Term
Which of the following shows what would be acceptable to list at the top of an income statement, and why?
a.) As of January 31, 20XX; it is measured over a span of time
b.) For the Year Ended 20XX; it is measured at a point in time
c.) As of January 31, 20XX; it is measured at a point in time
d.) For the Year Ended 20XX; it is measured over a span of time |
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Definition
d.) For the Year Ended 20XX; it is measured over a span of time
Chapter 4 |
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Term
Which of the following should be reported as a current liability?
a.) Currently maturing long-term debt to be converted into stock
b.) Currently maturing long-term debt to be refinanced with another approved long-term debt
c.) Currently maturing long-term debt to be repaid by special funds not shown as current assets
d.) Short-term debt that management intends to refinance with yet-to-be-arranged long-term debt |
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Definition
d.) Short-term debt that management intends to refinance with yet-to-be-arranged long-term debt
Chapter 4 |
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Term
Which of the following categories of ratios measures profitability in relation to revenue and investment?
a.) Performance ratios
b.) Liquidity or working capital ratios
c.) Efficiency or asset management ratios
d.) Debt management ratios |
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Definition
a.) Performance ratios
Chapter 5 |
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Term
A company is considering investing $5 million in a plant and equipment. The comparison of the net present value on this investment, relative to alternative investments, would be an application of
a.) forecasting cash flows.
b.) strategic planning.
c.) measuring liquidity.
d.) capital budgeting. |
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Definition
d.) capital budgeting.
Chapter 5 |
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Term
In which of the following situations would it be inappropriate for an auditor to issue an unqualified opinion with explanatory paragraph?
a.) When the audit was conducted by an internal auditor
b.) When some information immaterial to GAAS or GAAP requires special emphasis
c.) When the auditor questions the business’ ability to continue
d.) When there has been a change in who performs the audit |
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Definition
a.) When the audit was conducted by an internal auditor
Chapter 4 |
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Term
For global companies whose stock is traded in the United States, significant streamlining of their accounting processes will be enabled by worldwide adoption of
a.) Generally Accepted Accounting Principles (GAAP).
b.) International Financial Reporting Standards (IFRS).
c.) Accounting Standards Codification (ASC) Topics.
d.) Association of Chartered Certified Accountants (ACCA) certification as an auditing standard. |
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Definition
b.) International Financial Reporting Standards (IFRS).
Chapter 4 |
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Term
All of the following are listed as cash and cash equivalents on the balance sheet EXCEPT
a.) pre-paid parking expenses.
b.) coin and currency.
c.) immediately available checking account balances.
d.) immediately available demand deposit account balances. |
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Definition
a.) pre-paid parking expenses.
Chapter 4 |
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Term
The principle that there must be an evidentiary basis, such as an invoice or receipt, for most assets and liabilities is also known as
a.) the revenue-recognition principle.
b.) the historical-cost principle.
c.) the matching principle.
d.) the full-disclosure principle. |
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Definition
b.) the historical-cost principle.
Chapter 4 |
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Term
A company has revenues of $430,000, cost of goods sold of $210,000, selling and administrative expenses of $80,000, depreciation of $20,000 and other operating expenses of $10,000. What is its EBITDA margin?
a.) 25.6%
b.) 30.2%
c.) 33.3%
d.) 34.9% |
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Definition
b.) 30.2%
EBITDA margin is earnings before interest, taxes, depreciation and amortization (EBITDA) divided by revenues. EBITDA is found by deducting all operating expenses and cost of goods sold from revenues:
Chapter 5 |
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Term
A division of a toy company has net income of $2,000, short-term debt of $2,000, long-term debt of $5,000 and shareholder's equity of $20,000. The division has the opportunity to invest in a new line of collectible cards, which would increase its short-term debt to $3,000, long-term debt to $15,000 and net income to $2,600. The overall cost of capital for the toy division's holding company is 7%. What is the current and proposed ROI for the division, and, if the estimates are correct, which of the following should the division do?
a.) 7.4% now and 6.8% after investment; fund the investment only if it has a positive net present value.
b.) 7.4% now and 6.8% after investment; reject the investment even if it has a positive net present value.
c.) 8% now and 7.4% after investment; fund the investment only if it has a positive net present value.
d.) 8% now and 7.4% after investment; reject the investment even if it has a positive net present value. |
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Definition
c.) 8% now and 7.4% after investment; fund the investment only if it has a positive net present value.
Chapter 5 |
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Term
A construction firm has a contract that has $10,000 due today, January 1, and then requires a payment of $5,000 at the end of the year and $15,000 at the end of the second year. Assuming that all funds can be invested to earn a return of 6%, how much will the contract be worth at the end of the second year?
a.) $30,000
b.) $31,236
c.) $31,536
d.) $33,483 |
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Definition
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Term
In accrual accounting, which of the following occurs when cash is collected from the customer to pay off a credit account balance?
a.) The cash balance decreases, lowering income
b.) The cash balance increases, raising income
c.) The cash balance increases without any impact on income
d.) The cash balance decreases without any impact on income |
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Definition
c.) The cash balance increases without any impact on income
Chpater 4 |
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Term
In capital budgeting, a company might use which of the following as its discount rate?
a.) Times interest earned
b.) After-tax cost of debt
c.) Return on total assets
d.) Weighted average cost of capital |
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Definition
d.) Weighted average cost of capital
Chapter 5 |
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Term
A firm's weighted average cost of capital is 7%, it has achieved a return on total assets of 6% and net income of $400,000. The company also has positive cash flow. Which of the following is the MOST LIKELY result of this scenario?
a.) The firm has seen mixed success and the stock price will likely stay the same
b.) The firm is creating only a small amount of value for investors, so the stock price will likely not be affected by the results either way
c.) The firm is successful by all measurements given and the stock price will likely rise
d.) The firm is destroying some of the stock's value and the stock price will likely fall |
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Definition
d.) The firm is destroying some of the stock's value and the stock price will likely fall
Chapter 5 |
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Term
Company A's earnings available to common shareholders are $95,000, using a $1,000,000 common equity base. The company has no preferred stock outstanding. Company B's net income is $57,000, using $440,000 in total equity. Company B has $40,000 in preferred stock and paid a $2,000 preferred dividend this year. Which company earns a better return on common equity, and HOW MUCH BETTER a return does it give?
a.) A earns a 5.50% better return on common equity.
b.) B earns a 4.25% better return on common equity.
c.) B earns a 13.75% better return on common equity.
d.) A earns a -5.50% better return on common equity. |
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Definition
b.) B earns a 4.25% better return on common equity.
Chapter 5 |
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Term
An operating division is being evaluated for its economic value added (EVA) against a WACC of 12%. During the year being studied, the division had $250,000 in equity, $150,000 in long-term debt and $100,000 in short-term debt, EBIT of $59,400 and a marginal tax rate of 40%. What is its EVA?
a.) ($22,400)
b.) ($12,360)
c.) $5,640
d.) $9,640 |
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Definition
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Term
Match the following U.S. organizations to their respective areas of oversight.
I. Financial Accounting Foundation (FAF)
II. Financial Accounting Standards Board (FASB)
III. Governmental Accounting Standards Board (GASB)
IV. Securities and Exchange Commission (SEC)
1. The authoritative standard-setting body for state and local governments, public schools, state universities and other government-affiliated agencies
2. Develops U.S accounting standards for public, for-profit organizations
3. Holds authority for enforcing U.S. accounting principles
4. Oversees the FASB and the GASB
a.) I: 4, II: 2, III: 1, IV: 3
b.) I: 1, II: 2, III: 3, IV: 4
c.) I: 3, II: 2, III: 1, IV: 4
d.) I: 4, II: 1, III: 3, IV: 2 |
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Definition
a.) I:4, II: 2, III: 1, IV: 3
Chapter 4 |
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Term
A company has net working capital of $450,000, revenues for the period of $180,000, and $15,000 in net cash flows from operations. What is this company’s cash conversion efficiency?
a.) 3.3%
b.) 5.6%
c.) 8.3%
d.) 40% |
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Definition
c.) 8.3%
Cash Conversion Efficiency = Cash Flow from Operations/Revenues
Chapter 5 |
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Term
A division of a toy company has net income of $2,000, short-term debt of $2,000, long-term debt of $5,000 and shareholder's equity of $20,000. The division has the opportunity to invest in a new line of collectible cards, which would increase its short-term debt to $3,000, long-term debt to $15,000, and net income to $2,600. The overall cost of capital for the toy division's holding company is 7%. What would the residual income be before and after the investment?
a.) $110 before and -$60 after
b.) $110 before and $150 after
c.) $250 before and -$60 after
d.) $250 before and $150 after |
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Definition
d.) $250 before and $150 after
Chapter 5 |
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