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Debentures have which one of the following characteristics? a. they have no specific due date on which they must be repaid b. they are more like common stock than like debt c. they have no specific collateral backing them up d. they are issued by very small firms in an industry
The answer is c. Answers a., b. and d. are incorrect.
http://www.investopedia.com/terms/d/debenture.asp
Reply to Bill's Post: ____ 1. The relationship of a firm's fixed costs relative to its variable costs yields information about its a. degree of financial leverage b. degree of operating leverage c. degree of earnings leverage d. degree of both financial and operating leverage ____ 2. Solo Company has a higher ratio of fixed to variable costs than Luna Company. The sales revenues of both companies increased by 10%. If the firms are similar in size and product mix, you would expect Solo Company's a. expenses to increase more rapidly than Luna Company's b. expenses to decrease while Luna Company's increase c. net income to decrease while Luna Company's increase d. net income to increase more rapidly than Luna Company's ____ 3. Which of the following should be classified on the balance sheet as short-term (current) liabilities? &nbs p; That portion of a 5-year 30-year bonds due within one insurance policy to be year of the balance sheet date consumed in the coming year a. Yes ; Yes b. Yes ; No c. No Yes d. No No ____ 4. Styles Ventures sold a $50,000 issue of bonds. The coupon rate was 10% and the market rate was 8%. The present value of a $1 annuity for ten periods at 8% is $6.7101. The present value of $1 for ten periods at 8% is $0.4632. The selling price of these bonds should be a. $47,740 b. $50,000 c. $52,830 d. $56,710 ____ 5. At the date of a bond issue, the effective rate of interest is significantly above the stated rate of interest. If the bond has a $1,000 face value, the proceeds from the issue would be a. more than $1,000 b. less than $1,000 c. $1,000 d. $0 ____ 6. Javelin Sports sold $50,000 face value of ten-year, 8% bonds payable for $61,583 on January 1, 2007 when the market interest rate was 5%. What amount of interest expense will Javelin report for calendar year 2007? a. $4,927 b. $4,000 c. $3,500 d. $3,079 ____ 7. On January 1, 2007, Beta Company issued 5-year bonds having a face value of $100,000. The bonds pay 7% interest annually and were sold for $94,706 to yield 8.34% interest. Beta’s 2007 income statement should report what amount for interest expense on these bonds? a. $6,630 b. $7,000 c. $7,898 d. $8,340 ____ 8. Identify the correct statement below: a. contingencies are always reported in the liability section of the balance sheet b. commitments are disclosed on the income statement because they affect net income but not cash flow c. capital leases are accounted for as if the leased assets had been purchased d. the expense associated with operating leases is reported on the cash flow statement under the category of investing activities ____ 9. Soft Rock, Inc. sold 4,000 shares of its treasury stock to a new investor. Which of the following increased? Authorized Stock Issued Stock a. Yes Yes b. Yes No c. No Yes d. No No ____ 10. Fletcher Company commenced business on January 1, 2007 but has never declared or paid any dividends. The following are account balances after closing the books at December 31, 2009: Cash $18,000 Common stock, $1 par 1,000 Paid-in capital in excess of par value 49,000 Preferred stock, $100 par, 10%, cumulative 50,000 Retained earnings 75,000 Net income during 2009 totaled $30,000 and the Board of Directors wishes to distribute a total of $15,000 in cash dividends. The common stockholders will receive what amount per share? a. $15 b. $11 c. $ 3 d. $ 0 ____ 11. Which of the following must be used when analyzing the capital structure of a firm? a. long-term assets b. Liabilities c. current assets d. Expenses ____ 12. The use of financial leverage always has which of the following effects on a company's financial statements? a. increased revenue b. increased assets c. increased stockholders' equity d. increased liabilities 22 when return on equity is low, financial leverage makes it lower. When return on equity is high, financial leverage makes it higher. ____ 13. To achieve the benefits from the use of high financial leverage, a company needs to generate a a. higher level of net income b. larger amount of assets c. larger amount of liabilities d. larger amount of stockholders' equity ____ 14. Given below is financial information about two firms as of the end of a recent accounting period: Bravo Company: Easy Company: Assets $12,180 Assets $ 18,659 Liabilities 5,608 Liabilities 7,703 Equity 6,572 Equity 10,956 Net Income 906 Net Income 1,743 Which of the following can be determined from the above information? a. Bravo Company has a higher dividend payout ratio than Easy Company b. Bravo Company employs more financial leverage than Easy Company c. Bravo Company has a higher current ratio than does Easy Company d. Bravo Company's common stock will sell for a higher price than Easy Company's ____ 15. Which of the following is a TRUE statement about a company's use of financial leverage? a. potential increased returns may be available to the common stockholders b. Firms in industries with low margins usually have high levels of financial leverage so as to magnify the return to common stockholders c. financial leverage is usually the highest in firms having the largest portion of assets invested in current assets d. the higher the volatility of earnings, the greater is the likelihood that a firm employs significant amounts of financial leverage ____ 16. Suppose a company issues common stock to retire its debt. Which of the following effects may occur? a. financial leverage will increase b. financial leverage will decrease c. financial leverage will remain unchanged d. the effect on financial leverage cannot be determined ____ 17. Which of the following events would result in a decrease in a firm's financial leverage? a. payment of dividends b. issuing common stock to purchase assets c. issuing debt to purchase assets d. purchasing inventory on credit ____ 18. Which of the following equations is TRUE? a. return on equity = return on assets x dividend payout b. return on assets = debt to assets x net income c. return on equity = return on assets x financial leverage d. dividend payout ratio = net income x dividends ____ 19. A company will increase risk if it a. issues stock and has to pay dividends b. borrows money and has to pay interest c. reinvests its earnings d. increases its current ratio by delaying payments to suppliers ____ 20. Clean Diapers delivery services purchased a delivery truck by making a $1,000 down payment and signing a note payable for the balance. What effect will this have on the firm's financial leverage? a. financial leverage will increase b. financial leverage will decrease c. financial leverage will remain unchanged d. the effect on financial leverage cannot be determined ____ 21. The dividend payout ratio is a. dividends / retained earnings b. dividends paid / dividends declared c. dividends / net income d. dividends / cash ____ 22. Debt covenants protect the interests of which of the following parties? a. Employees b. Companies c. Stockholders d. Creditors ____ 23. Which statement below is true about a company's operating cycle? a. it may not exceed one year b. it may not be less than a year c. it may be longer than a year d. it is always one year ____ 24. Accelerated depreciation a. results in lower net income in earlier years and higher net income in later years b. is used more often on the income statement than is the straight-line method c. leads to higher book values for depreciable assets than does the straight-line method d. allocates larger portions of cost to later periods than to earlier ____ 25. How is the depreciation process consistent with the matching principle? a. the accumulated depreciation account is matched with the plant asset account on the balance sheet b. the cost of consuming plant assets is matched with the periods that benefit from using the assets c. the book value of the asset is matched with the current market value of the asset d. the depreciation method used is matched with the expected productivity of the asset ____ 26. Assume a building was purchased for $250,000 and used for four of its estimated 10-year life. It has residual value of $50,000 and the straight-line method is used for depreciating the building. The book value of the building after the four years' of usage would be reported on the balance sheet at a. $20,000 b. $80,000 c. $120,000 d. $170,000 ____ 27. Quick Freight Trucking owned a truck which cost $30,000 when it was purchased on January 1, 2007. It had accumulated depreciation of $18,000 at December 31, 2008. The company originally estimated the truck would have a residual value after using it for four years of $3,000. It sold the truck for $22,500 cash on January 1, 2009. The amount of gain (loss) on the sale of the truck was a. $4,500 gain b. $19,500 gain c. $1,500 loss d. $10,500 gain ____ 28. A coal mine asset was purchased for $660,000. Estimated production is 20,000,000 tons after which the mine will be sold for $60,000. During a recent year, 6,500,000 tons of coal were produced and sold. The depletion expense for the year would be a. $175,500 b. $195,000 c. $214,500 d. $225,000 ____ 29. Which of the following is a reason to invest in the securities of other organizations? a. to obtain cash b. to incur future debt and increase financial leverage c. to acquire products from other companies d. to fund a future repayment of debt ____ 30. Depreciation and amortization a. reduce net income and cash flow from operating activities b. reduce net income but increase cash flow from operating activities c. reduce net income but have no direct effect on cash flow from operating activities d. have no direct effect on net income or cash flow from operating activities ____ 31. Sylvester Company has a lower ratio of fixed to variable costs than Tweety Company. The sales revenues of both companies increased by 10%. If the firms are similar in size and product mix, you would expect Sylvester's a. expenses to increase more rapidly than Tweety's b. expenses to decrease while Tweety's increase c. net income to decrease while Tweety's increase d. net income to increase more rapidly than Tweety's ____ 32. Samson Company has about 5% of its total assets in current assets with the remainder invested in fixed assets. Based only on this information, one would expect this firm to have a a. high level of operating leverage b. high level of financial leverage c. low level of operating leverage d. low level of financial leverage ____ 33. A primary difference between return on assets and return on equity is that return on assets a. requires that interest expense be added back to net income (net-of-tax) but return on equity does not b. is affected by how a company chooses to finance investments c. is a clearer measure of the quality of investment decisions than is return on equity d. requires that preferred dividends be subtracted from net income but not interest expense ____ 34. The following information is available for a company: Total Assets: Net sales revenue $1,656,000 Beginning $640,000 Interest expense 160,000 Ending 640,000 Wages payable 52,000 Net income 48,000 Income tax rate 40% The firm's return on assets for the year was a. 2.6% b. 6.8% c. 12.4% d. 7.5% ____ 35 Canyon Record Company had a higher return on assets this year than it did return on equity. This means that, during the year, the a. balance in the deferred taxes account decreased b. firm reduced its interest expense c. firm experienced negative financial leverage d. cash flow from operations exceeded income from operations ____ 36. Deere Company and Red Fox Co. are similar in size and in many other respects. The companies reported the following net cash flow from (used for) investing activities in its recent annual reports: ($ in millions) 2009 2008 2007 Deere Company 404 78 (30) Red Fox Co. (257) (294) (80) From this information, which of the following is TRUE a. Deere Company appears to be growing more rapidly than Red Fox Co. b. Red Fox Co. appears to be growing more rapidly than Deere Company c. Deere Company has better investment alternatives than Red Fox Co. d. Red Fox Co. is less profitable than Deere Company Figure 11-1 Petal Co. Reel Co. Sphere Co. Shade Co. Sales (in millions) $1,000 $2,000 $2,000 $600 Profit margin 0.15 0.05 0.09 0.20 Asset turnover 1.25 1.50 1.15 1.10 ____ 37. Refer to the information in Figure 11-1. Which company is most effective? a. Petal Co. b. Reel Co. c. Sphere Co. d. Shade Co. ____ 38. Refer to the information in Figure 11-1. Which company has the most total assets? a. Petal Co. b. Reel Co. c. Sphere Co. d. Shade Co. ____ 39 Refer to the information in Figure 11-1. Which company is most efficient? a. Petal Co. b. Reel Co. c. Sphere Co. d. Shade Co. ____ 40. If an investor concludes that one company is more efficient in generating profits than another company, that investor is looking at which of the following measures? a. return on assets b. profit margin c. asset turnover d. operating leverage ____ 41. A company "was able to generate $3.75 of sales for every $1 it had invested in assets.” This statement represents a measure of a. operating leverage b. return on assets c. profit margin d. asset turnover ____ 42. If a company's profit margin increases, most likely indicates that the company has a. become more effective in using its assets to sell its products b. become more efficient in controlling its costs c. invested in more plant assets d. become more competitive ____ 43. In general, one would assume that Investing activities Financing activities would generate cash would consume cash a. Yes ;Yes b. Yes ; No c. No Yes d. No No ____ 44. Revenue should be recognized on a transaction a. at the a customer places an order b. when the cash has been collected from the buyer c. when the seller has earned the right to payment from the buyer d. as soon as the seller is confident that he has a buyer for the goods under consideration ____ 45. Revenue should ordinarily be recognized when four criteria have been met. Which of the following is NOT one of the four criteria? a. seller has completed most of the activities necessary to produce and sell the goods or services b. cash has been collected from the buyer c. seller is reasonably certain the buyer will pay the cash that is due d. seller can objectively measure the amount of revenue he/she has earned ____ 46. The City of Gunnison awarded a $5,000,000 road-construction contract to the Fast Builders Construction Company. Construction was expected to take three years. After one year, Fast Builders had incurred $625,000 of cost and was approximately 20% completed with the road. The company estimated that another $2,500,000 would be expended to complete the contract. The company is confident regarding its estimates. What amount of profit, if any, should Fast Builders recognize for the first year? a. $0 b. $375,000 c. $500,000 d. $625,000 e. $1,000,000 ____ 47. When reporting revenues on the income statement, they should be reported net of Expected Estimated Sales Returns Uncollectible Accounts a. Yes Yes b. Yes No c. No Yes d. No No ____ 48. At the beginning of March, Freewill Magazine Company's unearned revenues included 15,000 annual subscriptions at $18 each. During March, the company received 4,000 new annual subscriptions at $18 each. The March issue was shipped to all subscribers on March 20. The amount of subscription revenue the company should recognize in March would be a. $15,000 b. $28,500 c. $72,000 d. $270,000 e. $342,000 ____ 49. Bad debts expense is correctly recorded on the income statement as a(n) a. addition to sales discounts b. extraordinary expense c. reduction of revenue d. selling expense ____ 50. You would expect to see the account Work-in-Process Inventory reported on the balance sheet of a Manufacturing Firm Merchandising Firm a. Yes No b. No No c. Yes Yes d. No Yes ____ 51. Work-in-process includes all of the items below EXCEPT a. cost of materials used in the production of goods b. cost of labor used directly in the production of goods c. selling costs associated with the goods d. overhead costs incurred in the production of goods ____ 52. Cost of goods sold for a manufacturing company would be calculated as Beginning finished goods inventory (BFGI) Ending finished goods inventory (EFGI) Work-in-process (WIP) Cost of goods manufactured (CGM) Raw materials (RM) Overhead (OH) a. BFGI + RM + CGM - EFGI b. RM + OH - CGM + EFGI c. RM + WIP + OH - EFGI d. BFGI + CGM - EFGI ____ 53. Which inventory method results in the lowest income taxes during periods of increasing prices? a. first-in-first-out (FIFO) b. last-in-first-out (LIFO) c. weighted average d. work-in-process ____ 54. The inventory valuation method that results in the recognition of the most recent inventory costs on the balance sheet and income statement, respectively, is Balance Sheet Income Statement a. FIFO LIFO b. FIFO FIFO c. LIFO LIFO d. LIFO FIFO ____ 55. The inventory valuation method that results in the recognition of the oldest inventory costs on the balance sheet and income statement, respectively, is Balance Sheet Income Statement a. FIFO LIFO b. FIFO FIFO c. LIFO LIFO d. LIFO FIFO ____ 56. Steinbrenner Company has the following inventory information for a recent year: Beginning inventory $500 (10 units with an average cost of $50 each) February purchase 10 units @ $48 each August purchase 30 units @ $52 each November purchase 20 units @ $48 each Ending inventory 25 units Compute the cost of ending inventory using the weighted average method. a. $1,250.00 b. $1,240.00 c. $1,237.50 d. $1,220.00 ____ 57. An advocate of the LIFO inventory method would maintain that a. current costs are matched with current selling prices b. the lowest possible costs are always shown in the ending inventory c. the oldest inventory is relieved of its cost before the newer purchases d. the highest possible costs are always shown in the ending inventory ____ 58. Which of the following items is reported on an income statement? Income from Cash provided Continuing operations by operations a. Yes Yes b. Yes No c. No Yes d. No No ____ 59. Which of the following is NOT a deduction on the income statement when computing net income? a. loss from discontinued operations b. cost of goods sold c. interest expense d. preferred dividends ____ 60. In order for an event to be reported on the income statement as an extraordinary item, it must be Unusual Infrequent a. Yes Yes b. Yes No c. No Yes d. No No ____ 61. Which of the following is a measure of the company's ability to create profit from existing sales? a. operating decision b. asset turnover c. profit margin d. return on assets ____ 62. Which of the following statements is NOT true? a. profit margin is the ratio of net income to operating revenues b. profit margin is a measure of a company's ability to generate profit from its sales c. profit margin is a measure of effectiveness d. profit margin is a component of return on assets Figure 13-1 Opie Technologies Bea Corporation Operating revenues $375,000 $355,000 Operating income 71,000 54,000 Net income 60,000 42,500 Total assets 625,000 490,000 ____ 63. Refer to the table in Figure 13-1. What is return on assets for Bea Corporation? a. 11.0% b. 11.4% c. 8.7% d. 9.6% ____ 64. Which of the following compares the "botXXXXX XXXXXne result" on an income statement to the first item on the income statement? a. gross profit margin b. operating profit margin c. profit margin d. asset turnover ____ 65. The following information was taken from the annual report of Mandala Company: Net income $ 400 Total assets 5,000 Total liabilities 3,400 What is the return on assets (ROA) and return on equity (ROE)? ROA ROE a. $0.25 $0.08 b. 0.08 0.25 c. 0.08 0.12 d. 0.12 0.08 ____ 66. Companies in highly-competitive markets with very similar products, usually will compete on the basis of a. product differentiation b. price c. asset turnover d. return on assets ____ 67. Which of the following is NOT true? a. a company selects operating strategies depending on the types of products they produce and sell b. a company cannot compete in both cost leadership and product differentiation markets c. a company that relies on low costs use a cost leadership strategy d. product differentiation companies normally rely on brand name identification ____ 68. Which of the following is a measure of a company's efficiency in controlling period costs (i.e., selling and administrative expenses)? a. operating profit margin b. profit margin c. gross profit margin d. net income Figure 13-2 Wannamaker's Wonders Delano's Deals Accounts receivable $ 159,000 $126,000 Inventory 384,000 254,000 Operating revenues 1,060,000 768,000 Cost of goods sold 559,000 235,000 Operating income 360,000 305,000 Gross profit 501,000 533,000 ____ 69. Refer to the table in Figure 13-2. What is inventory turnover for Delano's Deals? a. 1.46 b. .83 c. 1.07 d. .93 ____ 70. Refer to the table in Figure 13-2. What is accounts receivable turnover for Wannamaker's Wonders? a. 6.67 b. 6.10 c. 2.42 d. 2.26 ____ 71. Refer to the table in Figure 13-2. What is operating profit margin for Wannamaker's Wonders? a. .69 b. .34 c. .40 d. .47 ____ 72. Refer to the table in Figure 13-2. What is operating profit margin for Delano's Deals? a. .40 b. .69 c. .34 d. .47 ____ 73. Which of the following is NOT part of the transformation process? a. financial resources are obtained through financing activities b. financial resources are used to acquire other resources through investing activities c. resources are used to produce and sell goods and services through operating activities d. investors make decisions about the allocation of their resources through decision-making activities