49 test bank for financial reporting financial statement analysis and valuation a strategic perspective 7th edition by wahlen multiple choice questions

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49 Test Bank for Financial Reporting Financial

Statement Analysis and Valuation A Strategic

Perspective 7th Edition by Wahlen

Multiple Choice Questions

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When a firm attempting to create unique products or services for particular market niches, in order to achieve relatively high profit margins, this is best known as

1 a quality strategy

2 a low-cost leadership strategy

3 a vertical integration strategy

Net income is equal to:

1 Assets minus Liabilities

3 Shareholders’ Equity minus Assets

4 Revenues and Assets minus Expenses and Liabilities

Which of the following economic characteristics is consistent with

a commercial bank?

1 Low barriers to entry

2 High levels of research and development

4 Low profit margin on fee-based financial services, such as merger

consulting

Which of the following would not inhibit new entrants into a

market?

1 Existing technological expertise

2 Large required capital investment

4 Existing patented technology

The third step in financial statement analysis is to assess the quality of the firm’s financial statements Which of the following is

a question an analyst should ask when performing this step?

1 Are industry sales growing rapidly or slowly?

model employed by the firm?

3 Does the industry include a large number of firms selling similar products?

4 What is the company’s degree of geographical diversification?

The primary purpose of the balance sheet is to:

1 report the current value of the business

2 measure the net income of a business up to a particular point in time

3 report the difference between cash inflows and cash outflows for the period

time

Which financial statement would you look at to determine whether

a company will be able to pay for the goods when payment is due

in 30 days?

1 statement of cash flows.

2 statement of stockholders’ equity

3 income statement

Which of the following is not a characteristic of an extraordinary item?

1 Material in amount

2 Nonrecurring

3 Unusual given the nature of the firm’s activities

Which of the following economic characteristics is consistent with

a pharmaceutical company?

1 Low barriers to entry

3 Low profit margins

4 Low business risk

The second step in financial statement analysis is to identify the company strategy Which of the following is a question an analyst should ask when performing a strategy analysis?

1 Are industry sales growing rapidly or slowly?

2 Do earnings include revenues that appear mismatched with the business model employed by the firm?

3 Does the industry include a large number of firms selling similar products?

Which two organizations are working together to harmonize

financial reporting worldwide?

2 GAAP and FASB

3 SEC and FASB

4 EU and SEC

What is the principal activity of security analysts?

1 to assign credit ratings

2 to apply IFRS adjustments

4 to assess the need for audits

All of the following are reasons that pharmaceutical companies have higher barriers for entry than grocery stores except:

1 There is lengthy government testing and approval required

2 Research and development is a lengthy and uncertain process

3 Patent protection is needed for exclusive rights

Equipment

Which of the following is not an expense of a business?

1 Depreciation

3 Salaries

4 Advertising

When assessing buyer power using Porter’s five forces, which of the following is not consistent with low buyer power?

1 Brand loyalty

2 Control of distribution channel

4 Low price

Which of the following is not considered to be a liability?

1 wages payable

2 accounts payable

3 notes payable

Opinions on the effectiveness of the internal control system and the fairness of the amounts reported in the financial statements are known as:

1 Management Discussion and Analysis

3 Notes to the Financial Statements

4 Management Assessments

Which of these is not an intangible asset?

1 trademark

2 patent

4 goodwill

Which SEC form may be the best place to start learning about the economics of an industry and the particular strategy a firm has selected for competing in the industry?

1 Form 8-K

3 Form MD&A

4 Form FSAP

Which forces typically represent vertical competition in a value chain?

1 potential entry and substitutes

2 buyer power and rivalry among existing firms

3 supplier power and potential entry

Current assets are defined as

1 cash and cash equivalents

2 all assets expected to be quickly used by the firm

normal operating cycle of a business, usually one year

4 cash and other assets that the firm expects maintain for a period including the normal operating cycle of a business, usually one year

Which form does the balance sheet equation take in the United Kingdom?

1 Noncurrent Assets + Noncurrent Liabilities = Shareholders’ Equity

2 Revenues - Expenses = Shareholders’ Equity

Liabilities = Shareholders’ Equity

4 Noncurrent Assets - Current assets = Noncurrent Liabilities - Current Liabilities + Shareholders’ Equity

Which of the following economic characteristics is consistent with

a grocery store chain?

1 minimal competition

3 high net income to sales

4 differentiated product

Extraordinary gains and losses arise from events that have all the following characteristics except:

1 they are unusual given the nature of the firm’s activity

2 they are nonrecurring

3 they are material in amount

All of the following are principal provisions of the Sarbanes-Oxley Act of 2002 except:

1 At least one member of the audit committee of the board of directors must

be a “financial expert.”

2 The lead audit or coordinating partner and the reviewing partner of the public accounting firm must rotate, or change, every five years

3 The firm’s chief executive officer and the chief financial officer must issue a statement along with the audit report stating that the financial statements and notes fairly present the operations and financial position of the firm

Assets for a particular business might include

1 cash, retained earnings, and accounts payable

2 cash, common shareholders’ equity, and accounts receivable

3 cash, property, plant, and equipment, and accumulated other

comprehensive income

All of the following are the building blocks for financial statement analysis except:

and political uncertainty

2 Describing strategies that a firm pursues to differentiate itself from

competitors in order to evaluate competitive advantages, sustainability of the firm’s earnings, and its risks

3 Evaluating the financial statements, including the accounting concepts and methods that underlie them and the quality of the information they provide

4 Identification of the economic characteristics of the industries and the relation of those economic characteristics to the various financial statement ratios

Accounts receivable represent:

1 amounts which are due to stockholders

2 amounts which have been borrowed to finance operations

credit sales

4 amounts which are owed by the company to its suppliers for past

purchases

Which of the following is a question an analyst would ask when assessing the quality of a firm’s financial statements?

1 Are the company’s products designed to meet a specific market segment?

2 Has the firm integrated forward into retailing to final consumers?

3 Is the firm diversified across several geographical markets?

Which forces typically represent horizontal competition in a value chain?

1 rivalry among existing firms and supplier power

2 potential entry and buyer power

4 buyer power and supplier power

Which of the following is an independent entity comprising 15 members and a full-time professional staff that specifies

acceptable accounting principles known as the IFRS?

1 FASB

2 IASB

3 SEC

4 GAAP

5 4 of 14

Which of the following would not appear as a liability on the

balance sheet?

2 a note due to a bank

3 salary due employees at year-end

4 accounts payable

The two categories of shareholders' equity usually found on the balance sheet of a corporation are

1 contributed capital and property, plant, and equipment

2 retained earnings and notes payable

4 contributed capital and equity securities

On a common size basis, which of the following assets is

normally largest for a commercial bank?

2 Inventory

3 Property, Plant and Equipment

4 Cash and Marketable Securities

A value chain for an industry sets forth

1 the layers of management the needed to be successful

of its products

3 Sequence of activities involved in a firm's research and development activities

4 Whether the industry is horizontally or vertically integrated

The accrual basis of accounting recognizes

1 revenue when cash is received from customers

2 expenses when paid

4 revenue when contracts are signed

Which financial statement for a business would you look at to determine the company's earnings performance during an

accounting period?

1 balance sheet

3 statement of cash flows

4 the Management Assessment

Which of the following is not an activity reported in the cash flows financial statement?

1 operating

2 investing

4 financing

An example of an intangible asset is

2 land

3 investment in another company

4 raw material inventory

Why is the operating activities section of the statement of cash flows often believed to be the most important part of the

statement?

1 Because it shows the dividends that have been paid to stockholders

meet current cash payments for goods or services

3 Because shows the net increase or decrease in cash during the period

4 Because it gives the most information about how operations have been financed

The accrual basis method of accounting can be best described as:

1 The recording of transactions and adjustments so that debits equal credits

2 The method that equates assets with liabilities and owners’ equity

3 The method that recognizes revenue when money is received

they are earned

The tools for studying industry economics do not include

1 Value chain analysis

2 Classification using Porter’s five forces

4 Economic attributes framework

On a common size basis, which of the following assets is

normally largest for a electric utility?

1 Accounts receivable

2 Inventory

4 Cash and Marketable Securities

On the statement of cash flows, an amount paid for utilities would

be classified as

1 a financing activity

3 an investing activity

4 a noncash activity

Which of the following is not one of Porter’s five forces?

1 Buyer Power

2 Supplier Power

4 Threat of Substitutes

Which of the following economic characteristics is consistent with

a grocery store chain?

2 High levels of research and development

3 High profit margins

4 Low capital intensity

Which of the following assets would appear on the balance sheet

at an amount greatly below its fair market value?

1 inventory

2 marketable securities

3 equipment

When attempting to identify the economic characteristics of the industry in which a particular firm participates an analyst might ask which of the following questions?

competitive advantage?

2 Has the firm diversified across several geographic markets?

3 Has the firm recognized revenues at the proper time?

4 Has the firm structured transactions to make it look more profitable than economic conditions suggest?

Which of the following activities reported in the Statement of Cash Flows is not a financing activity?

1 Repayment of outstanding debt

3 Payment of dividends

4 Issuing debt