Question 1

Which of the following statements regarding net income transferred to retained earnings is correct?

Accepted Answer

A)  Net income = net income transferred to retained earnings - dividends 
B)  Net income transferred to retained earnings = net income + dividends 
C)  Net income = net income transferred to retained earnings + dividends 
D)  Net income transferred to retained earnings - net income = dividends 
A)  Net income = net income transferred to retained earnings - dividends 
B)  Net income transferred to retained earnings = net income + dividends 
C)  Net income = net income transferred to retained earnings + dividends 
D)  Net income transferred to retained earnings - net income = dividends C

Question 2

Use the table for the question(s) below.
Consider the following balance sheet:
    
-Luther's quick ratio for 2005 is closest to:

Accepted Answer

A)  0.77 
B)  1.31 
C)  1.09 
D)  0.92 
A)  0.77 
B)  1.31 
C)  1.09 
D)  0.92 A

Question 3

How many reasons are there that net income does not correspond to cash earned?

Accepted Answer

There are two reasons that net income does not correspond to cash earned.First,there are non-cash entries on the income statement,such as depreciation and amortization.Second,certain uses of cash,such as the purchase of a building or expenditures on inventory,are not reported on the income statement.

Question 4

Use the table for the question(s) below.
Consider the following income statement and other information:
  
-Luther's Operating Margin for the year ending December 31,2005 is closest to:

Accepted Answer

A)  1.8% 
B)  2.7% 
C)  5.4% 
D)  16.7% 
A)  1.8% 
B)  2.7% 
C)  5.4% 
D)  16.7%

Question 5

Off-balance sheet transactions are required to be disclosed

Accepted Answer

A)  in the management discussion and analysis. 
B)  in the auditor's report. 
C)  in the Provincial Securities Commission's commentary. 
D)  in the statement of stockholders' equity. 
A)  in the management discussion and analysis. 
B)  in the auditor's report. 
C)  in the Provincial Securities Commission's commentary. 
D)  in the statement of stockholders' equity.

Question 6

Use the table for the question(s) below.
Consider the following balance sheet:
    
-Luther's current ratio for 2006 is closest to:

Accepted Answer

A)  0.84 
B)  0.87 
C)  1.15 
D)  1.19 
A)  0.84 
B)  0.87 
C)  1.15 
D)  1.19

Question 7

Use the table for the question(s) below.
Consider the following income statement and other information:
  
-For the year ending December 31,2006 Luther's earnings per share are closest to:

Accepted Answer

A)  $1.01 
B)  $1.04 
C)  $1.58 
D)  $4.04 
A)  $1.01 
B)  $1.04 
C)  $1.58 
D)  $4.04

Question 8

P/B ratio is ________.

Accepted Answer

A)  price-to-book ratio 
B)  profit-to-book ratio 
C)  property-to-book ratio 
D)  price-to-benefit ratio 
A)  price-to-book ratio 
B)  profit-to-book ratio 
C)  property-to-book ratio 
D)  price-to-benefit ratio

Question 9

Goodwill captures the value of other ________ that the firm acquired through acquisition.If the value of these ________ assets declines over time,the amount of goodwill listed on the balance sheet will be ________ by a write-down that captures the change in value of the acquired assets.

Accepted Answer

A)  "tangibles"; tangible; reduced 
B)  "tangibles"; tangible; raised 
C)  "intangibles"; intangible; raised 
D)  "intangibles"; intangible; reduced 
A)  "tangibles"; tangible; reduced 
B)  "tangibles"; tangible; raised 
C)  "intangibles"; intangible; raised 
D)  "intangibles"; intangible; reduced

Question 10

By comparing a firm's current assets and current liabilities,one can assess whether the firm has sufficient ________ to meet its ________ needs.

Accepted Answer

A)  long-term capital; short-term 
B)  working capital; short-term 
C)  working capital; long-term 
D)  marketable securities; long-term 
A)  long-term capital; short-term 
B)  working capital; short-term 
C)  working capital; long-term 
D)  marketable securities; long-term

Question 11

Firms disclose the potential for the dilution from options they have awarded by reporting ________.

Accepted Answer

A)  diluted total earnings before interest and taxes 
B)  diluted earnings per share 
C)  diluted dividend payment 
D)  diluted total earnings 
A)  diluted total earnings before interest and taxes 
B)  diluted earnings per share 
C)  diluted dividend payment 
D)  diluted total earnings

Question 12

The third party who checks annual financial statements to ensure that they are prepared according to Canadian GAAP and verifies that the information reported is reliable is the

Accepted Answer

A)  Toronto Stock Exchange Board. 
B)  Accounting Standards Board. 
C)  Provincial Securities Commission. 
D)  Auditor. 
A)  Toronto Stock Exchange Board. 
B)  Accounting Standards Board. 
C)  Provincial Securities Commission. 
D)  Auditor.

Question 13

In 2002,the United States Congress passed ________ that requires,among other things,that CEO's and CFOs certify the accuracy and appropriateness of their firm's financial statements and increase the penalties against them if the financial statements later prove to be fraudulent.

Accepted Answer

A)  the Sarbanes-Oxley Act 
B)  new American GAAP 
C)  the IFRS 
D)  revised GAAP 
A)  the Sarbanes-Oxley Act 
B)  new American GAAP 
C)  the IFRS 
D)  revised GAAP

Question 14

Which of the following adjustments to net income is NOT correct if you are trying to calculate cash flow from operating activities?

Accepted Answer

A)  Add increases in accounts payable. 
B)  Add back depreciation. 
C)  Add increases in accounts receivable. 
D)  Deduct increases in inventory. 
A)  Add increases in accounts payable. 
B)  Add back depreciation. 
C)  Add increases in accounts receivable. 
D)  Deduct increases in inventory.

Question 15

Which of the following is NOT a financial statement that every public company is required by IFRS to produce?

Accepted Answer

A)  Income Statement 
B)  Statement of Comprehensive Income 
C)  Balance Sheet 
D)  Statement of Changes in Equity 
A)  Income Statement 
B)  Statement of Comprehensive Income 
C)  Balance Sheet 
D)  Statement of Changes in Equity

Question 16

The statement of cash flows is divided into three sections: ________.

Accepted Answer

A)  operating leverage, investment leverage, and financing leverage 
B)  cash inflows, cash outflows, and cash flow cycle 
C)  cash-in-use, cash-in-resource, and cash conversion cycle 
D)  operating activity, investment activity, and financing activity 
A)  operating leverage, investment leverage, and financing leverage 
B)  cash inflows, cash outflows, and cash flow cycle 
C)  cash-in-use, cash-in-resource, and cash conversion cycle 
D)  operating activity, investment activity, and financing activity

Question 17

Use the table for the question(s) below.
Consider the following balance sheet:
    
-Market-to-Book-Ratio is a ratio between ________.

Accepted Answer

A)  market value of asset and book value of asset 
B)  market value of inventory and book value of inventory 
C)  market value of liabilities and book value of liabilities 
D)  market value of equity and book value of equity 
A)  market value of asset and book value of asset 
B)  market value of inventory and book value of inventory 
C)  market value of liabilities and book value of liabilities 
D)  market value of equity and book value of equity

Question 18

Use the table for the question(s) below.
Consider the following income statement and other information:
  
-Assuming that Luther has no convertible bonds outstanding,then for the year ending December 31,2006 Luther's diluted earnings per share are closest to:

Accepted Answer

A)  $1.01 
B)  $1.04 
C)  $1.53 
D)  $3.92 
A)  $1.01 
B)  $1.04 
C)  $1.53 
D)  $3.92

Question 19

Which of the following is NOT an operating expense?

Accepted Answer

A)  Interest expense 
B)  Depreciation and amortization 
C)  Selling, general and administrative expenses 
D)  Research and development 
A)  Interest expense 
B)  Depreciation and amortization 
C)  Selling, general and administrative expenses 
D)  Research and development

Question 20

Use the table for the question(s) below.
Consider the following balance sheet:
    
-If on December 31,2005 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's enterprise value?

Accepted Answer

Enterprise value = Market value of equit

Exam 2: Introduction to Financial Statement Analysis

Which of the following statements regarding net income transferred to retained earnings is correct?

Use the table for the question(s) below. Consider the following balance sheet: -Luther's quick ratio for 2005 is closest to:

How many reasons are there that net income does not correspond to cash earned?

Use the table for the question(s) below. Consider the following income statement and other information: -Luther's Operating Margin for the year ending December 31,2005 is closest to:

Off-balance sheet transactions are required to be disclosed

Use the table for the question(s) below. Consider the following balance sheet: -Luther's current ratio for 2006 is closest to:

Use the table for the question(s) below. Consider the following income statement and other information: -For the year ending December 31,2006 Luther's earnings per share are closest to:

P/B ratio is ________.

Goodwill captures the value of other ________ that the firm acquired through acquisition.If the value of these ________ assets declines over time,the amount of goodwill listed on the balance sheet will be ________ by a write-down that captures the change in value of the acquired assets.

By comparing a firm's current assets and current liabilities,one can assess whether the firm has sufficient ________ to meet its ________ needs.

Firms disclose the potential for the dilution from options they have awarded by reporting ________.

The third party who checks annual financial statements to ensure that they are prepared according to Canadian GAAP and verifies that the information reported is reliable is the

In 2002,the United States Congress passed ________ that requires,among other things,that CEO's and CFOs certify the accuracy and appropriateness of their firm's financial statements and increase the penalties against them if the financial statements later prove to be fraudulent.

Which of the following adjustments to net income is NOT correct if you are trying to calculate cash flow from operating activities?

Which of the following is NOT a financial statement that every public company is required by IFRS to produce?

The statement of cash flows is divided into three sections: ________.

Use the table for the question(s) below. Consider the following balance sheet: -Market-to-Book-Ratio is a ratio between ________.

Use the table for the question(s) below. Consider the following income statement and other information: -Assuming that Luther has no convertible bonds outstanding,then for the year ending December 31,2006 Luther's diluted earnings per share are closest to:

Which of the following is NOT an operating expense?

Use the table for the question(s) below. Consider the following balance sheet: -If on December 31,2005 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's enterprise value?

The Corporation

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress, managerial Incentives, and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modelling: a Case Study

The Mechanics of Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

Goodwill captures the value of other that the firm acquired through acquisition.If the value of these assets declines over time,the amount of goodwill listed on the balance sheet will be by a write-down that captures the change in value of the acquired assets.

By comparing a firm's current assets and current liabilities,one can assess whether the firm has sufficient to meet its needs.