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essentials of accounting for governmental
Questions and Answers of
Essentials Of Accounting For Governmental
An asset's value is best described asa. An exchange between buyers and sellers.b. The discounted expected future cash flows.c. The amount a person offers to pay.d. The trade-off between risk and
Which of the following is NOT a general valuation model? a. Relative value.b. Option pricing.c. Absolute value.d. Restrictive value.
The standard three valuation approaches are all of the following EXCEPTa. Asset.b. Income.c. Revenue.d. Market.
One principle underlying the income approach is that investors.a. Are adverse to risk.b. Minimize their risk.c. Seek to maximize their returns.d. Are subject to investor sentiment.
The standard discounted cash flows model includes all of the following components EXCEPT.a. Amount of cash flows.b. Timing of cash flows.c. Return on assets.d. Required return.
Firm capital structures consist of.a. Debt and equity.b. Assets and liabilities.c. Current and noncurrent assets.d. Current and noncurrent liabilities..
All of the following items describe a firm's cost of capital EXCEPTa. Risk-free rate plus equity risk premium.b. Equal to the required return of investors. c. Consists of costs for debt and equity
Which of the following items about the equity risk premium (ERP) is FALSE?a. The ERP in cost of capital estimates is expectational in nature.b. A proxy for the ERP is the average historical
The market approach.a. Is mathematical in nature.b. Is observational in nature. c. Is not forward looking.d. Observes market returns.
Using the market approach, all of the following might be a comparable to something being priced EXCEPTa. Municipal bond.b. Benchmark rates of return.c. Tomatoes.d. Piece of furniture.
In observing the prices of comparable firms having different sizes, we will likelya. Use only comparable firms having the same size of what we are valuing.b. Adjust the prices by the Consumer Price
When valuing a privately-owned business, all of the following might be a comparable EXCEPT.a. The S&P 500 stock portfolio.b. Earlier sale of some of the business's stock.c. Stock of a
When valuing a privately-owned business, we might assess all of the following firm characteristics to identify comparable firms EXCEPT.a. Total assets.b. Market capitalization.c. Financial ratios.d.
All of the following statements about the asset approach are generally true EXCEPTa. For a large operating business that is highly profitable, the asset approach is more costly than the income or
What is the present value of a bond paying annual interest payments of \($80,\) having a face amount of \($1,000,\) and five years remaining to maturity when the market interest return is 8 percenta.
The Capital Asset Pricing Model specifies how many risk factors.a. None.b. One.c. Two.d. Three.
The beta parameter in the Capital Asset Pricing Model is best described as.a. A measure of a market portfolio, such as the S&P 500 stock index.b. The relationship between a risk-free asset and the
For valuation purposes, discount cash flow models discount future cash flows using thea. Actual return.b. Average return.c. Expected return.d. Historical return.
When an investor holds relatively few assets in their portfolio, they are exposed to all of these kinds of risks EXCEPTa. Gamma risk.b. Idiosyncratic risk.c. Market risk.d. Unique risk.
Describe the business valuation process.
What role do analytical tools play in understanding the data?
After an analyst uses multiple methods, he or she may have more than one indication of value. How might one reach a final, single estimate of an asset's value?
Describe how the constant growth model is related to the standard discounted cash flow model.
In what circumstances might a two-stage model be used for applying the income approach to value a firm?
Describe each stage of the standard two-stage valuation model when applying the income approach to value a firm.
Why might one discount expected cash flows to present value using the mid-year discounting convention rather than at the end of each year?
Compare the mid-year discounting convention to end-of-year discounting in terms of which produces higher or lower present values and relative magnitude of the differences.
Identify cash flow adjustments to net income when measuring net cash flow to the firm and describe the reason for each adjustment.
Identify the particular cash flow measure and particular required return measure in present value calculations for determining enterprise value.
After determining a firm's enterprise value, describe what is needed to calculate the value of its total equity. Pro- vide an analogy using a home as an example.
Describe four ways that small and medium-sized entities (SMEs) generally function differently compared to publicly-registered firms.
From differences in ways that SMEs generally function compared to listed firms, describe which income ap- proach valuation model inputs might be affected.
Describe the difference in adjustments between calculating net cash flow to the firm and net cash flow to equity.
Identify the particular cash flow measure and required return measure in present value calculations for deter- mining the present value of equity.
Describe when present value calculations that directly determine equity value Pour, may be better than present value calculations that determine enterprise value Pease, from which debt can be
Describe why market yields for longer-term U.S. Treasury bonds may be better than shorter-term Treasury bills for estimating cost of capital when valuing private firms.
Describe how the choice of observing longer-term U.S. Treasury bonds for estimating a risk-free rate affects the methodology for calculating the average historical equity risk premium.
When applying the market approach, identify three general sources of information for price multiples when valuing private firms.
Describe when to include the value of non-operating assets in a valuation of minority equity interests.
Describe which general valuation approaches implicitly or explicitly include the value of a firm's non-operating assets in their methodologies.
What is the fundamental argument used for the claim that pass-through tax entities have higher prices than standard corporations?
Identify the two kinds of valuation services that are specified in the AICPA's valuation standard and the main dif- ference between them.
Compare fair market value and investment value in terms of the buyer.
You are a manager in a business valuation department planning a new client project to value a profitable, privately-owned chain of restaurants with $20 million in annual sales. In addition to you
You have been hired to value a private firm in a dissolution of marriage legal matter. The particular family law court tends to frown on the discounted cash flow methodology because the court
You are comparing and contrasting methodologies to value a standard government bond and an operating busi- ness. What do you consider when applying a discounted cash flow model in terms of cash flow
You are valuing a young technology company that is experiencing high growth. What income approach model will you likely use? Explain.
You are determining the enterprise value of an operating firm and need to estimate the expected net cash flows to the firm for applying the income approach. Describe how you would go about estimating
You valued 100 percent of the equity of a private firm several months ago to assist the owner with estate tax plan- ning. Now, the owner wants to sell 10 percent of his stock to a key employee and
You have been hired to value a private firm with $5 million in annual revenues. To estimate the firm's cost of cap- ital, you must decide on a risk-free rate of return. As shown in the Federal
You are determining the enterprise value of a private firm with a single owner. Identify three possible adjust- ments to the historical financial information that may be needed to determine the
You are assisting a client who is negotiating the sale of her private business. Naturally, the seller wants the highest price, and the buyer wants the lowest price. What are the arguments to value
You are meeting with a potential new client about a valuation project. This person is sensitive to project fees and asks why you need to spend so much time analyzing the economy and firm's industry.
What is the major difference between auditors and forensic accountants?
What is financial statement misrepresentation?
Are forensic accountants concerned about financial statement misstatements that are not intentional? Why or why not?
What are the three levels of seriousness with respect to errors? Provide a short definition of each level of seriousness.
What differentiates fraud from a deviation from GAAP that is allowed by GAAP?
What are the three general methods of fraudulently misstating financial statements?
What are the three basic approaches to understating expenses?
What are three reasons (motivations) for why a person would commit financial statement fraud?
What are the differences among global, local, and familial rationalizations?
What is the relationship among the opportunities, motivations, and rationalizations of a person who commits financial statement fraud to risk factors?
What are the similarities and differences between vertical and horizontal analyses?
Of what importance are the positions of CEO and CFO as part of strong corporate governance?
Near the end of its fiscal year, Auto Suppliers, Inc. (ASI), a wholesaler of auto products, engaged in channel stuffing and offered its customers inducements to keep the merchandise, rather than send
Harmon Company, a small retailer of small electrical devices, such as cell phones and cameras, suspected that one of its employees was skimming cash at the point of sale. What effect, if any does
Smithton, Inc. established a policy of recording sales at the time it ships merchandise to customers. Some of the merchandise it ships is to consignees. It records the shipments to consignees as
Johnson Suppliers is a wholesaler of janitorial supplies that built its reputation on being fair to its customers. For its best customers (those who purchase a lot of merchandise from Johnson), it
Luxury Furniture, Inc., a non-public company, was having difficulty maintaining the level of income it had reported for several years due to increasing competition, which required it to reduce prices
Caravan Company, a corporation that is not required to have an annual audit, is being sold by its sole owner, and you have been hired by a potential buyer to perform a forensic examination to
Lazor Tech is a corporation that owns a chain of copy stores located in the northeast area of the United States. Lazor Tech is solely owned by Henry Atwell, an entrepreneur in his early 60s. Lazor
Allen Tidwell is the sole owner of incorporated business Ace Antenna (Ace). Ace is a wholesaler that sells com- mercial stoves. Allen had Ace apply for a \($900,000\) loan to expand Ace. After the
Larry Potsdam was the CFO of Project Assist, Inc. (Assist). Assist is a non-profit corporation that serves disabled elderly persons and students in the New York area. During the period from March
Creative Crafts, Inc. (Creative), a small yet highly profitable company, has approached Crafts, Inc. (Crafts) to determine whether Crafts is interested in acquiring it. Crafts and Creative are
Go to www.sec.gov/index.htm and find the "Enforcement" section on this page. On the "Litigation Releases" page, search the first quarter of the year 2014 for Litigation Release LR-22902 for Diamond
Search the Internet for the SEC Release No. 7976 on Sunbeam Corporation. List the schemes in which Sunbeam allegedly participated.
Locate the speech titled "Financial Reporting and Accounting Fraud" given by Andrew Ceresney, co-director of the Division of Enforcement at the American Law Institute Continuing Legal Education,
As a pillar of strong corporate governance, external auditors can play a vital role in the detection (and preven- tion, by means of employee awareness of the audit function) of financial statement
Find the U.S. Government Accountability Office manual Government Auditing Standards, often referred to as the "Yellow Book." Find at least two references in the Yellow Book that refer to AICPA
Ultra Suppliers, Inc. (Ultra) supplies commercial building retailers with metal products, such as doors. Ultra's plant accountant, Dan Johnson, became responsible in January 20X1 for providing
James Birch is the principal owner of ABC Company, a medium-sized company that sells office equipment to an office supply company that operates in the Midwest. Recently, James received an anonymous
Gail Picard was recently approached by Productions, Inc. (Productions), a large non-public company to assist it in determining whether Argot Enterprises (Argot) is a good candidate to acquire. Argot
Argon Company entered into an arrangement whereby it acquired equipment from Matthews, Inc. on June 1, 2025 (assume the sale to Argon was properly characterized as one that involves a single
Evans, Inc. (Evans), a calendar-year non-public company, is audited by external auditors on an annual basis. Six months after the annual audit was completed, Fitch, Inc. approached Evans'
Sandra Billings, a forensic accountant, has been engaged by NewWay, a medium-sized company that has grown considerably over the years. NewWay was begun by Tom Sneethens, an entrepreneurial-minded
Cannon Auto Parts, a calendar-year auto supplies business, had borrowed \($500,000\) from Old International Bank three years ago and had been making monthly payments on the eight-year loan until
Tom, in anticipation of preparing annual financial statements, failed to adjust the perpetual inventory records to the physical count taken at year-end. Most likely, Tom has committeda. Ordinary
Earnings management isa. Expressly forbidden by GAAPb. Often expected by the market.c. Universally accepted as an ethical practice.d. Engaged in by companies only during periods in which they
King Company sold merchandise to Princeton, Inc. for \($100,000\) near the end of its fiscal year. King used the \($100,000\) it received from the sale to pay off a loan it owed to Princeton. This
The existence of multiple performance obligations within a contract provides opportunities to engage ina. Channel stuffingb. Recording sham sales.c. Overstating expenses.d. Premature revenue
Candace was instructed by her supervisor to change the dates on certain accounts receivable. She couldn't remember which way to re-date the receivables. Which of the following acts is the one that
Stevens Construction Company, Inc. has two bank accounts at different banks and occasionally transfers money between the two accounts. Which of the following combinations shown in the following bank
Overstated contingent liabilities that management can use to artificially increase income of subsequent periods are sometimes called.a. Accrued liabilities.b. Cookie jar reserves.c. Accrued
Winsome Company borrowed money from one of its major customers, Quirky, two years ago. The current bal- ance of the liability is \($100.000\) (Winsome's only liability), and the current balance of
Often, the rationalization for committing financial statement fraud is.a. To help others, such as employees and stockholders.b. To satisfy a level of greed of the perpetrator of the fraud.c. To
Which of the following statements is true?a. Boards of directors composed mainly of inside directors are no more indicative of an increased risk of fraud than boards not heavily composed of inside
What general causes of action often require damage measurements?
What are two possible roles for damage experts?
Describe what the law requires injured parties to prove in litigation.
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