DECA Finance Fundamentals 2 — Questions and Answers
Question 1: A company has current assets of $120,000 and current liabilities of $80,000. What is its current ratio?
- 0.67
- 1.5 (Correct answer)
- 40,000
- 2.0
Correct answer: 1.5
Current ratio = current assets ÷ current liabilities = $120,000 ÷ $80,000 = 1.5.
Question 2: Which financial statement shows a company's revenues and expenses over a specific period?
- Balance sheet
- Cash flow statement
- Income statement (Correct answer)
- Statement of retained earnings
Correct answer: Income statement
The income statement (also called profit and loss statement) reports revenues, expenses, and net income over a period.
Question 3: What does the term 'liquidity' refer to in finance?
- A company's total debt load
- The ease of converting assets to cash (Correct answer)
- The profitability of investments
- Long-term solvency of a firm
Correct answer: The ease of converting assets to cash
Liquidity measures how quickly and easily assets can be converted into cash without significant loss in value.
Question 4: If a bond has a face value of $1,000 and pays 6% annual interest, what is the annual coupon payment?
- $6
- $60 (Correct answer)
- $600
- $160
Correct answer: $60
Annual coupon = face value × coupon rate = $1,000 × 0.06 = $60.
Question 5: Which of the following best describes 'gross profit'?
- Net income after all expenses
- Revenue minus cost of goods sold (Correct answer)
- Total assets minus total liabilities
- Operating income minus interest expense
Correct answer: Revenue minus cost of goods sold
Gross profit equals revenue minus the cost of goods sold, before deducting operating expenses.
Question 6: A DECA student invests $500 at 4% simple interest for 3 years. What is the total interest earned?
- $20
- $40
- $60 (Correct answer)
- $80
Correct answer: $60
Simple interest = principal × rate × time = $500 × 0.04 × 3 = $60.
Question 7: What is the primary purpose of a budget in a business context?
- To increase stock prices
- To plan and control financial resources (Correct answer)
- To eliminate all company debt
- To maximize tax deductions
Correct answer: To plan and control financial resources
A budget helps businesses plan future revenues and expenses and provides a benchmark for controlling financial performance.
DECA Finance Fundamentals 2
A company has current assets of $120,000 and current liabilities of $80,000.
What is its current ratio?