1. Carmen Santiago works for a number of businesses as a 
“consultant.” She has helped design accounting systems, 
provided accounting services, and analyzed the financial 
strength of her clients’ businesses. Carmen is working as a 
A. public accountant. 
B. certified management accountant. 
C. certified internal auditor. 
D. private accountant. 


2. Guaranteed replacement cost in a homeowner’s insurance 
policy means that the insurance company 
A. guarantees they’ll replace the lost items for you. 
B. guarantees they’ll pay the current value of items lost. 
C. will pay you what it costs to replace the items new. 
D. will pay you something for lost items, but the amount 
can’t be determined, so they guarantee an average 
market value. 

3. The primary purpose of accounting is to 
A. facilitate government tracking of business activities. 
B. make sure a business is paying its taxes. 
C. help managers and other stakeholders make informed decisions. 
D. provide a method of spending money wisely. 


4. Which of the following statements about the money invested in a traditional IRA account 
is correct? 
A. It isn’t taxed until it’s withdrawn. 
B. It’s subject to double taxation. 
C. It’s taxed as you make deposits. 
D. It isn’t taxed. 


5. The _______ reports a firm’s financial condition on a specific date. 
A. income statement 
B. cash flow statement 
C. statement of stockholder’s equity 
D. balance sheet 


6. The _______ Act legislated new government reporting standards for publicly traded 
companies. 
A. Wagner C. Sarbanes-Oxley 
B. Robinson-Patman D. Clayton 


7. _______ life insurance is the type in which some part of the money you pay in 
premiums goes to pure insurance while another portion goes toward savings. 
A. Whole C. Term 
B. Variable D. Fixed annuity 


8. Which of the following statements about when the Fed increases the reserve requirement 
is correct? 
A. Interest rates go down. 
B. Banks have more money to lend. 
C. Inflation tends to go up. 
D. Banks have less money to lend. 


9. Gross profit (gross margin) is equal to 
A. gross sales minus net sales. 
B. operating expenses minus taxes. 
C. revenue minus cost of goods sold. 
D. cost of goods sold minus operating expenses. 

10. The first public offering of a corporation’s stock is called a/an _______, and it’s 
handled by the _______ market. 
A. IPO; primary C. PSO: secondary 
B. IPO; secondary D. PSO; primary 


11. The primary function of the Fed’s Board of Directors is to 
A. supervise banks. C. regulate credit. 
B. set monetary policy. D. buy government bonds. 


12. The contrarian approach to investing is best illustrated by 
A. staying out of the market no matter what experts are saying. 
B. always buying when others are selling. 
C. investing in mutual funds, contradicting the idea that investing in individual stocks 
is better. 
D. investing predominantly in the bond market when others are investing in the stock 
market. 


13. An index fund is a mutual fund that 
A. guarantees dividends. 
B. offers a minimum return. 
C. invests in stocks that follow Moody’s or other rating indexes. 
D. invests only in certain kinds of stock, such as those related to transportation. 


14. In referring to the money supply, which of the following can be accessed quickly and 
easily and includes coins and paper money as well as checks? 
A. M-1 C. M-3 
B. M-2 D. e-cash 


15. Daddy Warbucks bought Annie some stock for her birthday. The stock provides a fixed 
dividend, and, if the dividend isn’t paid when it’s due, the missed dividend will accumulate 
to be paid later. Daddy bought Annie _______ stock. 
A. common C. convertible 
B. preferred D. preemptive right 


16. When a European coffee maker becomes less expensive to buy in the United States, 
you could probably say that we’re experiencing a _______ dollar. 
A. falling C. rising 
B. inflated D. stable 


17. Earnings per share, return on sales, and return on equity are all _______ ratios. 
A. activity C. liquidity 
B. profitability D. debt 

18. Regarding bonds, which statement is most accurate? 
A. Bond holders are creditors, not owners. 
B. Bond holdings are nearly always converted to common stock. 
C. Bonds are a primary source for a company’s long-term funding. 
D. It’s illegal for a firm to offer bonds with a floating dividend rate. 


19. The first step in taking control of your finances is 
A. keeping track of all your expenses. 
B. preparing a budget. 
C. paying off your debts. 
D. taking an inventory of your assets. 


20. The first step in the accounting cycle is 
A. putting information into journals. 
B. preparing a trial balance. 
C. analyzing and categorizing documents. 
D. posting transactions to ledgers. 


21. The major completely electronic securities exchange in the United States is the 
A. NYSE. C. AMEX. 
B. NASDAQ. D. Chicago Commodity Exchange. 


22. A specialized accounting book in which information is posted into specific categories so 
managers can find information about one account in the same place is called a 
A. ledger. C. trial balance sheet. 
B. journal. D. double-entry book. 


23. When planning for your future, an investment in a college education will, above all, 
A. provide you with new ideas. 
B. give you a chance to learn about different ways of life. 
C. improve your earning potential. 
D. guarantee a certain desired job. 


24. The type of accounting concerned with providing information and analyses to managers 
within the organization is referred to as 
A. financial accounting. C. auditing. 
B. managerial accounting. D. tax accounting. 


25. With respect to the Federal Reserve, the discount rate is the 
A. interest rate charged for loans to member banks. 
B. amount of money member banks must keep on hand at the Fed. 
C. rate the Fed charges for selling bonds. 
D. interest rate banks charge other banks.