Q&A Hero

Q: Which of the following would not be reported as a liability on the balance sheet? A) Accounts Payable B) Common Stock C) Notes Payable D) Salaries and Wages Payable

Q: ​Systemic risk reflects the risk that a particular event could a. ​cause losses at a firm due to inadequate management control. b. ​spread adverse effects among several firms or among financial markets. c. ​cause a loss in value due to market conditions. d. ​have a larger effect on the futures position than on the position being hedged.

Q: Which of the following would not be reported as an asset on the balance sheet? A. Accounts Receivable B. Supplies C. Retained Earnings D. Cash

Q: Clarke Company plans to satisfy cash needs in nine months by selling its Treasury bond holdings for $4 million. However, Clarke is concerned that interest rates might increase over the next three months. To hedge against this possibility, Clarke plans to sell Treasury bond futures. Thus, Clarke sells ____ futures contract for a price of 99-12. Assuming that the actual price of the futures contract declines to 97-20, Clarke would make a ____ of $____ from closing out the futures position. a. 40; profit; $76,800 b. 40; loss; $76,800 c. 50; profit; $70,000 d. 40; profit; $70,000 e. None of these are correct.

Q: The statement of cash flows shows the following information: Cash provided by operating activities of $16,500 Cash used by investing activities of $8,400 Cash used by financing activities of $2,900 The beginning cash was $14,000. What is the amount of cash at the end of the period? A) $41,800. B) $30,500. C) $8,800. D) $19,200.

Q: ​___________ involves the buying or selling of stock index futures with a simultaneous opposite position in the stocks that the index comprises. a. ​Dynamic asset allocation b. ​Cross-hedging c. ​Index arbitrage d. ​Net hedging

Q: The income statement reports: A) the assets, liabilities, and stockholders equity of a company. B) cumulative earnings that have not been distributed to stockholders. C) the amount of profit distributed to owners during the period. D) the amount of revenues earned and expenses incurred during the period.

Q: ​Which of the following statements is incorrect? a. ​Circuit breakers are trading restrictions imposed on specific stocks or stock indexes. b. ​Circuit breakers guarantee that prices will turn upward. c. ​Circuit breakers may be able to prevent large declines in prices that would be attributed to panic selling rather than to fundamental forces. d. ​Circuit breakers may allow investors to determine whether circulating rumors are true.

Q: Stockholders equity is: A) a liability of the business. B) an economic resource controlled by the business. C) the owners claims on the business. D) the profit generated by the business.

Q: ​The initial margin of a futures contract is typically between ____ percent of a futures contract's full value. a. ​0 and 2 b. ​5 and 18 c. ​25 and 40 d. ​45 and 60

Q: Net income appears on which of the following financial statements? A) Balance sheet and income statement B) Balance sheet and statement of retained earnings C) Balance sheet and statement of cash flows D) Income statement and statement of retained earnings

Q: ​If a financial institution expects that the market value of its municipal bonds will decline because of economic conditions, it could hedge its position by ____ futures contracts on ____. a. ​purchasing; Treasury bonds b. ​purchasing; the S&P 500 Index c. ​purchasing; the Municipal Bond Index d. ​selling; the Municipal Bond Index

Q: A company incurred $5,000 in wages for employees for the year. Of these wages, $4,500 was paid by the end of the year. Which of the following statements is correct? A) Salaries and Wages Payable on the income statement will be $4,500. B) Salaries and Wages Expense on the income statement will be $500. C) Salaries and Wages Expense on the balance sheet will be $5,000. D) Salaries and Wages Payable on the balance sheet will be $500.

Q: ​Assume that corporate bond portfolio managers are concerned about the possibility of many bond defaults resulting from a future recession. A short position in Treasury bond futures ____ an effective hedge against the credit (default) risk. A short position in Treasury bill futures ____ an effective hedge against the credit (default) risk. a. ​would be; would be b. ​would be; would not be c. ​would not be; would not be d. ​would not be; would be

Q: Which of the following items appear on more than one financial statement? A) Ending Cash and ending Retained Earnings B) Ending Cash and beginning Retained Earnings C) Sales Revenue and ending Retained Earnings D) Beginning Cash and Sales Revenue

Q: Which of the following statements is incorrect regarding single stock futures? a. Investors who expect a particular stocks price to decline over time can sell futures contracts on that stock, or they can sell the stock short. b. Single stock futures are available only on stocks of companies that are in the S&P 500 index. c. Single stock futures are traded in the United States at OneChicago. d. Single stock futures are regulated by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission. e. All of these are correct.

Q: During the first year of operations, a company sold $100,000 of goods to customers and received $90,000 in cash from customers. The remainder is owed to the company at the end of the year. The company incurred $70,000 in expenses for the year and paid $65,000 in cash for these expenses. The remainder is owed by the company at the end of the year. Based on this information, what is the amount of net income for the year? A) $25,000 B) $35,000 C) $20,000 D) $30,000

Q: A company incurred $2,000 for utilities for the last month of Year 2. The company paid the bill during the first month of Year 2. Which of the following statements is correct? A) The related $2,000 should be reported on the income statement for Year 1 as Utilities Expense. B) Since it has not been paid, this utility bill would not be reported in the financial statements for Year 1. C) The related $2,000 should be included in Accounts Receivable on the balance sheet at the Year 1. D) The related $2,000 should be included in Utilities Expense on the balance sheet at the end Year 1.

Q: ​An unexpected ____ in the consumer price index tends to create expectations of ____ interest rates and places ____ pressure on Treasury bond futures prices. a. ​increase; higher; downward b. ​increase; lower; downward c. ​increase; higher; upward d. ​decrease; higher; downward e. ​none of the above

Q: A bank has $500 million in long-term assets and $400 million in long-term fixed-rate liabilities. If interest rates rise, the banks net exposure will be ________, assuming that the long-term assets and liabilities are similarly affected. Therefore the bank should focus on hedging the net exposure amount by creating a ______. a. $100 million; short hedge b. $100 million; long hedge c. $900 million; short hedge d. $900 million; long hedge

Q: Which of the following would not be reported on the balance sheet? A) Accounts Receivable B) Accounts Payable C) Advertising Expense D) Cash

Q: Assume that a futures contract on Treasury bonds with a face value of $100,000 is purchased at 93-00. If the same contract is later sold at 94-18, what is the gain, ignoring transaction costs? a. $1,180,000 b. $118 c. $11,800 d. $15,625 e. $1,562.50

Q: Which of the following would be acceptable as an alternative name for the income statement? A) Statement of operations B) Statement of financial position C) Statement of retained earnings D) Statement of revenues and expenses

Q: ____ take positions in futures to reduce their exposure to future movements in interest rates or stock prices. a. Hedgers b. Day traders c. Position traders d. None of these are correct.

Q: The WC Company borrowed $26,500 from a bank during the year. This borrowing would be reported on the statement of cash flows as a(n): A) investing activity is the amount of ($26,500). B) financing activity in the amount of ($26,500). C) investing activity is the amount of $26,500. D) financing investing activity is the amount of $26,500.

Q: ​If speculators believe interest rates will ____, they would consider ____ a T-bill futures contract today. a. ​increase; selling b. ​increase; buying c. ​decrease, selling d. ​decrease; purchasing a call option on

Q: Which of the following descriptions about a note payable is correct? A) Written promise to repay a loan B) A type of long-term asset C) Generally informal in nature D) Reported as part of stockholders equity on the balance sheet

Q: ​Speculators who normally close out their futures positions on the same day that the positions were initiated are referred to as a. ​day traders. b. ​hedgers. c. ​closed-end traders. d. ​position traders.

Q: Every financial statement should have "who, what, and when" in its heading. These include the: A) name of the person preparing the statement, the type of financial statement, and when the financial statement was reported to the SEC. B) name of the person preparing the statement, the name of the company, and the date the statement was prepared. C) name of the company, the type of financial statement, and the time period or date from which the data were taken. D) name of the company, the purpose of the statement, and when the financial statement was reported to the IRS.

Q: ​Speculators in futures contracts that normally maintain their futures positions for extended periods of time (such as weeks or months) are referred to as a. ​day traders. b. ​hedgers. c. ​closed-end traders. d. ​position traders.

Q: Which of the following statements about a companys fiscal year is correct? A) All companies have a December 31 year end. B) It usually corresponds to a companys slow period. C) It always corresponds to the calendar year. D) The Financial Accounting Standards Board assigns a year end to each company.

Q: Financial futures contracts on U.S. securities are ____ by non-U.S. financial institutions. a. not allowed to be traded b. rarely desired c. commonly traded d. only allowed to be traded

Q: Assume that a stock mutual fund uses stock index futures as it conducts dynamic asset allocation. This means that the mutual fund a. liquidates all of its stock holdings whenever it expects a market downturn. b. maintains a constant buy position in stock index futures. c. maintains a constant sell position in stock index futures. d. None of these are correct.

Q: Which of the following is not an expense? A) Wages of employees B) Interest incurred on a note payable C) Dividends D) Corporate income tax

Q: ​__________ occurs when a firm does not have adequate controls to monitor the employees responsible for its futures positions and those employees take more speculative positions than the firm desires. a. ​Credit risk b. ​Control risk c. ​Operational risk d. ​Management risk

Q: Which of the following statements about the format of financial statements is correct? A) A double underline is drawn below the subtotal for Total Liabilities on the balance sheet. B) Dollar signs are omitted if the heading states that amounts are reported in U.S. dollars. C) Dividends are shown in parentheses on the statement of retained earnings. D) The order of the items included in the heading of each financial statement is as follows: the name of the business, the time period covered by the financial statement, and the title of the report.

Q: Stock index futures are commonly priced ____ than the stock index itself. a. higher b. lower c. either higher or lower d. None of these are correct.

Q: The purpose of a statement of retained earnings is to: A) estimate the current value of a company's assets. B) report the way that net income and dividends affected the financial position of the company during the period. C) show where the cash is flowing into and out of a company. D) report the specific revenues and expenses arising during the period.

Q: A financial institution that wishes to reduce its exposure to the possibility of declining interest rates might use a. a long hedge. b. a short hedge. c. a day hedge. d. index arbitrage.

Q: Which of the following statements about the financial statements is correct? A) The change in cash reported on the statement of cash flows is also reported on the statement of retained earnings. B) Both the income statement and the statement of cash flows show the result of a company's operating activities. C) The statement of cash flows is for a period of time while the income statement is at a point in time. D) The statement of cash flows is at a point of time while the income statement is for a period of time.

Q: The use of financial leverage a. reduces gains on futures contracts. b. reduces losses on futures contracts. c. magnifies both gains and losses on futures contracts. d. magnifies losses on futures contracts but has no effect on gains.

Q: ​As applied to the futures markets, the basis is the a. ​difference between the price of a security and the price of a futures contract on the security. b. ​gain or loss from hedging with futures contracts. c. ​difference between a futures contract price and the initial deposit required. d. ​price paid for a futures contract after accounting for transaction costs. e. ​price paid for an option contract.

Q: Which of the following statements about this statement of retained earnings is not correct? HOOPER'S HOPS Statement of Retained Earnings For the Year Ended December 31, Year 3 Retained Earnings, January 1, Year 3 $167,800 Add: Net Income 219,100 Subtract: Dividends (36,400 ) Retained Earnings, December 31, Year 3 $350,500 A) Retained earnings of $350,500 will appear on the balance sheet as of December 31, Year 3. B) The net income in the above statement came from the income statement for the year ending December 31, Year 3. C) Dividends are shown in parentheses because they are distributions of earnings to the stockholders. D) The ending retained earnings amount represents the amount of cash at the end of Year 3.

Q: Find the missing data. CINNAMON AND SPICE, INC. Income Statement For the Year Ended December 31, Year 3 Revenues Sales Revenue $3,000,000 Service Revenue 810,200 Total Revenues Unknown Expenses Salaries and Wages Expense 1,314,900 Advertising and Promotion Expenses 482,200 Other Selling and Administrative Expenses Unknown Interest Expense 225,600 Income Tax Expense 117,700 Other Expenses 253,700 Total Expenses 3,445,600 Net Income Unknown A) Total revenues are $3,810,200, other selling and administrative expenses are $1,051,500, and net income is $364,600. B) Total revenues are $2,495,300, other selling and administrative expenses are $1,051,500, and net income is ($950,300). C) Total revenues are $364,600, other selling and administrative expenses are $3,081,000, and net income is $7,255,800. D) Total revenues are $3,810,200, other selling and administrative expenses are $364,600, and net income is $7,255,800.

Q: ____ risk is the risk that the position being hedged by a futures contract is not affected in the same manner as the instrument underlying the futures contract. a. Market b. Liquidity c. Credit d. Basis e. None of these are correct.

Q: Which of the following would be reported on the income statement for Year 2? A) Supplies that were purchased and used in Year 1 but paid for in Year 2. B) Supplies that were purchased in Year 1, but used in Year 2. C) Dividends that were paid in Year 2. D) Accounts Receivable as of December 31, Year 2.

Q: Which of the following is NOT a type of risk associated with futures contracts? a. basis risk b. liquidity risk c. market risk d. postpayment risk

Q: ​Trading restrictions imposed on specific stocks or stock indexes are referred to as a. ​index busters. b. ​index options. c. ​circuit breakers. d. ​protective covenants.

Q: Which of the following would not affect a company's net income? A) A change in the company's income taxes B) Changing the selling price of a company's product C) Paying a dividend to stockholders D) Advertising a new product

Q: Evan purchased a futures contract on Treasury bonds at a price of 102-12. Two months later, Evan sells the same futures contract in order to close out the position. At that time, the futures contract specifies 103-15. What is Evan's nominal profit? The par value of the futures contract is $100,000. a. $1,030.00; profit b. $1,030.00; loss c. $1,093.75; profit d. $1,093.75; loss e. None of these are correct.

Q: Dividends are reported on the: A) income statement. B) balance sheet. C) statement of retained earnings. D) income statement and balance sheet.

Q: The Whackem-Smackem Software Company sold $11 million of computer games in its first year of operations. The company received payments of $7.5 million for these computer games. The companys income statement would report: A) Accounts Receivable of $3.5 million. B) expenses of $3.5 million. C) Sales Revenue of $7.5 million. D) Sales Revenue of $11 million.

Q: Assume that a T-bill futures contract with a face value of $1 million is purchased at a price of $95.00 per $100 face value. At settlement, the price of T-bills is $95.50. What is the difference between the selling and purchase price of the futures contract? a. $.50 b. $50 c. $500 d. $5,000 e. None of these are correct.

Q: According to the text, using a futures contract on one financial instrument to hedge securities not identical to the instrument represented by the futures contract is known as _______ hedging. a. cross b. ratio c. beta d. liquid

Q: If XYZ Company had $12 million in revenue and net income of $3 million, then its: A) expenses must have been $15 million. B) expenses must have been $9 million. C) assets must have been $12 million. D) assets must have been $3 million.

Q: Assume that speculators purchased a futures contract at the beginning of the year. If the price of the security represented by the futures contract ____ over the year, then these speculators would likely have purchased the futures contract for ____ than they can sell it for. a. increases; more b. decreases; less c. remains the same; more d. increases; less

Q: During its first year of operations, Widgets Incorporated reported Sales Revenue of $386,000 but collected only $303,000 from customers. At the end of the year, Accounts Receivable equal: A) $689,000. B) $386,000. C) $303,000. D) $83,000.

Q: A company began the year with assets of $100,000, liabilities of $20,000, and stockholders equity of $80,000. During the year assets increased $55,000 and stockholders equity increased $20,000. What was the change in liabilities for the year? A) Increase of $75,000 B) Increase of $35,000 C) Decrease of $75,000 D) Decrease of $35,000

Q: Companies with international trade can hedge ____ by ____ currency futures. a. payables; selling b. receivables; buying c. payables; buying d. payables; selling AND receivables; buying e. receivables; buying AND payables; buying

Q: During Year 3, a company's assets increase by $56,000 and its liabilities increase by $38,000. If no dividends were paid and there were no changes in the amount of common stock issued during the year, net income for Year 3 was: A) $56,000. B) $18,000. C) $94,000. D) $38,000.

Q: Assume that a bank obtains most of its funds from large CDs with a five-year maturity. Its assets are in the form of loans with rates that adjust every six months. The bank would be ____ affected if interest rates decline. To partially hedge its position, it could ____ interest rate futures contracts. a. adversely; purchase b. favorably; sell c. favorably; purchase d. adversely; sell

Q: A company's balance sheet contained the following information: Common Stock $12,000 Total Assets $176,000 Accounts Payable 64,000 Retained Earnings 28,000 Notes Payable is the only other item on the balance sheet. Notes Payable must equal: A) $200,000. B) $8,000. C) $72,000. D) $344,000.

Q: ​According to the text, when a financial institution sells futures contracts on debt securities in order to hedge against an increase in interest rates, this is referred to as a. ​a long hedge. b. ​a short hedge. c. ​a closed out position. d. ​basis trading.

Q: At the end of last year, the company's assets totaled $860,000 and its liabilities totaled $740,000. During the current year, the company's total assets increased by $58,000 and its total liabilities increased by $24,000. At the end of the current year, stockholders equity was: A) $154,000. B) $120,000. C) $34,000. D) $178,000.

Q: ​Interest rate futures are not available on a. ​Treasury bonds. b. ​Treasury notes. c. ​Eurodollar CDs. d. ​the S&P 500 index.

Q: Which of the following is not correct? A) Assets = Liabilities + Stockholders' Equity B) Liabilities = Assets Stockholders' Equity C) Stockholders' Equity + Liabilities Assets = 0 D) Assets = Liabilities Stockholders' Equity

Q: ​Currency futures may be purchased to hedge ____ or to capitalize on the expected ____ of that currency against the dollar. a. ​receivables; appreciation b. ​receivables; depreciation c. ​payables; depreciation d. ​payables; appreciation

Q: ​ _________ take positions in financial futures to reduce their exposure to future movements in interest rates or stock prices; ________ commonly take the opposite position and thus serve as counterparties on many transactions. a. ​Speculators; hedgers b. ​Hedgers; speculators c. ​Arbitrageurs; speculators d. ​Hedgers; arbitrageurs

Q: The Publish or Perish Printing Company paid a dividend to stockholders. This will be reported on the: A) audit report. B) income statement. C) balance sheet. D) statement of retained earnings.

Q: ​A financial institution that maintains some Treasury bond holdings sells Treasury bond futures contracts. If interest rates increase, the market value of the bond holdings will ____, and the position in futures contracts will result in a ____. a. ​increase; gain b. ​increase; loss c. ​decrease; gain d. ​decrease; loss

Q: The Don't Bite Me Pest Control Company has 10,000 gallons of insecticide supplies on hand that cost $300,000; a bill from the vendor for $100,000 of these supplies has not yet been paid. The company expects to earn $800,000 for its services when it uses the insecticide supplies. The companys balance sheet would include an asset, Supplies, in the amount of: A) $10,000. B) $200,000. C) $300,000. D) $800,000.

Q: The value of an S&P 500 futures contract is $250 times the index. Assume the futures price on the S&P 500 index is 2400 at the time of purchase. If the index price is 2560 when the position is closed out, the gain is a. $40,000. b. $20,000. c. $33,190. d. $25,000. e. $35,500.

Q: If there are ____ traders with buy offers than sell offers for a particular contract, the futures price will ____ until this imbalance is removed. a. more; decrease b. more; rise c. fewer; rise d. None of these are correct.

Q: Which of the following are the three basic elements of the balance sheet? A) assets, liabilities, and retained earnings. B) assets, liabilities, and common stock. C) assets, liabilities, and revenues. D) assets, liabilities, and stockholders' equity.

Q: The main role of a futures exchange is to initiate buy positions on any futures contracts that it believes will increase in value over time. a. True b. False Indicate the answer choice that best completes the statement or answers the question.

Q: Assets: A) represent the amounts earned by a company. B) must equal the liabilities of a company. C) must equal the stockholders' equity of the company. D) represent the resources presently controlled by a company.

Q: Dynamic asset allocation involves the switching between risky and low-risk investments by institutional investors over time in response to changing expectations. a. True b. False

Q: Which of the following statements about a fiscal year is correct? A) Companies can choose to end their fiscal year on any date they feel is most relevant. B) Companies must end their fiscal year on March 31, June 30, September 30, or December 31. C) Companies can select any date except a holiday to end their fiscal year. D) Companies must end their fiscal year on December 31.

Q: Purchasers of currency futures contracts are required to hold the contract until the settlement date and accept delivery of the foreign currency at that time. a. True b. False

Q: Financial statements are most commonly prepared: A) daily. B) monthly, quarterly and annually. C) as needed. D) weekly.