Archives: Quiz

1) Countries benefit from global economic integration politically and economically. Which of the following is an example of a political benefit? a. Rules make life easier and discrimination impossible b. Raise incomes and stimulate economic growth c. Disputes are handled […]

1) A chain of activities used in the production of goods and services that add value is a(n): a. Value chain b. Vertical chain c. Activity chain d. None of these answers 2) What is range anxiety? a. A malfunction […]

1) Accounting policies that result in the fastest reporting of income are the most conservative. 2) The principal of fiduciary funds may be distributed. Answer: F 3) In order to compute gross profit margin, the income statement must be in […]

1) Stock appreciation rights give the employee compensation at a future date, based on the market price at the date of exercise in excess of a pre-established dollar market. 2) The stockholders’ equity section of an insurance company will usually […]

1) Gross profit will be a prominent figure on a single-step income statement. 2) If the company closes the year when the activities are at a peak, the number of days’ sales in inventory would tend to be overstated and […]

1) Web sites are not very useful when performing analysis. 2) The statement of cash flows should be reviewed for several time periods in order to determine the major sources of cash and the major uses of cash. Answer: T […]

1) A decline in the acid-test ratio indicates a reduced ability to pay current liabilities with funds from the sale of inventory. 2) To the extent that money does not remain stable, it loses its usefulness as the standard for […]

1) Relevance and reliability are two primary qualities that make accounting information useful for decision making. 2) Ethics can be a particular problem with financial reports. Answer: T 3) In analysis of income, for purposes of determining a trend, extraordinary […]

1) Retained earnings always shows a positive balance. 2) Nonrecurring items such as extraordinary income and disposal of a segment require separate earnings per share disclosure. Answer: T 3) Relevance is a quality requiring that the information be timely and […]

1) Under the allowance method, the charge off of a specific account receivable does not influence the income statement nor the net receivable on the balance sheet at the time of the charge off. 2) Among the many responsibilities of […]

1) Operating assets exclude investments, land, and intangibles from the asset base. 2) The Governmental Accounting Standards Board is a branch of the Financial Accounting Foundation. Answer: T 3) The accrual basis of accounting recognizes revenue when realized (realization concept) […]

1) Return on investment will typically be lower than return on equity. 2) Dissimilar year ends will have no impact on the results of ratios. Answer: F 3) The rating for an industrial revenue bond represents the probability of default […]

1) In the ratio funded debt to operating property for a utility, construction in progress is a component of operating property. 2) For a public company, the SEC requires that a report be filed annually on its internal control systems. […]

1) For a business combination, the purchase method views the business combination as the acquisition of one entity by another. The firm doing the acquiring records the identifiable assets and liabilities at fair value at the date of acquisition. 2) […]

1) Generally accepted accounting principles and the Internal Revenue Code of tax law require that the same depreciation method be used for both the financial statements and the federal tax return. 2) The financial literature and valuation books strongly support […]

1) It is generally perceived that utilities that have cash flow problem will not be increasing their dividend. 2) A service firm will usually have a low amount of inventory, consisting primarily of supplies. Answer: T 3) Interim reports are […]

1) Current assets are assets that (1) are in the form of cash, (2) will be realized in cash, or (3) conserve the use of cash within the operating cycle of a business or for one year, whichever is shorter. […]

1) The market will not be efficient if it does not have access to relevant information or if fraudulent information is provided. 2) To get a better indication of a firm’s ability to cover interest payments in the long run, […]

1) A profitable utility will maintain a high operating ratio. 2) It would always be conservative to value inventory at market. Answer: F 3) The cash ratio is usually a good indication of the liquidity of the firm. Answer: F […]

1) When preferred stock has a preference as to dividends, the current year’s preferred dividend must be paid before a dividend can be paid to common stockholders. 2) The statement of changes in net worth is presented in terms of […]

1) Presently, no regulatory agency, such as the Securities and Exchange Commission or the Financial Accounting Standards Board, accepts responsibility for determining either the content of financial ratios or the format of presentation in annual reports. 2) An adverse opinion […]

1) The audit opinion of a public company is similar to an opinion for a private company except for the public company comments will be added as to the effectiveness of internal control over financial reporting. 2) Stock appreciation rights […]

1) Some industry practices lead to accounting reports that do not conform to the general theory that underlies accounting. 2) Dividend yield relates dividends per share to market price per share. Answer: T 3) The financial statements of legally separate […]

1) Accounting Trends & Techniques is a compilation of data obtained by a survey of annual reports to stockholders undertaken for the purpose of analyzing the accounting information disclosed in such reports. 2) A firm might have a low dividend […]

1) Loans to deposits for a bank is a type of debt coverage ratio. 2) Cash flow per share can be viewed as a substitute for earnings per share in terms of a firm’s profitability. Answer: F 3) Cash flow […]

1) Noncontrolling interest relects income from ownership of noncontrolling shareholders in the equity of consolidated subsidaries less than wholly owned. 2) The principal asset of a merchandising firm will usually be accounts receivable. Answer: F 3) There are three methods […]

1) The accrual basis needs numerous adjustments at the end of the accounting period. 2) In 2007, the Securities and Exchange Commission announced that it would accept financial statements from foreign private issues without reconciliation to U.S. GAAP if they […]

1) When a firm is expensing an item faster on the tax return than on the financial statements, a deferred tax liability is the result. 2) Accounting standards codification TM reorganizes the accounting pronouncements into approximately 90 accounting topics. Answer: […]

1) Ideally, a proposed comprehensive budget should be compared with financial ratios that have been agreed upon as part of the firm’s corporate objectives. 2) In practice, some of the required information in the 10-K is incorporated by reference. Answer: […]

1) Predictive value, feedback value, and timeliness are ingredients needed to ensure that the information is reliable. 2) For a statement of financial condition, the figure that will usually be most important is the total asset amount. Answer: F 3) […]

1) A quasi-reorganization is an accounting procedure equivalent to an accounting fresh start. 2) Contingent liabilities are recorded as a liability only if the loss is considered substantial and the amount is reasonably determinable. Answer: F 3) Working capital is […]

1) “Capital” is sometimes defined as funds supplied to a firm by investors. 2) One of the advantages of short-term debt financing is that firms can obtain short-term credit more quickly than long-term credit. Answer: T Answer: T

1) Firms hold cash balances in order to complete transactions (both routine and precautionary) that are necessary in business operations and as compensation to banks for providing loans and services. 2) Net working capital is defined as current assets divided […]

1) The regular payback method is deficient in that it does not take account of cash flows beyond the payback period. The discounted payback method corrects this fault. 2) The interest and dividends paid by a corporation are considered to […]

1) The market value of any real or financial asset, including stocks, bonds, or art work purchased in hope of selling it at a profit, may be estimated by determining future cash flows and then discounting them back to the […]

1) The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation. 2) An increase in any current asset must be accompanied by an equal increase in […]

1) ESOPs were originally designed to help improve worker productivity, but today they are also used to help prevent hostile takeovers. 2) When evaluating mutually exclusive projects, the modified IRR (MIRR) always leads to the same capital budgeting decisions as […]

1) The prices of high-coupon bonds tend to be less sensitive to a given change in interest rates than low-coupon bonds, other things held constant. 2) Firms raise capital at the total corporate level by retaining earnings and by obtaining […]

1) The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time, while the income statement measures the firm’s financial position at a point in time. 2) A firm that […]

1) The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm’s stock price. 2) When considering two mutually exclusive projects, the firm should always select the project whose internal rate of return is […]

1) Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse. 2) Net operating profit after taxes (NOPAT) is the amount of net income a company would generate from its […]

1) Firms with high capital intensity ratios have found ways to lower this ratio permitting them to achieve a given level of growth with fewer assets and consequently less external capital. For example, just-in-time inventory systems, multiple shifts for labor, […]

1) Long-term loan agreements always contain provisions, or covenants, that constrain the firm’s future actions. Short-term credit agreements are just as restrictive in order to protect the interest of the lender. 2) The slope of the SML is determined by […]

1) The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends received by a corporation may be excluded from the receiving corporation’s taxable income. 2) Underlying the dividend irrelevance theory proposed […]

1) Two firms, although they operate in different industries, have the same expected earnings per share and the same standard deviation of expected EPS. Thus, the two firms must have the same business risk. 2) It is appropriate to use […]

1) For a stock to be in equilibrium, two conditions are necessary: (1) The stock’s market price must equal its intrinsic value as seen by the marginal investor and (2) the expected return as seen by the marginal investor must […]

1) A conservative current operating asset financing approach will result in permanent current assets and some seasonal current assets being financed using long-term securities. 2) Portfolio A has but one security, while Portfolio B has 100 securities. Because of diversification […]

1) When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio’s […]

1) If you plotted the returns on a given stock against those of the market, and if you found that the slope of the regression line was negative, the CAPM would indicate that the required rate of return on the […]

1) The basic earning power ratio (BEP) reflects the earning power of a firm’s assets after giving consideration to financial leverage and tax effects. 2) When deciding whether or not to take a trade discount, the cost of borrowing from […]