York Department Store does 50 percent of its business on credit and frequently has to tolerate slow-paying customers and those who simply do not pay. Now it would like to facilitate immediate cash purchases for customers who don’t like to write checks or to carry much cash with them. What would you recommend? Buy an automated teller machine for the store. Use an automated clearinghouse. Buy a point-of-sale terminal for the store. Use an electronic bank teller. Tell the customers that when they are billed they must send a check or use the bill-payment-by-telephone procedure. If Boulder Co. fails to make payments on its long-term business loan for earthmoving equipment, the bank will repossess it because the equipment serves as a line of credit. insurance. collateral. credit. capital. When the Fed lowers the discount rate, money is as easy to obtain as before the action. is easier to obtain. is harder to obtain. cannot be obtained. is not as easy to obtain as before. Along with stability, all of the following are characteristics of money except durability. profitability. difficulty of counterfeiting. portability. divisibility. Banks are carefully regulated because bankers can’t be trusted. they own lots of money. they control the companies to which they make loans. there are thousands of them in the United States. they deal with money belonging to other individuals and firms. Laura keeps only $250,000 combined in her savings and checking accounts at Union Bank because she knows that any more will not earn additional interest. this is the maximum allowed under federal law. her bank prohibits her from depositing more. her fees will be significantly higher if more money is deposited. this is the maximum amount insured per depositor. Sally wants to leave her money ($10,000) with a bank for a set period of time to earn a higher rate of interest. She does not plan to make an early withdrawal, because early withdrawals are subject to penalties. The best investment in her case is a certificate of deposit. passbook savings account. Super NOW account. NOW account. regular checking account. Which of the following businesses is likely to pay the highest percentage fee for the privilege of accepting MasterCard for customer purchases? Wal-Mart Sears Outback Steakhouse Walter’s Hardware Shop Six Flags Theme Parks A guaranteed line of credit is called a short-term loan. secured loan. line-of-credit plus. demand deposit. revolving credit agreement. Which of the following pairs of tools both have the same effect on the economy? Increasing the reserve requirement and decreasing the discount rate Buying government securities and increasing the discount rate Decreasing the reserve requirement and selling government securities Selling government securities and increasing the reserve requirement Buying government bonds and increasing the reserve requirement Kimberly writes a check from her checking account at Citizens’ Bank for a new dress at a local dress shop, Capagallos. Capagallos’s bank is the First National Bank of the local area. How does the check-clearing process work in this scenario? The check likely goes through a local clearinghouse since the banks are both located in the same town. The check will be sent to the main branch of Kimberly’s bank and then sent through the Federal Reserve System to be cleared. Kimberly will actually have to take her check to First National Bank in order to complete the transaction. The check will travel immediately from Capagallos to the nearest branch of the Federal Reserve System and will be cleared there. Kimberly will have to have her bank approve the check and then the check will go to First National Bank. The average repayment term for long-term business loans is generally less than one year. between two and three years. between three and four years. between three and seven years. between five and ten years. With a margin requirement of 50 percent, a bank has to keep 50 percent of its deposits with its Federal Reserve District Bank or within its own vaults. a bank can lend 50 percent of its deposits to individuals and firms. an investor purchasing $6,000 in stock must pay at least $3,000 of it in cash. an investor purchasing $6,000 in stock must pay at least $50 of it in cash. investors must invest in something yielding a 50 percent return on their investment. When the Federal Reserve wants to stimulate the economy, it is likely to increase the reserve requirement. increase the discount rate. buy government bonds from banks and other businesses. increase the margin requirements. prohibit borrowing from commercial banks. Joe Barnes opened up an account at Community Credit Union. He is allowed to write checks and earns 1 percent interest as long as he keeps his account balance above $2,000. In all likelihood, he opened a certificate of deposit. savings account. mutual bank account. NOW account. certified account. Harlen Manufacturing is hesitant to extend trade credit to Brendan Drake. Instead, Brendan agrees to sign a promissory note. Harlen prefers this note because it specifies when the goods will be delivered. the money will still be paid if Brendan declares bankruptcy. it is a legally binding and enforceable agreement. it is a form of commercial paper. it will receive the money from Brendan much sooner. Marietta Hotels used a twenty-five-year, $50 million bond issue to finance its expansion. In its plan to ensure that funds would be available to redeem the bonds at maturity, it arranged that none of the bonds would mature during the first fifteen years. Therefore, 10 percent of the bonds mature each year until all the bonds are retired at the end of the twenty-fifth year. This is an example of the ____ method of repayment. sinking fund selling new bonds registered bond selling old bonds serial bond Which of the following sources of funds would be the last resort for a corporation? Sales revenues Common stock Preferred stock Debt capital The sale of assets Slater Co. has very old computers and manufacturing equipment and knows it needs to upgrade them or risk losing much of its business. Slater does not have the money to purchase the computers, so it will most likely need a short-term loan. to keep using the old computers. to deduct the cost from employees’ salaries. long-term financing. to use increased cash flow from sales. MCB Company experienced a significant increase in sales as a result of its new promotional campaign. Yesterday, however, it realized that because most of those sales were on credit, it did not have enough money in the bank to pay this month’s bills. MCB can take care of this situation temporarily by obtaining long-term financing. disallowing credit sales. selling commercial drafts. obtaining short-term financing. issuing stock. Jacobson Landscaping receives an invoice from one of its suppliers. The amount of the invoice is $30,000 with terms of 2/10, net/30. If the invoice is paid on the fifth day, Jacobson is entitled to a ____ cash discount and will write the check for ____. $6; $29,994 $600; $29,400 $600; $0 $6,000; $29,400 $6,000; $0 To be successful while pursuing a career in finance, an employee must graduate from a four-year university. have a strong background in accounting or mathematics. have fifteen years of experience. be driven by a motive to become very rich. start a career as a bank officer. Money received from the sale of shares of ownership in a business is called sales revenue. debt capital. equity capital. factor proceeds. cash flow. Which of the following is not a characteristic of short-term financing? It must be repaid within three years. It is easier to obtain than long-term financing. There is less risk of nonpayment to the lender. The amounts are usually smaller than amounts obtained through long-term sources. There is a close working relationship between borrower and lender. Rosemary Wyatt bought preferred stock issued by General Products, Inc. The stock has a par value of $100 and pays 7 percent. The dividend for this preferred stock issue is $1.00. $3.25. $3.88. $5.12. $7.00. The cost of borrowing money that is reserved for large corporations with excellent credit ratings is called the prime interest rate. bank discount. discount factor. add-on interest rate. compound interest rate. Jones Manufacturing needs $450,000 to build a new plant. It must also spend $200,000 on new equipment for the plant. Both of these needs are examples of equity-capital needs. debt-capital needs. short-term financing needs. long-term financing needs. cash-flow problems. The most popular form of short-term financing is bank loans. trade credit. sale of bonds. sale of stock. loans from insurance companies. Maria has been asked by top management to develop financial ____ that the company will achieve over the next one- to ten-year period. strategies directives plans objectives goals Long-term financing should be used to do which of the following? Pay for speculative production Purchase inventory for resale Pay salaries Pay utilities Develop new products Sarah has just completed journalizing the day’s entries in the general journal for her housecleaning business. The next step she must take in the accounting cycle is posting the journal entries to the ledger. analyzing the day’s transactions. making adjustments in the journal. preparing a trial balance. closing the books and preparing financial statements. Since furniture and store equipment for Rosalind’s Boutique will be held or used for a period longer than one year, they are considered fixed assets. owners’ equity. revenue. current assets. prepaid expenses. The process of systematically collecting, analyzing, and reporting financial information is called accounting. bookkeeping. auditing. journalizing. revenues. Working capital is the difference between current assets and income. fixed assets and operating expenses. income and selling expenses. current assets and current liabilities. long-term liabilities and current liabilities. Heather is a stockholder of Eddie Bauer. From her perspective, the best indicator of Eddie Bauer’s success is the return on inventory. acid-test ratio. debt-to-equity ratio. earnings per share. current ratio. Getting the total of cash, marketable securities, and receivables and then dividing that total by the current liabilities results in the debt-to-equity ratio. debt-to-assets ratio. current ratio. acid-test ratio. inventory turnover. Which section of the statement of cash flows would show Wendy’s payments for food ingredients and wages paid to employees? Cash flows from operating activities Cash flows from financing activities Business cash flows Non-business-related cash flows Cash flows from investing activities The earnings statement is another term for the balance sheet. income statement. statement of financial position. owners’ equity statement. capital statement. From an executive’s viewpoint, which of the following statements does not describe an executive’s motivation to “cook” a firm’s books? The desire to look good in the local newspapers or financial publications. The desire to impress Wall Street analysts. The desire to impress the firm’s investors. The desire to be ethical. The desire to inflate the company’s stock value. Since business has been rapidly expanding, A Shot of Sugar Bakery decides to purchase a second industrial oven. The cash paid for this oven would be listed in the ____ section of the statement of cash flows. operating purchasing investing financing business Assets = liabilities + owners’ equity is the equation for information reported on the checking balance. balance sheet. income statement. earnings statement. statement of owners’ equity. The J. Book Company wants to indicate to its shareholders how successful it has been. To do this, it uses the ____ as an indicator of its success. inventory turnover earnings per share acid-test ratio current ratio activity ratio The process of transferring information from a general journal to a general ledger is referred to as posting. transposing. recording. debiting. journalizing. If the liabilities of a business are $85,000 and the owners’ equity is $110,000, which of the following is a correct statement? Assets equal $25,000. Assets equal $195,000. Assets equal $110,000. Assets equal $85,000. It is impossible to determine the value of the assets. When Josh sold his Internet auction site to eBay, he received $2,000,000 more than the total value of his assets as listed on his balance sheet. How will eBay classify this $2,000,000? Goodwill Reputation Equipment Research and development Retained earnings Index funds are often referred to as active funds. passive funds. deceptive funds. socially responsible funds. bad investments. Lillian decides to use the money she has saved to earn a financial return. This is called a(n) investment goal. investment plan. financial plan. bank account. personal investment. A personal income statement lists your ____ and ____ for a specific period of time. assets; budgeted amounts liabilities; assets assets; liabilities expenses; net worth income; expenses Debby Martin has assets valued at $120,000 and liabilities that total $50,000. Based on this information, what is Martin’s net worth? $120,000 $50,000 $170,000 $70,000 $0 A corporate bond with a face value of $1,000 quoted at 100 is selling for $1. $10. $1,000. $10,000. $100. On January 1, 2009, Brad came up with an investment goal of having $50,000 in assets by March 31, 2009. What fault would financial planners find with Brad’s goal? This goal is not specific enough. This goal cannot be easily measured to determine if it has been achieved. This goal is overly specific. This goal is not future-oriented enough. This goal is unreasonable because of uncertain economic conditions. Frank Bart bought 100 shares of Home Depot for $40 a share. Later, he sold his 100 shares for $50 a share. Frank’s $1,000 profit is referred to as just plain luck. a margin profit. selling high. a capital gain. an SEC transaction. Kimberly has often invested in new biotechnology firms. She receives a booklet in the mail that contains a detailed description of a new security, the issuing biotech firm, and descriptive biographies of the firm’s top managers and their experience. Kimberly received a(n) annual report. investor service report. stock quotation report. prospectus. quarterly report. The requirement that investors should have access to all important facts about stocks, bonds, and other securities so that they can make informed decisions is called SEC Reporting Requirements. full disclosure. the Insider Equity Act. the NASD Rule. the Securities Investor Protection Act. A detailed written description of a new security, the issuing corporation, and the corporation’s top management is called a(n) stock issue. annual report. investor’s analysis. stock offering. prospectus. San Donalds, president of Connell Corporation, requested that fifty shares of his Hewlett-Packard stock be sold at a price equal to or better than $30. San placed a(n) ____ order with his broker. market structured account executive limit The type of investment that combines and invests the funds of many individual investors under the guidance of professional managers is called a(n) NOW account. securities exchange. prospectus. mutual fund. option fund. Three of the most widely accepted investors’ services are Standard & Poor’s, Mergent, Inc., and the Dow Jones Industrial Average. the New York Stock Exchange Price Index. Barron’s. Value Line. Dun’s Review. If Bob Barnett purchases stock valued at $10,000 and is charged 1 percent commission, what is the total amount he must pay the brokerage firm? $100 $9,900 $10,000 $10,100 It is impossible to tell given the above information. Investments in gemstones, precious metals, and collectibles are all considered low risk. highly profitable. estate investments. optioning.