Question 1

A public company has a book value of $128 million. They have 20 million shares outstanding, with a market price of $4 per share. Which of the following statements is true regarding this company?

Accepted Answer

A) Investors may consider this firm to be a growth company. 
B) Investors believe the company's assets are not likely to be profitable since its market value is worth less than its book value. 
C) The firm's market value is more than its book value. 
D) The value of the firm's assets is greater than their liquidation value.

Question 2

Which ratio would you use to measure the financial health of a firm by assessing that firm's leverage?

Accepted Answer

A) debt-equity or equity multiplier ratio 
B) market-to-book ratio 
C) market debt-equity ratio 
D) current or quick ratio

Question 3

Which of the following balance sheet equations is INCORRECT?

Accepted Answer

A) Assets - Liabilities = Shareholders' equity 
B) Assets = Liabilities + Shareholders' equity 
C) Assets - Current liabilities = Long-term liabilities 
D) Assets - Current liabilities = Long-term liabilities + Shareholders' equity

Question 4

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

Accepted Answer

A) 247.12% 
B) 98.85% 
C) 123.56% 
D) 148.27%

Question 5

What role does Generally Accepted Accounting Principles (GAAP)play in the accounting process?

Accepted Answer

The answer of What role does Generally Accepted Accounting Principles...

Question 6

A printing company prints a brochure for a client and then bills them for this service. At the time the printing company's financial disclosure statements are prepared, the client has not yet paid the bill for this service. How will this transaction be recorded?

Accepted Answer

A) The sale will be added to Net Income on the income statement and retained in Net Income on the statement of cash flows. 
B) The sale will be added to Net Income on the income statement but deducted from Net Income on the statement of cash flows. 
C) The sale will not be added to Net Income on the income statement but added to Net Income on the statement of cash flows. 
D) The sale will neither be added to Net Income on the income statement nor used to adjust Net Income on the statement of cash flows.

Question 7

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

Accepted Answer

A) income statement 
B) statement of sources and uses of cash 
C) balance sheet 
D) statement of stockholders' equity

Question 8

U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form?

Accepted Answer

A) 10-A 
B) 10-K 
C) 10-Q 
D) 10-SEC

Question 9

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

Accepted Answer

The answer of According to the text, did Enron and...

Question 10

Luther Corporation Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)  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) 4.51 
B) 2.25 
C) 1.13 
D) 3.16

Question 11

Use the table for the question(s)below. 
-Refer to the partial 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

The answer of Use the table for the question(s)below. 
-Refer...

Question 12

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

Accepted Answer

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

Question 13

Which of the following best describes why a firm produces financial statements?

Accepted Answer

A) to use as a tool when planning future investments within a firm 
B) to increase the intrinsic value of a firm 
C) to provide a means for interested outside parties such as creditors to obtain information about a firm, with an overview of the short- and long-term financial condition of a business 
D) to show the daily activities a firm has undertaken in the previous financial year, and what activities are planned for the near future

Question 14

The notes to the financial statements would LEAST likely be used for which of the following purposes?

Accepted Answer

A) to provide information regarding the context in which these financial numbers were generated 
B) to disclose the financial implications of any off-balance sheet transactions 
C) to show how the value of assets listed in the financial statements were arrived at 
D) to explain the method of accounting that was used in the preparation of the financial statements

Question 15

International Financial Reporting Standards are taking root throughout the world. However, it is unlikely that the U.S. will report according to IFRS before the second half of the twenty-first century.

Accepted Answer

A) True 
 B)False

Question 16

Luther Corporation Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)  Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and these shares are trading at $16 per share, then Luther's market-to-book ratio would be closest to ________.

Accepted Answer

A) 2.58 
B) 0.64 
C) 1.29 
D) 1.80

Question 17

A company that produces drugs is preparing a balance sheet. Which of the following would be most likely to be considered a long-term asset on this balance sheet?

Accepted Answer

A) commercial paper held by the company 
B) the inventory of chemicals used to produce the drugs made by the company 
C) a patent for a drug held by the company 
D) the cash reserves of the company

Question 18

What is a firm's gross profit?

Accepted Answer

A) the difference between the sales and other income generated by the firm, and all costs, taxes, and expenses incurred by a firm in a given period 
B) the difference between sales revenues and the costs 
C) the difference between sales revenues and cash expenditures associated with those sales 
D) all of the above

Question 19

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

Question 20

Financial statements are optional accounting reports issued periodically by a firm which present information on the past performance of the firm, a summary of the firm's assets and the financing of those assets, and a prediction of the firm's future performance.

Accepted Answer