158 test bank for financial reporting and analysis 6th edition

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158 Test Bank for Financial Reporting and Analysis 6th Edition

True False Questions Free Text Questions

-Multiple Choice Questions - Page 1

Employees demand financial statement information because the firm's performance is often linked to all of the following except

1 A negotiated increases in union contracts.

2 B social security benefits.

3 C pension plan benefits.

4 D employee profit sharing.

Companies that have projected operating cash flows that are more than sufficient to meet debt payments are

1 A financially flexible.

2 B good credit risk companies.

3 C undervalued.

4 D overvalued.

Relevant financial information

1 A is free from bias and error.

2 B is measured in a similar manner among different companies.

3 C can be independently verified.

4 D is capable of making a difference in a decision.

The ability to raise additional cash by selling assets, issuing stock, or

borrowing more is

1 A financial flexibility.

2 B a credit risk indicator.

3 C a stock price predictor.

4 D one way to project earnings.

A company's financial statements can be used for all of the following

purposes except

1 A as a scorecard on the company's social responsibility.

2 B as a management report card.

3 C as an early warning signal.

Investors who follow a fundamental analysis approach

1 A determine the value the company's assets would yield if sold individually.

2 B estimate the value of a stock by assessing the amount, timing, and uncertainty of future cash flows that will accrue to the issuing company.

3 C assess the company's ability to meet its debt-related financial obligations.

4 D assess the company's ability to raise additional cash by selling assets, issuing stock,

3 C fundamental analysis approach.

4 D technical analysis approach.

When financial statements are used to evaluate the performance of a

company's top executives it is referred to as the _ function of financial reports

3 C neutral.

4 D faithfully represented.

Analytical review procedures include all of the following except

1 A simple ratio and trend analysis.

2 B complex statistical techniques.

3 C general reasonableness tests.

4 D comparison of the company's reported financial results to benchmarks established

by the SEC.

A firm's financial statements contain trends that give users insight into the firm's

1 A future market share.

2 B position within its industry.

3 C profitability, productivity, and liquidity.

4 D current market price for common and preferred stock.

To achieve faithful representation, the financial information must be

1 A consistent, unbiased, and relevant.

2 B relevant, comparable, and timely.

3 C relevant, consistent, and timely.

4 D complete, neutral, and free from material error.

Business enterprises enter into many different types of contracts Examples

of such contracts that often contain language that refers to verifiable financial statement numbers include all of the following except

1 A royalty contracts with inventors.

2 B sales contracts with customers.

3 C compensation contracts with managers.

4 D debt contracts with bankers.

Professional analysts need information on a company's future earnings and cash flow to evaluate audit vulnerabilities, to assess debt repayment

prospects and to

1 A certify good values in the stock market.

2 B indemnify creditors against losses.

3 C certify that no fraud exists in the company.

4 D value its equity securities.

If a company fails to disclose information about a lawsuit because it might be embarrassing to the company, it is violating

1 A relevance.

2 B verifiability.

3 C neutrality.

4 D timeliness.

All financial statements:

1 A provide a picture of the company at a moment in time.

2 B describe changes that took place over a period of time.

3 C help to evaluate what happened in the past.

4 D contain the most up to date information about the company.

Investors and analysts are sometimes urged to ignore traditional GAAP numbers and instead focus on nonstandard "pro forma" numbers because

1 A the political compromises made to achieve consensus when issuing FASB

pronouncements lead to inaccurate portrayals of underlying events.

2 B management believes the pro forma numbers portray the company in a better light.

3 C the pro forma numbers are closer to those reported under international reporting standards.

4 D pro forma numbers are easier to understand.

Creditors assess credit risk by comparing a firm's required principal and interest payments to estimates of the firm's current and future

1 A net assets.

2 B gross income.

3 C net income.

4 D cash flows.

Investors who presume that they have no insights about company value beyond the current market price and use financial statement data to assess firm-specific variables believe in the

1 A market-to-market hypothesis.

2 B efficient market hypothesis.

3 C fundamental market hypothesis.

4 D technical market hypothesis.

GAAP's goals are to ensure that financial statements

1 A do not contain any representation that could jeopardize management.

2 B provide stockholders all of the information they need to assess management's performance.

3 C are accurate and free from fraud.

4 D clearly reflect the economic condition and performance of the company.

The costs of providing financial information is ultimately borne by

1 A management.

2 B shareholders.

3 C auditors.

4 D professional analysts.

When a borrower violates a loan covenant that requires minimum

achievement of an accounting measure in the financial statements, the lender can

1 A immediately seize the loan collateral.

2 B fire the chief operating officer of the borrower.

3 C report the borrower to the IRS.

4 D call for immediate repayment of the loan.

When independent measurers get similar results when using the same

accounting measurement methods, the financial information is

1 A relevant.

2 B verifiable.

3 C timely.

4 D faithfully represented.

A company's financial statements reflect information about

1 A future projections of sales, expenses, and other future economic events.

2 B product information and competitive positions.

3 C the general economy of the industry in which the company operates.

4 D economic events that affect a company that can be translated into accounting numbers.

Financial information capable of making a difference in a decision is

1 A relevant.

The market analysis known as fundamental analysis

1 A predicts future trends in the financial drivers of a company's success or failure.

2 B relies on price and volume movement of stock.

3 C has no insights about company value beyond current market price.

4 D uses microeconomic data to forecast stock values.

The type of analysis that uses financial statements to assess valuation of current market price is

1 A valuation analysis.

2 B efficient market analysis.

3 C fundamental analysis.

4 D technical analysis.

Being verifiable and neutral is part of what makes financial information

The Securities and Exchange Act of 1934 required all publicly traded firms to

1 A purchase insurance against corporate bankruptcy.

2 B register with an authorized stock exchange.

3 C provide annual financial statements audited by independent accountants.

4 D file balance sheets, income statements, and statements of cash flow with the SEC each year.

Some countries' philosophy of financial reporting differs from U.S GAAP because their financial reports are required to

1 A be verifiable.

2 B conform to tax and/or commercial law.

3 C be reported and measured in a similar manner across companies.

4 D use the same accounting methods for similar events period to period.

When a company changes from straight-line to the declining balance method

of accounting for depreciation, the financial statements lack

1 A Public-hearing stage, exposure-draft stage, and voting stage.

2 B Discussion-memorandum stage, public-hearing stage, and voting stage.

3 C Exposure-draft stage, discussion-memorandum stage, and voting stage.

4 D Discussion-memorandum stage, exposure-draft stage, and voting stage.

A company manages a large portfolio of marketable securities and sells only stocks with substantial gains in poor income years or sells only stocks with substantial losses in good income years This strategy is an indication of

Companies offering higher risk securities have incentives to mask their true condition by

1 A supplying overly optimistic financial information.

2 B not having their financial statements audited.

3 C listing on foreign exchanges where reporting requirements are less stringent than those in the U.S.

4 D including testimonials from well known executives in their financial statements.

ASC content is organized

1 A alphabetically by topic.

2 B in chronological order based on the issue date of the major pronouncement on which the content is based.

3 C without regard to the original standard from which the content was derived.

4 D in the manner prescribed by the IASB.

One financial disclosure cost is the possibility that competitors may use the information to harm the company providing the disclosure All of the following disclosures might create a competitive disadvantage except

1 A detailed information about company operations, such as sales and cost figures for individual product lines.

2 B information about the company's technological and managerial innovations.

3 C information on the company's level of spending on research and development.

4 D details about the company's strategies, plans and tactics.

International accounting rules are currently established by the

1 A IASC.

2 B IASB.

3 C FASB.

4 D PCAOB.

GAAP's flexibility in its reporting standards allows companies to

1 A smooth reported earnings over several reporting periods.

2 B change accounting estimates to meet target sales or earnings.

3 C change accounting principles to improve reported earnings.

4 D avoid adopting specific accounting techniques and reporting procedures.

Differences between IFRS and U.S GAAP include all of the following except

1 A reversal of inventory write-downs.

2 B extraordinary items.

3 C lease capitalization.

4 D research and development costs.

When financial information is measured and reported in a similar manner across different companies in the same industry it is

1 A consistent.

2 B comparable.

3 C neutral.

1 A within one month after the close of the books.

2 B before it loses its capacity to influence their decisions.

3 C before statutory deadlines.

4 D every month.

It is common for shareholders to initiate litigation when

1 A the company reports record profits, but does not declare dividends.

2 B there's a sudden drop in stock price.

3 C the company introduces new products that are found to be harmful to the

environment.

4 D rumors about the company appear in the media that, if true, would result in slower growth in future profits.

Which one of the following types of disclosure costs is the cost of disclosing the company's pricing strategies?

1 A Political cost

2 B Litigation cost

3 C Competitive disadvantage cost

4 D Information collection, processing, and dissemination cost

The ASC uses a structure in which the FASB's authoritative accounting

guidance is organized into all of the following except

1 A the language(s) spoken in the country.

2 B the specific political institutions within the country.

3 C the specific financial institutions within the country.

4 D the country's social customs.

Financial statements follow

1 A rigid guidelines that require specific adherence to regulated procedures.

2 B generally accepted guidelines that allow management to choose among different procedures.

3 C general guidelines with little choice among different procedures.

4 D legal requirements for uniform presentation and disclosure.

The growth of global investing has spurred development of worldwide

accounting standards that are written by the

1 A American Institute of Certified Public Accountants.

2 B Institute of Global Auditors.

3 C Global Committee on Accounting Standards.

4 D International Accounting Standards Board.

Using the same accounting methods to record and report similar events from period to period demonstrates

4 D materiality.

Which of the following statements regarding IFRS is incorrect?

1 A All companies listed on the London Stock Exchange must use IFRS.

2 B The SEC-required Form 20-F must be filed with the SEC by foreign issuers within 30 days.

3 C The European Commission must "endorse" IFRS for required use by EU

1 A American Institute of Certified Public Accountants

2 B State Boards of Accountancy

3 C Securities and Exchange Commission

4 D Financial Accounting Standards Board

IFRS frequently

1 A upon issue are automatically approved for any foreign listed company.

2 B permit only one accounting treatment for similar business transactions and events to

3 promote comparability.

4 C allow firms less latitude when compared to U.S GAAP.

5 D follow a more generalized overview approach than do U.S GAAP counterpart standards.

Companies needing to access new and ever larger sources of capital in response to increased international competitiveness face a severe

disadvantage if their financial reporting

1 A is in accordance with IFRS.

2 B is in accordance with U.S GAAP.

3 C is based on a commercial and tax law approach.

4 D is based on an economic performance approach.

In 2009, the FASB completed a five-year effort to distill the existing GAAP literature into a single database known as

1 A the accounting standards database.

2 B international financial reporting standards.

3 C the converged accounting standards.

4 D the accounting standards codification.

The Financial Accounting Standards Board has responsibility for the establishment of U.S accounting standards and

1 A full statutory power to enforce compliance with GAAP.

2 B authority from the SEC to enforce compliance with GAAP.

3 C no authority or responsibility to enforce compliance with GAAP.

4 D responsibility imposed by AICPA to enforce compliance with GAAP.

If the financial reporting environment were unregulated, disclosure would occur voluntarily

1 A as long as other companies in the reporting company's industry voluntarily disclosed financial information.

2 B only to analysts that the company believes will report favorably on the company's prospects.

3 C only when managers wanted to raise additional capital.

4 D as long as the incremental benefits to the company from supplying financial

information exceeded the incremental costs of providing the information.

The organization responsible for establishing auditing standards and

inspecting and investigating auditing practices of public accounting firms is

1 A Congress under the authority of the Sarbanes-Oxley Act (SOX).

2 B the American Institute of Certified Public Accountants (AICPA).

3 C the Securities and Exchange Commission (SEC).

4 D the Public Company Accounting Oversight Board (PCAOB).

IFRS are

1 A built on broad principles.

2 B rules-based.

3 C narrowly defined, detailed standards.

4 D seldom different than those issued by the FASB.

True - False Questions - Page 1

Information symmetry means that management has access to more and better information about the business than do people outside the company

1 True

2 False

Financial statements are crucial in investment decisions that use fundamental analysis to identify mispriced securities (i.e., securities selling for more or less than they seem to be worth)

Suppliers monitor the financial statements of their customers to protect

collection of their accounts receivable

1 True

2 False

Investors are uncertain about the quality of each company's debt or equity offerings because the ultimate return from the security depends on future events

1 True