1) The amount available to finance planned expansion of operating capacity, reduce
debt, pay dividends, or repurchase stock is distributable (or free) cash flow.
2) Because financial disclosures are regulated, owners and managers have little
economic incentive to supply the amount and type of financial information that will
enable them to raise capital most cheaply.
3) When asset reinvestment is not continuous, the increasing age of the asset base in
conjunction with rising prices introduces distortions in various performance measures
that make financial statement analysis difficult.
4) Corporations that issue preferred stock do so because preferred stock is less risky
than debt.
5) A troubled debt restructuring can only be accomplished through a continuation with
modification of debt terms where the original loan is cancelled and a new loan
agreement is signed.
6) While collectibility of receivables requires forecasts which could later prove to be
inaccurate, typical audit procedures of the current period will ensure that extreme
overstatement of net receivables is rare.
7) Information about a company’s executive compensation practices can be found in the
company’s annual report.
8) The statement of cash flows shows the user why a firm’s investments and financial
structure have changed between two balance sheets dates.
9) Bonds are required by GAAP to be reported on the balance sheet at market value.
10) Using the same accounting methods for a company to record and report similar
events from period to period demonstrates faithful representation.
11) Book income tax expense could equal current taxes payable to the IRS plus the
increase in deferred tax liabilities plus the increase in deferred tax assets.
12) For an investor each share of common stock and each share of preferred stock
owned usually entitles the owner to one vote.
13) The precise terms of a bond issue are found in the bond indenture agreement.
14) The 1984 Revised Model Business Corporation Act redefined solvency as a
situation where the fair value of assets exceed the fair value of liabilities after a
distribution to shareholders.