Question 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.

Accepted Answer

A) True 
 B)False

Question 2

Most of the ratios given a high significance rating by commercial loan officers have a primary measure of liquidity or debt.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following variables indicates a measure of cumulative profitability over time?

Accepted Answer

A) Retained earnings (balance sheet)/total assets 
B) Earnings before interest and taxes/total assets 
C) Working capital/total assets 
D) Market value of equity/book value of total debt 
E) Sales/total assets

Question 4

There are many definitions or descriptions given to financial failure.Which of the following does not appear to be a reasonable definition or description:

Accepted Answer

A) refinancing of bonds payable. 
B) liquidation. 
C) deferment of payments to short-term creditors. 
D) deferment of payments of interest on bonds. 
E) deferment of payments of principal on bonds.

Question 5

The interest rate that is assumed to be earned on pension funds can have a material influence on the pension expense and the pension liability.The higher the rate of interest assumed to be earned on pension funds, the higher the pension expense and the higher the pension liability.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following ratios is given the highest significance rating by controllers?

Accepted Answer

A) Current Ratio 
B) Earning Per Share 
C) Return on Equity - After Tax 
D) Return on Assets -After Tax 
E) Price/Earnings Ratio

Question 7

Visually, a pie graph can mislead because of an illusion.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not a multiple approach to valuation?

Accepted Answer

A) Discounted cash flow 
B) Price-to-earnings (P
E)  
C) Price-to-book 
D) Price-to-operating cash flow 
E) Price-to-sales

Question 9

Profitability ratios are the most likely ratios to be selected for corporate objectives.

Accepted Answer

A) True 
 B)False

Question 10

A review of the computational methodology used to compute the ratios for annual reports indicated that there were wide differences of opinion on how many of the ratios should have been computed.

Accepted Answer

A) True 
 B)False

Question 11

A column graph has columns in horizontal form.

Accepted Answer

A) True 
 B)False

Question 12

In general, controllers rate profitability ratios to have a higher significance than debt ratios.

Accepted Answer

A) True 
 B)False

Question 13

Under inflationary conditions, the least conservative inventory method is lifo.

Accepted Answer

A) True 
 B)False

Question 14

Usually, a company must make estimates in the preparation of financial statements as of a given date.

Accepted Answer

A) True 
 B)False

Question 15

Tom Copeland, Tim Keller, and Jack Morrin, on their book Valuation, Measuring and Managing the Value of Companies, observed that acquirers paid too much for companies because of all but one of the following reasons:

Accepted Answer

A) market potential greater than estimated. 
B) overoptimistic appraisal of market potential. 
C) overestimation of synergies. 
D) poor due diligence. 
E) overbidding.

Question 16

The studies cited [(Barker, 1999), (Demirakos et al, 2003), and (Asquith et al, 2004)], all agree on the fact that multi-period discounted valuation models seem to play a significant role in analysts' normal valuation activity.

Accepted Answer

A) True 
 B)False

Question 17

The completed-contract method recognizes all income when the contract is completed, while the percentage-of-completion method recognizes income as work progresses on the contract.The completed-contract method is the conservative method.

Accepted Answer

A) True 
 B)False

Question 18

The straight-line depreciation method recognizes depreciation in equal amounts over each year of the life of the asset.Therefore, the straight-line depreciation method is a conservative depreciation method.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is not true?

Accepted Answer

A) A review of financial statements, including the notes, will indicate how conservative the statements are in regard to accounting policies. 
B) Accounting policies that result in the slowest reporting of income are the most conservative. 
C) When a firm has conservative accounting policies, it is said that its earnings are of high quality. 
D) Under inflationary conditions, the least conservative inventory method is fifo. 
E) Conservative accounting policies always result in the lowest reported income for any given period of time.

Question 20

Which of the following ratios is given the highest significance rating by Certified Public Accountants?

Accepted Answer

A) Quick Ratio 
B) Debt/Equity 
C) Net Profit Margin 
D) Current Ratio 
E) Times Interest Earned

Exam 11: Expanded Analysis

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.

Most of the ratios given a high significance rating by commercial loan officers have a primary measure of liquidity or debt.

Which of the following variables indicates a measure of cumulative profitability over time?

There are many definitions or descriptions given to financial failure.Which of the following does not appear to be a reasonable definition or description:

The interest rate that is assumed to be earned on pension funds can have a material influence on the pension expense and the pension liability.The higher the rate of interest assumed to be earned on pension funds, the higher the pension expense and the higher the pension liability.

Which of the following ratios is given the highest significance rating by controllers?

Visually, a pie graph can mislead because of an illusion.

Which of the following is not a multiple approach to valuation?

Profitability ratios are the most likely ratios to be selected for corporate objectives.

A review of the computational methodology used to compute the ratios for annual reports indicated that there were wide differences of opinion on how many of the ratios should have been computed.

A column graph has columns in horizontal form.

In general, controllers rate profitability ratios to have a higher significance than debt ratios.

Under inflationary conditions, the least conservative inventory method is lifo.

Usually, a company must make estimates in the preparation of financial statements as of a given date.

Tom Copeland, Tim Keller, and Jack Morrin, on their book Valuation, Measuring and Managing the Value of Companies, observed that acquirers paid too much for companies because of all but one of the following reasons:

The studies cited [(Barker, 1999), (Demirakos et al, 2003), and (Asquith et al, 2004)], all agree on the fact that multi-period discounted valuation models seem to play a significant role in analysts' normal valuation activity.

The completed-contract method recognizes all income when the contract is completed, while the percentage-of-completion method recognizes income as work progresses on the contract.The completed-contract method is the conservative method.

The straight-line depreciation method recognizes depreciation in equal amounts over each year of the life of the asset.Therefore, the straight-line depreciation method is a conservative depreciation method.

Which of the following statements is not true?

Which of the following ratios is given the highest significance rating by Certified Public Accountants?