Questions and Answers of Financial Reporting Financial Statement Analysis And Valuation

Which of the following is most likely not an objective of financial statements?A. To provide information about the performance of an entity.B. To provide information about the financial position of
International financial reporting standards are currently developed by which entity?A. The IFRS Foundation.B. The International Accounting Standards Board.C. The International Organization of
US generally accepted accounting principles are currently developed by which entity?A. The Securities and Exchange Commission.B. The Financial Accounting Standards Board.C. The Public Company
Which of the following statements about desirable attributes of accounting standards boards is most accurate? Accounting standards boards should:A. concede to political pressures.B. be guided by a
A core objective of the International Organization of Securities Commissions is to:A. eliminate systematic risk.B. protect users of financial statements.C. ensure that markets are fair, efficient,
According to the Conceptual Framework for Financial Reporting (2010) , which of the following is not an enhancing qualitative characteristic of information in financial statements?A. Accuracy.B.
Which of the following is not a constraint on the financial statements according to the Conceptual Framework ( 2010 )?A. Understandability.B. Benefit versus cost.C. Balancing of qualitative
The assumption that an entity will continue to operate for the foreseeable future is called:A. accrual basis.B. comparability.C. going concern.
The assumption that the effects of transactions and other events are recognized when they occur, not when the cash flows occur, is called:A. relevance.B. accrual basis.C. going concern.
Neutrality of information in the financial statements most closely contributes to which qualitative characteristic?A. Relevance.B. Understandability.C. Faithful representation.
Valuing assets at the amount of cash or equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition most closely describes which measurement of financial
The valuation technique under which assets are recorded at the amount that would be received in an orderly disposal is:A. current cost.B. present value.C. realizable value.
Which of the following is not a required financial statement according to IAS No. 1?A. Statement of financial position.B. Statement of changes in income.C. Statement of comprehensive income.
Which of the following elements of financial statements is most closely related to measurement of performance?A. Assets.B. Expenses.C. Liabilities.
Which of the following elements of financial statements is most closely related to measurement of financial position?A. Equity.B. Income.C. Expenses.
Which of the following is not a characteristic of a coherent financial reporting framework?A. Timeliness.B. Consistency.C. Transparency.
Which of the following is not a recognized approach to standard-setting?A. A rules-based approach.B. An asset/liability approach.C. A principles-based approach.
Which of the following disclosures regarding new accounting standards provides the most meaningful information to an analyst?A. The impact of adoption is discussed.B. The standard will have no
Expenses on the income statement may be grouped by:A. nature, but not by function.B. function, but not by nature.C. either function or nature.
An example of an expense classification by function is:A. tax expense.B. interest expense.C. cost of goods sold.
Denali Limited, a manufacturing company, had the following income statement information:Denali’s gross profit is equal to A. $280,000.B. $500,000.C. $1,000,000. Revenue Cost of goods sold Other
Under IFRS, income includes increases in economic benefits from:A. increases in liabilities not related to owners’ contributions.B. enhancements of assets not related to owners’ contributions.C.
Fairplay had the following information related to the sale of its products during 2009, which was its first year of business:Under the accrual basis of accounting, how much net revenue would be
If the outcome of a long-term contract can be measured reliably, the preferred accounting method under both IFRS and US GAAP is:A. the cost recovery method.B. the completed contract method.C. the
At the beginning of 2009, Florida Road Construction entered into a contract to build a road for the government. Construction will take four years. The following information as of 31 December 2009 is
During 2009, Argo Company sold 10 acres of prime commercial zoned land to a builder for $5,000,000. The builder gave Argo a $1,000,000 down payment and will pay the remaining balance of $4,000,000 to
Using the same information as in Question 8, how much profit will Argo report for 2009 using the cost recovery method?A. None.B. $600,000.C. $1,000,000.
Under IFRS, revenue from barter transactions should be measured based on the fair value of revenue from:A. similar barter transactions with unrelated parties.B. similar non-barter transactions with
Apex Consignment sells items over the internet for individuals on a consignment basis. Apex receives the items from the owner, lists them for sale on the internet, and receives a 25 percent
During 2009, Accent Toys Plc., which began business in October of that year, purchased 10,000 units of a toy at a cost of ₤10 per unit in October. Th e toy sold well in October.In anticipation of
Using the same information as in Question 12, what would Accent’s cost of goods sold be under the weighted average cost method?A. ₤120,000.B. ₤122,000.C. ₤124,000.
Which inventory method is least likely to be used under IFRS?A. First in, first out (FIFO).B. Last in, first out (LIFO).C. Weighted average.
At the beginning of 2009, Glass Manufacturing purchased a new machine for its assembly line at a cost of $600,000. Th e machine has an estimated useful life of 10 years and estimated residual value
Using the same information as in Question 15, how much depreciation would Glass take in 2009 for financial reporting purposes under the double-declining balance method?A. $60,000.B. $110,000.C.
Which combination of depreciation methods and useful lives is most conservative in the year a depreciable asset is acquired?A. Straight-line depreciation with a short useful life.B. Declining balance
Under IFRS, a loss from the destruction of property in a fire would most likely be classified as:A. an extraordinary item.B. continuing operations.C. discontinued operations.
For 2009, Flamingo Products had net income of $1,000,000. At 1 January 2009, there were 1,000,000 shares outstanding. On 1 July 2009, the company issued 100,000 new shares for $20 per share. Th e
Cell Services Inc. (CSI) had 1,000,000 average shares outstanding during all of 2009. During 2009, CSI also had 10,000 options outstanding with exercise prices of $10 each.The average stock price of
New Era Network Associates has a five-year license to provide networking support services to a customer. The total amount of the license fee to be received by New Era is $1 million. New Era
Stelle Technology has a contract to build a network for a customer for a total sales price of €10 million. Th e network will take an estimated three years to build, and total building costs are
Kolenda Technology Group has a contract to build a network for a customer for a total sales price of $10 million. Th is network will take an estimated three years to build, but considerable
Assume the total sales price and cost of a property are $2,000,000 and $1,100,000, respectively, so that the total profit to be recognized is $900,000. Th e amount of cash received by the seller as a
Flyalot has agreements with several major airlines to obtain airline tickets at reduced rates. The company pays only for tickets it sells to customers. In the most recent period, Flyalot sold airline
As disclosed in the excerpt from notes to the consolidated financial statements shown below (emphasis added), Apple Inc. (NasdaqGS: AAPL) uses different revenue recognition policies depending on the
Kahn Distribution Limited (KDL) purchases inventory items for resale. At the beginning of 2009, Kahn had no inventory on hand. During 2009, Kahn had the following transactions:KDL sold 5,600 units of
Apple’s amended 10-K for the year ended 26 September 2009 explains how a change in accounting standards (the company refers to these as accounting principles) affects its financial statements. The
For the year ended 31 December 2009, Shopalot Company had net income of $1,950,000. The company had 1,500,000 shares of common stock outstanding, no preferred stock, and no convertible financial
For the year ended 31 December 2009, Angler Products had net income of $2,500,000. The company declared and paid $200,000 of dividends on preferred stock. Th e company also had the following common
Assume the same facts as in Example 13 except that on 1 December 2009, a previously declared 2 for 1 stock split took effect. Each shareholder of record receives two shares in exchange for each
For the year ended 31 December 2009, Bright-Warm Utility Company had net income of $1,750,000. The company had an average of 500,000 shares of common stock outstanding, 20,000 shares of convertible
Oppnox Company reported net income of $750,000 for the year ended 31 December 2009. The company had a weighted average of 690,000 shares of common stock outstanding. In addition, the company has only
Hihotech Company reported net income of $2.3 million for the year ended 30 June 2009 and had a weighted average of 800,000 common shares outstanding. At the beginning of the fiscal year, the company
Assuming the same facts as in Example 17 , calculate the weighted average number of shares outstanding for diluted EPS under IFRS.Data from Example 17Hihotech Company reported net income of $2.3
For the year ended 31 December 2009, Dim-Cool Utility Company had net income of $1,750,000. The company had an average of 500,000 shares of common stock outstanding, 20,000 shares of convertible
Assume a company’s beginning shareholders’ equity is €200 million, its net income for the year is €20 million, its cash dividends for the year are €3 million, and there was no issuance or
An analyst is looking at two comparable companies. Company A has a lower price/earnings (P/E) ratio than Company B, and the conclusion that has been suggested is that Company A is undervalued. As
1. Based on the balance sheet excerpt for Apple Inc. in Exhibit 5 , what percentage of its total accounts receivable in 2009 and 2008 does Apple estimate will be uncollectible?2. In general, how does
Cisco Systems is a global provider of networking equipment. In its third quarter 2001 Form 10-Q filed with the US Securities and Exchange Commission (US SEC) on 1 June 2001, the company made the
In the notes to its 2009 financial statements, SAP Group describes its deferred income as follows:Deferred income consists mainly of prepayments made by our customers for support services and
Alpha Inc., a motor vehicle manufacturer, has a research division that worked on the following projects during the year:Project 1 Research aimed at finding a steering mechanism that does not operate
Safeway, Inc. (NYSE:SWY), is a North American food and drug retailer. On 25 February 2010, Safeway issued a press release that included the following information:Safeway Inc. today reported a net
Applying common-size analysis to the excerpts of SAP Group’s balance sheets presented in Exhibits 4 , 6 , 8 , and 12 , answer the following: In 2009 relative to 2008, which two of the following
For the following ratio questions, refer to the balance sheet information for the SAP Group presented in Exhibits 1 , 4 , 6 , 8 , and 12 .1. The current ratio for SAP Group at 31 December 2009 is
Resources controlled by a company as a result of past events are:A. equity.B. assets.C. liabilities.
Equity equals:A. Assets – Liabilities.B. Liabilities – Assets.C. Assets + Liabilities.
Distinguishing between current and non-current items on the balance sheet and presenting a subtotal for current assets and liabilities is referred to as:A. a classified balance sheet.B. an
All of the following are current assets except :A. cash.B. goodwill.C. inventories.
Debt due within one year is considered:A. current.B. preferred.C. convertible.
Money received from customers for products to be delivered in the future is recorded as:A. revenue and an asset.B. an asset and a liability.C. revenue and a liability.
The carrying value of inventories reflects:A. their historical cost.B. their current value.C. the lower of historical cost or net realizable value.
When a company pays its rent in advance, its balance sheet will reflect a reduction in:A. assets and liabilities.B. assets and shareholders’ equity.C. one category of assets and an increase in
Accrued expenses (accrued liabilities) are:A. expenses that have been paid.B. created when another liability is reduced.C. expenses that have been reported on the income statement but not yet paid.
The initial measurement of goodwill is most likely affected by:A. an acquisition’s purchase price.B. the acquired company’s book value.C. the fair value of the acquirer’s assets and liabilities.
Defining total asset turnover as revenue divided by average total assets, all else equal, impairment write-downs of long-lived assets owned by a company will most likely result in an increase for
For financial assets classified as trading securities, how are unrealized gains and losses reflected in shareholders’ equity?A. They are not recognized.B. They flow through income into retained
For financial assets classified as available for sale, how are unrealized gains and losses reflected in shareholders’ equity?A. They are not recognized.B. They flow through retained earnings.C.
For financial assets classified as held to maturity, how are unrealized gains and losses reflected in shareholders’ equity?A. They are not recognized.B. They flow through retained earnings.C. They
The non-controlling (minority) interest in consolidated subsidiaries is presented on the balance sheet:A. as a long-term liability.B. separately, but as a part of shareholders’ equity.C. as a
The item “retained earnings” is a component of:A. assets.B. liabilities.C. shareholders’ equity.
When a company buys shares of its own stock to be held in treasury, it records a reduction in:A. both assets and liabilities.B. both assets and shareholders’ equity.C. assets and an increase in
Which of the following would an analyst most likely be able to determine from a common-size analysis of a company’s balance sheet over several periods?A. An increase or decrease in sales.B. An
An investor concerned whether a company can meet its near-term obligations is most likely to calculate the:A. current ratio.B. return on total capital.C. financial leverage ratio.
The most stringent test of a company’s liquidity is its:A. cash ratio.B. quick ratio.C. current ratio.
An investor worried about a company’s long-term solvency would most likely examine its:A. current ratio.B. return on equity.C. debt-to-equity ratio.
Using the information presented in Exhibit 4, the quick ratio for SAP Group at 31 December 2009 is closest to:A. 1.01.B. 1.44.C. 1.54. EXHIBIT 4 SAP Group Consolidated Statements of Financial
Using the information presented in Exhibit 12, the financial leverage ratio for SAP Group at 31 December 2009 is closest to:A. 0.08.B. 0.58.C. 1.58. EXHIBIT 12 SAP Group Consolidated Statements of
A company recorded the following in Year 1:On the Year 1 statement of cash flows, the company would report net cash flow from investing activities closest to:A. (€150,000).B. (€80,000).C.
On 31 December 2009, a company issued a £30,000 180-day note at 8 percent, using the cash received to pay for inventory, and issued £110,000 long-term debt at 11 percent annually, using the cash
Blue Bayou, a fictitious advertising company, reported revenues of $50 million, total expenses of $35 million, and net income of $15 million in the most recent year. If accounts receivable decreased
Orange Beverages Plc., a fictitious manufacturer of tropical drinks, reported cost of goods sold for the year of $100 million. Total assets increased by $55 million, but inventory declined by $6
Black Ice, a fictitious sportswear manufacturer, reported other operating expenses of $30 million. Prepaid insurance expense increased by $4 million, and accrued utilities payable decreased by $7
Copper, Inc., a fictitious brewery and restaurant chain, reported a gain on the sale of equipment of $12 million. In addition, the company’s income statement shows depreciation expense of $8
Based on the following information for Pinkerly Inc., a fictitious company, what are the total adjustments that the company would make to net income in order to derive operating cash flow?A. Add $5
Derek Yee, CFA, is preparing to forecast cash fl ow for Groupe Danone (FP: BN) as an input into his valuation model. He has asked you to evaluate the historical cash flow statement of Groupe Danone,
Andrew Potter is examining an abbreviated common-size cash flow statement for Dell Inc. (NASDAQ: DELL), a provider of technological products and services. The common-size cash flow statement was
Andrew Potter is comparing the cash-flow-generating ability of Dell Inc. with that of other computer manufacturers: Hewlett Packard (NYSE: HPQ) and Apple Inc. (NASDAQ: AAPL). He collects information
The three major classifications of activities in a cash flow statement are:A. inflows, outflows, and net flows.B. operating, investing, and financing.C. revenues, expenses, and net income.
The sale of a building for cash would be classified as what type of activity on the cash flow statement?A. Operating.B. Investing.C. Financing.
Which of the following is an example of a financing activity on the cash flow statement under US GAAP?A. Payment of interest.B. Receipt of dividends.C. Payment of dividends.
A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be:A. reported as a $1 million investing cash inflow and outflow.B. reported as a $1 million

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