Questions and Answers of Financial Reporting Financial Statement Analysis And Valuation

Assume that FinnCo had the following income statement information in both 20X1 and 20X2, excluding a foreign currency transaction gain of €200 in 20X1 and a transaction loss of €50 in 20X2.FinnCo
If the euro is chosen as the Ukraine subsidiary’s functional currency, Eurexim will translate its accounts receivable using the:A. rate in effect at the transaction date.B. average rate for the
Turkey was one of the few remaining highly inflationary countries at the beginning of the 21st century. Annual inflation rates and selected exchange rates between the Turkish lira (TL) and US dollar
If the hryvnia is chosen as the Ukraine subsidiary’s functional currency, Eurexim will translate its inventory using the:A. average rate for the reporting period.B. rate in effect at the end of the
Canadaco begins operations on 1 January 20X1, with cash of C$1,500,000 and property and equipment of C$3,000,000. In Case A, Canadaco finances the acquisition of property and equipment with a
Canadaco’s Canadian dollar (C$) financial statements are translated into euro (€) under three scenarios:(1) the Canadian dollar remains stable against the euro,(2) the Canadian dollar strengthens
Based on the information available and Ruiz’s expectations regarding exchange rates, if the hryvnia is chosen as the Ukraine subsidiary’s functional currency, Eurexim will most likely report:A.
After translating Consol-Can’s inventory and long-term debt into the parent company’s currency (US$), the amounts reported on Consolidated Motor’s financial statements on 31 December 20X2 would
ABC Company formed a subsidiary in a foreign country on 1 January 20X1, through a combination of debt and equity financing. The foreign subsidiary acquired land on 1 January 20X1, which it rents to a
After translating Consol-Can’s 31 December 20X2 balance sheet into the parent company’s currency (US$), the translated value of retained earnings will be closest to:A. $41 million.B. $44
Yahoo! Inc. is a US-based digital media company that reports in US dollars and prepares financial statements in accordance with US GAAP.The stockholders’ equity section of Yahoo!’s consolidated
In response to the board’s first question, Templeton would most likely reply that such a change would be justified if:A. the inflation rate in the United States became hyperinflationary.B.
In response to the board’s second question, Templeton should reply that if the change is made, the consolidated financial statements for Consolidated Motors would begin to recognize:A. realized
Below are excerpts from the effective tax rate reconciliation disclosures by two companies:Heineken N.V., a Dutch brewer, and Colgate Palmolive, a US consumer products company. Use the disclosures to
In response to the board’s third question, Templeton should note that the change will most likely affect:A. the cash ratio.B. fixed asset turnover.C. receivables turnover.Consolidated Motors is a
Use the information disclosed in Procter & Gamble Company’s CAGNY [Consumer Analyst Group of New York] conference slides to answer the following questions:1. Why does the company present
In response to the board’s fourth question, the balance sheet exposure (in C$ millions) would be closest to:A. –19.B. 148.C. 400.Consolidated Motors is a US-based corporation that sells
Based on the translation method being used for Julius, the subsidiary is most likely:A. a sales outlet for Romulus’s products.B. a self-contained, independent operating entity.C. using the US
To account for its foreign operations, Romulus has most likely designated the euro as the functional currency for:A. Julius only.B. Augustus only.C. both Julius and Augustus.Romulus Corp. is a
When Romulus consolidates the results of Julius, any unrealized exchange rate holding gains on monetary assets should be:A. reported as part of operating income.B. reported as a non-operating item on
When Marks translates his forecasted balance sheet for Julius into US dollars, total assets as of 31 December 20X2 (dollars in millions) will be closest to:A. $1,429.B. $2,392.C. $3,703.Romulus Corp.
When Marks converts his forecasted income statement data for Julius into US dollars, the 20X2 gross profit margin will be closest to:A. 39.1%.B. 40.9%.C. 44.6%.Romulus Corp. is a US-based company
Relative to the gross margins the subsidiaries report in local currency, Romulus’s consolidated gross margin most likely :A. will not be distorted by currency translations.B. would be distorted if
If the US dollar were chosen as the functional currency for Acceletron in 2007, Redline could reduce its balance sheet exposure to exchange rates by:A. selling SGD30 million of fixed assets for
Redline’s consolidated gross profit margin for 2007 would be highest if Acceletron accounted for inventory using:A. FIFO, and its functional currency were the US dollar.B. LIFO, and its functional
If the current rate method is used to translate Acceletron’s financial statements into US dollars, Redline’s consolidated financial statements will most likely include Acceletron’s:A. USD3,178
When translating Acceletron’s financial statements into US dollars, Redline is least likely to use an exchange rate of USD per SGD:A. 0.671.B. 0.588.C. 0.654.Redline Products, Inc. is a US-based
If Acceletron’s financial statements are translated into US dollars using the temporal method, Redline’s consolidated financial statements will most likely include Acceletron’s:A. USD336
Based on Martinez’s conclusions, Stellar’s financial statements are best categorized as:A. non-GAAP compliant.B. GAAP compliant, but with earnings management.C. GAAP compliant and decision
Satyam Computer Services Limited, an Indian information technology company, was founded in 1987 and grew rapidly by providing business process outsourcing (BPO) on a global basis. In 2007, its CEO,
In the 2002 Annual Report, inventory was reported at $3,411.8 million. In the 2003 Annual Report, the 2002 inventory value was reported at $2,964.3 million and $447.5 million of inventory was
Based on Conclusion 2, after the acquisition of Solar, Stellar’s earnings are most likely :A. understated.B. fairly stated.C. overstated.Mike Martinez is an equity analyst who has been asked to
In order to develop and introduce a new product, Digilog created a separate business entity, DBS, that was capitalized with $10 million of convertible debt issued to Digilog. Upon conversion, Digilog
In his follow-up analysis relating to Conclusion 3, Martinez should focus on Stellar’s:A. total accruals.B. discretionary accruals.C. non-discretionary accruals.Mike Martinez is an equity analyst
What will be the impact on Stellar in the current year if Martinez’s belief in Conclusion 4 is correct? Compared with the previous year, Stellar’s:A. current ratio will increase.B. days sales
Two related topics that almost always require special consideration on the part of analysts are asset impairments and restructuring charges. Asset impairments are write downs of assets required when
Exhibit 5 presents the variables and Beneish’s M -Score for XYZ Corporation (a hypothetical company).1. Would the results of the Beneish model lead an analyst, using a –1.78 M -score as the
1. How does the trend in Enron’s operating income compare with the trend in its income after other income and deductions (i.e., Income before interest, minority interests, and income taxes)?2. What
Allou Health & Beauty Care, Inc. was a manufacturer and distributor of hair and skin care products. Exhibit 8 presents excerpts from the company’s financial statements from 2000 to 2002.
As noted in the previous section, Sunbeam engaged in various improper accounting practices. Refer to the excerpt from Sunbeam’s statement of cash flows in Exhibit 24 to answer the following
An excerpt from the statement of cash flows from the fiscal 2000 annual report of Nautica Enterprises, an apparel manufacturer, is shown as Exhibit 25 . An excerpt from the statement of cash flows
In August 2012, a Wall Street Journal article listed six companies that were carrying more goodwill on their balance sheets than the companies’ market values ( Thurm 2012 ). At the top of the list
Use the excerpts from Royal Dutch Shell’s note disclosing information about financial instruments in Exhibit 32 to answer the following questions:1 . Does Shell appear to take a centralized or
If the accounting rules were to change, Silk Road’s assets would increase by approximately:A. 1,297.B. 1,576.C. 1,704.Sergei Leenid, CFA, is a long-only fixed income portfolio manager for the
If the accounting rules were to change, Silk Road’s interest coverage ratio would be closest to:A. 3.03.B. 3.50.C. 5.04.Sergei Leenid, CFA, is a long-only fixed income portfolio manager for the
If the accounting rules were to change, Silk Road’s financial leverage ratio would be closest to:A. 1.37.B. 1.79.C. 2.92.Sergei Leenid, CFA, is a long-only fixed income portfolio manager for the
Will the change in accounting rules impact the result of the initial screening process for Colorful Concepts?A. It passes the screens now, but will not pass if the accounting rules change.B. It
Based on Leenid’s analysis of the results of the initial screening, relative to Colorful Concepts the bond rating of Silk Road should be:A. lower.B. higher.C. the same.Sergei Leenid, CFA, is a
Ignoring the potential impact of any accounting change and excluding the investment in associates, the net profit margin for Colorful Concepts would be closest to:A. 6.0%.B. 7.2%.C. 7.5%.Sergei
Ignoring the impact of any accounting change, the asset turnover ratio for Colorful Concepts excluding the investments in associates would:A. stay the same.B. increase by 0.10.C. decrease by
Excluding the investments in associates would result in the interest coverage ratio for Colorful Concepts being:A. lower.B. higher.C. the same.Sergei Leenid, CFA, is a long-only fixed income
Over the three-year period presented in Exhibit 1, Bickchip’s return on equity is best described as:A. stable.B. trending lower.C. trending higher.Quentin Abay, CFA, is an analyst for a private
Based on the DuPont analysis, Abay’s belief regarding ROE is most likely based on:A. leverage.B. profit margins.C. asset turnover.Quentin Abay, CFA, is an analyst for a private equity firm
Based on Abay’s criteria, the business segment best suited for divestiture is:A. medical equipment.B. power and industrial.C. automation equipment.Quentin Abay, CFA, is an analyst for a private
Bickchip’s cash-flow-based accruals ratio in 2009 is closest to:A. 9.9%.B. 13.4%.C. 23.3%.Quentin Abay, CFA, is an analyst for a private equity firm interested in purchasing Bickchip Enterprises, a
The cash-flow-based accruals ratios from 2007 to 2009 indicate:A. improving earnings quality.B. deteriorating earnings quality.C. no change in earnings quality.Quentin Abay, CFA, is an analyst for a
The ratio of operating cash flow before interest and taxes to operating income for Bickchip for 2009 is closest to:A. 1.6.B. 1.9.C. 2.1.Quentin Abay, CFA, is an analyst for a private equity firm
Based on the ratios for operating cash flow before interest and taxes to operating income, Abay should conclude that:A. Bickchip’s earnings are backed by cash flow.B. Bickchip’s earnings are not
Compared to holding securitized finance receivables on the balance sheet, treating them as sold had the effect of reducing Software Services’ reported financial leverage by:A. 6.8%.B. 7.4%.C.
Had the securitized finance receivables been held on the balance sheet, Software Services’ ratio of liabilities to total capital would have been closest to:A. 73.0%.B. 74.8%.C. 80.4%.Michael
How much of PDQ’s value can be explained by its equity stake in Astana?A. 6.5%.B. 10.6%.C. 20.0%.Michael Wetstone is an equity analyst covering the software industry for a public pension fund.
On a “solo” basis, PDQ’s P/E ratio is closest to:A. 19.6.B. 21.0.C. 24.5.Michael Wetstone is an equity analyst covering the software industry for a public pension fund. Prior to comparing the
The adjusted financial statements were created during which phase of the financial analysis process?A. Data collection.B. Data processing.C. Data interpretation.Michael Wetstone is an equity analyst
The estimate of PDQ’s solo value is crude because of:A. the potential differences in accounting standards used by PDQ and Astana.B. the differing risk characteristics of PDQ and Astana.C.
The following information pertains to Entiguan Sports, a hypothetical developer of products used to treat sports-related injuries. (The treatment of items for accounting and tax purposes is based on
Using the straight-line method of depreciation for reporting purposes and accelerated depreciation for tax purposes would most likely result in a:A. valuation allowance.B. deferred tax asset.C.
The following information pertains to Entiguan Sports for the 2006 year-end. The treatment of items for accounting and tax purposes is based on fictitious accounting and tax standards and is not
Use the financial statement information and disclosures provided by MU in Exhibits 2 , 3 , and 4 to answer the following questions:1. MU discloses a valuation allowance of $915 million (see Exhibit
In early 2009 Sanborn Company must pay the tax authority €37,000 on the income it earned in 2008. This amount was recorded on the company’s 31 December 2008 financial statements as:A. taxes
Income tax expense reported on a company’s income statement equals taxes payable, plus the net increase in:A. deferred tax assets and deferred tax liabilities.B. deferred tax assets, less the net
Analysts should treat deferred tax liabilities that are expected to reverse as:A. equity.B. liabilities.C. neither liabilities nor equity.
Deferred tax liabilities should be treated as equity when:A. they are not expected to reverse.B. the timing of tax payments is uncertain.C. the amount of tax payments is uncertain.
When both the timing and amount of tax payments are uncertain, analysts should treat deferred tax liabilities as:A. equity.B. liabilities.C. neither liabilities nor equity.
When accounting standards require recognition of an expense that is not permitted under tax laws, the result is a:A. deferred tax liability.B. temporary difference.C. permanent difference.
When certain expenditures result in tax credits that directly reduce taxes, the company will most likely record:A. a deferred tax asset.B. a deferred tax liability.C. no deferred tax asset or
When accounting standards require an asset to be expensed immediately but tax rules require the item to be capitalized and amortized, the company will most likely record:A. a deferred tax asset.B. a
A company incurs a capital expenditure that may be amortized over five years for accounting purposes, but over four years for tax purposes. The company will most likely record:A. a deferred tax
In 2007, the company’s US GAAP income statement recorded a provision for income taxes closest to:A. $30,632.B. $54,144.C. $58,772. Note I Income Taxes The components of earnings before income taxes
A company receives advance payments from customers that are immediately taxable but will not be recognized for accounting purposes until the company fulfills its obligation.The company will most
The company’s effective tax rate was highest in:A. 2005.B. 2006.C. 2007. Note I Income Taxes The components of earnings before income taxes are as follows ($ thousands): Earnings before income
Compared to the company’s effective tax rate on US income, its effective tax rate on foreign income was:A. lower in each year presented.B. higher in each year presented.C. higher in some periods
Zimt AG presents its financial statements in accordance with US GAAP. In 2007, Zimt discloses a valuation allowance of $1,101 against total deferred tax assets of $19,201. In 2006, Zimt disclosed a
A reduction in the statutory tax rate would most likely benefit the company’s:A. income statement and balance sheet.B. income statement but not the balance sheet.C. balance sheet but not the income
Cinnamon, Inc. recorded a total deferred tax asset in 2007 of $12,301, off set by a $12,301 valuation allowance. Cinnamon most likely :A. fully utilized the deferred tax asset in 2007.B. has an equal
If the valuation allowance had been the same in 2007 as it was in 2006, the company would have reported $115 higher :A. net income.B. deferred tax assets.C. income tax expense.The tax effects of
Compared to the provision for income taxes in 2007, the company’s cash tax payments were:A. lower.B. higher.C. the same.The tax effects of temporary differences that give rise to deferred tax
In 2007, the company’s net income (loss) was closest to:A. ($217,000).B. ($329,000).C. ($556,000).A company’s provision for income taxes resulted in effective tax rates attributable to loss from
The $357,000 adjustment in 2007 most likely resulted in:A. an increase in deferred tax assets.B. an increase in deferred tax liabilities.C. no change to deferred tax assets and liabilities.A
Over the three years presented, changes in the valuation allowance for deferred tax assets were most likely indicative of:A. decreased prospect for future profitability.B. increased prospects for
At year-end 2010, £28,879 million represents:A. the funded status of the plan.B. the defined benefit obligation.C. the fair value of the plan’s assets.Kensington plc, a hypothetical company based
The following information pertains to two hypothetical companies’ defined benefit pension plans as of 31 December 2010:• For company ABC, the present value of the company’s defined benefit
For the year 2010, the net interest expense of £273 represents the interest cost on the:A. ending benefit obligation.B. beginning benefit obligation.C. beginning net pension obligation.Kensington
Based on Scenario 4 of Example 2 (10 years of prior service and the employee receives benefits for 20 years after retirement):1. What is the effect on the Year 1 closing pension obligation of a 100
For the year 2010, the remeasurement component of Kensington’s periodic pension cost represents:A. the change in the net pension obligation.B. actuarial gains and losses on the pension
Which of the following is closest to the actual rate of return on beginning plan assets and the rate of return on beginning plan assets that is included in the interest income/expense calculation?A.
In addition to disclosing assumptions about health care costs, companies also disclose information on the sensitivity of the measurements of both the obligation and the periodic cost to changes in
SABMiller plc is a UK-based company that brews and distributes beer and other beverages. The following information was taken from the company’s 2010 Annual Report.Note that in 2010, IFRS required
Which component of Kensington’s periodic pension cost would be shown in OCI rather than P&L?A. Service cost B. Net interest (income) expense C. RemeasurementsKensington plc, a hypothetical
Vassiliki Doukas is analysing the cash flow statement of a hypothetical company, Geo- Race plc, as part of a valuation. Doukas suggests to her colleague, Dimitri Krontiras, that the difference
The relationship between the periodic pension cost and the plan’s funded status is best expressed in which of the following?A. Periodic pension cost of –£483 = Ending funded status of –£4,774

Showing 600 - 700 of 721