Q&A Hero

Q: Which of the following statements regarding posting and classification is correct? A) Posting journal entries involves copying the dollar amounts from the ledger into the journal. B) If a $100 debit is erroneously posted to an account as a $100 credit, the accounts will be out of balance by $100. C) If a $5,000 credit to a stockholders equity account is misclassified as a $5,000 credit to a liability, the accounting equation will still balance. D) If a purchase of supplies on account for $100 is recorded with a debit to Supplies of $10 and a credit to Accounts Payable for $10, the accounting equation will not balance.

Q: A rate-capped swap may limit the fixed-rate payer's ability to effectively hedge against interest rate risk. a. True b. False

Q: Which of the following statements about the balance sheet is correct? A) An item on a balance sheet that is labeled as payable is a liability of that company. B) Assets are listed on the balance sheet in alphabetical order. C) The balance sheet balances when assets plus liabilities equal stockholders equity. D) The balance sheet proves that asset debits = liability credits.

Q: If a large bank that has taken numerous swap positions and guaranteed many other swap positions fails, there could be several defaults on swap payments. a. True b. False

Q: Which of the following statements about the balance sheet is correct? A) A classified balance sheet is one that contains privileged information. B) Current liabilities are debts and other obligations that will be paid or fulfilled within 12 months of the balance sheet date. C) All companies use the chart of account names defined by the Financial Accounting Standards Board (FASB). D) A balance sheet is prepared for a period of time.

Q: Systemic risk is the risk that a firm involved in an interest rate swap may not meet its payment obligations. a. True b. False

Q: Use the information above to answer the following question. What is the total of the credit balance accounts? A) $111,040. B) $104,090. C) $113,540. D) $108,590.

Q: Sovereign risk differs from credit risk because it is dependent on the financial status of the government rather than the counterparty itself. a. True b. False

Q: Use the information above to answer the following question. What is the amount of current liabilities on the classified balance sheet? A) $9,450. B) $6,950. C) $113,540. D) $4,500.

Q: An equity swap involves the exchange of interest payments for payments linked to the degree of change in a bond index. a. True b. False

Q: Use the information above to answer the following question. What is the amount of current assets on the classified balance sheet? A) $113,540. B) $64,040. C) $32,840. D) $82,170.

Q: Which of the following would be classified as a noncurrent liability on the balance sheet at December 31, Year 1? A) An accounts payable due on January 30, Year 2 B) A notes payable due November 30, Year 2 C) A note receivable that matures on April 30, Year 3 D) A notes payable due January 15, Year 3

Q: ​A speculator purchases a put option for a premium of $4, with an exercise price of $30. The stock is presently priced at $29 and rises to $32 before the expiration date. What is the maximum profit per unit to the speculator who owned the put option assuming he or she exercises the option at the ideal time? a. ​-$4 b. ​-$3 c. ​-$2 d. ​$2 e. ​$3

Q: Which of the following would not be classified as a current asset? A) Cash B) Accounts Payable C) Supplies D) Inventory

Q: The premium on an existing call option should ____ when the price of the underlying stock decreases. a. be negative b. decline c. increase d. be unaffected e. be negative AND decline

Q: Corporations involved in international business transactions can ____ to hedge future ____. a. sell currency call options; payables b. purchase currency put options; receivables c. purchase currency call options, receivables d. purchase currency put options, payables e. sell currency call options; payables AND purchase currency put options; receivables

Q: Assets are listed on a classified balance sheet: A) in alphabetical order. B) from the largest dollar amount to the lowest dollar amount. C) beginning with noncurrent assets and ending with current assets. D) beginning with current assets and starting with Cash.

Q: Which of the following is NOT true regarding options and options on futures contracts? a. The purchaser of both an option and an option on futures must pay a premium. b. Options are available on stock indexes, but not on stock index futures. c. The fulfillment of options on futures contracts is regulated by exchanges, while the fulfillment of options is not. d. Options are available on stock indexes, but not on stock index futures AND the fulfillment of options on futures contracts is regulated by exchanges, while the fulfillment of options is not.

Q: Current liabilities are expected to be: A) converted to cash within one year. B) settled within one year. C) used in the business within one year. D) acquired within one year.

Q: Sellers (writers) of call options can close out their position at any point in time by a. selling a put option on the same stock. b. buying identical call options. c. selling additional call options on the same stock. d. selling a put option on the same stock AND buying identical call options.

Q: Match the acronym with the description that best reflects it. (There are more descriptions than acronyms.) ACRONYM 1. _____ SEC 2. _____ GAAP 3. _____ PCAOB 4. _____ FASB 5. _____ IASB 6. _____ SOX 7. _____ AICPA DESCRIPTION A. The Board that establishes international accounting standards. B. This organization regulates activities associated with the stock market such as the reporting of financial data by publicly owned companies. C. The U.S. agency that must approve mergers between very large publicly owned corporations. D. The national professional organization of accountants. E. A set of laws established to strengthen corporate reporting in the United States. F. The U.S. Board that approves the rules for auditing publicly owned companies. G. Rules of financial accounting created by the FASB for use in the United States. H. The organization that establishes business laws in the U.S. I. The U.S. agency that certifies foreign accounting firms to practice in the U.S. J. The Board that establishes the accounting rules that govern American publicly owned corporations.

Q: Choose the appropriate letter to match the term and the definition. (There are more definitions than terms.) TERM 1. _____ Investors 2. _____ Audit 3. _____ Balance Sheet 4. _____ Operating Activities 5. _____ Unit of Measure Assumption 6. _____ Retained Earnings 7. _____ Investing Activities 8. _____ Income Statement DEFINITION A. An example of an internal user of financial statements. B. A financial statement showing a company's assets, liabilities and stockholders' equity. C. When a company acquires money from investors. D. A financial statement that summarizes a company's past and current cash situation. E. An example of external users of financial statements. F. The idea that the financial statements of a company include the results of only that company's business activities. G. Activities directly related to running the business to earn profit. H. A financial statement that shows a company's revenues and expenses. I. Borrowing money from lenders. J. The total amount of profits that are kept by the company. K. The idea that a company should report its financial data in the relevant currency. L. A procedure by which independent evaluators assess the accounting procedures and financial reports of a company. M. Transactions with lenders (borrowing and repaying cash) and stockholders (selling company stock and paying dividends).

Q: The greater the volatility of the underlying stock, the ____ the call option premium and the ____ the put option premium.​ a. ​higher; lower b. ​lower; higher c. ​higher; higher d. ​lower; lower

Q: Each item in the statement of retained earnings can appear on another financial statement. Choose the appropriate letter to match the item in the statement of retained earnings with the related financial statement. ITEM ON STATEMENT OF RETAINED EARNINGS 1. ____ Retained earnings, January 1, Year 3 2. ____ Net income for Year 3 3. ____ Dividends for Year 3 4. ____ Retained earnings, December 31, Year 3 FINANCIAL STATEMENT A. Balance sheet at end of Year 3 B. Statement of cash flows for Year 3 C. Income statement for Year 2 D. Balance sheet at end of Year 2 E. Income statement for Year 3

Q: ​Assume a pension fund purchased stock at $53. Call options at a $50 exercise price presently have a $4 premium per share. The pension fund sells a call option on the stock it owns. If the call option is exercised when the price of the stock is $56, what is the gain or loss per share to the pension fund (including its gain from holding the stock as well)? a. ​$4 gain b. ​$6 loss c. ​$2 loss d. ​$1 gain e. ​$0

Q: Choose the appropriate letter to match the terms to the blanks below to complete the relevant equation for each financial statement. FINANCIAL STATEMENT EQUATION Balance Sheet = + Income Statement = Statement of Retained Earnings = + Statement of Cash Flows = + + + TERM A. Cash at beginning of year B. Net cash flow from operating activities C. Balance of retained earnings from previous year D. Net cash flow from investing activities E. Liabilities F. Net cash flow from financing activities G. Balance of retained earnings at end of year H. Net income I. Revenue J. Assets K. Stockholders' equity L. Expenses M. Cash at end of year N. Dividends paid

Q: Speculators may be willing to write ____ options on foreign currencies they expect to ____ against the dollar. a. put; strengthen b. put; weaken c. call; strengthen d. call; weaken e. put; strengthen AND call; weaken

Q: ​When stock portfolio managers use dynamic asset allocation by purchasing call options on a stock index, they ____ their exposure to stock market conditions. a. ​reduce b. ​completely eliminate c. ​have no effect on d. ​increase

Q: Choose the appropriate letter to match the description of the business activity with the category. BUSINESS ACTIVITY 1. ____ The purchase of a new line of assembly equipment 2. ____ Company payment of a dividend 3. ____ The purchase of office supplies 4. ____ The purchase of advertising time by the company 5. ____ The building of a new factory 6. ____ Company repayment of a bank loan CATEGORY A. Operating activity B. Investing activity C. Financing activity

Q: Choose the appropriate letter to match the characteristics with the type of company. A given characteristic may match more than one type of company. CHARACTERISTIC 1. ________ Issues shares of stock that are traded on a stock exchange such as the NYSE 2. ________ The owners of the business are personally liable for the debts of the company 3. ________ Shares of stock must be purchased directly from current owners 4. ________ Can raise more financial capital by selling stock to the greatest number of investors 5. ________ The easiest form of business to start 6. ________ The business ceases to exist upon the departure of one of the owners 7. ________ The owners pay taxes on the profits of the business TYPE OF COMPANY A. Partnership B. Publicly traded corporation C. Privately traded corporation D. Sole Proprietorship

Q: The sale of a call option on a stock the seller already owns is referred to as a. a covered call. b. a naked call. c. a call on futures. d. futures on options.

Q: A ____ grants the owner the right to purchase a specified financial instrument for a specified price within a specified period of time.​ a. ​call option b. ​put option c. ​sale of a futures contract d. ​purchase of a futures contract

Q: Following is a list of financial statement items and amounts for Tim Burrs Tree Service as of 12/31/X3, the end of its first year in operation. Required: Use this information to prepare the Income Statement, Statement of Retained Earnings, and Balance Sheet. Accounts Receivable $40,000 Accounts Payable 30,000 Cash 10,000 Common Stock 20,000 Notes Payable 10,000 Equipment 50,000 Sales Revenue 100,000 Fuel Expense 10,000 Rent Expense 15,000 Advertising Expense 5,000 Salaries and Wages Expense 20,000 Retained Earnings Unknown Dividends 10,000

Q: Which of the following does NOT directly affect a call option premium? a. volatility of the underlying instrument b. market price of the underlying instrument c. analyst rating of the underlying instrument d. time to maturity of the option

Q: Use the following Year 3 data to prepare the annual income statement for Kvass, Inc. Other Selling & Administrative Expenses $1,050,300 Other Expenses 247,600 Sales Revenue 4,885,300 Advertising and Promotion Expenses 552,500 Salaries and Wages Expense 2,524,400 Income Tax Expense 166,500 Interest Expense 113,900

Q: The ____ is the most important exchange for trading options. a. New York Stock Exchange (NYSE) b. Chicago Board Options Exchange (CBOE) c. Boston Options Exchange d. Nasdaq

Q: Each of the following independent companies is missing numerical data. Required: Use your knowledge of the financial statement equations and their interrelationships to fill in the missing amounts. Company Total Revenues Total Expenses Net Income (Loss) Total Assets Total Liabilities Stockholders Equity Alpha Co. $60,000 $ $20,000 $ $33,000 $66,000 Bravo, Inc. 100,000 (30,000) 130,000 38,000 Charlie Co. 30,000 10,000 60,000 40,000

Q: Marcie purchases a call option on interest rate futures with an exercise price of 92-10. The premium on the call option is 2-24. Just before the expiration date, the price of Treasury bond futures (which will have a face value of $100,000 at maturity) is 97-14. At this time, Marcie decides to exercise the option and closes out the position by selling an identical futures contract. Marcie's net gain from this strategy is $____. a. -2,687.50 b. 2,687.50 c. 2,375.00 d. 7,437.50 e. None of these are correct.

Q: A list of Year 3 revenues and expenses for Green Thumb, Inc. is provided below. Advertising and Promotion Expenses $ 262,500 Income Tax Expense 56,500 Interest Expense 43,900 Other Expenses 122,400 Other Selling & Administrative Expenses 350,800 Sales Revenue 1,865,300 Salaries and Wages Expense 724,800 Required: Part a. Calculate the net income for the Green Thumb, Inc. for Year 3. Part b. Prepare a statement of retained earnings for Green Thumb, Inc. for Year 3. Assume the company had retained earnings of $162,000 as of January 1, Year 3, and paid out $46,000 in dividends during Year 3.

Q: The following partially completed balance sheet is missing numerical data. Purrfect Pets, Inc. Balance Sheet September 30, Year 3 Assets Cash $743,800 Accounts Receivable Unknown Inventories 54,900 Equipment 119,300 Other Assets 71,400 Total Assets Unknown Liabilities Accounts Payable $342,500 Notes Payable Unknown Total Liabilities 607,600 Stockholders' Equity Common Stock 662,100 Retained Earnings Unknown Total Stockholders Equity 789,400 Total Liabilities and Stockholders Equity Unknown Required: Fill in the missing amounts in the balance sheet. Purrfect Pets, Inc. Balance Sheet September 30, Year 3 Assets Cash $743,800 Accounts Receivable Inventories 54,900 Equipment 119,300 Other Assets 71,400 Total Assets Liabilities Accounts Payable $342,500 Notes Payable Total Liabilities 607,600 Stockholders' Equity Common Stock 662,100 Retained Earnings Total Stockholders Equity 789,400 Total Liabilities and Stockholders Equity

Q: ​Speculators purchase currency ____ on currencies they expect to ____ against the dollar. a. ​call options; weaken b. ​put options; strengthen c. ​futures; weaken d. ​put options; weaken

Q: The table shows financial data for Purrfect Pets, Inc. as of June 30, Year 3. Accounts Receivable $419,200 Retained Earnings 117,900 Inventories 58,400 Other Assets 69,400 Accounts Payable 349,200 Equipment 118,500 Cash 732,600 Common Stock 662,100 Notes Payable 268,900 Required: Prepare a balance sheet using these data.

Q: If a corporation hedges payables with currency call options, it will ____ if the value of the foreign currency is ____ than the exercise price when the payables are due. a. exercise the option; greater b. exercise the option; lower c. let the option expire; greater d. let the option expire; lower e. exercise the option; greater AND let the option expire; lower

Q: When faced with an ethical dilemma, an accountant should: A) Identify who will be affected by the situation, identify and evaluate the alternative courses of action, and choose the alternative that is the most ethical. B) report the matter to the SEC. C) report the matter to the IRS. D) resign.

Q: Assume an insurance company purchases a call option on a stock index futures contract for a premium of 14, with an exercise price of 1800. The value of a stock index futures contract is 250 times the index. If the stock index on the futures contract increases to 1830, what is the gain on the sale of the futures contract? a. $15,000 b. $7,500 c. $3,300 d. $4,000 e. $1,500

Q: In a sense, __________ is to accountants and auditors what the criminal code is to lawyers and the public. A) the SEC B) faithful representation C) U.S. GAAP D) the basic accounting equation

Q: A ____ requires a premium above and beyond the price to be paid for the financial instrument. a. futures contract b. call option c. put option d. call option AND put option

Q: Which of the following statements about the accounting standards used in other countries is correct? A) U.S. GAAP is used worldwide. B) IFRS are used by all countries. C) More and more countries are using IFRS. D) There are no plans to converge U.S. GAAP with IFRS.

Q: The premium on an existing call option should ____ when there is an increase in the volatility of the underlying stock. a. be negative b. decline c. increase d. be unaffected e. be negative AND decline

Q: According to Generally Accepted Accounting Principles, which of the following is not a characteristic of useful financial information? A) comparable B) verifiable C) timely D) ethical

Q: A speculator buys a call option for $3, with an exercise price of $50. The stock is currently priced at $49, and rises to $55 on the expiration date. What is the stock price at which the speculator would break even?​ a. ​$50 b. ​$58 c. ​$52 d. ​$53 e. ​$49

Q: Relevance is an objective of external financial reporting that means: A) the financial reports of a business are assumed to include the results of only that businesss activities. B) financial information can be compared across businesses because similar accounting methods have been applied. C) the financial information possesses a feature that allows it to influence a decision. D) the financial information depicts the economic substance of business activities.

Q: Faithful representation is a characteristic of external financial reporting that means: A) the financial reports of a business are assumed to include the results of only that businesss activities. B) financial information can be compared across businesses because similar accounting methods are applied. C) the results of business activities are reported using an appropriate monetary unit. D) financial information depicts the economic substance of business activities.

Q: Assuming the same expiration date, an option with a ____ exercise price has a ____ call option premium and a ____ put option premium. a. higher; higher; higher b. higher; higher; lower c. higher; lower; higher d. lower; lower; higher e. None of these are correct.

Q: Which of the following statements concerning financial reporting is correct? A) The FASB requires all financial decision makers to adhere to a code of professional conduct. B) The Sarbanes-Oxley Act does not require businesses to maintain an audited system of internal control. C) A fundamental characteristic of useful financial information is that it fully depicts the economic substance of business activities. D) There is no attempt to eliminate the difference in accounting rules in the U.S. and elsewhere as this would prevent investors from comparing financial statements of companies from different countries.

Q: Which of the following statements concerning financial reporting is not correct? A) Accounting rules in the U.S. are called GAAP. B) Accounting rules developed by the IASB are called IFRS. C) Both GAAP and IFRS share the same goal, which is to ensure useful information to users of financial statements. D) There are no differences between the accounting rules developed by FASB and those developed by IASB.

Q: ​A speculator purchases a put option on Treasury bond futures with a September delivery date with an exercise price of 85-00. The option has a premium of 2-00. Assume that the price of the futures contract decreases to 82-00 on the expiration date and the option is exercised at that point (if it is feasible). What is the net gain? a. ​$1,968.75 b. ​$3,750.00 c. ​$3,000.00 d. ​-$2,000.00 e. ​$1,000.00

Q: Generally accepted accounting principles (GAAP) were (are) established by: A) an Italian monk in 1494. B) the U.S. Congress and the SEC. C) the PCAOB. D) the FASB on an ongoing basis.

Q: ​Options on stock indexes representing non-U.S. stocks are ____; options exchanges have been established ____. a. ​available; in numerous non-U.S. countries b. ​not available; in numerous non-U.S. countries c. ​available; only in the United States d. ​not available; only in the United States

Q: To determine whether generally accepted accounting principles (GAAP) were followed in the preparation of financial statements, an examination of: A) tax documents would be performed by the IRS. B) the companys accounting records would be performed by the SEC. C) the financial statements and related documents would be performed by an independent auditor. D) the financial statements and related documents would be performed by the FASB.

Q: When a stock index option is exercised, the cash payment is equal to a specified dollar amount multiplied by a. the index level. b. the exercise price. c. the difference between the index level and the exercise price. d. the sum of the index level and the exercise price.

Q: What would a user of financial statements learn from reading the auditors' report? A) Whether the financial statements present a fair picture of the company's financial results and are prepared in accordance with GAAP. B) Whether or not it is a good time to purchase the stock. C) How much the company plans to distribute as dividends. D) Whether or not the company has plans for future expansion.

Q: Which of the following can normally be found in quotations for stock options? a. exercise price, expiration date, and implied volatility b. exercise price, expiration date, and most recently quoted premium c. expiration date, implied volatility, and trading volume d. expiration date, most recently quoted premium, and implied volatility

Q: Which of the following actions would be considered unethical? A) A company does not distribute any of its profits to stockholders. B) A company rounds the revenues and expenses that it reports on the income statement. C) An unintentional mistake made by a new accountant. D) Receiving a paycheck for double the amount due to you and not reporting it to your employer.

Q: The ____, the higher the call option premium, other things being equal. a. lower the existing price of the underlying security relative to the exercise price b. lower the volatility of the underlying security's market price c. longer the time to maturity of the option d. lower the existing price of the underlying security relative to the exercise price AND lower the volatility of the underlying security's market price

Q: In the U.S., public companies have to be audited by independent auditors using rules approved by the: A) International Accounting Standards Board (IASB). B) Public Company Accounting Oversight Board (PCAOB). C) Financial Accounting Standards Board (FASB). D) American Institute of Certified Public Accountants (AICPA)..

Q: Reese Insurance company sold a call option on interest rate futures with an exercise price of 92-10. The premium on the call option is 2-24. Just before the expiration date, the price of Treasury bond futures (which will have a face value at maturity of $100,000) is 97-14. At this time, the option was exercised as the buyer closed out the position by selling an identical futures contract. Reese's net gain from selling the call option is $____. a. 2,687.50 b. -2,687.50 c. 2,375.00 d. 7,437.50 e. None of these are correct.

Q: ​Put options are typically used to hedge when portfolio managers are mainly concerned about a. ​a permanent decline in a stock's value. b. ​a permanent increase in a stock's value. c. ​a temporary decline in a stock's value. d. ​a temporary increase in a stock's value.

Q: In the U.S., Generally Accepted Accounting Principles (GAAP) are established by the: A) International Accounting Standards Board (IASB). B) Public Company Accounting Oversight Board (PCAOB). C) Financial Accounting Standards Board (FASB). D) American Institute of Certified Public Accountants (AICPA).

Q: On an options exchange, most option trades are executed a. electronically. b. on the trading floor. c. by personal phone call. d. None of the above.

Q: Which of the following requires that its members adhere to a Code of Professional Conduct? A) SEC B) FASB C) PCAOB D) AICPA

Q: When several parties can reach similar values in financial statements by using similar methods, the information is said to be: A) comparable. B) understandable. C) verifiable. D) timely.

Q: Options trading is regulated by the a. Options Clearing Corporation. b. International Securities Exchange. c. Securities and Exchange Commission. d. Federal Reserve.

Q: Which one of the following is not likely to be a consequence of fraudulent financial reporting? A) The companys stock price drops once the fraud is discovered. B) Innocent accountants who work for the companys CPA firm lose their jobs. C) Creditors recover 100% of amounts owed to them. D) Employees lose their retirement savings.

Q: ​A speculator purchased a call option with an exercise price of $31 for a premium of $4. The option was exercised a few days later when the stock price was $34. What was the return to the speculator? a. ​25 percent b. ​-25 percent c. ​-3.2 percent d. ​-2.9 percent

Q: Creditors look at the balance sheet to see whether the company: A) is profitable. B) owns enough assets to pay what it owes to creditors. C) has had a positive cash flow from operations. D) is paying sufficient dividends to stockholders.

Q: Which of the following is NOT true with respect to market makers? a. They benefit from the spread. b. They may earn profits when they take positions in options. c. They are not subject to a risk of loss on their positions in options. d. All of these are true with respect to market makers.

Q: Investors are often interested in the amount of net income distributed as dividends. Where would investors look for this information in the companys annual report? A) Statement of retained earnings B) Balance sheet C) Notes to the financial statements D) Income statement

Q: The premium on an existing put option should ____ when there is a reduction in the volatility of the underlying stock. a. be negative b. decline c. increase d. be unaffected e. be negative AND decline

Q: Which of the following statements about the use of financial statements is not correct? A) When choosing between a company that pays steady dividends and one that retains its earnings to support future growth, investors will always choose the company that pays steady dividends. B) Companies can develop reputations for honest financial reporting even when conveying bad news. C) Trends in a company's net income from year to year can provide clues about its future earnings, which can help investors to decide whether to buy stock in the company. D) Information in the notes to the financial statements can influence a user's interpretation of balance sheet and income statement information.