财务报表分析与运用习题.doc

Multiple Choices Exercises for FSA.

1. As a general rule, revenue is normally recognized when
A. it is measurable.
B. it is measurable and received.
C. the earnings process is completed and cash receipt is assured.
D. The measurement process is complete.

2. If a company recognizes revenue earlier than justified under accrual accounting, which of the following best describes the impact on accounts receivable and inventory, respectively?
Accounts Receivable Inventory
A. overstated oversated
B. overstated understated
C. understated overstated
D. understated understated

3. The following are Samples of unusual or infrequent items EXCEPT:
A. Gains or losses from disposal of a portion of a business segment.
B. Losses resulting from foreign government expropriation of assets.
C. Provisions for environmental remediation.
D. Impairments, write-offs, write-downs, and restructuring costs.

4. When a company discontinues and disposes of an operation, the action is considered:
A. an extraordinary item.
B. a prior period adjustment.
C. a cumulative effect of a change in an accounting principle.
D. separately and shown net of taxes on the income statement.

5. Which one of the following is a change in an accounting principles?
A. A change from FIFO to LIFO.
B. Recording a prior period adjustment.
C. A change in the estimated service life of machinery.
D. Recording depreciation expense for the first time on machinery purchased five years ago.

6. All of the following are general categories of nonrecurring items EXCEPT:
A. unusual or infrequent items.
B. discontinued operations.
C. capitalization of leases.
D. accounting changes.

7. A firm discovered that it had used an incorrect accounting principles in 1996. On the firm’s 1997 financial statements, this firm should report the impact of this error as:
A. an extraordinary item.
B. A nonrecurring item.
C. Part of cost of goods sold.
D. A prior period adjustment.

8. The completed contract method should be used when
A. There is a reasonable estimate of the costs to be incurred.
B. There is a contract price.
C. Collectibility of the contract price is uncertain.
D. There is a reasonable estimate of the revenues.

9. Using the percentage-of-completion method in accounting for long-term projects, a company can increase reported earnings by:
A. accelerating recognition of project expenditures.
B. delaying recognition of project expenditures.
C. switching to completed contract accounting
D. overestimating the total cost of the project.

10. Which of the following would be an example of management attempting to manipulate income?
A. a change from a straight-line to an accelerated depreciation in order to increase income.
B. recognizing losses in bad years and recognizing gains in good years.
C. additional losses are taken in bad years
D. a gain from the condemnation of property by the city is shown in income from continuing operations, while a loss on the sale of equipment is shown after income from continuing operations.

11. When accounting for merchandising businesses, gross margin equals the difference between:
A. net sales and cost of goods sold.
B. net sales and operating expenses.
C. gross sales and the sum of returns and allowances.
D. net sales and the sum of cost of goods sold and operating expenses.

11. Which of the following would not contribute to the difference between gross sales and net sales?
A. cash refunds for returned products.
B. Discounts from listed prices for delayed shipping.
C. Allowance off selling prices for defective products
D. Sales made on credit rather than for immediate payment.

12. Among the following items, which is added to net income for calculation of cash flows from operating activities in the indirect method?
A. decrease of inventory.
B. Increase of prepaid expenses.
C. Decrease of accounts payable.
D. Increase of accounts receivable.

13. In the Statement of Cash Flows, which of the following best describes whether interest received and interest paid, respectively, are classified as operating or investing cash flow?
Interest Received Interest paid
A. Operating Operating
B. Operating Investing
C. Investing Operating
D. Investing Investing

14. FASB is trying to do projects related to international convergence with:
A. IASB
B. SEC
C. IOSCO
D. Federal Reserve Board

15. Which of the following is not considered an asset?
A. Inventory
B. Trademarks
C. Retained earnings.
D. Accounts receivable.

16. If a company’s ending inventory is understated by $3, 000 and beginning inventory is overstated by $5, 000, the company’s operating income will most likely be:
A. overstated by $2, 000.
B. overstated by $8, 000
C. understated by $2, 000
D. understated by $8, 000

17. Depreciation differs from other types of expenses in that depreciation:
A. can be measured more precisely.
B. Does not require an immediate cash outlay.
C. Is not deductible if it would result in a net loss.
D. Can be avoided if the company acquires used assets.

18. Which of the following accurately describes the effects of a purchase of treasury stock on a company’s assets and stockholders’ equity?
Assets Stockholders’ Equity
A. Decreased Decreased
B. Decreased Unchanged
C. Unchanged Decreased
D. Unchanged Unchanged

19. A company’s assets and stockholders’ equity are most likely to be reduced by:
A. stock splits.
B. Cash dividends.
C. Stock dividends.
D. Reverse stock splits.

20. Net income equals:
A. sales-cost of goods sold.
B. Income before operation-income taxes.
C. Gross margin-operation expenses.
D. Income from operations+/-other revenue and expenses.

21. If the beginning inventory is $15, 000, the ending inventory is $18, 000, and the COGS is $20, 000. So the inventory turnover is:
A. 100%
B. 110%
C. 121%
D. 124%

22. a corporation wants to increase its current ratio from the present level of 1.5 before it ends its fiscal year. The action having the desired effect is:
A. delaying the next payroll.
B. Writing down impaired assets.
C. Paying current payables from cash.
D. Selling current marketable securities for cash at their book value.

23. A firm’s most recent quarterly statement shows a current ratio greater than one. Just before the close of the statement, the company paid large amounts to creditors. The fee of the payments was to:
A. decrease net working capital.
B. Increase net working capital.
C. Increase the current ratio.
D. Decrease the current ratio.

24. All of the following ratios include net income in their computation EXCEPT:
A. asset turnover.
B. Profit margin.
C. Return on equity.
D. Return on assets.

25. Which one of the following would best explain a situation where the ratio of “net income to total equity” for a firm is higher than the industry average, while the ratio of “net income to total assets” is lower than the industry average?
A. net profit margin is higher than the industry average.
B. Debt ratio is higher than the industry average
C. Asset turnover is higher than the industry average
D. Equity multiplier must be lower than the industry average

26. A major use of common-size financial statements is:
A. value a company.
B. Compare a company to the aggregate economy.
C. Compare two companies of different size.
D. None of the above.

27. common-size financial statements express a company’s accounts relative to:
A. the aggregate economy
B. the company’s own assets and sales.
C. The company’s past ratios.
D. Noe of the above

28. Internal liquidity or solvency ratios indicate the ability of the firm to:
A. meet future short term financial obligations.
B. Meet future long term financial obligations.
C. Settle current debt with fixed assets.
D. Settle future short term debt with fixed assets.

29. Which of the following companies would have a complete capital structure?
A. a company with common stock outstanding and non-convertible preferred stock outstanding
B. a company with common stock outstanding and stock options outstanding.
C. a company with common stock outstanding and convertible bonds outstanding
D. both B and C.

30. Potential common stock can be described as:
A. common stock in form.
B. Not common stock in form but with voting powers of common stock.
C. Stock that has the potential to be common stock.
D. Not common stock in form but enabling holders to obtain common stock upon exercise or conversion.

31. In calculating the weighted average number of shares outstanding for EPS, a subsequent event that is treated as if it occurred at the beginning of the earliest period is the:
A. purchase of treasury stock.
B. Sale of convertible bonds
C. Declaration and issuance of a stock split
D. Sale of common stock.

32. The weighted average number of common shares outstanding during the period should be retroactively restated for:
A. stock dividends
B. stock splits
C. both A and B
D. neither A nor B

33. When comparing ending inventories using the FIFO and LIFO methods of valuation, from a balance sheet perspective
A. inventories based on LIFO are preferable to those presented under FIFO as carrying values most closely reflect current cost.
B. inventories based on FIFO are preferable to those presented under LIFO as carrying values do not reflect current cost
C. inventories based on LIFO are preferable to those presented under FIFO as carrying values do not reflect current cost
D. inventories based on FIFO are preferable to those presented under LIFO as carrying values most closely reflect current cost

34. Which one of the following statements about straight-line depreciation is TRUE? Straight-line depreciation:
A. results in a decreasing return on equity over the asset’s life.
B. Introduces a built-in increase in return on investment over the asset’s life.
C. Recognizes the increasing rate of obsolescence of an asset with the passage of time.
D. Results in higher total tax payments over the life of an asset than accelerated depreciation.

35. A machine is purchased for $3, 000, and has an estimated useful life of five years. Its salvage value is estimated to be $550. Using double-declining balance, the depreciation charge for year three is:
A. $360
B. $432
C. $500
D. $720

36. The effect of the recognition of loss due to impairment in the year after the recognition would be to:
A. increase the return on assets
B. decrease the return on equity
C. have no effect on return on assets or return on equity
D. decrease the return on assets

37. When a convertible bond is converted into common stock, which of the following correctly reflects what happens in the financial statements?
A. the entire proceeds are reclassified from equity to debt.
B. No adjustment is made in the financial statements
C. The entire proceeds are reclassified from debt to equity
D. No adjustment is made because it is disclosed on the footnotes

38. A company has cash flows from operating activities of $281,500. other activities include the pruchase of equipment for $142,000, the sale of equipment for $58,000, the purchase of land for $93,000, the retirement of debt for $55,000, and the payment of dividends for $36,000. the free cash flow would be:
o A $91,500 B $93,500 C $104,500 D$177,000

39. The following info. Is available for Ashley Company:
Cash collections from customers $390,000
Cash payments for salaries (52,500)
Cash payments to suppliers (127,500)
Cash payments for interest (18,000)
Purchase of machinery (60,000)
Payments of dividends (55,500)
Sale of machinery 45,000
Purchase of land (12,000)
Purchase o treasury stock (48,000)

Calculate the FCF for the equity holders:
A. $91,500 B. $93,500 C. $104,500 D. $177,000

40.The statement of cash flows, which of the following best describes whether interest received and interest paid, are classified as operating or investing cash flows?
A. Operating Operating B. Operating Investing
C. Investing Operating D. Investing Investing

41. Which of the following is reported as a noncash financing transaction on a firm’s statement of cash flows?
A. Repayment of long-term debt
B. Purchase of treasury stock
C. Sale of perferred stock
D. Conversion of bands payable into common stock

42. A company is deemed to have a complex capital structure if it has:
A. potentially dilutive securities
B. both preferred and common stock outstanding.
C. weighted average cost of capital greater than the rate of return on equity.
D. common stock that is less than 20% of its total capital structure.

43. Which of following is true:
A. the diluted earnings per share number shows the actual effect of conversions
B.firms that pay out dividends will generally have higher EPS than firms that retain earnings in the business.
C.dividend and financing policies have no effect on growth rates in EPS.
D.none of the above is true.

44. A company has common stock and common stock options outstanding. Which of the following is true?
A. it will report two earnings per share numbers, basic and diluted
B. it will report only one earnings per share numbers, diluted.
C. it will report only one earnings per share numbers, basic D. it will report three earnings per share numbers, simple, basic and diluted.

45. An analyst gathered the following info. About a company whose fiscal year end is Dec.31:
Net income for the year was $10.5 million.
Preferred stock dividends of $2 million were paid for the year.
Common stock dividends of $3.5 million were paid for the year.
20 million shares of common stock were outstanding on January 1,2001.
The company issued 6 million new shares of common stock April 1, 2001.
The capital structure does not include any potentially dilutive convertible securities, options, warrants, and other contingent securities. The company’s basic EPS is closed to:
A. $ 0.35 B.$0.37 C.$0.43 D.$0.46

46. An analyst gathered the following info. :
Net income $6,500,000.
Preferred stock dividends of $500,000 paid.
Common stock dividends of $600,000 paid.
1,000,000 shares of common stock outstanding (no change during the year).
$60 average market price of common stock for the year.
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