ASHWORTH A04 FULL COURSE

ASSIGNMENTS

Assignment 04

A04 Intermediate Accounting I

Directions: Be sure to make an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Refer to the "Assignment Format" page for specific format requirements.

Part A (40 points)

Vince Corporation has current assets of $300,000 and current liabilities of $175,000.

Compute the effect of each of the following transactions on Vince’s current ratio:

Refinanced a $50,000 long-term mortgage with a short-term note.

Purchasing $80,000 of merchandise inventory with short-term accounts payable.

Paying $30,000 of short-term accounts payable.

Collecting $40,000 of short-term accounts receivable.

Part B (20 points)

Selected data of the Peninsula Company follow:

As of December 31

Balance Sheet Data

2014

2013

Accounts receivable

$671,000

$642,000

Allowance for doubtful accounts

31,000

22,000

Net accounts receivable

$640,000

$620,000

Inventories—lower of cost or market

$542,500

$642,500

Year Ended December 31

Income Statement Data

2014

2013

Net credit sales

$3,150,000

$3,000,000

Net cash sales

800,000

600,000

Net sales

$3,950,000

$3,600,000

Cost of goods sold

$2,370,000

$2,160,000

Selling, general, and administrative expenses

475,000

350,000

Other

150,000

125,000

Total operating expenses

$2,995,000

$2,635,000

Net income

$955,000

$965,000

What is the accounts receivable turnover for 2014?

What is the inventory turnover for 2014?

Part C (40 points)

Selected information taken from the 2014 annual report of Aardvark Company follows. During 2014, the company had no nonoperating or nonrecurring items included in income and had no outstanding preferred stock.

($ in millions)

2014

2013

Sales

$19,903

$18,781

Interest expense

130

169

Net income

1,153

1,088

Total assets

12,673

12,461

Dividends

(153)

(131)

Total stockholders’ equity

$4,288

$4,007

Assumed tax rate

35%

35%

Industry ROA

7.32%

Industry operating profit margin

6.1%

For 2014, calculate:

a. ROA

b. ROCE

c. Operating profit margin

d. Asset turnover.

Round your percentage answers to one decimal place. For example, .1234 = 12.3%.

Assignment 08

A04 Intermediate Accounting I

Directions: Be sure to make an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Refer to the "Assignment Format" page for specific format requirements.

Part A (30 points)

The Bravo Company manufactures a single product. On December 31, 2012 Bravo adopted the dollar-value LIFO inventory method. The inventory on that date using the dollar-value LIFO inventory method was determined to be $500,000. Inventory data for succeeding years are as follows:

Year Ended December 31

Inventory at Respective Year-end Prices

Relevant Price Index (Base Year 2012)

2012

$500,000

1.00

2013

527,000

1.08

2014

635,000

1.15

2015

645,000

1.21

Compute the inventory amount at December 31, 2013, 2014, and 2015 using the dollar-value LIFO inventory method for each year. (Round all amounts to the nearest dollar, 10 points each)

Part B (40 points)

Information from Hope Company’s records for the year ended December 31, 2015 is available as follows:

Net sales

$2,800,000

Cost of goods manufactured:

Variable

$1,260,000

Fixed

$630,000

Operating expenses:

Variable

$196,000

Fixed

$240,000

Units manufactured

70,000

Units sold

60,000

Finished goods inventory, 1/1/2015

$0

Hope had no work-in-process inventories at either the beginning or end of 2015.

a. What would be Hope’s finished goods inventory cost under the variable (direct) costing method at December 31, 2015? (20 points)

b. What would Hope’s operating income be under the absorption costing method? (20 points)

Part C (30 points, 10 each)

Tool City, Inc. had 300 cordless screwdrivers on hand at January 1, 2015 costing $45 each. Purchases and sales of cordless screwdrivers during the month of January were as follows:

Date

Purchases

Sales

January 9

200 @ $75

January 14

100 @ $47

January 23

75 @ $76

January 25

100 @ $48

January 30

75 @ $77

Tool City does not maintain perpetual inventory records. According to a physical count, 150 cordless screwdrivers were on hand at January 31, 2015.

a. What is the cost of the inventory at January 31, 2015 under the FIFO method?

b. What is the cost of the inventory at January 31, 2015 under the LIFO method?

c. What is the cost of the inventory at January 31, 2015 under the FIFO method if only 145 cordless screwdrivers were on hand at the time of the physical count?

ONLINE EXAM 1

Question 1 of 20

5.0/ 5.0 Points

When a company changes from LIFO to another inventory method, the change is reported:

A. prospectively because it is impractical to determine the effects of this change on prior years’ net income.

B. as an error correction.

C. as a change in an accounting estimate.

D. using the retrospective approach.

Question 2 of 20

5.0/ 5.0 Points

Net income recognition always increases:

A. assets.

B. net assets.

C. liabilities.

D. net liabilities.

Question 3 of 20

5.0/ 5.0 Points

When reporting a change in an accounting principle, the general rule requires that the current year’s income from continuing operations reflect:

A. use of the newly adopted principle for the current year recognition.

B. use of the old principle for the current year recognition.

C. management’s choice of either the old or newly adopted principle for the current year recognition.

D. FASB’s designation of either the old or newly-adopted principle based on the item being changed.

Question 4 of 20

5.0/ 5.0 Points

To recognize revenue after the time of sale, there must be extreme uncertainty regarding the amount of cash to be collected or:

A. there must be substantial future services required whose costs cannot be reasonably estimated.

B. units are heterogeneous.

C. the product is immediately salable at quoted market prices.

D. a formal contract must be signed.

Question 5 of 20

5.0/ 5.0 Points

Financial statements follow:

A. rigid guidelines that require specific adherence to regulated procedures.

B. generally accepted guidelines that allow management to choose among different procedures.

C. general guidelines with little choice among different procedures.

D. legal requirements for uniform presentation and disclosure.

Question 6 of 20

5.0/ 5.0 Points

A company’s financial statements can be used for all of the following

purposes EXCEPT as a/an:

A. scorecard on the company’s social responsibility.

B. management report card.

C. early warning signal.

D. measure of accountability.

Question 7 of 20

5.0/ 5.0 Points

On the income statement, income from discontinued operations is shown:

A. as a separate section of income from continuing operations.

B. as an accounting principle change.

C. without any income tax effect.

D. net of taxes after income from continuing operations.

Question 8 of 20

5.0/ 5.0 Points

Companies offering higher risk securities have incentives to mask their true condition by:

A. supplying overly optimistic financial information.

B. not having their financial statements audited.

C. listing on foreign exchanges where reporting requirements are less stringent than those in the U.S.

D. including testimonials from well-known executives in their financial statements.

Question 9 of 20

5.0/ 5.0 Points

When transitory earnings are present, which of the following correctly depicts the order used on the income statement?

A. Income from continuing operations, income tax expense, extraordinary loss, discontinued operations, net income.

B. Income from continuing operations, extraordinary loss, discontinued operations, income tax expense, net income.

C. Income from continuing operations, income tax expense, discontinued operations, extraordinary loss, net income.

D. Income tax expense, income from continuing operations, discontinued operations, extraordinary loss, net income.

Question 10 of 20

5.0/ 5.0 Points

In 2009, the FASB completed a five-year effort to distill the existing GAAP literature into a single database known as:

A. the accounting standards database.

B. international financial reporting standards.

C. the converged accounting standards.

D. the accounting standards codification.

Question 11 of 20

5.0/ 5.0 Points

GAAP requires that each set of EPS numbers includes separately reported numbers for all of the following EXCEPT:

A. special or unusual items.

B. income from continuing operations.

C. discontinued operations.

D. extraordinary items.

Question 12 of 20

5.0/ 5.0 Points

The change in equity of an entity during a period from transactions and other events from non-owner sources is known as:

A. net income.

B. net operating income.

C. comprehensive income.

D. net change in assets.

Question 13 of 20

5.0/ 5.0 Points

The “critical event” for revenue recognition is:

A. defined by generally accepted accounting principles for every situation.

B. the same for every industry.

C. dependent upon the exact nature of the business and industry.

D. easily defined by the FASB.

Question 14 of 20

5.0/ 5.0 Points

The best measure of a firm’s sustainable income is:

A. income from continuing operations.

B. income before extraordinary items.

C. income before extraordinary item and change in accounting principle.

D. net income.

Question 15 of 20

5.0/ 5.0 Points

A company’s financial statements reflect information about:

A. future projections of sales, expenses, and other future economic events.

B. product information and competitive positions.

C. the general economy of the industry in which the company operates.

D. economic events that affect a company that can be translated into accounting numbers.

Question 16 of 20

5.0/ 5.0 Points

Traceable costs are also called __________ costs.

A. period

B. expired

C. product

D. administrative

Question 17 of 20

5.0/ 5.0 Points

Differences between IFRS and U.S. GAAP include all of the following EXCEPT:

A. reversal of inventory write-downs.

B. extraordinary items.

C. lease capitalization.

D. research and development costs.

Question 18 of 20

0.0/ 5.0 Points

The type of analysis that uses financial statements to assess valuation of current market price is __________ analysis.

A. valuation

B. efficient market

C. fundamental

D. technical

Question 19 of 20

5.0/ 5.0 Points

Using the same accounting methods to record and report similar events from period to period demonstrates:

A. consistency.

B. comparability.

C. neutrality.

D. faithful representation.

Question 20 of 20

5.0/ 5.0 Points

The statement “linkage between these costs and individual sales is difficult to establish” refers to __________ costs.

A. period

B. expired

C. product

D. traceable

ONLINE EXAM 2

Question 1 of 20

0.0/ 5.0 Points

GAAP specifies that for a seller to record revenue at time of sale when right of returnexists the following conditions must be met EXCEPT the:

A. seller’s price to the buyer is substantially fixed or determinable at the date of sale.

B. buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product.

C. buyer’s obligation to the seller does not change in the event of theft or physical destruction or damage of the product.

D. buyer is a special purpose entity established by the seller for the sole purpose of buying and reselling the seller’s product.

Question 2 of 20

5.0/ 5.0 Points

Under the percentage-of-completion method, the profit to be recognized in any year is based on the ratio of:

A. incurred contract costs divided by estimated total contract costs.

B. incurred contract costs multiplied by estimated total contract costs.

C. estimated total contract costs divided by incurred contract costs.

D. estimated total contract costs multiplied by incurred contract costs.

Question 3 of 20

5.0/ 5.0 Points

A series of immaterial errors spread across several accounts:

A. will always have a material impact on earnings.

B. must always be corrected.

C. if found by the auditors, will result in a disclaimer.

D. can, in the aggregate, have a material effect on bottom line earnings.

Question 4 of 20

5.0/ 5.0 Points

When applying the installment sales method the accounting system must match collections with the specific sales year to which the cash collections relate in order to apply the correct:

A. net profit percentage to accounts receivable.

B. gross profit percentage to accounts receivable.

C. net profit percentage to cash receipts.

D. gross profit percentage to cash receipts.

Question 5 of 20

5.0/ 5.0 Points

U.S. GAAP allows companies to use the cost recovery methodfor recognizing profits:

A. when collections on installment sales occur over an extended period and there is no reasonable basis for estimating collectability.

B. on any installment sale.

C. only when selling to companies with strong credit ratings.

D. if they are in industries where this is the accepted practice.

Question 6 of 20

5.0/ 5.0 Points

Under the percentage-of-completion method of revenue recognition, the percentage-of-completion ratio is computed by dividing:

A. profits earned to date by estimated total profits.

B. costs incurred to date by estimated total costs.

C. costs incurred to date by the contract price.

D. profits earned to date by the contract price.

Question 7 of 20

0.0/ 5.0 Points

Cost-plus contracts:

A. refer to contracts that are modified from their original terms during the course of the contract.

B. refer to contracts where the contractor is not expected to recover all costs incurred in completing the project.

C. are only used in countries where IFRS rules are followed.

D. are those for which the contractor is reimbursed for allowable or otherwise defined costs plus a profit markup.

Question 8 of 20

5.0/ 5.0 Points

Several different parties are charged with the responsibility for discovering accounting errors and irregularities. These include all of the following EXCEPT the:

A. company’s internal audit staff.

B. company’s external auditors.

C. SEC.

D. company’s legal counsel.

Question 9 of 20

0.0/ 5.0 Points

The once-revised exposure draft on revenue recognition issued by the IASB and the FASB:

A. addresses when and how much revenue should be recognized in contracts to provide both goods and services to customers.

B. proposes to eliminate alternate methods of revenue recognition such as the percentage-of-completion and installment sales methods.

C. will require companies to recognize a net liability contract position on all new contracts; revenue will then arise from increases in the net contract position over the life of the contract.

D. All of the above are correct regarding the FASB/IASB exposure document.

Question 10 of 20

5.0/ 5.0 Points

In an effort to “clean up” company balance sheets, managers have often:

A. taken minimal restructuring write-offs.

B. understated estimated charges for future expenditures.

C. overstated estimated charges for future expenditures.

D. been required to invest their own assets in the company.

Question 11 of 20

5.0/ 5.0 Points

Initial franchise fees should be recorded as revenue by the franchisor:

A. in accordance with the franchise agreement.

B. when cash is received from the franchisee.

C. when all material services relating to the sale have been substantially performed.

D. during the year the franchise agreement is signed.

Question 12 of 20

5.0/ 5.0 Points

All of the following are examples of long-term construction projects EXCEPT:

A. military hardware.

B. oil tankers.

C. bridges.

D. residential swimming pools.

Question 13 of 20

5.0/ 5.0 Points

Continuing franchise fees should be recorded by the franchisor:

A. as revenue when received.

B. as revenue in the period they are earned and received.

C. in accordance with the franchise agreement.

D. as revenue only after the balance of the initial franchise fee has been received.

Question 14 of 20

5.0/ 5.0 Points

Companies that fail to meet analysts’ earnings expectations:

A. are often rewarded by investors.

B. are often penalized by investors.

C. have had no consequences to the companies.

D. are forced into reorganization.

Question 15 of 20

5.0/ 5.0 Points

When accounting for sales where the risk of non-collection of installments is high or when there is no reasonable basis for estimating uncollectible accounts, IFRS:

A. requires use of the installment sales method.

B. permits either the cost recovery or the installment sales method.

C. takes a more conservative approach than that allowed under U.S. GAAP.

D. takes a less conservative approach than that allowed under U.S. GAAP.

Question 16 of 20

5.0/ 5.0 Points

Under the installment sales method, interest charged by the sellers is:

A. immaterial and GAAP allows it to be combined with recognized gross profit.

B. recognized out of the last cash collection of the sale.

C. recorded separately out of the periodic cash proceeds.

D. recognized out of the first cash collection of the sale.

Question 17 of 20

5.0/ 5.0 Points

Under IFRS, service revenue should be recognized when it is probable that future economic benefits will be received and the entity can reliably measure all of the following EXCEPT the:

A. amount of revenue.

B. stage of completion.

C. date of completion.

D. costs to complete the project.

Question 18 of 20

5.0/ 5.0 Points

When losses occur on long-term contracts using the percentage-of-completion method, they are recognized:

A. in their entirety as soon as it becomes known that a loss will be suffered.

B. at the completion of the project.

C. proportionately over the contract period using costs incurred as a base.

D. evenly over the contract period.

Question 19 of 20

5.0/ 5.0 Points

When the outcome of a fixed-price contract cannot be reliably estimated, IFRS:

A. permits firms to use either the completed contract method or the cost-recovery method to account for the contract.

B. rules do not permit firms to use the completed contract method.

C. follows the same accounting method required by U.S. GAAP.

D. permits considerable latitude when accounting for the contract.

Question 20 of 20

0.0/ 5.0 Points

The Sarver Farm has completed the fall harvest with 50,000 bushels of premium wheat. The wheat cost $75,000 from planting to harvest and the market price of the wheat on the day it is placed in the silo is $2.50 per bushel. Sarver sells 42,000 bushels in Year 1 and holds the remaining 8,000 until Year 2 when it sells for $3.00 per bushel.

Using the market price (production) method, how much net income should Sarver recognize in Year 1?

A. $42,000

B. $50,000

C. $105,000

D. $125,000

ONLINE EXAM 3

Question 1 of 20

5.0/ 5.0 Points

Common-size balance sheets may be used for all of the following EXCEPT:

A. gaining insights into the nature of a company’s operations.

B. analyzing a company’s asset and financial structure.

C. determining how management assesses the risks a company faces.

D. learning about the underlying economics of an industry.

Question 2 of 20

5.0/ 5.0 Points

Investing activities include the cash effects of:

A. producing and delivering goods and services.

B. purchasing and disposing of fixed assets used in production of revenue.

C. borrowing and repaying loans used to purchase fixed assets.

D. selling stocks and bonds to raise capital to purchase fixed assets.

Question 3 of 20

5.0/ 5.0 Points

Financing activities include the cash effects of:

A. producing and delivering goods and services.

B. purchasing and disposing of fixed assets used in production of revenue.

C. purchasing and disposing of debt securities of other companies.

D. selling stocks and bonds to raise capital for the production of revenue.

Question 4 of 20

0.0/ 5.0 Points

Probable future sacrifices of economic benefits arising from an entity’s present obligations to transfer resources or provide services to other entities in the future as a result of past transactions or events define:

A. assets.

B. liabilities.

C. equity.

D. retained earnings.

Question 5 of 20

5.0/ 5.0 Points

The Common Stock account is reported on the balance sheet at the:

A. historical par value of the stock.

B. current market value of the stock.

C. net realizable value of the stock.

D. discounted present value of the future dividends.

Question 6 of 20

5.0/ 5.0 Points

How much cash did Kris collect from customers during Year 2? Assume all sales are on credit.

A. $150,000

B. $750,000

C. $850,000

D. $900,000

Question 7 of 20

5.0/ 5.0 Points

Current liabilities are reported on the balance sheet at:

A. current market value.

B. historical cost.

C. discounted present value.

D. future value.

Question 8 of 20

5.0/ 5.0 Points

The Additional Paid-In Capital account is reported on the balance sheet at the __________ minus par value.

A. current market value of the stock

B. historical sales price of the stock

C. net realizable value of the stock

D. discounted present value of the future dividends

Question 9 of 20

5.0/ 5.0 Points

Companies that are considered to be in stronger financial health and better credit risks are able to satisfy most of their cash needs from __________ activities.

A. operating

B. investing

C. financing

D. investing and financing

Question 10 of 20

5.0/ 5.0 Points

The amount of income taxes recognized on the income statement but NOT yet payable to the government are found on the:

A. balance sheet in the account Deferred Income Taxes.

B. balance sheet in the account Income Taxes Payable.

C. income statement in the account Income Tax Expense Current.

D. income statement in the account Income Tax Expense Deferred.

Question 11 of 20

5.0/ 5.0 Points

Which one of the following equations explains why successive balance sheets can be used to prepare a firm’s cash flow statement?

A. Assets = Liabilities – Equity

B. Cash – Noncash assets = Liabilities – Equity

C. ? Cash = ? Liabilities – ? Noncash assets + ? Stockholders’ equity

D. ? Cash = ? Liabilities + ? Stockholders’ equity

Question 12 of 20

5.0/ 5.0 Points

Retained earnings are reported on the balance sheet at:

A. historical cost.

B. current market value.

C. net realizable value.

D. a mixture of different measurement bases.

Question 13 of 20

5.0/ 5.0 Points

How far into the future the obligations of a company will come due refers to the company’s:

A. capital structure.

B. maturity structure.

C. solvency.

D. liquidity.

Question 14 of 20

5.0/ 5.0 Points

In a common-size balance sheet, each balance sheet account is expressed as a percentage of total:

A. liabilities.

B. assets.

C. shareholders’ equity.

D. assets plus shareholders’ equity.

Question 15 of 20

5.0/ 5.0 Points

Inventories are reported on the balance sheet at:

A. current market value.

B. historical cost.

C. net realizable value.

D. the lower of cost or market.

Question 16 of 20

5.0/ 5.0 Points

How much cash did Barden pay for rent during Year 4?

A. $0

B. $15,000

C. $25,000

D. $40,000

Question 17 of 20

5.0/ 5.0 Points

Operating activities result from the cash effects of:

A. producing and delivering goods and services.

B. purchasing and disposing of fixed assets used in production of revenue.

C. borrowing and repaying loans used in the production of revenue.

D. selling stocks and bonds to raise capital for the generation of revenue.

Question 18 of 20

5.0/ 5.0 Points

All of the following disclosures would appear in the Summary of Significant Accounting Policies EXCEPT the __________ method.

A. inventory

B. depreciation

C. long-term construction contract

D. financing

Question 19 of 20

5.0/ 5.0 Points

The balance sheet amount reported for a long-term debt on the issue date is the:

A. discounted present value of the future principal repayment.

B. discounted present value of the periodic interest payments.

C. sum of the future value of principal repayment and the periodic interest payments.

D. sum of the discounted present values of the future principal repayments and the periodic interest payments.

Question 20 of 20

5.0/ 5.0 Points

Current assets are assets expected to:

A. be converted to cash within twelve months.

B. be converted to cash within twelve months or one operating cycle if it is longer than twelve months.

C. remain on the books for at least twelve months.

D. remain on the books for at least twelve months or one operating cycle if longer than twelve months.

ONLINE EXAM 5

Question 1 of 40

5.0/ 5.0 Points

Strategies to gain a competitive advantage include product differentiation and:

A. low-cost leadership.

B. building brand loyalty.

C. developing superior products.

D. improving product quality and reliability.

Question 2 of 40

5.0/ 5.0 Points

An analytical tool that measures a company’s performance against a predetermined standard is a/an:

A. benchmark comparison analysis.

B. profitability analysis.

C. time-series analysis.

D. common size statement.

Question 3 of 40

5.0/ 5.0 Points

Post Corporation purchases from suppliers on net 30 day terms, has an Accounts Receivable Turnover of 8 times, and an Inventory Turnover of 12 times. Cash inflows and outflows are:

A. evenly matched.

B. negatively mismatched by 60 days.

C. positively mismatched by 30 days.

D. negatively mismatched by 45 days.

Question 4 of 40

5.0/ 5.0 Points

In a trend income statement for 2014, where 2012 is the base year, sales are expressed as:

A. 87.2%.

B. 100.0%.

C. 114.7%.

D. 148.7%.

Question 5 of 40

5.0/ 5.0 Points

The percentage of assets financed by long-term debt is best described by the:

A. debt to equity ratio.

B. interest coverage ratio.

C. long-term debt to asset ratio.

D. long-term debt to tangible assets ratio. ?

Question 6 of 40

5.0/ 5.0 Points

Financial ratio, percentage, and trend comparisons can be distorted by all of the following EXCEPT:

A. the presence of nonrecurring items among the firms being analyzed.

B. aggressive revenue recognition practices.

C. the timing of asset purchases.

D. accounting for similar economic fundamentals in similar fashion.

Question 7 of 40

5.0/ 5.0 Points

All of the following are used as financial analysis tools EXCEPT:

A. managements’ discussion and analysis.

B. common size statements.

C. trend statements.

D. financial ratios.

Question 8 of 40

5.0/ 5.0 Points

Companies that consistently earn rates of return above the competitive floor in the industry are considered to possess a:

A. dominant market share.

B. niche market.

C. competitive advantage.

D. monopolistic advantage.

Question 9 of 40

5.0/ 5.0 Points

In a common size balance sheet, all items are expressed as a percentage of total:

A. assets.

B. liabilities.

C. equity.

D. sales.

Question 10 of 40

5.0/ 5.0 Points

Return on Assets (ROA) measures a firm’s:

A. cost effectiveness of its operating activities.

B. profitable use of its assets.

C. profitability of sales.

D. return on shareholders’ investment.

Question 11 of 40

5.0/ 5.0 Points

Which one of the following successful strategies will increase the Return on Assets (ROA)?

A. Increase the investment in assets used in the business

B. Increase the profit margin

C. Decrease sales volume

D. Increase the annual depreciation amounts of long-lived assets

Question 12 of 40

5.0/ 5.0 Points

Earnings Before Interest (EBI) adjusts net income for which one of the following groups of items?

A. Nonrecurring items, interest, and distortions related to accounting quality concerns

B. Nonoperating items, after-tax interest, and distortions related to accounting quality concerns

C. Nonoperating items, nonrecurring items, and after-tax interest

D. Nonrecurring items, after-tax interest, and distortions related to accounting quality concerns

Question 13 of 40

5.0/ 5.0 Points

Although a company’s earnings are important in financial statement analysis, with respect to credit evaluations and lending decisions an analysis of its cash flows is:

A. optional.

B. central.

C. only important if the company has a high debt/equity ratio.

D. required by banking regulations.

Question 14 of 40

5.0/ 5.0 Points

Trend statements are better than common size statements at indicating which of the following?

A. Stability

B. Monetary changes

C. Profitability

D. Growth and decline

Question 15 of 40

5.0/ 5.0 Points

The financial statement reporting “filter” is:

A. SEC reporting regulations that vary from GAAP for publicly traded companies.

B. SEC required reporting regulations for all entities.

C. management’s manipulation of accounting data.

D. management’s discretion to choose alternative accounting procedures within GAAP.

Question 16 of 40

5.0/ 5.0 Points

The inventory turnover for 2014 is (rounded) __________ times.

A. 2.61

B. 3.12

C. 3.45

D. 3.80

Question 17 of 40

5.0/ 5.0 Points

The total assets turnover ratio for 2014 is (rounded) __________ times.

A. 1.7

B. 2.0

C. 2.2

D. 2.4

Question 18 of 40

5.0/ 5.0 Points

Which one of the following helps the analyst remove the effects of an information filter?

A. Financial statements

B. SEC Form 10K

C. Note disclosures in financial statements

D. Trend analysis

Question 19 of 40

5.0/ 5.0 Points

In a common size cash flow statement, all items are expressed as a percentage of:

A. sales.

B. total assets.

C. net income.

D. total equity.

Question 20 of 40

5.0/ 5.0 Points

Financial ratios used to determine credit risk include an assessment of:

A. liquidity and asset utilization.

B. asset utilization and profitability.

C. solvency and liquidity.

D. profitability and solvency.

Part 2 of 2 - 95.0/ 100.0 Points

Question 21 of 40

5.0/ 5.0 Points

The interest rate on a revolving loan will usually:

A. be below prime interest.

B. be equal to prime interest.

C. remain fixed.

D. float.

Question 22 of 40

5.0/ 5.0 Points

The reciprocal of the risk-adjusted equity cost of capital used is the:

A. return on assets.

B. return on common equity.

C. price earnings ratio.

D. profit margin on sales.

Question 23 of 40

5.0/ 5.0 Points

Preparing comprehensive financial statement forecasts involves six steps. Among these steps are all of the following EXCEPT:

A. project sales revenue for each period in the forecast horizon.

B. forecast depreciation expense and tax expense for each period.

C. forecast the company’s financial structure and dividend policy for each period.

D. All of the above are steps typically taken when preparing financial

statement forecasts.

Question 24 of 40

5.0/ 5.0 Points

A qualitative assessment of the business, its customers and suppliers, and management’s character and capability is known as: ?

A. covenant waivers.

B. due diligence.

C. indenture evaluation.

D. a debenture.

Question 25 of 40

5.0/ 5.0 Points

Income from continuing operations, excluding special or nonrecurring items, is generally regarded as:

A. permanent earnings.

B. transitory earnings.

C. value-irrelevant earnings.

D. quiet.

Question 26 of 40

5.0/ 5.0 Points

The interest rate charged on bank loans must be sufficient to cover all

of the following EXCEPT:

A. a risk premium when loans are personally guaranteed by the borrower.

B. the lender’s cost of borrowing funds.

C. the costs of administering, monitoring, and servicing the loan.

D. a premium for exposure to default risk.

Question 27 of 40

5.0/ 5.0 Points

The implied total earnings multiple of Firm A is:

A. 1.00.

B. 4.10.

C. 5.00.

D. 10.00

Question 28 of 40

5.0/ 5.0 Points

Recent research indicates that stock returns correlate better with:

A. accrual earnings than realized operating cash flows.

B. cash basis earnings than realized operating cash flows.

C. realized operating cash flows than accrual earnings.

D. future operating cash flows than accrual earnings.

Question 29 of 40

5.0/ 5.0 Points

As per GAAP, fair value—for accounting purposes—is:

A. an entry price.

B. an exit price.

C. the market price in a forced sale.

D. always easily determinable.

Question 30 of 40

5.0/ 5.0 Points

The implied share price of Firm C’s stock is:

A. $18.00.

B. $63.00.

C. $72.00.

D. $90.00.

Question 31 of 40

5.0/ 5.0 Points

The fundamental valuation approach to business valuation uses basic accounting measures to assess the amount, timing, and __________ cash flows or earnings.

A. certainty of a company’s past operating

B. certainty of a company’s future non-operating

C. uncertainty of a company’s future operating

D. uncertainty of a company’s future non-operating

Question 32 of 40

5.0/ 5.0 Points

In general, the growth rate in earnings will depend on the portion of earnings reinvested each period and the:

A. earnings retention rate.

B. rate of return earned on new investment.

C. company’s cost of equity capital.

D. company’s weighted average cost of capital.

Question 33 of 40

5.0/ 5.0 Points

To obtain a better current price, the net present value of future growth opportunities (NPVGO) can be calculated and __________ the price per share calculated from the P/E ratio.

A. added to

B. subtracted from

C. multiplied by

D. divided into

Question 34 of 40

5.0/ 5.0 Points

An adjustment to income due to an extraordinary item is regarded as:

A. permanent earnings.

B. transitory earnings.

C. value-irrelevant earnings.

D. quiet.

Question 35 of 40

5.0/ 5.0 Points

The degree to which cash needs can be satisfied during periods of fiscal stress is known as:

A. credit availability.

B. credit worthiness.

C. working capital.

D. financial flexibility.

Question 36 of 40

5.0/ 5.0 Points

Assume that Firm A can increase earnings by $4,000 by cutting costs. Abnormal earnings would be:

A. $(1,000).

B. $0.

C. $1,000.

D. $1,500.

Question 37 of 40

5.0/ 5.0 Points

A component that is valuation-relevant, but is NOT expected to persist into the future is a __________ component.

A. permanent earnings

B. transitory earnings

C. noise

D. quiet

Question 38 of 40

5.0/ 5.0 Points

Assume that Firm B can divest itself of $20,000 of unproductive capital with earnings falling by only $3,000. Abnormal earnings are:

A. $200.

B. $400.

C. $600.

D. $800.

Question 39 of 40

5.0/ 5.0 Points

Through the use of accruals and deferrals, accrual accounting:

A. produces a cash flow number that smoothes out the unevenness in year-to-year earnings.

B. produces information about current cash receipts and payments.

C. enables management to estimate future free cash flows.

D. produces an earnings number that smoothes out the unevenness in year-to-year cash flows.

Question 40 of 40

0.0/ 5.0 Points

When determining the fair value of an asset using an exit price approach:

A. fair value is determined by how the company uses the asset.

B. management may choose to reduce the fair value of the asset by the

approximate amount of expected transaction costs (i.e., costs to dispose

of the asset) if such costs are deemed to be material.

C. transaction costs do not reduce the asset’s fair value.

D. transaction costs reduce the asset’s fair value.

ONLINE EXAM 7

Question 1 of 40

0.0/ 5.0 Points

Which of the following is NOT an example of a negative covenant provision?

A. Limits on capital expenditures

B. Limits on the borrower’s total indebtedness

C. Limits the use of the loan to an agreed-upon purpose

D. Restricts the payment of cash dividends

Question 2 of 40

5.0/ 5.0 Points

A compensation committee should be comprised of:

A. the CEO and the CFO of the company.

B. the CEO of the company and the outside attorney.

C. members of the Board of Directors who are also officers of the company.

D. members of the Board of Directors who are outside (non-management) directors.

Question 3 of 40

5.0/ 5.0 Points

Most executive compensation plans link bonus awards to one or more __________

performance measures.

A. non-accounting based

B. accounting-based

C. marketing-based

D. management-based

Question 4 of 40

5.0/ 5.0 Points

In the utilities industry, rate formulas are established to allow the utilities to set total allowed revenues to recover:

A. only the administrative costs of operations.

B. only the operating costs associated with operations.

C. all operating costs, depreciation, taxes, and a fair return on invested capital.

D. all operating costs other than depreciation and taxes, and a fair return on invested capital.

Question 5 of 40

5.0/ 5.0 Points

One low-cost, effective way of eliminating or reducing conflicts of interest in business relationships is to:

A. only deal with related parties.

B. carefully specify mutual expectations in contract terms.

C. use lawyers to negotiate all terms.

D. use an arbitrator for all negotiations.

Question 6 of 40

5.0/ 5.0 Points

Affirmative covenants generally would NOT include which of the following stipulations?

A. The lender has the right to inspect business assets and business contracts.

B. Limits on the borrower’s total indebtedness

C. The borrower must maintain insurance on business properties.

D. Specific financial covenants and reporting requirements

Question 7 of 40

5.0/ 5.0 Points

A decrease in market-wide interest rates will result in a/an:

A. increase in the cost of equity capital.

B. decrease in the cost of equity capital.

C. increase in the cost of debt.

D. decrease in the demand for fixed-rate bond investments.

Question 8 of 40

5.0/ 5.0 Points

Discretionary accounting accruals are:

A. cash financial statement adjustments, which accrue revenue or expenses.

B. noncash financial statement adjustments, which accrue revenue or expenses.

C. cash financial statement adjustments, which accrue only revenue.

D. noncash financial statement adjustments, which accrue only expenses.

Question 9 of 40

5.0/ 5.0 Points

Potential conflicts of interest between shareholders and managers may be overcome if managers are given incentives which cause them to behave as if they were:

A. creditors.

B. owners.

C. debtors.

D. vendors.

Question 10 of 40

0.0/ 5.0 Points

The widespread use of accounting-based incentives to determine executive compensation is controversial for which one of the following reasons?

A. Earnings growth automatically increases shareholder value.

B. Accounting based incentive plans can encourage managers to adopt a long-term business focus.

C. Executives can use their discretion over the accounting policies.

D. Managers do not have accounting flexibility.

Question 11 of 40

5.0/ 5.0 Points

When faced with falling short of a desired earnings target, financial executives reportedly might consider any of the following actions EXCEPT:

A. prematurely taking an accounting charge.

B. providing incentives for customers to buy more product this quarter.

C. decreasing discretionary spending.

D. delaying the start of a new project.

Question 12 of 40

5.0/ 5.0 Points

Rate regulation provides incentives for public utility managers to artificially:

A. decrease the asset base.

B. increase the asset base.

C. decrease operating expenses.

D. decrease taxes.

Question 13 of 40

5.0/ 5.0 Points

In a study of discretionary accounting accruals, it was found that abnormal accruals in the year prior to reporting covenant violations significantly:

A. decreased the company’s current ratio but significantly increased the company’s reported earnings.

B. decreased the company’s net worth.

C. increased reported earnings and increased working capital.

D. increased reported earnings but decreased working capital.

Question 14 of 40

5.0/ 5.0 Points

Debt covenants benefit:

A. lenders.

B. borrowers.

C. both lenders and borrowers.

D. neither borrowers nor lenders, but are required by the SEC as a condition of issuing debt securities.

Question 15 of 40

5.0/ 5.0 Points

Stock options:

A. have value only if the market price of the stock declines.

B. have value only if the market price of the stock rises.

C. are taxed at ordinary rates.

D. do not qualify for favorable tax treatment.

Question 16 of 40

0.0/ 5.0 Points

A financial covenant would stipulate all of the following EXCEPT:

A. financial statements must be prepared in accordance with GAAP.

B. specific levels of performance to be met.

C. which accounting methods are to be used.

D. conditions that must be met.

Question 17 of 40

5.0/ 5.0 Points

Covenants that place direct restrictions on managerial decisions are called:

A. affirmative restrictions.

B. affirmative covenants.

C. negative restrictions.

D. negative covenants.

Question 18 of 40

5.0/ 5.0 Points

Compensation plans should:

A. not link incentive plans to financial performance.

B. not be based on long-term business goals.

C. align shareholders’ incentives with the objectives of managers.

D. align managers’ incentives with the objectives of shareholders.

Question 19 of 40

5.0/ 5.0 Points

When one party to a business relationship can make decisions that benefit him or her but harm the other party a:

A. lawsuit is automatically filed.

B. contract arises.

C. conflict of interest arises.

D. contingent liability arises.

Question 20 of 40

5.0/ 5.0 Points

A covenant that specifies a required minimum level of net worth and working capital is a/an __________ covenant.

A. compliance

B. financial

C. implicit

D. negative

Part 2 of 2 - 90.0/ 100.0 Points

Question 21 of 40

5.0/ 5.0 Points

Guthrie Corporation reports accounts receivable at a net realizable value of $2,940,000 (gross receivable of $3,000,000 minus allowance for uncollectible accounts of $60,000). Assume that there is an active market for these types of receivables and that the price is 94% of face value. To adjust the receivable’s carrying value to fair value Guthrie would make which of the following entries?

A.

DR Realized loss on receivables 180,000

CR Accounts receivable 180,000

B.

DR Unrealized loss on receivables 120,000

CR Fair value adjustment--accounts receivable 120,000

C.

DR Unrealized loss on receivables 180,000

CR Fair value adjustment--accounts receivable 180,000

D.

DR Realized loss on receivables 120,000

CR Accounts receivable 120,000

Question 22 of 40

5.0/ 5.0 Points

The determining factor for accounting treatment of a troubled debt restructuring when there is a continuation with modification of terms is whether:

A. there is a gain or loss on the transaction to the debtor.

B. there is a gain or loss on the transaction to the lender.

C. the undiscounted sum of the future cash flows under the restructured note is above or below the note’s book value (including accrued interest) at the restructuring date.

D. the discounted sum of the future cash flows under the restructured note is above or below the note’s book value (including accrued interest) at the restructuring date.

Question 23 of 40

5.0/ 5.0 Points

Island Corporation owes Mutual Bank a 10% note payable for $100,