Deck 18: Acquiring Capital for Growth and Development

Question 1

Unpaid dividends on preferred stock may have to be paid before common stockholders receive any dividends.

Answer 1

True

Question 2

A business would typically benefit from signing a note for an extension of time on an account payable rather than drawing from a line of credit.

Answer 2

False

Question 3

Submitting a business plan with a loan application serves to convince the bank that the business can repay the loan.

Answer 3

True

Question 4

A portion of monthly payments on a note payable reduces the outstanding loan principal.

Question 5

Bonds generally have shorter terms and are for larger amounts than notes payable.

Question 6

Preferred stock dividends are determined by the par value and the prime interest rate.

Question 7

A business can draw any amount from a line of credit within the terms of the loan agreement.

Question 8

Loan interest rates are often based on bond interest rates.

Question 9

A line of credit does not have to be repaid as long as the business pays its monthly interest.

Question 10

Unlike a line of credit, the interest rate on a promissory note is fixed for the term of the note.

Question 11

An advantage of selling stock is that the additional capital does not have to be returned to the stockholders as long as the business continues operations.

Question 12

Creditors may be unwilling to lend money to a business with a high debt ratio.

Question 13

A corporation usually sells its bonds to a securities dealer who sells the bonds to individual investors.

Question 14

The face value of a bond is the amount to be repaid at the end of the bond term.

Question 15

A bondholder who purchases a bond on December 1 would receive one-sixth of the December 31 interest payment.

Question 16

A business that pays a dividend reduces its internal source of capital.

Question 17

The creditor can take and sell collateral if a borrower is unable to repay the loan.

Question 18

A business should only raise capital if the projected increase in earnings exceeds the prime interest rate.

Question 19

The spreading of the control over the business through the issuance of new stock is known as dilution of control.

Question 20

Accounts payable and short-term notes payable are examples of collateral.

Question 21

Interest expense is a financing expense that is listed in the chart of accounts as an operating expense.

Question 22

Select the one term that best fits each definition

-The interest rate charged to a bank's most creditworthy customers.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 23

Select the one term that best fits each definition

-A long-term promise to pay a specified amount on a specified date and to pay interest at stated intervals.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 24

Select the one term that best fits each definition

-Obtaining capital by issuing additional stock in a corporation.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 25

Select the one term that best fits each definition

-The ability of a business to use borrowed funds to increase its earnings.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 26

Select the one term that best fits each definition

-Assets pledged to a creditor to guarantee repayment of a loan.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 27

Select the one term that best fits each definition

-The ratio of interest and dividend payments to the proceeds from debt and capital financing.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 28

Select the one term that best fits each definition

-The payment of an operating expense necessary to earn revenue.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 29

Select the one term that best fits each definition

-The date on which a business issues a note, bond, or stock.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 30

Select the one term that best fits each definition

-Expenses that are not related to a business's normal operations.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 31

Select the one term that best fits each definition

-Obtaining capital by borrowing money for a period of time.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 32

Select the one term that best fits each definition

-A bank loan agreement that provides immediate short-term access to cash.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 33

Select the one term that best fits each definition

-A value assigned to a share of stock.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 34

Select the one term that best fits each definition

-Interest incurred on borrowed funds.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 35

Select the one term that best fits each definition

-The interest rate used to calculate periodic interest payments on a bond.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 36

Select the one term that best fits each definition

-Purchases of plant assets used in the operation of a business.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 37

Select the one term that best fits each definition

-A class of stock that gives preferred shareholders preference over common shareholders in dividends along with other rights.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 38

Select the one term that best fits each definition

-All bonds representing the total amount of a loan.

A) bond
B) bond issue
C) capital expenditure
D) collateral
E) cost of capital
F) debt financing
G) equity financing
H) financial leverage
I) interest expense
J) issue date
K) line of credit
L) non-operating expenses
M) par value
N) preferred stock
O) prime interest rate
P) revenue expenditure
Q) stated interest rate

Question 39

If a plant asset costs $3,000.00, has accumulated depreciation of $2,200.00, and is sold for $800.00, the gain or loss on disposal is

A) an $800. 00 gain.
B) an $800. 00 loss.
C) a $2,200. 00 loss.
D) no gain or loss.

Question 40

The more efficient the investment, the

A) lower the return on investment (ROI).
B) higher the return on investment (ROI).
C) higher the current ratio.
D) lower the current ratio.

Question 41

If an intangible asset's useful life is different from its legal life, amortization should be based on

A) only the legal life.
B) only the useful life.
C) the legal or useful life, whichever is greater.
D) the legal or useful life, whichever is less.

Question 42

GAAP requires that the cost of a plant asset be

A) totally expensed in the first year of the plant asset's life.
B) expensed over ten years.
C) expensed over the plant asset's useful life.
D) expensed over the plant asset's legal life.

Question 43

Generally, a business removes a plant asset from use and disposes of it

A) when a profit can be made on the disposal.
B) when the asset is no longer usable.
C) when the asset is three years old.
D) at the end of each fiscal year.

Question 44

Some examples of plant assets are

A) prepaid insurance, computers, and equipment.
B) supplies, furniture, and cash.
C) delivery equipment, supplies, and computers.
D) none of these.

Question 45

The book value of a plant asset is its original cost

A) minus accumulated depreciation.
B) plus accumulated depreciation.
C) plus salvage value.
D) minus salvage value.

Question 46

The amount by which a plant asset depreciates is classified as a(n)

A) asset.
B) liability.
C) revenue.
D) expense.

Question 47

Select the one term that best fits each definition

-The value of an asset determined by tax authorities for the purpose of calculating taxes.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 48

Select the one term that best fits each definition

-All property not classified as real property.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 49

Select the one term that best fits each definition

-An increase in equity resulting from activity other than selling goods or services.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 50

Select the one term that best fits each definition

-An accounting form on which a business records information about each plant asset.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 51

Select the one term that best fits each definition

-Any method of depreciation which records greater depreciation expense in the early years and less depreciation expense in the later years.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 52

Select the one term that best fits each definition

-A decrease in equity resulting from activity other than selling goods or services.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 53

Select the one term that best fits each definition

-Land and anything attached to the land.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 54

Select the one term that best fits each definition

-The decrease in equity that results when a plant asset is sold for less than book value.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 55

Select the one term that best fits each definition

-A declining-balance rate that is two times the straight-line rate.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 56

Select the one term that best fits each definition

-The spreading of the cost of an intangible asset over its useful life.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 57

Select the one term that best fits each definition

-The ratio of the money earned on an investment relative to the amount of the investment.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 58

Select the one term that best fits each definition

-An increase in equity that results when a plant asset is sold for more than book value.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 59

Select the one term that best fits each definition

-An asset that does not have physical substance.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 60

Select the one term that best fits each definition

-A type of accelerated depreciation that multiplies the book value of an asset by a constant depreciation rate to determine annual depreciation.

A) accelerated depreciation
B) amortization
C) assessed value
D) declining-balance method of depreciation
E) double declining-balance method of depreciation
F) gain
G) gain on plant assets
H) intangible assets
I) loss
J) loss on plant assets
K) personal property
L) plant asset record
M) real property
N) return on investment (ROI)

Question 61

The gross profit method of estimating inventory makes it possible to prepare monthly income statements without taking a physical inventory.

Question 62

FIFO is a method used to determine the quantity of each type of merchandise on hand.

Question 63

A merchandise inventory that is larger than needed may decrease net income.

Question 64

A merchandise inventory evaluated at the end of a fiscal period is known as a perpetual inventory.

Question 65

The cost of merchandise sold can be calculated by subtracting the cost of merchandise available for sale from the cost of ending inventory.

Question 66

Businesses frequently establish their fiscal year to end when inventory is at a minimum.

Question 67

A merchandise inventory that is smaller than needed may decrease net income.

Question 68

When the FIFO method is used, cost of merchandise sold is priced at

A) the average cost.
B) the earliest cost.
C) the most recent cost.
D) none of these.

Question 69

Stock records do not reflect

A) decreases in quantity on hand.
B) increases in quantity on hand.
C) the cost of the merchandise.
D) the balance on hand after each increase or decrease is recorded.

Question 70

In periods of rising costs, the inventory method which gives the lowest cost of merchandise sold is the

A) FIFO method.
B) LIFO method.
C) weighted-average method.
D) lower of cost or market inventory method.

Question 71

In periods of rising costs, the inventory method which gives the lowest possible ending inventory cost is the

A) FIFO method.
B) LIFO method.
C) weighted-average method.
D) lower of cost or market inventory method.

Question 72

The actual flow of inventory in a company

A) should influence the inventory costing method a company chooses.
B) must always be on a LIFO basis.
C) must match the inventory costing method a company chooses.
D) does not have to match the inventory costing method a company chooses.

Question 73

When the LIFO method is used, ending inventory units are valued at

A) the average cost.
B) the earliest cost.
C) the most recent cost.
D) none of these.

Question 74

When using the perpetual inventory method,

A) physical inventories are never taken.
B) day-to-day information about the quantity of merchandise on hand is not available.
C) it is not necessary to show the minimum balance on stock records.
D) a physical inventory should be taken at the end of the fiscal year.

Question 75

Calculating an accurate inventory cost to assure that gross profit and net income are reported correctly on the income statement is an application of the accounting concept

A) Adequate Disclosure.
B) Business Entity.
C) Consistent Reporting.
D) Perpetual Inventory.

Question 76

Companies that use a product's UPC code and a point-of-sale terminal

A) should still take a physical inventory at least once each fiscal year.
B) eliminate the need for a physical inventory.
C) are assured of totally accurate inventory records at all times.
D) none of these.

Question 77

Select the one term that best fits each definition

-Using the cost of merchandise purchased last to calculate the cost of merchandise sold first.

A) first-in, first-out inventory costing method (FIFO)
B) gross profit method of estimating inventory
C) inventory record
D) last-in, first-out inventory costing method (LIFO)
E) lower of cost or market inventory costing method (LCM)
F) market value
G) stock ledger
H) stock record
I) weighted-average inventory costing method

Question 78

Select the one term that best fits each definition

-Using the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate the cost of merchandise sold.

A) first-in, first-out inventory costing method (FIFO)
B) gross profit method of estimating inventory
C) inventory record
D) last-in, first-out inventory costing method (LIFO)
E) lower of cost or market inventory costing method (LCM)
F) market value
G) stock ledger
H) stock record
I) weighted-average inventory costing method

Question 79

Select the one term that best fits each definition

-A file of stock records for all merchandise on hand.

A) first-in, first-out inventory costing method (FIFO)
B) gross profit method of estimating inventory
C) inventory record
D) last-in, first-out inventory costing method (LIFO)
E) lower of cost or market inventory costing method (LCM)
F) market value
G) stock ledger
H) stock record
I) weighted-average inventory costing method

Question 80

Select the one term that best fits each definition

-A form used during a physical inventory to record information about each item of merchandise on hand.

A) first-in, first-out inventory costing method (FIFO)
B) gross profit method of estimating inventory
C) inventory record
D) last-in, first-out inventory costing method (LIFO)
E) lower of cost or market inventory costing method (LCM)
F) market value
G) stock ledger
H) stock record
I) weighted-average inventory costing method