Question 1

The major components of stockholders' equity are:

Accepted Answer

A) Cash,common stock and paid-in surplus 
B) Common stock,paid-in surplus and net income 
C) Common stock,paid-in surplus and retained earnings 
D) Common stock,liabilities and retained earnings 
A) Cash,common stock and paid-in surplus 
B) Common stock,paid-in surplus and net income 
C) Common stock,paid-in surplus and retained earnings 
D) Common stock,liabilities and retained earnings

Question 2

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

Question 3

A software company acquires a smaller company in order to acquire the patents that it holds.Where will the cost of this acquisition be recorded on the statement of cash flows?

Accepted Answer

A) as an outflow under Operating Activities 
B) as an outflow under Investment Activities 
C) as an outflow under Financial Activities 
D) The acquisition would not be recorded on the statement of cash flows. 
A) as an outflow under Operating Activities 
B) as an outflow under Investment Activities 
C) as an outflow under Financial Activities 
D) The acquisition would not be recorded on the statement of cash flows.

Question 4

Which of the following best describes why firms produce financial statements?

Accepted Answer

A) to use as a tool when planning future investments within the firm 
B) to provide a means of enticing new investors to a firm 
C) to provide interested parties,both inside and outside the company,with an overview of the short and long term financial condition of a business 
D) to show what activities the company has undertaken in the previous financial year,and what activities are planned for the near future 
A) to use as a tool when planning future investments within the firm 
B) to provide a means of enticing new investors to a firm 
C) to provide interested parties,both inside and outside the company,with an overview of the short and long term financial condition of a business 
D) to show what activities the company has undertaken in the previous financial year,and what activities are planned for the near future

Question 5

In the United States,publicly traded companies can choose whether or not they wish to release periodic financial statements.

Accepted Answer

A) True 
 B)False

Question 6

What is the main problem in using a balance sheet to provide an accurate assessment of the value of a company's equity?

Accepted Answer

A) Valuable assets such as the company's reputation,the quality of its work force,and the strength of its management are not captured on the balance sheet. 
B) The balance sheet does not accurately represent the book value of assets held by the company. 
C) The equity shown on the balance sheet does not reflect the market capitalization of the company. 
D) Knowing at a single point in time what assets a firm possesses and the liabilities a firm owes does not give any indication of what those assets can produce in the future. 
A) Valuable assets such as the company's reputation,the quality of its work force,and the strength of its management are not captured on the balance sheet. 
B) The balance sheet does not accurately represent the book value of assets held by the company. 
C) The equity shown on the balance sheet does not reflect the market capitalization of the company. 
D) Knowing at a single point in time what assets a firm possesses and the liabilities a firm owes does not give any indication of what those assets can produce in the future.

Question 7

According to the text,did Enron and WorldCom follow Generally Accepted Accounting Principles (GAAP)in their financial reporting process?

Accepted Answer

Many of the problems of Enron and WorldC

Question 8

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

Accepted Answer

Not all actions of the firm can be direc

Question 9

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

Accepted Answer

A) The balance sheet provides a snapshot of the firm's financial position at a given point in time. 
B) The balance sheet lists the 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 the firm's financial position at a given point in time. 
B) The balance sheet lists the 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.

Question 10

Use the table for the question(s)below.  
-If the above balance sheet is for a retail company,what indications about this company would best be drawn from the changes in stockholders' equity between 2007 and 2008?

Accepted Answer

A) The company is very profitable because it is obviously collecting receivables faster. 
B) The company is selling its property,plant and equipment,which may result in a long-term deficiency in production capacity. 
C) The company's net income in 2008 was negative. 
D) No conclusions can be drawn regarding stockholders' equity without additional information. 
A) The company is very profitable because it is obviously collecting receivables faster. 
B) The company is selling its property,plant and equipment,which may result in a long-term deficiency in production capacity. 
C) The company's net income in 2008 was negative. 
D) No conclusions can be drawn regarding stockholders' equity without additional information.

Question 11

WorldCom classified $3.85 billion in operating expenses as long-term investments.How would this make WorldCom's financial statements more attractive to investors?

Accepted Answer

A) by decreasing depreciation 
B) by reducing capital expenditures 
C) by raising its reported earnings 
D) by boosting its cash flows 
A) by decreasing depreciation 
B) by reducing capital expenditures 
C) by raising its reported earnings 
D) by boosting its cash flows

Question 12

Use the table for the question(s)below.
    
-Refer to the balance sheet above.When using the book value of equity,the debt-equity ratio for Luther in 2006 is closest to:

Accepted Answer

A) 2.21 
B) 2.29 
C) 2.98 
D) 3.03 
A) 2.21 
B) 2.29 
C) 2.98 
D) 3.03

Question 13

Use of Generally Accepted Accounting Principles (GAAP)and auditors have eliminated the danger of inadvertent or deliberate fraud in financial statements.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

The effect on the income state

Question 15

Use the table for the question(s)below.
    
-Refer to the balance sheet above.The change in Luther's quick ratio from 2005 to 2006 is closest to:

Accepted Answer

A) a decrease of 0.10 
B) an increase of 0.10 
C) a decrease of 0.15 
D) an increase of 0.15 
A) a decrease of 0.10 
B) an increase of 0.10 
C) a decrease of 0.15 
D) an increase of 0.15

Question 16

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts,if true,in the firm's management discussion and analysis (MD&A)?

Accepted Answer

A) that a large number of funds were allocated to advertising to increase awareness of the firm's brand in new areas it had expanded into this year 
B) that some senior members of the management team have retired in this financial year 
C) that the company has lost a class action suit brought against the firm by its employees and is expected to have to pay a large amount of damages 
D) that the firm has plans to expand into the organic food business in the next financial year by purchasing several small organic food retailers 
A) that a large number of funds were allocated to advertising to increase awareness of the firm's brand in new areas it had expanded into this year 
B) that some senior members of the management team have retired in this financial year 
C) that the company has lost a class action suit brought against the firm by its employees and is expected to have to pay a large amount of damages 
D) that the firm has plans to expand into the organic food business in the next financial year by purchasing several small organic food retailers

Question 17

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

Accepted Answer

1.balance sheet
2.in

Question 18

Use the table for the question(s)below.  
-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) $7 million 
B) $32 million 
C) $33 million 
D) $40 million 
A) $7 million 
B) $32 million 
C) $33 million 
D) $40 million

Question 19

Use the table for the question(s)below.
    
-Refer to the balance sheet above.If on December 31,2005 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's market-to-book ratio?

Accepted Answer

market-to-book = market value

Question 20

The balance sheet shows the assets,liabilities,and stockholders' equity of a firm over a given length of time.

Accepted Answer

A) True 
 B)False

Exam 2: Introduction to Financial Statement Analysis

The major components of stockholders' equity are:

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

A software company acquires a smaller company in order to acquire the patents that it holds.Where will the cost of this acquisition be recorded on the statement of cash flows?

Which of the following best describes why firms produce financial statements?

In the United States,publicly traded companies can choose whether or not they wish to release periodic financial statements.

What is the main problem in using a balance sheet to provide an accurate assessment of the value of a company's equity?

According to the text,did Enron and WorldCom follow Generally Accepted Accounting Principles (GAAP)in their financial reporting process?

What is the need for the notes to the financial statements when the firm's operations are already documented in the financial statements?

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

Use the table for the question(s)below. -If the above balance sheet is for a retail company,what indications about this company would best be drawn from the changes in stockholders' equity between 2007 and 2008?

WorldCom classified $3.85 billion in operating expenses as long-term investments.How would this make WorldCom's financial statements more attractive to investors?

Use the table for the question(s)below. -Refer to the balance sheet above.When using the book value of equity,the debt-equity ratio for Luther in 2006 is closest to:

Use of Generally Accepted Accounting Principles (GAAP)and auditors have eliminated the danger of inadvertent or deliberate fraud in financial statements.

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

Use the table for the question(s)below. -Refer to the balance sheet above.The change in Luther's quick ratio from 2005 to 2006 is closest to:

A firm whose primary business is in a line of regional grocery stores would be most likely to have to include which of the following facts,if true,in the firm's management discussion and analysis (MD&A)?

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

Use the table for the question(s)below. -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?

Use the table for the question(s)below. -Refer to the balance sheet above.If on December 31,2005 Luther has 8 million shares outstanding trading at $15 per share,then what is Luther's market-to-book ratio?

The balance sheet shows the assets,liabilities,and stockholders' equity of a firm over a given length of time.

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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