Questions and Answers of Accounting Financial Analysis

Bolt Company is a clothing manufacturer.The following items relate to transactions that occurred close to Bolt’s December 31 fiscal year-end date.Item I: Merchandise costing $5,000 was shipped to a
Push Company is a lawn mower manufacturer.Push was falling short of meeting its sales estimates for its December 31 fiscal year end. The company expected to receive a large order for $40,000 of lawn
On December 20, Zee Company, an office-supply company, placed an order for goods from Papyrus Company, a paper manufacturer.Zee wanted the goods to be shipped only in March the next year (FOB
If XYZ goes ahead and secures the backdated order and recognizes it as a bill and hold sale in its December 31 financial statements, which of the following is correct?(a) Operating income would be
If XYZ goes ahead and secures the backdated order and recognizes it as a bill and hold sale, which of the following is correct?(a) This would cause operating income to exceed CFFO by \($10,000\.(b)
If Mac goes ahead and recognizes a sale of $$15,000$ in its December 31 financial statements for this inconclusive agreement, which of the following is correct?(a) CFFO will increase by
If Mac goes ahead and recognizes a sale of $$15,000$ in its December 31 financial statements, which of the following is correct?(a) The accounts receivable balance will be stated as $$65,000$.(b)
With reference to Sunbeam’s financial statements, in the period that Sunbeam overstated its restructuring expense and restructuring reserves, what was the effect?(a) Increased net income.(b)
Which of the following was not a method used by Sunbeam to recognize future periods’ sales in current periods?(a) Inventing fictitious customers.(b) Recording contingent sales as current-period
Perpetrators of improper revenue recognition schemes often attempt to offer the defense that recognizing future periods’ revenue in the current period is only a “timing” error. Discuss whether
What is the incentive for managers to overstate a restructuring reserve in the current period in order to reverse it in future periods, since overstating the restructuring reserve decreases net
Explain how a company’s overstatement of its restructuring reserve may not cause it to understate its operating income in the period that it overstates the reserve.
Explain why a bill and hold sale causes cash flow from operations (CFFO) to lag behind operating income.
Explain why downsizing a company by closing segments or product lines that report an accounting loss often leads to a decrease in profits rather than an increase.
Why is an “increase in accounts receivable as a percentage of sales” a signal of improper revenue recognition?
Why do overstatements of restructuring reserves sometimes cause gross margin percentages to change suddenly?
Examine these extracts from Moonshine Company’s income statement and balance sheet for the previous three years:Now calculate the ratio of accounts receivable as a percentage of sales for Years 1,
Saturn Company’s income statement for the current year shows $$100,000$ as its net income. Its depreciation expense is $$5,000$.The only changes to its working capital balances over the last
Before finalizing its financial statements for the year, Jupiter Company decides to create a restructuring reserve of $20,000 in preparation for a downsizing to be implemented the following year.
A leading sign of an overstatement of sales in Sensormatic’s fictitious reporting schemes is the increase of accounts receivable as a percentage of sales.True/False
Sensormatic also overstated its revenues by shipping goods before the customer needed them and instructing the carrier to delay delivery.True/False
Sensormatic overstated its earnings by creating false reserves in one period and reversing those reserves into earnings in future periods.True/False
In Sensormatic’s case, it is normal for the company to operate at a profit even if it is not generating a CFFO at a similar pace.True/False
Xerox was able to increase its reported earnings fictitiously by changing estimates of residual values of the leased assets through the choice of a particular discount rate.True/False
Xerox had sold approximately $400 million of its accounts receivable in order to reduce the reported CFFO.True/False
If Xerox’s revenue recognition is delayed over the life of the contract, it could be a signal that the company is trying to shift its revenue to accelerate its recognition.True/False
When a company sells its accounts receivable, it is important to deduct the amount received on the sale from CFFO before comparing CFFO to operating income when looking for signals of overstatement
When a company overstates its earnings via the use of top-side adjustments, the general ledger balances do not reflect the amounts shown in the financial statements.True/False
Insignia’s understatement of its allowance for returns is an example of improper valuation of revenue.True/False
According to AAER 1017, at Sensormatic shortly before midnight on the last day of the quarter, the computer system that ___________ and ___________ shipments was manipulated to change the date and
Sensormatic shipped goods that customers had ordered for the next period to Sensormatic’s own ___________ at the end of the current period.
Xerox presents an example of the misuse of multiple-element contracts or ___________ contracts.
For sales-type leases, GAAP requires the financing revenue to be recognized over the of the ___________ .
When CUC precisely ___________ analysts’earnings and revenue expectations quarter after quarter, it is often a sign that things may be too good to be true.
When CUC’s major expense items remain identical quarter after quarter as a percentage of revenues, it is a signal that the reported expenses and revenues are being ___________ .
A significant decrease in Insignia’s allowances for returns as a percentage of sales is a signal that the allowance for returns may be ___________ .
Insignia’s financial statements reporting a change in accounting policy, with respect to the method of recognizing the ___________ or any changes in estimates for returns, that lead to decreasing
In a company that sells membership subscriptions, deferred revenue ___________ as a percentage of total revenue is an indication that the company may be overstating revenues.
Insignia subtracted its allowance for ___________ from its gross revenue to arrive at net revenue.
Sensormatic’s overstatement of earnings via holding its books open after the close of a reporting period is an example of:(a) Recording fictitious revenue.(b) Improper timing of revenue.(c)
Xerox’s bundled sales were improperly recorded in its financial statements because:(a) All of the revenue streams for its leases should have been recorded over the life of the leases.(b) Some of
Sensormatic instructed employees to withhold certain bills of lading from the auditors because of:(a) Indication of a practice of unrealized revenue recognition.(b) Improper recognition of revenue on
One of the signals of Xerox’s fictitious reporting is the lagging of CFFO behind net income, and it should be flagged through the following activities:(a) Reduction in CFFO, from 25% of net income
CUC’s use of top-side adjustments to overstate its earnings is an example of:(a) Improper timing of revenue recognition.(b) Recording of fictitious revenue.(c) Improper valuation of revenue.(d)
When CUC transferred some amounts for deferred club membership revenues to current period revenues, it had the following effect on CUC’s financial statements.(a) Increasing the deferred revenue
According to the SEC’s AAER, which of the following was a method used by CUC to overstate its earnings?(a) Falsification of sales documents.(b) Side agreements with customers that were not
Insignia’s understatement of its allowance for returns is an example of overstating revenue via:(a) Improper valuation of revenue recognition.(b) Improper timing of revenue recognition.(c)
Another sign of Xerox’s fictitious reporting scheme is that the notes to the financial statements reflect the following:(a) Reclassification of revenue stream.(b) Change in the estimates of
When Xerox factored or sold its accounts receivable to avoid reclassifying them as operating leases instead of sales-type leases, this had the effect of:(a) Decreasing the amount of revenue it
Issuers of financial statements that fail to disclose that accounts receivable have been sold or factored sometimes attempt to offer the defense that this is only a disclosure issue that does not
Xerox sold $400 million of its South American lease agreements. Explain Xerox’s possible incentive for selling those accounts receivable.
If a company sells or factors a material portion of its accounts receivable, what adjustments must you make to accounts receivable before doing your test to see whether the financial statements
Explain why overstating sales by holding books open after the close of a period would cause CFFO to lag behind operating income.
If a company sells a significant portion of its accounts receivable, what adjustments must you make to CFFO before testing whether the financial statements contain signals of overstatement of
Why are multiple-element lease contracts a fertile ground for overstating revenue?
Explain how deferred revenue can be misused to overstate earnings.
XYZ Co. is an equipment leasing company.The following is an extract from its income statement for the previous three years.The following is an extract from XYZ’s notes to its financial
Examine the following extracts from Blake Co.’s income statement and balance sheet for the previous three years.You also read in the financial press that Blake Co. sold $2,000 of its accounts
Examine these extracts from Collin Company’s income statements and statements of cash flow for the previous three years.You also read in the notes to the financial statements that Collin Company
Bowie and Velasquez discussed ethical issues, which are uncertainties and the ability to execute a project during decision making.True/False
Ethical evaluation is considered a waste of time when the project is forecast to succeed.True/False
Business ethics is a type of metaethics.True/False
A consequentialist framework always is able to predict every foreseeable outcome of any given action.True/False
Unqualified audit opinion on erroneous financial statements could result in the audit firm being sued for monetary damages.True/False
Deontology judges right action based on one’s duties.True/False
Developing good character is crucial to consequentialism.True/False
Allowing fraudulent financial statements to be published after corrupt audits does not decrease confidence in the capital markets.True/False
Executives found guilty in huge financial frauds do not consider their families as stakeholders in their decision to commit financial crimes.True/False
An example of an in persona right is the right to have a loan repaid.True/False
Users of financial statements have the right to ___________ information.
Bentham’s protégé, John Stuart Mill (1806–1873), defined happiness as the presence of pleasure and the absence of pain and believed that actions have utility when they ___________ happiness.
Distributive justice is concerned with how goods are ___________.
Equality, ________, merit, contribution, and effort are the principles of distributive justice, according to philosopher Joel Feinberg.
To the virtue ethicist, the most important aspect of morality is having the right __________.
The most famous proponent of virtue ethics was ___________.
The leading form of consequentialism is ____________.
“The greatest happiness for the greatest number” is the main tenet of ______________.
The justice decision-making approach in the business world treats all persons in the same category in the ______________ manner.
Under the rights-and-duties approach to the decision-making model, the decision maker needs to identify the _________ and the _________ affected by a particular decision.
Models that are useful for the evaluation of ethical issues in the business world include:(a) The American Accounting Association Ethical Decision-Making Model.(b) The Laura Nash Model.(c) A and
Which of the following statements is not consistent with Kant’s concept of the categorical imperative?(a) Act only according to that maxim by which you can at the same time will that it should
“The cultivation of ethical behavior is very largely a matter of developing the right character.”This statement is best aligned with:(a) Deontology.(b) Utilitarianism.(c) Virtue ethics.(d) All of
The American Accounting Association Ethical Decision-Making Model:(a) Has strong elements of consequentialism.(b) Includes the rights-and-duties approach.(c) Requires the decision maker’s own
Based on some stern e-mails sent by the managing partner in the past, Eva believes that if she tells him Lucas left, he will fire Lucas.Unemployment will be detrimental to Lucas and his daughters,
Eva decides she has a duty to tell the truth at all times. What ethical system will Eva be using to make her decision?(a) Consequentialism.(b) Deontology.(c) Virtue ethics.(d) Hedonism.
Based on their audit, Lucas and Eva determine that someone is embezzling money from Stylish Shoes. After further research, the CEO learns that the embezzler is most likely one of three employees.In
Ethical Auditors determines that Stylish Shoes has an unexpected surplus of$200,000. The CEO and CFO debate how best to spend the money. Knowing the financial difficulties of a number of company
Which of the following is not one of the cardinal virtues?(a) Courage.(b) Autonomy.(c) Temperance.(d) Justice.
Which of the following is not one of the categories of rights articulated by James Sterba?(a) Action rights.(b) In persona rights.(c) Self-defense rights.(d) In rem rights.
List and describe the virtues that you think comprise a “virtuous” accountant. Discuss how these virtues may be cultivated.
Do you think that to be virtuous in business, it is also necessary to be virtuous in other areas of your life, such as in your marriage or in your friendships?Or do you think you can possess some
In your opinion, what role does intention play in moral decision making? For instance, is it permissible to do the right action for the wrong reasons (e.g., to gain fame or acclaim) or to do the
Aristotle believed we are happiest when we act ethically. For Aristotle, the human telos is to comprehend the good, and so we will be happiest when we are achieving our telos. Because our ultimate
Your manager at Ethical Auditors is an avid Kantian. Over the course of the last two years, you have had many personality conflicts with her, as well as major arguments over what are the best
Justice is named as one of the cardinal virtues;it is also sometimes thought of as a duty, and the justice approach is one of the decisionmaking models offered by Fleming for business ethics.
Peter Madoff, Former Chief Compliance Officer and Senior Managing Director of Bernard L. Madoff Investment Securities, LLC• Read the June 29, 2012, press release on Peter Madoff, younger brother of
Most countries in Europe do not have stringent laws to protect whistleblowers.True/false
In view of significant financial losses to investors, corporate fraud does not really affect the U.S. economy and investor confidence.True/false
External auditors collect consulting fees from the same clients they perform “independent”audits for, which allows good and close relationship with the clients.True/false
To deal with the turmoil caused by the various accounting scandals, the SOX Act was passed in 1999.True/false

Showing 500 - 600 of 819