Los Angeles Mission College



College of the Canyons

Spring 2013

Business 100

Final Exam

1) Which of the following terms refers to the comprehensive system for collecting, analyzing, and communicating financial information?

A) bookkeeping

B) accounting

C) controlling

D) auditing

E) budgeting

2. Which of the following terms refers to the recording of financial transactions?

A) bookkeeping

B) accounting

C) controlling

D) budgeting

E) auditing

3.) Which of the following terms refers to the examination of a company's accounting system to determine whether its financial reports fairly represent its operations?

A) company-wide analysis

B) forensic accounting

C) portfolio analysis

D) audit

E) preliminary investigation

4.) Which of the following terms refers to any economic resource that is expected to benefit a firm or individual who owns it?

A) asset

B) liability

C) equity

D) account

E) deposit

5.) Which of the following terms refers to the amount of money that owners would receive if they sold all of a company's assets and paid all of its liabilities?

A) asset

B) owners' equity

C) inventory

D) liability

E) credit

6.) Which of the following refers to the financial statement detailing a firm's assets, liabilities, and owners' equity?

A) income statement

B) statement of cash flows

C) balance sheet

D) expense report

E) annual budget

7. Which of the following describes assets such as land, building, and equipment?

A) liquid assets

B) fixed assets

C) intangible assets

D) current assets

E) limited assets

8) Which of the following best describes depreciation?

A) the process of the decreasing value of fixed assets due to use

B) the process of deducting operating expenses from the value of fixed assets

C) the process of reducing the value of fixed assets equally over time

D) the process of distributing the cost of liabilities equally over time

E) the process of distributing the cost of intangible assets equally over time

9) Which of the following describes assets such as patents and trademarks?

A) liquid assets

B) fixed assets

C) intangible assets

D) current assets

E) limited assets

10) Which of the following terms refers to the amount paid for an existing business beyond the value of its other assets?

A) goodwill

B) excess compensation

C) licensing

D) asset promotion

E) liability deduction

11. Which of the following terms refers to the difference between operating income and income taxes ?

A) gross revenue

B) net income

C) gross profit

D) cash flow

E) leverage

12. Which of the following ratios measures a firm's ability to meet its current debt obligations?

A) short-term solvency ratio

B) long-term solvency ratio

C) profitability ratio

D) activity ratio

E) equity ratio

13. Which of the following ratios measures a firm's potential earnings?

A) short-term solvency ratio

B) long-term solvency ratio

C) profitability ratio

D) activity ratio

E) equity ratio

14. ABC Company has a net income of $5 million. ABC's number of outstanding shares of stock is 3,870,000 shares. What is the company's earnings per share?

A) $1.29

B) $.77

C) $1.25

D) $.80

E) $18.75

15. Which of the following ratios evaluates management's use of resources?

A) short-term solvency ratio

B) long-term solvency ratio

C) activity ratio

D) profitability ratio

E) equity ratio

16. Which of the following areas of the Certified Fraud Examiner (CFE) exam includes theories of fraud prevention?

A) criminology and ethics

B) financial transactions

C) fraud investigation

D) fraud litigation

E) legal elements of fraud

17. Which are the two major fields of accounting?

A) managerial and forensic

B) financial and managerial

C) bookkeeping and advisory

D) corporate and individual

E) public and private

18. Which of the following has a fixed term?

A) demand deposits

B) time deposits

C) money market mutual funds

D) credit card accounts

E) savings accounts

19. Which of the following financial institutions is considered a thrift institution?

A) pension fund

B) credit union

C) commercial bank

D) savings and loan association

E) securities investment firms

20. The Norton County Bank performs such tasks as making monthly bill payments, managing investment portfolios, and managing the estates of deceased persons. What are such services called?

A) special banker's services

B) financial advice services

C) public services

D) trust services

E) amalgamation services

31. Which of the following agencies guarantees the safety of all of its members' bank accounts?

A) Internal Revenue Service

B) Federal Open Market Committee

C) Federal Reserve Bank

D) Federal Deposit Insurance Corporation

E) Federal Exchange Commission

32. Which of the following terms refers to the percentage of its deposits a bank must hold, in cash or on deposit, with a Federal Reserve bank?

A) discount rate

B) key rate

C) prime rate

D) federal insurance premium

E) reserve requirement

33. Which of the following terms refers to the interest level at which member banks can borrow money from the Federal Reserve System?

A) discount rate

B) key rate

C) prime rate

D) federal insurance premium

E) reserve requirement

34. Which of the following terms refers to the interest level at which commercial banks lend reserves to each other, usually overnight?

A) discount rate

B) key rate

C) prime rate

D) federal insurance premium

E) reserve requirement

35. Which of the following best describes what is called the "open-market operations" of the Federal Reserve System?

A) the development of new financial opportunities for banks

B) the minting of new money to disperse into the money market

C) the control of interest rates among banks

D) the maintenance of a well-functioning lending system among banks

E) the buying and selling of securities

36 Which of the following indices indicates the relative strength of the currencies of two countries?

A) trade rate

B) exchange rate

C) trade balance

D) relative gross national products

E) international loan rate

37. Toyota, based in Japan, would like to build a new factory and a new retail distribution center. Both or either of these may be built in the United States and in Canada. Currently, the U.S. dollar is weak compared to the Canadian dollar. Which of the following would be in Toyota's best interest?

A) build the cars in Canada and sell them in the United States

B) build the cars in the United States and sell them in Canada

C) build the cars in Canada and sell them in both countries

D) build the cars in the United States and sell them in both countries

E) build the cars in both countries and sell them in both countries

38 Aardvark is considering undertaking an IPO in order to raise money. Which of the following, if true, would strengthen the case for doing so?

A) The company's expected stock price will be low.

B) The company wants to maintain internal control over all its decision-making.

C) The company's customer base has been in decline.

D) The company has a healthy amount of assets.

E) The company is in a significant amount of debt.

39. What value of a stock is calculated by dividing total shareholders' equity by the total number of shares of stock issued?

A) par value

B) market value

C) book value

D) chime value

E) total value

40. Which of the following statements is NOT true about dividend payments?

A) Many companies distribute between 30 and 70 percent of their profits to shareholders.

B) Some firms, especially fast-growing companies, do not pay dividends.

C) Many fast-growing companies use cash earnings for expanding the company so that future earnings can grow even faster.

D) During unprofitable years, companies are still required by law to pay dividends to their stockholders.

E) Dividend payments are made to stockholders on a regular basis.

41. Which of the following is an advantage of ETFs over mutual funds?

A) ETFs can be traded throughout the day like a stock.

B) ETFs have high operating expenses.

C) ETFs do not require high initial investments.

D) ETFs are not regulated by the government.

E) ETFs are difficult to sell in a timely manner.

42. Which of the following are stocks, bonds, and mutual funds representing secured, or financially viable, claims on the part of investors?

A) private placements

B) securities

C) exchanges

D) commodities

E) dividends

43. 30) New stocks and bonds are sold in what market?

A) private placement market

B) secondary market

C) primary market

D) tertiary market

E) open market

44. Which of the following is the federal government agency that regulates U.S. securities markets?

A) New York Stock Exchange

B) Federal Reserve

C) Commerce Department

D) Securities and Exchange Commission

E) Treasury Department

45. Which of the following is an organization of individuals coordinated to provide an institutional setting in which stock can be bought and sold?

A) stock exchange

B) brokerage

C) server

D) over-the-counter market

E) commission

46. Which of the following is a requirement for a firm to be listed on the New York Stock Exchange?

A) capital value of at least $35 million

B) total value of outstanding stock

C) number of shareholders must exceed 100

D) number of shares of stock must exceed 1 million

E) company must be headquartered in North America

47. Which of the following receives and executes buy-and-sell orders for other people in return for commissions?

A) stock exchanges

B) stock brokers

C) investment banks

D) stock agents

E) savings banks

48. Lito is working with a discount broker. Which service would Lito NOT be likely to receive?

A) stock research

B) industry analysis

C) face-to-face consultations

D) screening for specific types of stocks

E) quality suggestions for investments

49. What is the formula for measuring a firm's working capital?

A) current assets = working capital /current liabilities

B) working capital = current assets - current liabilities

C) current liabilities = current assets + working capital

D) working capital = current assets x current liabilities

E) current liabilities = current assets / working capital

50. What is a stock's book value?

A) the current price of a share of stock in the stock market

B) the average price of one share of stock over the past year

C) the face value of a share of stock, set by the issuing company's board of directors

D) the value of a common stock expressed as total stockholders' equity divided by the total number of shares of stock issued

E) the value of a preferred stock as expressed by the number of stock shares issued by the board of directors

Ryerson: Money is hard to come by, so when one has money one should make sure that, above all, one doesn't lose it. One hears a lot of success stories about people making a lot of money by investing, but of course you don't hear about the people who lose money investing. As risky as it is, based on so many unknown factors, investing your money really is like gambling. The only prudent plan is to keep money in a savings account where it can earn a predictable amount of interest. One can't lose money that way, at least, so with money in a savings account one can always count on it being there for future needs.

Groh: Investing is inherently risky, but the risk need not be insurmountable. It is true that the more potential there is for a higher return, the higher the chance is also for more money to be lost. But there are more and less risky ways to invest, and even the less risky investments can give a significantly higher return than a simple savings account. When one diversifies one's stock holdings, one increases the chances of getting a good return among one's holdings, and decreases the damage from a loss in value. Also, even if stocks lose value temporarily, the value of stocks overall has always gone up over long periods of time. So a savings account, while it may seem prudent and safe, is probably not the best way to ensure that money is being saved in the most optimal way possible.

94) Which of the following assumptions does Ryerson have to make to support his statements?

A) Some people make money by investing.

B) Interest is the only thing that changes the value of a savings account.

C) Most people want to save money instead of spending it.

D) Companies issue stock only if there is no other way to make money.

E) There are few companies whose stock always grows in value.

Answer: B

Explanation: B) Ryerson assumes that money in a savings account can grow only through interest, and that no other factors affect its value. Ryerson concedes that some people may make money through investing (Choice A), but if that were false it would not affect his argument. He does not need to assume that most people want to save (Choice C), as his argument is trying to establish that such is a good thing. Ryerson is not assuming that companies issue stocks only because they have no other choice (Choice D), and he does not assume that no companies have stocks that grow in value (Choice E)—only that it is too risky to try to choose which companies will have such stocks.

Page Ref: 416

Difficulty: Difficult

AACSB: Reflective thinking skills

Objective: 16.1

Skill: Critical Thinking

95) Which of the following, if true, would undermine Ryerson's argument?

A) Some companies have stock that grows in value.

B) The stock market sometimes falls in overall value.

C) Savings interest rates are not as high as those of some stocks.

D) Savings interest rates can be lower than the rate of inflation.

E) Savings accounts can be opened only with a minimum balance.

Answer: D

Explanation: D) Ryerson claims that one cannot lose money in a savings account, but one's savings would lose overall value if the rate of inflation over time outpaced the interest one earned in the savings account. Ryerson does not claim that no stock ever gains value over time (Choice A), or that the stock market doesn't sometimes fall (Choice B), but only that the uncertainty of guessing whether certain stocks or the overall market will gain value makes it too risky. He does not claim that savings interest rates are higher than stock gains (Choice C), but only that they are much more reliable. Opening balance requirements on savings accounts are not relevant (Choice E).

Page Ref: 416

Difficulty: Moderate

AACSB: Reflective thinking skills

Objective: 16.1

Skill: Critical Thinking

96) Which of the following issues do Ryerson and Groh disagree about?

A) whether the risk of investing is worthwhile

B) whether savings accounts bear interest

C) whether companies issue stocks in order to raise funds

D) whether anyone makes money by investing in stocks

E) whether investing always carries risk with it

Answer: A

Explanation: A) Both Ryerson and Groh acknowledge that investing carries risk with it (Choice E), but only Groh thinks the risk can be worthwhile. Groh does not deny that savings accounts bear interest (Choice B), nor does Ryerson deny that some people may make money by investments in stock (Choice D). Neither denies that companies issue stocks in order to raise funds (Choice C).

Page Ref: 416

Difficulty: Difficult

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