Question 1

Use of the A-IFRS and auditors has not eliminated the danger of inadvertent or deliberate fraud in financial statements.

Accepted Answer

A) True 
 B)False

Question 2

Use the table for the question(s)below.  
-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) $60 million 
B) $11 million 
C) $50 million 
D) $48 million 
A) $60 million 
B) $11 million 
C) $50 million 
D) $48 million

Question 3

What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP)when creating financial statements?

Accepted Answer

A) It makes it easier to compare the financial results of different firms. 
B) It ensures that important information is not omitted and superfluous information is not included. 
C) It is easier to find specific information in such a report if it is laid out in a clear and consistent manner. 
D) It ensures that information on the performance of private companies is readily available to the public. 
A) It makes it easier to compare the financial results of different firms. 
B) It ensures that important information is not omitted and superfluous information is not included. 
C) It is easier to find specific information in such a report if it is laid out in a clear and consistent manner. 
D) It ensures that information on the performance of private companies is readily available to the public.

Question 4

Use the table for the question(s)below.
Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions)
  
-Refer to the income statement above. Luther's operating margin for the year ending 30 June 2017 is closest to:

Accepted Answer

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

Question 5

A software company acquires a smaller company in order to acquire the patents that it holds. The cost of this acquisition will be recorded on the statement of cash flows as an outflow under Investment Activities.

Accepted Answer

A) True 
 B)False

Question 6

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

Question 7

Use the table for the question(s)below.  
-The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. How would the balance sheet change if the company's long-term assets were judged to depreciate at an extra $5 million per year?

Accepted Answer

A) Net property, plant, and equipment would rise to $187 million, and Total Assets and Shareholders' Equity would be adjusted accordingly. 
B) Net property, plant, and equipment would fall to $177 million, and Total Assets and Shareholders' Equity would be adjusted accordingly. 
C) Long-term Liabilities would fall to $172 million, and Total Liabilities and Shareholders' Equity would be adjusted accordingly. 
D) Long-term Liabilities would rise to $182 million, and Total Liabilities and Shareholders' Equity would be adjusted accordingly. 
A) Net property, plant, and equipment would rise to $187 million, and Total Assets and Shareholders' Equity would be adjusted accordingly. 
B) Net property, plant, and equipment would fall to $177 million, and Total Assets and Shareholders' Equity would be adjusted accordingly. 
C) Long-term Liabilities would fall to $172 million, and Total Liabilities and Shareholders' Equity would be adjusted accordingly. 
D) Long-term Liabilities would rise to $182 million, and Total Liabilities and Shareholders' Equity would be adjusted accordingly.

Question 8

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 the balance sheet between 2017 and 2018?

Accepted Answer

A) The company has reduced its debt. 
B) The company has added a major new asset in terms of plant and equipment. 
C) The company is having difficulties selling its product. 
D) The company has experienced a significant rise in its market value. 
A) The company has reduced its debt. 
B) The company has added a major new asset in terms of plant and equipment. 
C) The company is having difficulties selling its product. 
D) The company has experienced a significant rise in its market value.

Question 9

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 firm has plans to expand into the organic food business in the next financial year by purchasing
Several small organic food retailers 
D) 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 
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 firm has plans to expand into the organic food business in the next financial year by purchasing
Several small organic food retailers 
D) 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

Question 10

The International Financial Reporting Standards set out by the International Accounting Standards Board are NOT accepted by the exchanges in which of the following countries or regions?

Accepted Answer

A) France 
B) the United Kingdom 
C) the United States 
D) Germany 
A) France 
B) the United Kingdom 
C) the United States 
D) Germany

Question 11

Use the table for the question(s)below.  
-Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2017 and 2018. What does the change in the gross margin between these two years imply about the company?

Accepted Answer

A) The leverage of Xenon Manufacturing fell slightly between 2017 and 2018. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2017 and 2018. 
C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2017 and 2018. 
D) The efficiency of Xenon Manufacturing has significantly risen between 2017 and 2018. 
A) The leverage of Xenon Manufacturing fell slightly between 2017 and 2018. 
B) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them rose between 2017 and 2018. 
C) The ability of Xenon Manufacturing to sell its goods and services for more than the costs of producing them fell between 2017 and 2018. 
D) The efficiency of Xenon Manufacturing has significantly risen between 2017 and 2018.

Question 12

'Gross profit' is calculated as

Accepted Answer

A) Total sales - Cost of sales. 
B) Total sales - Cost of sales - Selling, general, and administrative expenses - Depreciation and amortisation. 
C) Total sales - Cost of sales - Selling, general, and administrative expenses. 
D) none of the above 
A) Total sales - Cost of sales. 
B) Total sales - Cost of sales - Selling, general, and administrative expenses - Depreciation and amortisation. 
C) Total sales - Cost of sales - Selling, general, and administrative expenses. 
D) none of the above

Question 13

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

Accepted Answer

A) statement of sources and uses of cash 
B) income statement 
C) balance sheet 
D) statement of changes in equity 
A) statement of sources and uses of cash 
B) income statement 
C) balance sheet 
D) statement of changes in equity

Question 14

Which of the following firms would be expected to have a high ROE based on that firm's high operating efficiency?

Accepted Answer

A) a high-end fashion retailer that has a very high mark-up on all items it sells 
B) a grocery store chain that has very high turnover, selling many multiples of their assets per year 
C) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
D) a brokerage firm that has high levels of leverage 
A) a high-end fashion retailer that has a very high mark-up on all items it sells 
B) a grocery store chain that has very high turnover, selling many multiples of their assets per year 
C) a medical supply company that provides very precise instruments at a high price to large medical establishments such as hospitals 
D) a brokerage firm that has high levels of leverage

Question 15

A company has a share price of $24.50 and $118 million shares outstanding. Its market-to-book ratio is 4.2, its book debt-equity ratio is 3.2, and it has cash of $800 million. How much would it cost to take over this business assuming you pay its enterprise value?

Accepted Answer

A) $4.2 billion 
B) $1.5 
C) $3.6 billion 
D) $2.8 billion 
A) $4.2 billion 
B) $1.5 
C) $3.6 billion 
D) $2.8 billion

Question 16

One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while promising 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 cash raised should have been recorded as short-term loans. 
B) The assets should have been listed on the balance sheet as long-term assets. 
C) Cash raised by selling assets should not be recorded as revenue. 
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 cash raised should have been recorded as short-term loans. 
B) The assets should have been listed on the balance sheet as long-term assets. 
C) Cash raised by selling assets should not be recorded as revenue. 
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 17

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

Question 18

Use the table for the question(s)below.  
-The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. If the company has 4 million shares outstanding, and these shares are trading at a price of $12.45 per share, what does this tell you about how investors view this firm's book value?

Accepted Answer

A) Investors consider that the firm's market value is worth less than its book value. 
B) Investors consider that the firm's market value is worth more than its book value. 
C) Investors consider that the firm's market value and its book value are roughly equivalent. 
D) Investors consider that the firm's market value is worth very much less than its book value. 
A) Investors consider that the firm's market value is worth less than its book value. 
B) Investors consider that the firm's market value is worth more than its book value. 
C) Investors consider that the firm's market value and its book value are roughly equivalent. 
D) Investors consider that the firm's market value is worth very much less than its book value.

Question 19

A small company has current assets of $1 112 000 and current liabilities of $717 000. Which of the following statements about that company is most likely to be true?

Accepted Answer

A) Since net working capital is nearly zero, the company is well run and will have little difficulty attracting investors. 
B) Since net working capital is negative, the company will not have enough funds to meet its obligations. 
C) Since net working capital is high, the company will likely have little difficulty meeting its obligations. 
D) Since net working capital is very high, the company will have ample money to invest after it meets its obligations. 
A) Since net working capital is nearly zero, the company is well run and will have little difficulty attracting investors. 
B) Since net working capital is negative, the company will not have enough funds to meet its obligations. 
C) Since net working capital is high, the company will likely have little difficulty meeting its obligations. 
D) Since net working capital is very high, the company will have ample money to invest after it meets its obligations.

Question 20

Which of the following is the LEAST likely explanation for a firm's high ROE?

Accepted Answer

A) The firm has very efficient use of its assets. 
B) The firm is growing. 
C) The firm is able to find investment opportunities that are very profitable. 
D) The firm enjoys high sales margins. 
A) The firm has very efficient use of its assets. 
B) The firm is growing. 
C) The firm is able to find investment opportunities that are very profitable. 
D) The firm enjoys high sales margins.

Exam 2: Introduction to Financial Statement Analysis

Use of the A-IFRS and auditors has not eliminated the danger of inadvertent or deliberate fraud in financial statements.

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

What is the main reason that it is necessary for public companies to follow the rules and format set out in the Generally Accepted Accounting Principles (GAAP)when creating financial statements?

Use the table for the question(s)below. Luther Corporation Consolidated Income Statement Year ended 30 June (in $ millions) -Refer to the income statement above. Luther's operating margin for the year ending 30 June 2017 is closest to:

A software company acquires a smaller company in order to acquire the patents that it holds. The cost of this acquisition will be recorded on the statement of cash flows as an outflow under Investment Activities.

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?

Use the table for the question(s)below. -The above diagram shows a balance sheet for a certain company. All quantities shown are in millions of dollars. How would the balance sheet change if the company's long-term assets were judged to depreciate at an extra $5 million per year?

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 the balance sheet between 2017 and 2018?

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)?

The International Financial Reporting Standards set out by the International Accounting Standards Board are NOT accepted by the exchanges in which of the following countries or regions?

Use the table for the question(s)below. -Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. Calculate the gross margin for 2017 and 2018. What does the change in the gross margin between these two years imply about the company?

'Gross profit' is calculated as

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

Which of the following firms would be expected to have a high ROE based on that firm's high operating efficiency?

A company has a share price of $24.50 and $118 million shares outstanding. Its market-to-book ratio is 4.2, its book debt-equity ratio is 3.2, and it has cash of $800 million. How much would it cost to take over this business assuming you pay its enterprise value?

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?

A small company has current assets of $1 112 000 and current liabilities of $717 000. Which of the following statements about that company is most likely to be true?

Which of the following is the LEAST likely explanation for a firm's high ROE?

Corporate Finance and the Financial Manager

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bond Valuation

Share Valuation: the Dividend-Discount Model

Investment Decision Rules

Fundamentals of Capital Budgeting

Share Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro-Forma Analysis

Working Capital Management

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Insurance and Risk Management

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