FA chapter 3

The majority of financing for most companies comes from which of the following sources? 

• Owners and customers

• Creditors and customers

• Owners and managers

• Creditors and owners

Which of the following would not be found listed as a liability on a company's balance sheet? 

• Operating lease obligations

• Capital lease obligations

• Bonds payable

• Taxes payable

Which of the following is true concerning bond covenants? 

• Bond covenants are restrictions placed on bondholders to protect rights of equity holders

• Violation of a bond covenant requires that a company declare bankruptcy

• If a company violates a bond covenant, it means it has failed to make interest or principal repayments on debt in a timely manner.

• Bond covenants are legal restrictions placed in order to minimize the risk of default on bonds.

Recording a long-term lease as an operating lease, as opposed to a capital lease, for a lessee will cause the following ratios to be:

• Option A

• Option B

• Option C

• Option D

Hert Corporation acquired a capital lease that is carried on its books at a present value of $100,000 (discounted at 12%). Its annual rental payment is $15,000. What is the amount of interest expense from this lease?

• Option A

• Option B

• Option C

• Option D

Which of the following statements about stock dividends is true? 

• Stock dividends increase the number of shares outstanding.

• Stock dividends are more valuable than stock splits

• Stock dividends are recorded as a reduction in cash.

• Stock dividends are dividends given in the form of stock from another company

Treasury stock is

• investments in government securities

• retained earnings that have been appropriated to make equity investments.

• a company's own stock that it has repurchased.

• assets held for safekeeping in company's vaults

The long-term debts of a firm are

• Liabilities that come due within the next 12 months

• Liabilities that do not come due for at least 12 months

• Liabilities owed to the firm's supplier

• Liabilities owed to the firm's shareholders

Which statement about common stockholders is incorrect?

• Common stockholders have a residual claim on the firm’s cash flows.

• Common stockholders have first claim on the firm’s assets during bankruptcy

• Common stockholders have a voting right.

• Common stockholders are the ultimate owners of a corporation.

A __________ is part of the company’s __________ that the board of directors decides to distribute to the __________. 

• Dividend, Profit, Stockholders
• Profit, Dividend, Stockholders
• Dividend, Stockholder, Profit