WGU C214 Study Guide Questions and Answers Rated A

WGU C214 Study Guide Questions and Answers Rated A What standards are used to help US investors understand and compare foreign financial statements to domestic financial statements? ✔✔International Financial Reporting ...

WGU C214 Study Guide Questions and Answers Rated A What standards are used to help US investors understand and compare foreign financial statements to domestic financial statements? ✔✔International Financial Reporting Standards When a company is optimizing its resources and maintaining or improving productivity, they are engaging in what hypothesis ✔✔Efficient Market Hypothesis What is the basic type of negotiable debt? ✔✔Bonds What is the characteristic of a stock sold in the secondary markets? ✔✔Stocks sold in the secondary markets are traded after the initial offering. If a company is engaged in lobbying for tariffs and trade restrictions, if they are successful, what are the two principal impacts? ✔✔Protection for the lobbyist and higher prices for the consumer pre reduced competition. Describe what an income statement is in one sentence? ✔✔It covers a period of time and starts with sales, takes out expenses, and ends with net income. What is the difference between taxable income and accounting income? ✔✔Accounting income is reported as net income on the income statement whereas Taxable income is used to determine the amount of tax a firm must pay. Net Income 15,000 Depreciation Exp 2,000 Change in Operating Assets 1,200 Change in PP&E 2,000 Change in long-term liab. 1,200 Dividends paid 1,500 What is the Cash Flow from Financing? ✔✔CFF= Incr Stock + Incr Debt -Dividends Paid = 1200-1500 = -300 Net Income 121,000 Depreciation Expense 4,000 Accounts Receivable (30,000) Change in net PP&E 15,000 Accounts Payable (5,000) New Bank Loan 12,000 Dividends Paid 1,500 What is the Cash Flow from Investing? ✔✔CFI = Change in Net PPE + Depreciation Expense = 15,000 + 4,000 = 19,000 A grandmother sets up a trust for her grandson. She desires him to receive $20,000 per year. Her investment advisor finds an investment vehicle that will yield 7%. How much will the grandmother have to put into the investment? ✔✔20000/.07= 140*12 =1680.00 What is the number of payments of a semi-annual bond if the number of years remaining are 12? ✔✔There are 24 semi-annual payments remaining bWhat is the expected rate of return for a stock that has a eta of 2.1. The market rate is 8.5% with a risk free rate of 2%. ✔✔E[R]=Rf + B(Rm - Rf) =2% + 2.1(8.5%-2.0%) =.02 + 2.1(0.0850-.02) =.01565 or 15.65% A company has a trial balance that shows $13,000 in bonds payable. On which financial statement should this be shown? ✔✔This would be shown on the Balance Sheet under Long Term Liabilities Which is the principal account comprising Cash Flow from Investing ✔✔The principal account for CFI is PP& E What is the cash effect on the Statement of Cash Flow when current liabilities decline? ✔✔Results in a decrease in cash If two companies use different inventory valuation methods, what difference would that be called in calculating net income? ✔✔Accounting Difference There are two competitors. The gross margin for Green Company is .45. The gross margin for Red Company is .40 Which company has a more productive manufacturing process? Why? ✔✔Green company has a more productive manufacturing process because the high gross margins are usually associated with and efficient production process. What is the current ratio given a balance sheet with the following account balances: Cash 10,000 Accounts Receivable 252,000 PP&E 725,000 Accounts Payable 93,000 Bank Loan 425,000 Common Stock 1,000,000 ✔✔Current Ratio = Current Assets/Current Liabilities =10000 + 252000/93000 =262000/93000 =2.8172 If a nephew anticipates a $250,000 gift from a wealthy uncle in five years, what is the present value of the gift if the discount rate is 6%? ✔✔Calculator: FV= 250000 I/R= 6 N= 5 Cpt PV = -186,814.54 Or PV=FV/(1+r)n =250000/(1.07)5 =250000/1.3382 =186,184.54 A stockbroker wishes to retire in 15 years with $3,000,000 in her retirement account. How much will she have to put aside at the end of each year to reach her goal if she can invest her money at 8.5%? ✔✔Calculator FV = 3000000 I/R= 8.5 N=15 CPT, PMT= 106,261.38 If there is a bankruptcy and a loan wont be paid off until another debt is satisfied, what is the loan called? ✔✔Subordinated Debenture Example: 1st mortgage is primary, Second Mortgage is secondary. Secondary Mortgage is Subordinated Debenture A $1000 bond has a coupon rate of 3.5% and a market rate of 5%. What is the value of the bond if it matures in 5 years? ✔✔Calculator: PV=- 1000 PMT = 35 I/R= 5 N= 5 CPT, FV= 1082.88 If a bond has a coupon rate lower that the yield to maturity, what can we say about the bond price? ✔✔Bond price at a discount What will the annual interest payment be for a zero coupon bond? ✔✔Zero Coupon bonds do not make interest payments Which securities are issued by non-federal government organizations that might not be subject to federal income tax? ✔✔Municipal Bonds What is the APY in relationship to the APR if compounding happens more frequently than once a year? ✔✔If there is more than one compounding period, the APY will be greater than the APR. If there is only one compounding period per year, the APY and the APR will be the same. A 2% $1000 bond matures in 3 years. If the market interest rate is 2.9 what is the price? ✔✔Calculator: N = 3 I/Y = 2.9 FV = 1000 PMT (2% of 1000) CPT PV = 974.49 A company wishes to improve the marketability of their bond and does so by putting in the option for the investor to replace their bond wi