Inflation Is Assumed

Topics: Generally Accepted Accounting Principles, Stock market, Balance sheet Pages: 42 (7686 words) Published: November 23, 2012
Inflation is assumed

Chapter 1

True / False Questions
1. Inflation is assumed to be a temporary problem that does not affect financial decisions.  FALSE

2. Financial Capital is composed of long-term plant and equipment, as well as other tangible investments.  FALSE

3. Real Capital is composed of long-term plant and equipment.  TRUE

 4. During the 1930s, financial practice revolved around such topics as the preservation of capital, maintenance of liquidity, reorganization of financially troubled corporations and bankruptcy.  TRUE


5. In the mid 1950s, finance began to change to a more analytical, decision-oriented approach.  TRUE

6. Recently, the emphasis of financial management has been on the relationship between risk and return.  TRUE

 7. The most common partnership arrangement carries limited liability to the partners.  FALSE

8. In terms of revenues and profits, the corporation is by far the most important form of business organization in the United States.  TRUE

9. Dividends paid to corporate stockholders have already been taxed once as corporate income.  TRUE

 10. One advantage of the corporate form of organization is that income received by stockholders is not taxable since the corporation already paid taxes on the income distributed.  FALSE

11. A corporation must have more than 75 stockholders to qualify for Subchapter S designation.  FALSE

12. Profits of a Subchapter S corporation are taxed at corporate tax rates.  FALSE

13. Corporate governance issues have become less important to the financial community during the first decade of the new millennium.  FALSE

14. Agency Theory examines the relationship between companies and their customers.  FALSE

15. A major focus of the Sarbanes Oxley Act is to make sure that publicly traded companies accurately present their assets, liabilities and income in their financial statements.  TRUE

16. The Sarbanes Oxley Act is primarily intended to increase public scrutiny of private companies that had previously been exempt from many public disclosure requirements.  FALSE

17. Timing is not a particularly important consideration in financial decisions.  FALSE

18. Maximizing the earnings of the firm is the goal of financial management.  FALSE
19. Insider trading involves the use of information not available to the general public to make profits from trading in a company's stock.  TRUE

 20. Financial markets exist as a vast global network of individuals and financial institutions that may be lenders, borrowers, or owners of public companies worldwide.  TRUE

21. Money markets refer to those markets dealing with short-term securities having a life of one year or less.  TRUE

22. Money markets refer to markets where excess corporate cash is exchanged for foreign currencies that can earn a higher return than domestic money.  FALSE

23. Capital markets refer to those markets dealing with short-term securities having a life of one year or less.  FALSE

 24. The primary market includes the sale of securities by way of initial public offerings.  TRUE

25. High quality initial public offerings are usually sold in a primary market, such as the New York Stock Exchange. However, low-quality stocks must usually be sold in secondary markets, such as NASDAQ.  FALSE

26. Although NASDAQ is a secondary market, some of the firms traded there, such as Microsoft, are large enough to move to the primary market if they so desire.  FALSE

 27. The secondary market characteristically has had stable prices over the past 20 years.  FALSE

28. In the United States, stocks sold on either the New York Stock Exchange or NASDAQ are considered sold in the primary market.  FALSE

 29. New issues are sold in the secondary market. 

30. Existing securities are traded in the secondary market.  TRUE 

31. Many companies have cross-listed their stock on multiple...
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