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financial reporting
Financial Reporting And Analysis Using Financial Accounting Information 11th Edition Charles H. Gibson - Solutions
Which ratio is a measure of turnover of operating assets for a transportation firm?1. Operating ratio 2. Long-term debt to operating property 3. Per mile-per person-per ton 4. Return on investment 5. Operating revenue to operating property
For a transportation firm, which ratio gives a measure of the source of funds with which property is obtained?1. Operating ratio 2. Operating revenue to operating property 3. Long-term debt to operating property 4. Per mile-per person-per ton 5. Return on equity
A ratio that indicates a measure of operating efficiency for a utility is 1. Operating revenue to operating property.2. Funded debt to operating property.3. Operating ratio.4. Percent earned on operating property.5. Long-term debt to operating property.
For a utility, the ratio that is basically an operating asset turnover ratio is 1. Return on assets.2. Percent earned on operating property.3. Operating ratio.4. Funded debt to operating property.5. Operating revenue to operating property.
A ratio that relates net earnings to the assets primarily intended to generate earnings for a utility is 1. Return on assets.2. Percent earned on operating property.3. Operating ratio.4. Funded debt to operating property.5. Operating revenue to operating property.
A ratio that indicates how funds are supplied to a utility is 1. Return on assets.2. Percent earned on operating property.3. Operating ratio.4. Funded debt to operating property.5. Operating revenue to operating property.
The ratio that indicates the extent of equity ownership in a bank is the 1. Interest margin to average total assets.2. Loss coverage ratio.3. Loans to deposits.4. Equity capital to total assets.5. Deposits times capital.
Typically, the largest expense for a bank will be 1. Employer benefits.2. Occupancy expense.3. Salaries.4. Provision for loan losses.5. Interest expense.
All but which of the following would be a representative liability of a bank?1. Savings 2. Demand deposits 3. Cash on hand 4. Long-term debt 5. Time deposits
The ratio for a bank that provides an indication of management’s ability to control the spread between interest income and interest expense is the 1. Loan loss coverage ratio.2. Earning assets to total assets.3. Return on earning assets.4. Interest margin to average total assets.5. Equity capital
All but which of the following would be considered an earning asset of a bank for the earning assets to total assets ratio?1. Loans 2. Leases 3. Cash 4. Investment securities 5. Money market assets
All but which of the following would be a representative asset of a bank?1. Investment securities 2. Loans 3. Equipment 4. Cash on hand 5. Savings accounts
Insurance companies tend to have a stock market price at a discount to the average market price(price/earnings ratio). Which of the following is a likely reason for this relatively low market value?1. Insurance is a highly regulated industry.2. The insurance industry has substantial competition.3.
Which of the following statements is not true?1. Statutory accounting has emphasized the balance sheet in its concern for protecting the policyholders by focusing on the financial solvency of the insurance corporation.2. All 50 states have insurance departments that require annual statements of
The manner of recognizing revenue on insurance contracts is unique for the insurance industry. Which of the following statements is not true?1. In general, the duration of the contract governs the revenue recognition.2. When the risk differs significantly from the contract period, revenue is
Generally, the largest liability is for loss reserves. The quantification process is subject to a number of estimates. Which of the following would not be one of the estimates?1. Investment gains/losses 2. Inflation rate 3. Interest rates 4. Judicial interpretations 5. Mortality estimates
Which of these statements is not correct?1. The balance sheet is a classified balance sheet.2. The assets section starts with investments.3. The majority of the investments are typically in bonds.4. For life insurance companies, the investment in real estate may be much greater than that for
a. Which of the following does not represent a basic type of insurance organization?1. Stock companies 2. Bond companies 3. Mutual companies 4. Fraternal benefit societies 5. Assessment companies
Chihi Airways had the following results for the last three years:Requireda. Calculate the following for 2007, 2006, and 2005:1. Operating ratio 2. Long-term debt to operating property 3. Operating revenue to operating propertyb. Comment on trends found in the ratios computed in (a).c. Comment on
Local Airways had the following results in the last two years:Required Calculate the following for 2007 and 2006:a. The operating ratio and comment on the trend.b. The long-term debt to operating property ratio. What does this tell about debt use?c. The operating revenue to operating property and
The following statistics relate to Michgate, an electric utility:Requireda. Calculate the following for 2007, 2006, and 2005:1. Operating ratio 2. Funded debt to operating property 3. Percent earned on operating property 4. Operating revenue to operating propertyb. Comment on trends found in the
Super Power Company reported the following statistics in its statements of income:Requireda. Calculate the operating ratio and comment on the results.b. Calculate the times interest earned and comment on the results.c. Perform a vertical common-size analysis of revenues, using total revenue as the
The following are statistics from the annual report of Dover Bank:Requireda. Calculate the following for 2007, 2006, and 2005:1. Earning assets to total assets 2. Interest margin to average earning assets 3. Loan loss coverage ratio 4. Equity to total assets 5. Deposits times capital 6. Loans to
The following are statistics from the annual report of McEttrick National Bank:Requireda. Calculate the total deposits times capital for each year.b. Calculate the loans to total deposits for each year.c. Calculate the capital funds to total assets for each year.d. Calculate the interest margin to
• Real estate companies contend that conventional accounting does not recognize the underlying value of the property and that this misleads investors. Discuss.
• Insurance companies tend to have a stock market price at a discount to the average market price (price/earnings ratio). Indicate some perceived reasons for this relatively low price/earnings ratio.
• Briefly describe the unique aspects of revenue recognition for an insurance company.
• Briefly describe the difference between accounting for intangibles for an insurance company under GAAP and under SAP.
• For an insurance company, describe the difference between GAAP reporting and SAP reporting of deferred policy acquisition costs.
• Annual reports that insurance companies issue to the public are in accordance with what accounting standards?
• Explain how the publication Financial Analysis of the Motor Carrier Industry could be used to determine the percentage of total revenue a firm has in relation to similar trucking firms.
• How is the passenger load factor of a bus company related to profitability?
• If a transportation firm shows a rise in revenue per passenger mile, what does this rise imply?
• In a transportation firm, what types of things will change operating revenues? Operating expenses?
• Briefly describe the revenue section of the income statement for a transportation firm.
• What is the most important category of assets for transportation firms?
• What type of ratio is operating revenue to operating property? Will it exceed 1:1 for a utility?
• Is it more desirable to have the operating ratios increasing or decreasing for utilities and transportation companies?
• For oil and gas companies, there is the potential for a significant difference between the reported income and cash flows from operations. Comment.
• Oil and gas companies must disclose quantity estimates for proved oil and gas reserves and the major factors causing changes in these resource estimates. Briefly indicate why this disclosure can be significant.
• When reviewing the financial statements of oil and gas companies, why is it important to note the method of costing (expensing) exploration and production costs?
• Differentiate between successful-efforts and full-costing accounting as applied to the oil and gas industry.
• For a utility, describe the income statement accounts, allowance for equity funds used during construction, and allowance for borrowed funds used during construction.
• For a utility, why review the account Construction Work in Progress?
• Are current liabilities usually presented first in utility reporting? Comment.
• What does the funded debt to operating property ratio measure for a utility?
• Why are plant and equipment usually listed first for utilities?
• Utilities are very highly leveraged. How is it that they are able to carry such high levels of debt?
• Why review the note that describes commitments and contingent liabilities for a bank?
• Why could a review of savings deposit balances be important when reviewing a bank’s financial statements?
• Why review the disclosure of nonperforming assets for banks?
• Why review the disclosure of allowance for loan losses for a bank?
• Why review the disclosure of foreign loans for banks?
• Why review the disclosure of the market value of investments versus the book amount of investments for banks?
• Give an example of why a review of bank assets may indicate risk or opportunity of which you were not aware.
• Why are banks concerned about the percentage of earning assets to total assets?
• What is usually the biggest expense item for a bank?
• Why must the user be cautious in analyzing bank holding companies?
• To what agencies and other users of financial statements must banks report?
What are the main sources of revenue for banks?
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.” Under Company Name, enter “Cabot Oil & Gas Corp” (or under Ticker Symbol, enter “COG”). Select the 10-K filed
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.” Under Company Name, enter “Maine & Maritimes Corp” (or under Ticker Symbol, enter “MAM”). Select the 10-K filed March 16,
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on Companies & Other Filers.” Under Company Name, enter “Columbia Bancorp” (or under Ticker Symbol, enter “CBBO”). Select the 10-K filed March 16, 2007.a.
Go to the SEC Web site (http://www.sec.gov).Under “Filings & Forms (EDGAR),” click on“Search for Company Filings.” Click on“Companies & Other Filers.” Under Company Name, enter “Independent Bank Corp” (or under Ticker Symbol, enter “INDB”). Select the 10-K filed February 28,
An airline presented this graph with its annual report.Required Indicate the misleading feature in this graph. 70,000 Staffing Levels Full-Time Equivalent Employees 65,000 60,000 55,000 June 2008 Sept. 2008 Dec. 2008 Mar. 2009 June 2009 At Quarter-End
Compute the approximate income if inventory had been valued at approximate current cost.LIFO reserves: Lion Company Reported year for analysis, 2007 2007 Net income as reported $45,000,000 2007 Inventory reserve 20,000,000 2006 Inventory reserve 28,000,000 2007 Income taxes 14,000,000 2007 Income
Compute the approximate income if inventory had been valued at approximate current cost.LIFO reserves: Rhodes Company Reported year for analysis, 2008 2008 Net income as reported $ 90,200,000 2008 Inventory reserve 50,000,000 2007 Inventory reserve 46,000,000 2008 Income taxes 55,000,000 2008
The following data are for the A, B, and C Companies:Requireda. Compute the Z score for each company.b. According to the Altman model, which of these firms is most likely to experience financial failure? Company Variables Current assets A B C $150,000 $170,000 $180,000 Current liabilities $60,000
For each of the following numbered items, you are to select the lettered item(s) that indicate(s) its effect(s)on the corporation’s statements. If more than one effect is applicable to a particular item, be sure to indicate all applicable letters. (Assume that the state statutes do not permit
Your company is considering the possible acquisition of Growth Inc. Financial statements of Growth Inc.follow:Partial notes: Under the LIFO method, inventories have been reduced by approximately $35,300 and $41,100 at December 31, 2008 and 2007, respectively, from current cost, which would be
Which of the following would likely be very useful when valuing a dot.com?1. Discounted cash flow 2. Price-earnings 3. Net asset value 4. Dividend yield
Which of the following was not given as a reason for acquirers paying too much in an acquisition?1. Overuse of conventional financial statements 2. Overbidding 3. Overoptimistic appraisal of market potential 4. Overestimation of synergies
Shareholders of acquired companies are often big winners receiving on average a premium of what in a friendly merger?1. 10%2. 20%3. 30%4. 35%
The two most popular discounted earnings models appear to be 1. Discounted abnormal earnings and residual income.2. Free cash flow and dividend discount model.3. Sales/market capitalization and price-earnings.4. Price-cash flow and dividend discount.
Which of the following would not be an example of the use of a multiple when valuing common equity?1. Multiperiod discounted earnings models 2. Price-to-earnings (PE)3. Price-to-book 4. Price-to-operating cash flow
The calculation of the number of times bond interest is earned involves dividing 1. Net income by annual bond interest expense.2. Net income plus income taxes by annual bond interest expense.3. Net income plus income taxes and bond interest expense by annual bond interest expense.4. Sinking fund
The times interest earned ratio is a primary measure of 1. Liquidity.2. Long-term debt-paying ability.3. Activity.4. Profitability.
The ratio of total cash, trade receivables, and marketable securities to current liabilities is 1. The acid-test ratio.2. The current ratio.3. Significant if the result is 2-to-1 or below.4. Meaningless.
Trading on the equity (financial leverage) is likely to be a good financial strategy for stockholders of companies having 1. Cyclical high and low amounts of reported earnings.2. Steady amounts of reported earnings.3. Volatile fluctuation in reported earnings over short periods of time.4. Steadily
If business conditions are stable, a decline in the number of days’ sales outstanding from one year to the next (based on a company’s accounts receivable at year-end) might indicate 1. A stiffening of the company’s credit policies.2. That the second year’s sales were made at lower prices
Which of the following ratios would best disclose effective management of working capital by a given firm relative to other firms in the same industry?1. A high rate of financial leverage relative to the industry average 2. A high number of days’ sales uncollected relative to the industry average
Early in a period in which sales were increasing at a modest rate and plant expansion and start-up costs were occurring at a rapid rate, a successful business would likely experience 1. Increased profits and increased financing requirements because of an increasing cash shortage.2. Increased
The concept of conservatism is often considered important in accounting. The application of this concept means that in the event some doubt occurs as to how a transaction should be recorded, it should be recorded so as to 1. Understate income and overstate assets.2. Overstate income and overstate
Which one of the following would be a source of funds under a cash concept of funds, but would not be listed as a source under the working capital concept?1. Sale of stock 2. Sale of machinery 3. Sale of treasury stock 4. Collection of accounts receivable 5. Proceeds from long-term bank borrowing
Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting.The notes should not be used to 1. Describe significant accounting policies.2. Describe depreciation methods employed by the company.3. Describe principles and methods peculiar to the industry
• We are interested in the future when valuing the stock equity of a company. Therefore, traditional financial statements are of little use in this endeavor. Comment.
• Comment on the importance of an assessment of company management when valuing a company from the perspective of analysts and fund managers.
Multiperiod discounted valuation models do not seem to play a significant role in analysts’ normal valuation activity. Comment.
• The use of multiples and conventional financial reports is not well accepted by the traditional financial literature or many valuation books. Comment.
Describe a proper management of earnings. Describe an improper management of earnings.
The surveyed CFAs gave the highest significance rating to which type of financial ratio?
• You are in charge of preparing a comprehensive budget for your firm. Indicate how financial ratios can help determine an acceptable, comprehensive budget.
• You are the auditor of Piedmore Corporation. You determine that the accounts receivable turnover has been much slower this period than in prior periods and that it is also materially lower than the industry average. How might this situation affect your audit plan?
• No conclusive model has been developed to forecast financial failure. This indicates that financial ratios are not helpful in forecasting financial failure. Comment.
• What does a Z score below 2.675 indicate, according to the Altman model?
According to the Beaver study, three current asset accounts should be paid particular attention in order to forecast financial failure. List each of these accounts and indicate whether they should be abnormally high or low.
• According to the Beaver study, which ratios should be watched most closely, in order of their predictive power?
• Indicate some possible uses of a reliable model that can be used to forecast financial failure.
• All firms are required to expense R&D costs incurred each period. Some firms spend very large sums on R&D, while others spend little or nothing on this area. Why is it important to observe whether a firm has substantial or immaterial R&D expenses?
Indicate which of the following accounting policies are conservative by placing an X under Yes or No.Assume inflationary conditions exist. a. LIFO inventory b. FIFO inventory C. Completed-contract method d. Percentage-of-completion method e. Accelerated depreciation method f. Straight-line
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