1.

Which of the following would NOT cause a change in cash flow from
operations

a) A decrease in notes payable

b) An increase in interest expense
c) An increase in accounts payable
d) An increase in cost of goods sold

8. The choice of inventory accounting method has cash flow effects because it
affects
a) purchases
b) sales
c) taxes
d) the turnover ratio

9. Zippy Company is trying to determine which inventory method to use when

prices are rising and Inventories are increasing. They would like to have their
cash flows as high as possible. Which of the following methods would help
Zippy Company to obtain the highest amount of cash flow?

a) Specific identification
b) Last in First Out (LIFO)
c) Weighted average cost
d) First in First Out (FIFO)

10. In 2001, Jules Company realized that they understated their Inventory by
$1,500 in 1999. How should Jules Company handle this?

a) An adjustment to increase cost of goods sold (COGS) by $1,500 needs to

be made.
b) An adjustment to increase inventory by $1,500 needs to be made.
c) An adjustment to reduce inventory by $1,500 needs to be made.
d) No adjustment needs to be made.

11. Which of the following potential parties to a repurchase agreement is least

likely to participate? A:

a) pension fund manager hedging a long-term asset.

b) financial institution.
c) portfolio manager for a money market fund.
d) dealer in Treasury securities.

12. The following is the sequence of events that pertains to the Riley Corporation:

 Balance of $300 in allowance for doubtful accounts

 Balance of $900 in accounts receivable
 Write off or $100 of a receivable that is already included in the allowance
for doubtful accounts. How will the financial statements be affected by the
write off?
a) The net realizable value will decrease to $500.
 b) Allowance for doubtful accounts will increase to $400.
c) Allowance for doubtful accounts will decrease to $200.
d) The net realizable value will increase to $700.

13. Which of the following statements about repurchase agreements (repos) is

TRUE?

a) In a repurchase agreement, the seller makes funds available to the

buyer.
b) Repurchase agreements are risk-free.
c) The repurchase price of a repo is greater than the original selling price
because of movements in the bond’s value during the repo period.
d) The same agreement is used for repurchase agreements and reverse
purchase agreements.

14. Which of the following statements regarding financing bond purchases with
margin accounts is FALSE?

a) The loan in a margin transaction is collateralized by the purchased

security.
b) The required margin percentage changes daily.
c) In the U.S., margin accounts are regulated by the Federal Reserve.
d) Individuals are more likely than institutions to use margin accounts to
finance bond purchases.

15. If prices are rising and two firms are identical except for inventory
methods: the firm using FIFO will have

a) higher net income

b) lower inventory
c) lower net income
d) higher total cash flow

16. What does the term trading on equity mean?

a) Intra-day buying and selling of equity shares to maximize gain
b) Frequent buy-back of equity to reduce equity base
c) Strategy of having high leverage in order to maximize return for equity
shareholders
d) Short-sale of equity in a falling market

17. A commercial paper can have a maximum tenor of

a) 90 days
b) 365 days
c) 180 days
d) There is no restriction

18. All of the following will cause demand to increase EXCEPT

a) the price of substitute goods increases
b) consumer income falls
c) the price of complementary goods falls
 d) future prices are expected to increase

19. The anti-dumping argument in favor of trade restrictions is the argument

the restrictions should be imposed to:
a) discourage foreign firms from engaging in price competition
b) prevent foreign firms from dumping unwanted products in domestic
markets.
c) discourage foreign firms from exporting products of inferior quality.
d) prevent foreign firms from selling their product below cost.