Exam2 FIN370 Fall 2011 Key Version B
1. A call provision in a bond agreement grants the issuer the right to:
A. repurchase the bonds prior to maturity at a pre-specified price.
B. change the coupon rate provided the bondholders are notified in advance.
C. replace the bonds with equity securities.
D. buy back the bonds on the open market prior to maturity.
E. call the bondholder to determine if he or she would like to extend the term of the bond agreement.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #13
SECTION: 6.2
TOPIC: CALL PROVISION
TYPE: DEFINITIONS
2. An 8 percent semiannual coupon bond is priced at $1,204.60. The bond has a
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BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 002 #28
SECTION: 2.1
TOPIC: BOOK AND MARKET VALUES
TYPE: CONCEPTS
9. What is the goal of financial management for a sole proprietorship?
A. maximize net income given the resources of the firm
B. minimize the reliance on fixed costs
C. minimize the tax impact on the proprietor
D. maximize the market value of the equity
E. decrease long-term debt to reduce the risk to the owner
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 001 #39
SECTION: 1.4
TOPIC: GOAL OF FINANCIAL MANAGEMENT
TYPE: CONCEPTS
10. A bond that pays no interest payments and sells at a deep discount is called a(n) _____ bond.
A. convertible
B. callable
C. tax-free
D. zero coupon
E. income
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #18
SECTION: 6.4
TOPIC: ZERO COUPON BOND
TYPE: DEFINITIONS
11. In a general partnership, each partner is personally liable for:
A. the debts of the partnership up to the amount he or she invested in the firm.
B. the total debts of the partnership, even if he or she was unaware of those debts.
C. all personal and partnership debts incurred by any partner, even if he or she was unaware of those debts.
D. his or
a. The article says that at one point in the 90’s, he was $900 million in debt.
Suppose that Katherine, Brianna, and Paige have formed a limited partnership to operate a video arcade. Katherine is the general partner. She has contributed $2,000 and her time to get the operation running. Brianna and Paige, the limited partners, have each contributed $3,000. After one year of operation, the arcade has debts of $10,000, and the three partners decide to discontinue their business and the limited partnership. Brianna and Paige want their investment returned to them. Who should Katherine, who is winding up the business, pay first, Brianna and Paige, or the creditors? How much will Brianna and Paige receive? How about Katherine?
34. The limited liability provided to limited partners means that they are not responsible for the debts of the business
c. The amounts recognized as of the acquisition date for each major class of assets acquired and liabilities assumed.
d. neither the expenses incurred for office space, equipment, and supplies, nor her foregone salary of $42,000 per year
10. [LO 1] Under what circumstances can a partner recognize both gain and loss on the sale of a partnership interest?
For a partnership or sole proprietorship, it would include the owners’ capital or drawing accounts.
b. The firm is required to make a cash payment for the goods or services.
We do not pay taxes on the partnership, though we should report income or losses on our individual tax returns. We will be personally liable to the extent of the full amount of partnership’s obligation and each of partners is liable for the acts of others and to others.
(e) The total value of the firm is independent of the amount of debt it uses. (Points: 20)
Limited partnership: Owners are distinguished as either general or limited partners. Limited partners are only liable about their contribution to the partnership involving funds, equipment and other property.
b. Prepare an income statement, a statement of owner’s equity, and a balance sheet, (See Exhibit 1.1, 1.3 and 1.4)
Albert and Baker have considered the merits of forming the company as a general partnership, thus a co-ownership of a business for profit. Under the Uniform Partnership Act, hence a model act that codifies partnership law, Albert and Baker’s respective rights to any profits of the company would be an equal share. According to Cheeseman, “Partnership agreements often provide that profits and losses are to be allocated in proportion to the partners’ capital contributions. The right to share in the profits of the partnership is considered to be the right to share in the earnings from the investment of capital” (2007, p. 298). For instance, let’s assume that Albert contributes $50,000 capital, and Baker contributes $75,000 capital and the
liabilities he owes and the amount of capital he has. Normally, the lists of assets should be