Question 1

GenCorp. has a total debt of $140 million and stockholders' equity of $50 million. It also has 26 million shares outstanding, with a market price of $4.00 per share. What is GenCorp's market debt-equity ratio?

Accepted Answer

A)  0.67 
B)  1.08 
C)  2.80 
D)  1.35

Question 2

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

Question 3

Above are portions of the balance sheet and income statement for two companies in 2008. Based upon this information, which of the following statements is most likely to be true?

Accepted Answer

A)  Asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
B)  Fixed asset turnover ratios indicate that firm A generating fewer sales for the assets it employs than firm B. 
C)  Both asset turnover ratios and fixed asset turnover ratios indicate that firm A is generating greater revenue per dollar of assets than firm B. 
D)  Fixed asset turnover ratios indicate that firm A generating more sales for the assets it employs than firm B.

Question 4

Stockholders' equity is the difference between a firm's assets and liabilities, as shown on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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)  not recorded on the statement of cash flows

Question 7

What role do external auditors play in a firm's financial reporting process?

Accepted Answer

The answer of What role do external auditors play in...

Question 8

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 9

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 10

A 30-year mortgage loan is a ________.

Accepted Answer

A)  long-term liability 
B)  current liability 
C)  current asset 
D)  long-term asset

Question 11

Balance Sheet   Net property, plant,
  Selling, general,
 Earnings before interest
 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.

Question 12

Which of the following is NOT one of the ways that the Sarbanes-Oxley Act sought to improve the accuracy of information given to both boards and shareholders?

Accepted Answer

A)  by increasing the penalties to firms for providing false information 
B)  by increasing the independence of auditors and clients 
C)  by decreasing the non-audit fees that an auditor can receive from a client 
D)  by forcing companies to audit financial statements they release

Question 13

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 14

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

A) True 
 B)False

Question 15

Use the table for the question(s) below.
Balance Sheet
   Net property, plant,
 
-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.

Question 16

Income Statement for Xenon Manufacturing:  Selling, general,
 Earnings before interest
 Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. If Xenon Manufacturing has 20 million shares outstanding, what is its EPS in 2008?

Accepted Answer

A)  $0.50 
B)  $0.25 
C)  $0.40 
D)  $0.60

Question 17

Use the table for the question(s) below.
  
-How does a firm select the date for preparation of its balance sheet?

Accepted Answer

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

Question 18

Balance Sheet   Net property, plant,
 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

Question 19

Cash is a ________.

Accepted Answer

A)  long-term asset 
B)  current asset 
C)  current liability 
D)  long-term liability

Question 20

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

Accepted Answer

The answer of What will be the effect on the...

Exam 2: Introduction to Financial Statement Analysis

GenCorp. has a total debt of $140 million and stockholders' equity of $50 million. It also has 26 million shares outstanding, with a market price of $4.00 per share. What is GenCorp's market debt-equity ratio?

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

Above are portions of the balance sheet and income statement for two companies in 2008. Based upon this information, which of the following statements is most likely to be true?

Stockholders' equity is the difference between a firm's assets and liabilities, as shown on the balance sheet.

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

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?

What role do external auditors play in a firm's financial reporting process?

What is a firm's gross profit?

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?

A 30-year mortgage loan is a ________.

Balance Sheet Net property, plant, Selling, general, Earnings before interest 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 is NOT one of the ways that the Sarbanes-Oxley Act sought to improve the accuracy of information given to both boards and shareholders?

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

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.

Use the table for the question(s) below. Balance Sheet Net property, plant, -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?

Income Statement for Xenon Manufacturing: Selling, general, Earnings before interest Consider the above Income Statement for Xenon Manufacturing. All values are in millions of dollars. If Xenon Manufacturing has 20 million shares outstanding, what is its EPS in 2008?

Use the table for the question(s) below. -How does a firm select the date for preparation of its balance sheet?

Balance Sheet Net property, plant, 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?

Cash is a ________.

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