventory records,the journal entry is
A)debit Cost of Merchandise Sold;credit Sales
B)debit Cost of Merchandise Sold;credit Merchandise Inventory
C)debit Merchandise Inventory;credit Cost of Merchandise Sold
D)debit Accounts Receivable;credit Merchandise Inventory
Q3) Who pays the freight costs when the terms are FOB shipping point?
A)the ultimate customer
B)the buyer
C)the seller
D)either the seller or the buyer
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Chapter 6: Inventories
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Sample Questions
Q1) When using the FIFO inventory costing method,the most recent costs are assigned to the cost of goods sold.
A)True B)False
Q2) "Market," as used in the phrase "lower of cost or market" for valuing inventory,refers to the price at which the inventory is being offered for sale by its owner.
A)True
B)False
Q3) During times of rising prices,which of the following is not an accurate statement?
A)Average costing will yield results that are between those of FIFO and LIFO.
B)LIFO will result in a higher cost of goods sold than FIFO.
C)FIFO will result in a higher net income than LIFO.
D)LIFO will result in higher income taxes than FIFO.
Q4) FIFO is the inventory costing method that follows the physical flow of the goods.
A)True
B)False
Q5) List three different security measures taken by stores to safeguard inventory.
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Page 8
Chapter 7: Sarbanes-Oxley, internal Control, and Cash
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Sample Questions
Q1) Credit memos from the bank
A)decrease a bank customer's account
B)are used to show a bank service charge
C)show that a company has deposited a customer's NSF check
D)show the bank has collected a note receivable for the customer
Q2) A petty cash fund is used to pay relatively large amounts.
A)True
B)False
Q3) The doomsday ratio includes both cash and cash equivalents in the numerator. A)True
B)False
Q4) In preparing a bank reconciliation,the amount indicated by a debit memo for bank service charges is added to the balance per company's records.
A)True
B)False
Q5) There are two internal control objectives and they are to ensure accurate financial reports,and ensure compliance with applicable laws.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) Under the allowance method,when a year-end adjustment is made for estimated uncollectible accounts
A)Liabilities decrease.
B)Net Income is unchanged.
C)Total Assets are unchanged.
D)Total Assets decrease.
Q2) Receivables not currently collectible are reported in the investments section of the balance sheet.
A)True
B)False
Q3) When the allowance method for accounting for uncollectible receivables is used,net income is reduced when a specific receivable is written off.
A)True
B)False
Q4) An alternative name for Bad Debt Expense is
A)Collection Expense.
B)Credit Loss Expense.
C)Uncollectible Accounts Expense.
D)Deadbeat Expense.
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Chapter 9: Fixed Assets and Intangible Assets
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Q1) The amount of the depreciation expense for the second full year of use of a fixed asset costing $100,000,with an estimated residual value of $5,000 and a useful life of 4 years,is $25,000 by the declining-balance method at twice the straight-line rate.
A)True
B)False
Q2) Falcon Company acquired an adjacent lot to construct a new warehouse,paying $40,000 and giving a short-term note for $410,000.Legal fees paid were $13,275,delinquent taxes assessed were $14,500,and fees paid to remove an old building from the land were $15,800.Materials salvaged from the demolition of the building were sold for $6,800.A contractor was paid $890,000 to construct a new warehouse.Determine the cost of the land to be reported on the balance sheet and show your work.
Q3) It is necessary for a company to use the same depreciation method for all of its depreciable assets.
A)True
B)False
Q4) On April 15,Compton Co.paid $2,800 to upgrade a delivery truck and $125 for an oil change.Journalize the entries for the upgrade to delivery truck and oil change expenditures.
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Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) Notes may be issued
A)when assets are purchased
B)to creditor's to temporarily satisfy an account payable created earlier
C)when borrowing money
D)all of the above
Q2) Employers are required to compute and report payroll taxes on a calendar-year basis,even if a different fiscal year is used for financial reporting and income tax purposes.
A)True
B)False
Q3) Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.
A)True
B)False
Q4) A defined contribution plan promises employees a fixed annual pension benefit.
A)True
B)False
Q5) One of the more popular defined contribution plans is the 401k plan.
A)True
B)False
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Chapter 11: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) Characteristics of a corporation include
A)shareholders who are mutual agents
B)direct management by the shareholders (owners)
C)its inability to own property
D)shareholders who have limited liability
Q2) The amount of a corporation's retained earnings that has been restricted/appropriated should be reported in the notes to the financial statements.
A)True
B)False
Q3) Nexis Corp.issues 1,000 shares of $15 par value common stock at $22 per share.When the transaction is recorded,credits are made to:
A)Common Stock $15,000 and Paid-in Capital in Excess of Par Value $7,000.
B)Common Stock $22,000 and Retained Earnings $15,000.
C)Common Stock $7,000 and Paid-in Capital in Excess of Stated Value $15,000.
D)Common Stock $22,000.
Q4) The issuance of common stock affects both paid-in capital and retained earnings. A)True B)False
Page 13
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) If the straight-line method of amortization of bond premium or discount is used,which of the following statements is true?
A)Annual interest expense will increase over the life of the bonds with the amortization of bond premium.
B)Annual interest expense will remain the same over the life of the bonds with the amortization of bond discount.
C)Annual interest expense will decrease over the life of the bonds with the amortization of bond discount.
D)Annual interest expense will increase over the life of the bonds with the amortization of bond discount.
Q2) The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.
A)True B)False
Q3) An equal stream of periodic payments is called an annuity.
A)True B)False
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14
Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) Jarvis Corporation makes an investment in 100 shares of Saxton Company's common stock.The stock is purchased for $45 a share plus brokerage fees of $280.The entry for the purchase is:
A)Cash 4,500 Stock Investments - Saxton Company 4,500
B)Stock Investments - Saxton Company 4,780 Cash 4,780
C)Stock Investments - Saxton Company 4,500 Brokerage Fee Expense 280 Cash 4,780
D)Stock Investments - Saxton Company 4,500 Cash 4,500
Q2) The journal entry Stanton will record on February 1,2015,will include:
A)a credit to Interest Revenue for $1,500.
B)a credit to Gain on Sale of Investments for $1,500.
C)a credit to Cash for $52,500.
D)a credit to Interest Receivable for $600.
Q3) Purchased $400,000 of ABC Co.5% bonds at 100 plus accrued interest of $4,500.Sold $250,000 of bonds at 97.The journal entry for the purchase would include:
A)a credit to Interest Receivable for $4,500
B)a credit to Interest Revenue for $4,500
C)a debit to Interest Receivable for $4,500
D)a debit to Interest Revenue for $4,500
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Page 15
Chapter 14: Statement of Cash Flows
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Q1) On the statement of cash flows prepared by the indirect method,the cash flows from operating activities section would include
A)receipts from the sale of investments
B)amortization of premium on bonds payable
C)payments for cash dividends
D)receipts from the issuance of capital stock
Q2) To determine cash payments for merchandise for the cash flow statement using the direct method,a decrease in accounts payable is added to the cost of merchandise sold.
A)True
B)False
Q3) The main disadvantage of the direct method of reporting cash flows from operating activities is that the necessary data are often costly to accumulate.
A)True B)False
Q4) The statement of cash flows is not one of the basic financial statements. A)True
B)False
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Chapter 15: Financial Statement Analysis
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Q1) When a corporation discontinues a segment of its operations at a loss,the loss should be reported as a separate item after income from continuing operations on the income statement.
A)True
B)False
Q2) In the vertical analysis of an income statement,each item is generally stated as a percentage of total assets.
A)True
B)False
Q3) Solvency analysis focuses on the ability of a business to pay its current and noncurrent liabilities.
A)True
B)False
Q4) Why would you or why wouldn't you compare an organization like Ford Motor Company to the local car dealer "Johnson City Ford/Lincoln/Mercury" in vertical and horizontal analysis?
Q5) What information is generally included in the Management Discussion and Analysis (MD&A)section of a corporate annual report?
Q6) Define solvency and profitability.How are they alike?
Page 17
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