Q&A Hero

Q: when computing the cost of owning: to commence calculating a comparative cash flow, first determine the equipment purchase price. a. correct b. not correct c. not applicable

Q: in the near future there is a possibility that certain companies may be required to adopt international accounting standards, including standards regarding the treatment of leases. if so, the entities affected would include: a. all companies that issue financial statements used for external purposes b. u.s. publicly-held companies c. both of the above d. neither of the above

Q: in the u.s., financial statements intended for external purposes must follow gaap, or generally accepted accounting principles. the treatment of equipment leases in financial statement used for external purposes: a. falls under gaap b. is not affected by gaap c. neither of the above

Q: a second set of examples compares the cost of owning versus the cost of leasing for northside clinic, a for-profit organization. the net advantage to leasing (versus owning) for northside amounted to $1,489. why is northsides net result so different from southsides net result? a. because the not-for-profit company could recognize tax savings b. because the for-profit company was unable to recognize tax savings c. both of the above d. neither of the above

Q: in the chapter about owning versus leasing, one set of examples compares the cost of owning versus the cost of leasing for southside clinic, a not-for-profit organization. the net advantage to owning (versus leasing) for southside amounted to $676. the difference between the two methods of financing: a. is so small that it might be disregarded b. may be considered as a nearly neutral comparison between the two methods c. both of the above d. neither of the above

Q: an equipment lease that is not treated as a purchase because it does not meet all the purchase criteria is then treated as a rental. rental lease payments are recorded as: a. an asset b. an operating expense c. neither of the above

Q: when purchasing equipment, the asset representing the equipment purchase is recorded on the organization's: a. statement of income b. balance sheet c. neither of the above

Q: capitalizing an equipment lease means the equipment must be recorded on the books of the organization as: a. a purchase b. an expense of current operations c. neither of the above

Q: a financial lease that meets purchase criteria should be treated on the books of the organization as: a. an asset b. a liability c. a current operating expense d. a and b e. none of the above

Q: another source of capital is selling an additional interest in the organization. this method typically involves a for-profit corporation selling additional shares of common __________ to raise funds.

Q: borrowing from a lending institution is a typical source of capital and is generally classified by the length of the loan. thus short-term borrowing is commonly expected to be repaid within a __________-month period.

Q: dr. larry brown (dr. smith's cousin) is a partner in a physician practice partnership. the partnership owes $400,000 in debt and has $600,000 in partner's equity. thus the partnership capital structure, or debt-equity relationship, would be __________.

Q: dr. robert smith's practice is preparing to open a second office location. the bank loan for new equipment and furnishings amounts to $20,000 at 12% per year. dr. smith will make monthly payments. how much interest expense will be due for the first month's payment on the loan? $__________.

Q: the typical information contained in an amortization schedule commonly includes: payment number; total payment amount; principal portion of payment; __________ portion of payment; and remaining principal balance.

Q: amortization expense is a noncash expense that is assigned to __________ reporting periods.

Q: the term "loan costs" covers expenses necessary to __________ the loan.

Q: a for-profit or proprietary company may be able to retain the excess of revenues over expenses (the operating profits) as a source of capital.

Q: one example of borrowing from investors - assuming the organization is big enough and has the proper legal structure to do so - is that of selling certificates of deposit.

Q: the prorated real estate taxes typically represent an expense to be reported in the current year.

Q: points represent a certain percentage of the loan amount paid to cover costs of the prorated real estate tax.

Q: when considering a real estate mortgage, which of the following questions are not relevant or are not appropriate? a. what is the roi (return on investment)? b. what is the interest rate (cost of money)? c. either of the above d. neither of the above

Q: decisions about how to obtain capital: a. may impact long-term cash flow b. are an important part of financial management c. are an important part of financial decision making d. may have to work through a formal approval process e. all of the above f. none of the above

Q: because of all the implications, management decisions about business loans are often interwoven with strategic planning. a. correct b. not correct c. not applicable

Q: when management considers a real estate purchase that involves a mortgage, important considerations must be taken into account. which items in the list below should be considered before committing to a real estate mortgage? a. what is the potential risk factor? b. what is the liquidity prospect? c. what is the income tax impact, if any? d. a & b e. all of the above

Q: using the same assumptions as the preceding question, what would the remaining principal balance be after the payment described above? a. $48,000 b. $47,200 c. $46,800 d. $49,200 e. none of the above

Q: assume the following: the total payment amount is $1,600; the remaining principal balance before this next payment is $48,400; and the principal amount of this payment is $1,200. therefore the interest expense portion of this particular payment is: a. $400 b. $600 c. $1,200 d. $1,600 e. none of the above

Q: assume loan cost points must be spread, or recognized, over several years. in that case, which of the following statements is not correct? a. the number of years over which the points will be recognized is determined b. each year a certain portion of the points cost will be charged to current operations c. the total cost of the loan cost points would first be placed on the balance sheet d. the annual charge would be recorded as an amortized expense e. all of the above are correct f. none of the above are correct

Q: points typically represent a certain percentage of the loan amount paid and also help cover the costs of financing the loan a. correct b. not correct c. not applicable

Q: assume the following: payment #1 totals $2,100 ($1,500 prinicipal and $600 interest expense); payment #2 totals $2,000 ($1,500 principal and $500 interest expense); and the remaining prinicipal balance after these two payments is $100,000. if the amortization schedules remaining principal balance column after these payments amounts to $100,000, what is the balance in the column before these payments? a. $103,000 b. $97,000 c. $104,100 d. $95,900 e. none of the above

Q: assume the following: payment #1 totals $1,600 ($1,200 prinicipal and $400 interest expense); payment #2 totals $1,600 ($1,300 principal and $300 interest expense); and the remaining prinicipal balance before these two payments is $50,000. if the amortization schedules remaining principal balance column prior to these payments amounts to $50,000, what is the balance in the column after these payments? a. $47,500 b. $52,500 c. $53,200 d. $46,800 e. none of the above

Q: not all amortization schedules are set up in the same way. of the column headings listed below, what heading would not appear on an amortization schedule? a. interest expense b. principal portion of payment c. closing cost portion d. remaining prinicipal balance e. cumulative principal f. cumulative interest g. none of the above

Q: as can be seen in the chapters text and accompanying table, on a typical amortization schedule with a fixed payment amount, the interest expense becomes less on each payment and the prinicipal increases on each payment. conceptually speaking, why is this? a. because each decreasing principal amount means less interest is due b. because more of the fixed payment amount can be applied to prinicipal if there is less interest due c. because the fixed amount will not vary in total d. all of the above e. none of the above

Q: not-for-profit organizations are generally bound by certain legal limitations, and thus they may: a. be able to raise funds through donations b. be able to rely upon a different income stream c. not be able to raise funds by selling an additional interest in the company (such as the sale of common stock) d. a & b e. b & c f. all of the above

Q: when a companys bonds are sold, the purchaser expects to receive a certain amount of interest that is usually paid annually. a. correct b. not correct c. not applicable

Q: when a companys bonds are sold, they represent: a. the companys promise to pay at a future date b. an expectation that the bonds will be redeemed at or on a certain date c. that the redemption date of the bonds will typically be several years in the future d. all of the above

Q: selling bonds is a common example of: a. borrowing from investors b. borrowing from the government c. borrowing from a lending institution d. buying back stock of the company e. none of the above

Q: when a mortgage from a lending institution is obtained, the usual purpose of this long-term borrowing is to finance: a. land b. buildings and/or equipment c. research and development d. buying back stock of the company e. a & b f. a, b & c g. a, b & d

Q: borrowing from investors assumes the organization: a. has the proper legal structure to do so b. is large enough to do so c. has previously borrowed from investors d. has previously borrowed from one or more lending institutions e. a & b f. a & c g. a & d

Q: hillwood clinic has borrowed $90,000 from the bank with the following terms: $20,000 of the this amount to be paid in year 1, $30,000 to be paid in year 2, and $40,000 to be paid in year 3 . time continues to move on, and hillwood has met the terms of the note in both year 1 and year 2 . therefore at the beginning of year 3 the remaining portion of the loan is now classified as follows: a. $70,000 long-term note payable b. $70,000 short-term note payable plus zero long-term note payable c. $40,000 long-term note payable d. none of the above

Q: hillwood clinic has borrowed $90,000 from the bank with the following terms: $20,000 of the this amount to be paid in year 1, $30,000 to be paid in year 2, and $40,000 to be paid in year 3. time moves on, and hillwood meets the terms of the note in year 1 . therefore at the beginning of year 2 the remaining portion of the loan is now classified as follows: a. $70,000 long-term note payable b. $30,000 short-term note payable plus $40,000 long-term note payable c. $20,000 short-term note payable plus $50,000 long-term note payable d. none of the above

Q: hillwood clinic borrows $90,000 from the bank with the following terms: $20,000 of the this amount to be paid in year 1, $30,000 to be paid in year 2, and $40,000 to be paid in year 3 . at the beginning of year 1 the loan is classified as follows: a. $20,000 short-term note payable plus $70,000 long-term note payable b. $50,000 short-term note payable plus $40,000 long-term note payable c. $90,000 long-term note payable d. none of the above

Q: woodside hospice borrows $10,000 from the bank to make up for a lag in cash flow due to non-collection of a large account receivable. the loan is to be repaid at the end of ninety days, when collection of the account receivable is expected. amblesides loan is classified as: a. an accounts receivable reserve b. an accounts payable debit c. a short-term note payable d. none of the above

Q: loans borrowed from a lending institution are typically classified by the length of the loan. ambleside lake nursing facility borrows $25,000 to be repaid at the end of eighteen months. amblesides loan is classified as: a. short-term borrowing b. long-term borrowing c. either of the above d. neither of the above

Q: the brown and bishop physician group, a limited liability corporation (llc), owes $800,000 in debt and has $200,000 in partners equity. the llcs capital structure, or debt-equity relationship, is therefore: a. 8-to-2 b. 2-to-8 c. 80-20 d. 20-80 e. none of the above

Q: the andrews and anderson physician practice partnership owes $400,000 in debt and has $600,000 in partners equity. the partnerships capital structure, or debt-equity relationship, is therefore: a. 2-to-3 b. 3-to-2 c. 60% d. 40-60 e. 60-40 f. none of the above

Q: the phillips and potter physician practice partnership owes $500,000 in debt and also has $500,000 in partners equity. the partnerships capital structure, or debt-equity relationship, is therefore: a. 1-to-1 b. 50-50 c. 100% d. none of the above

Q: one traditional source of capital involves retaining the excess of revenues over expenses. the acme pharmaceutical company, a for-profit corporation, is a relatively small start-up company. as a start-up, acme has recorded operating losses for each of its five years of existence. the company now needs to raise more capital for research and development. will retaining the excess of revenues over expenses be a possible source of capital for acme? a. yes b. no c. not applicable

Q: yorks chairman of the board, agrees that the york pharmaceutical company needs to raise the required capital for expansion. however, the chairman argues that borrowing from a couple of large investors is the desired way for york to raise capital. is the chairmans solution of borrowing from investors a typical source of capital for proprietary companies? a. yes b. no c. not applicable

Q: yorks president and ceo recognizes that the york pharmaceutical company needs to raise the required capital for expansion. however, the president argues that borrowing from the bank where they have always done business is the desired way for york to raise capital. is the presidents solution of borrowing from the bank a typical source of capital for proprietary companies? a. yes b. no c. not applicable

Q: the york pharmaceutical company, a for-profit corporation, needs to raise more capital for a planned expansion. yorks cfo suggests selling additional stock in the company in order to raise the needed capital. is the cfos suggestion of selling additional stock a typical source of capital for proprietary companies? a. yes b. no c. not applicable

Q: "capital" represents the financial structure of the organization. it is generally considered to be: a. debt b. a combination of debt and equity c. a combination of equity and assets d. none of the above

Q: preferred stock has preference over __________ stock in certain issues such as payment of dividends.

Q: smaller public companies may not be listed on a stock exchange. the stock of these companies is considered to be unlisted; instead, their stock is traded __________.

Q: municipal bonds can either be general obligation bonds or __________ bonds.

Q: the gross domestic product (gdp) is considered to be the "gold standard" measure of the country's overall economic fitness.

Q: mortgage bonds are typically backed, or secured, by certificates of deposit.

Q: "indexed to inflation" means monies will fall in accordance with an inflationary increase.

Q: the fdic insures deposits in banks and thrift institutions up to a certain limit. savings accounts, checking accounts and other eligible deposit accounts are combined to reach the deposit insurance limit.

Q: annuities are insured by the federal insurance deposit corporation (fdic).

Q: cash equivalents are termed liquid assets because they can be liquidated and turned into cash on short notice when needed.

Q: the price index for gross domestic purchases issued by the bureau of economic analysis (bea) measures: a. prices paid by u.s. residents b. prices paid by world-wide residents c. prices paid by north american residents d. any of the above e. none of the above

Q: the gross domestic product (gdp) measures the output of goods and services produced by: a. investment b. labor and property c. both of the above d. neither of the above

Q: inflation is feared because it: a. typically results in a fall in prices b. limits or reduces the economic activity of the country c. reduces the spending power of dollars d. typically results in a rise in prices e. a & b f. a & c g. b & c h. c & d

Q: deflation is feared because it: a. typically results in a fall in prices b. limits or reduces the economic activity of the country c. reduces the spending power of dollars d. typically results in a rise in prices e. a & b f. a & d g. b & c h. c & d

Q: typical investment indicators may include the: a. annual rate of inflation b. gross domestic product c. annual rate of deflation d. a, b & c e. a & b f. none of the above

Q: stock exchanges exist to trade the stock of: a. publicly held companies b. both privately and publicly held companies c. either of the above d. neither of the above

Q: closely held stock represents stock that is owned by a company that: a. is traded on the stock exchange b. is not traded on the stock exchange c. either of the above d. neither of the above

Q: a small company with common stock that is not traded is known as a: a. privately-held company b. public company c. either of the above d. neither of the above

Q: stock warrants: a. do not pay dividends b. pay dividends c. either of the above d. neither of the above

Q: convertible preferred stock is a type of preferred that: a. can be exchanged for common shares b. can never be exchanged for common shares c. either of the above d. neither of the above

Q: an individual or organization that buys bonds issued by a company typically becomes: a. the companys creditor b. the companys investor c. both of the above d. neither of the above

Q: an individual or organization that buys stock in a company becomes: a. the companys creditor b. the companys investor c. both of the above d. neither of the above

Q: preferred stock: a. generally has a fixed-rate dividend payment b. is eligible to receive a certain portion of the net income of the company who issued the stock c. both of the above d. neither of the above

Q: stocks that are owned represent: a. net worth in the company b. equity in the company c. both of the above d. neither of the above

Q: holders of debentures are: a. secured creditors b. unsecured creditors c. either of the above d. neither of the above

Q: debentures are bonds that are typically backed by: a. real property (real estate) b. cash equivalents c. revenues earned by the issuing company d. any of the above e. none of the above

Q: the eastern seaboard region has an existing local healthcare financing authority. general hospital, a local not-for-profit hospital, needs to expand its emergency department. the hospitals cfo suggests that it may be possible to finance the emergency department expansion through bonds issued by the local healthcare financing authority. a. the cfos suggestion is correct b. the cfos suggestion is not correct c. not applicable d. dont know

Q: eligible healthcare organizations that may be able to issue bonds through a local healthcare financing authority include: a. for-profit (proprietary) organizations b. not-for-profit organizations c. both of the above d. neither of the above

Q: alpine county is planning to issue thirty-year bonds for a new capital project. the bonds will be backed by the full taxing authority of the county, and by its full faith and credit. these bonds are therefore: a. general obligation bonds b. revenue bonds c. neither of the above

Q: municipal bonds may be issued by a: a. county b. state c. political subdivision d. all of the above