Question 1

What are the requirements of section 404 of SOX?

Accepted Answer

A) It requires that senior management return any profits or bonuses resulting from stock sales during any period covered by financial statements that must later be restated. 
B) It requires that auditors do not perform any non-auditing tasks for the companies they audit. 
C) It requires that audit partners rotate every five years. 
D) It requires that senior management and the boards of public companies attest to the effectiveness and validity of their financial control process. 
A) It requires that senior management return any profits or bonuses resulting from stock sales during any period covered by financial statements that must later be restated. 
B) It requires that auditors do not perform any non-auditing tasks for the companies they audit. 
C) It requires that audit partners rotate every five years. 
D) It requires that senior management and the boards of public companies attest to the effectiveness and validity of their financial control process. D

Question 2

Balance Sheet     The balance sheet and income statement of a particular firm are shown above. What does the account receivable days ratio tell you about this company?

Accepted Answer

A) It takes on average about 4 weeks to collect payment from its customers. 
B) It takes on average about 6 weeks to collect payment from its customers. 
C) It takes on average about 7 weeks to collect payment from its customers. 
D) It takes on average about 11 weeks to collect payment from its customers. 
A) It takes on average about 4 weeks to collect payment from its customers. 
B) It takes on average about 6 weeks to collect payment from its customers. 
C) It takes on average about 7 weeks to collect payment from its customers. 
D) It takes on average about 11 weeks to collect payment from its customers. A

Question 3

Which of the following statements regarding the balance sheet is INCORRECT?

Accepted Answer

A) The balance sheet provides a snapshot of a firm's financial position at a given point in time. 
B) The balance sheet lists a firm's assets and liabilities. 
C) The balance sheet reports stockholders' equity on the right-hand side. 
D) The balance sheet reports liabilities on the left-hand side. 
A) The balance sheet provides a snapshot of a firm's financial position at a given point in time. 
B) The balance sheet lists a firm's assets and liabilities. 
C) The balance sheet reports stockholders' equity on the right-hand side. 
D) The balance sheet reports liabilities on the left-hand side. D

Question 4

The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. What is the company's net working capital?

Accepted Answer

A) $133 million 
B) $2 million 
C) $89 million 
D) $45 million 
A) $133 million 
B) $2 million 
C) $89 million 
D) $45 million

Question 5

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while giving a promise to buy back those assets at a later date. The incoming cash was recorded as revenue, but the promise to buy back the assets was not disclosed. Which of the following is one of the ways that such a transaction is deceptive?

Accepted Answer

A) The assets should have been listed on the balance sheet as long-term assets. 
B) Cash raised by selling assets should not be recorded as revenue. 
C) The cash raised should have been recorded as short-term loans. 
D) The off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&
A) or notes to the financial statement. 
A) The assets should have been listed on the balance sheet as long-term assets. 
B) Cash raised by selling assets should not be recorded as revenue. 
C) The cash raised should have been recorded as short-term loans. 
D) The off-balance sheet promises to repurchase assets should have been disclosed in management discussion and analysis (MD&
A) or notes to the financial statement.

Question 6

A firm's statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period.

Accepted Answer

A) True 
 B)False

Question 7

The above diagram shows a balance sheet for a certain company. If the company pays back all of its accounts payable today using cash, what will its net working capital be?

Accepted Answer

A) $131 million 
B) $6 million 
C) $88 million 
D) $45 million 
A) $131 million 
B) $6 million 
C) $88 million 
D) $45 million

Question 8

Which of the following is a way that the operating activity section of the statement of cash flows adjusts Net Income from the balance sheet?

Accepted Answer

A) It subtracts all expenses and costs related to a firm's operating activities. 
B) It adds all non-cash entries related to a firm's operating activities. 
C) It adds the cash that flows from investors to a firm. 
D) It removes the cash used for investment purposes. 
A) It subtracts all expenses and costs related to a firm's operating activities. 
B) It adds all non-cash entries related to a firm's operating activities. 
C) It adds the cash that flows from investors to a firm. 
D) It removes the cash used for investment purposes.

Question 9

What are the four financial statements that all public companies must produce?

Accepted Answer

1. balance sheet
2. income sta

Question 10

Which of the following amounts would be included on the right side of a balance sheet?

Accepted Answer

A) the value of government bonds held by the company 
B) the cash held by the company 
C) the amount of deferred tax liability held by the company 
D) the amount of money owed to the company by customers who have not yet paid for goods and services they have received 
A) the value of government bonds held by the company 
B) the cash held by the company 
C) the amount of deferred tax liability held by the company 
D) the amount of money owed to the company by customers who have not yet paid for goods and services they have received

Question 11

State the names of some of the firms discussed in the chapter that had inaccurate reporting in their financial statements.

Accepted Answer

Examples of some fir

Question 12

A delivery company is creating a balance sheet. Which of the following would most likely be considered a short-term liability on this balance sheet?

Accepted Answer

A) the depreciation over the last year in the value of the vehicles owned by the company 
B) revenue received for the delivery of items that have not yet been delivered 
C) a loan which must paid back in two years 
D) prepaid rent on the offices occupied by the company 
A) the depreciation over the last year in the value of the vehicles owned by the company 
B) revenue received for the delivery of items that have not yet been delivered 
C) a loan which must paid back in two years 
D) prepaid rent on the offices occupied by the company

Question 13

The management of public companies is not legally required to disclose any off-balance sheet transactions.

Accepted Answer

A) True 
 B)False

Question 14

Use the table for the question(s)below.
  
-If the above balance sheet is for a retail company, how has the company's leverage changed between 2007 and 2008?

Accepted Answer

A) The company has experienced a very significant decrease in its leverage. 
B) The company has experienced a significant decrease in its leverage. 
C) The company has experienced no significant change in its leverage. 
D) The company has experienced a significant increase in its leverage. 
A) The company has experienced a very significant decrease in its leverage. 
B) The company has experienced a significant decrease in its leverage. 
C) The company has experienced no significant change in its leverage. 
D) The company has experienced a significant increase in its leverage.

Question 15

Luther Corporation Consolidated Income Statement
Year ended December 31 (in $millions)   Refer to the income statement above. Luther's net profit margin for the year ending December 31, 2005 is closest to ________.

Accepted Answer

A) 11.61% 
B) 5.80% 
C) 9.28% 
D) 13.93% 
A) 11.61% 
B) 5.80% 
C) 9.28% 
D) 13.93%

Question 16

Luther Corporation Consolidated Income Statement
Year ended December 31 (in $millions)   Refer to the income statement above. Luther's operating margin for the year ending December 31, 2005 is closest to ________.

Accepted Answer

A) 10.18% 
B) 16.29% 
C) 20.36% 
D) 24.43% 
A) 10.18% 
B) 16.29% 
C) 20.36% 
D) 24.43%

Question 17

Which of the following best describes why the left and right sides of a balance sheet are equal?

Accepted Answer

A) In a properly run business, the value of liabilities will not exceed the assets held by the company. 
B) By definition, the assets plus the liabilities will be the same as the stockholders' equity. 
C) The assets must equal liabilities plus stockholders' equity because stockholders' equity is the difference between the assets and the liabilities. 
D) By accounting convention, the assets of a company must be equal to the liabilities of that company. 
A) In a properly run business, the value of liabilities will not exceed the assets held by the company. 
B) By definition, the assets plus the liabilities will be the same as the stockholders' equity. 
C) The assets must equal liabilities plus stockholders' equity because stockholders' equity is the difference between the assets and the liabilities. 
D) By accounting convention, the assets of a company must be equal to the liabilities of that company.

Question 18

Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what were AOS Industries' retained earnings for 2008?

Accepted Answer

A) $5.2 million 
B) $2.2 million 
C) $4.4 million 
D) $3.1 million 
A) $5.2 million 
B) $2.2 million 
C) $4.4 million 
D) $3.1 million

Question 19

How does a firm select the date for preparation of its balance sheet?

Accepted Answer

The balance sheet is prepared

Question 20

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Accepted Answer

The new loan entry should show

Exam 2: Introduction to Financial Statement Analysis

What are the requirements of section 404 of SOX?

Balance Sheet The balance sheet and income statement of a particular firm are shown above. What does the account receivable days ratio tell you about this company?

Which of the following statements regarding the balance sheet is INCORRECT?

The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. What is the company's net working capital?

A firm's statement of cash flows uses the balance sheet and the income statement to determine the amount of cash a firm has generated and how it has used that cash during a given period.

The above diagram shows a balance sheet for a certain company. If the company pays back all of its accounts payable today using cash, what will its net working capital be?

Which of the following is a way that the operating activity section of the statement of cash flows adjusts Net Income from the balance sheet?

What are the four financial statements that all public companies must produce?

Which of the following amounts would be included on the right side of a balance sheet?

State the names of some of the firms discussed in the chapter that had inaccurate reporting in their financial statements.

A delivery company is creating a balance sheet. Which of the following would most likely be considered a short-term liability on this balance sheet?

The management of public companies is not legally required to disclose any off-balance sheet transactions.

Use the table for the question(s)below. -If the above balance sheet is for a retail company, how has the company's leverage changed between 2007 and 2008?

Luther Corporation Consolidated Income Statement Year ended December 31 (in $millions) Refer to the income statement above. Luther's net profit margin for the year ending December 31, 2005 is closest to ________.

Luther Corporation Consolidated Income Statement Year ended December 31 (in $millions) Refer to the income statement above. Luther's operating margin for the year ending December 31, 2005 is closest to ________.

Which of the following best describes why the left and right sides of a balance sheet are equal?

Consider the above statement of cash flows. If all amounts shown above are in millions of dollars, what were AOS Industries' retained earnings for 2008?

How does a firm select the date for preparation of its balance sheet?

What will be the effect on the statement of cash flows if a firm buys a new processing plant through a new loan?

Corporate Finance and the Financial Manager

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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