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Multiple choice questions on current assets and liabilities.

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1. Which of the following items is NOT included in current assets?

  1. Accounts payable.
  2. Inventory.
  3. Accounts receivable.
  4. Cash.
  5. Short-term, highly liquid, marketable securities.

2. Which of the following items can be found on a firm’s balance sheet under current liabilities?

  1. Accounts receivable.
  2. Depreciation expenses.
  3. Accrued amortization charges.
  4. Cost of goods sold.
  5. Accrued wages.

3. Considered alone, which of the following would increase a company’s current ratio?

  1. An increase in accounts receivable.
  2. An increase in accounts payable.
  3. An increase in net fixed assets.
  4. An increase in notes payable.
  5. An increase in accrued liabilities.

4. Which of the following statements is CORRECT?

  1. "Window dressing"is any action that improves a firm’s fundamental long-run position and thus increases its intrinsic value.
  2. Using some of the firm’s cash to reduce long-term debt is an example of "window dressing."
  3. Borrowing using short-term notes payable and using the proceeds to retire long-term debt is an example of "window dressing."Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is an example of "window dressing."
  4. Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is an example of "window dressing."
  5. Borrowing on a long-term basis and using the proceeds to retire short-term debt could be an example of window dressing.

5. Which of the following statements is CORRECT?

  1. The NYSE does not exist as a physical location; rather it represents a loose collection of dealers who trade stock electronically.
  2. An example of a primary market transaction would be your uncle transferring 100 shares of Wal-Mart stock to you as a birthday gift.
  3. Capital market instruments include both long-term debt and common stocks.
  4. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.
  5. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

6. Which of the following statements is CORRECT?

  1. Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States.
  2. Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia.
  3. Hedge funds have more in common with investment banks than with any other type of financial institution.
  4. Hedge funds have more in common with commercial banks than with any other type of financial institution.
  5. Hedge funds are not as highly regulated as most other types of financial institutions. The justification for this light regulation is that only "sophisticated"investors (i.e., those with high net worths and high incomes) are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence"on their own rather than have it done by the SEC or some other regulator.

7. Which of the following is a primary market transaction?

  1. You sell 200 shares of IBM stock on the NYSE through your broker.
  2. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker—you just give him cash and he gives you the stock.
  3. IBM issues 2,000,000 shares of new stock and sells them to the public.
  4. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction.
  5. IBM sells 2,000,000 to its employees when they exercise options granted in prior years.



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