41. In what situation can unadjusted historical accounting data, as reported under GAAP, be most consequential to the survival of a company?

1. when bond covenants are at risk of being violated.
2. when managements stock options are at risk.
3. when market share and penetration of companys product is slowing.

42. Home Depot is a U.S. GAAP reporting company. Like most retailers, they elect LIFO to minimize cash taxes paid. They have been selling copper pipes to plumbers for 50 years. When they went into this business copper was trading at $.18/pound. It currently trades at $3/pound. They decide to get out of the copper pipe business and liquidate all associated inventory. What concern might analysts have?

1. lack of revenue from this business in the future
2. stranded assets associated with this business
3. inflated profit margins

43. One of INTCs largest expenses is Research and Development (R&D). What adjustment might an optimistic analyst make to reflect the success of INTCs past spending on R&D?

1. Capitalize the R&D.
2. Reclassify R&D as COGS.
3. Reclassify R&D as SG&A.

44. Hertz, National and Avis all have 5% net profit margins. Hertz depreciates vehicles over 5 years, Avis over 6.5 years and National over 7.2 years. Which company will likely have the least impairments?

1. Avis
2. Hertz
3. National

45. ValTrick Pharma has made many acquisitions. In each one it has limited its ownership stake to 49% of the acquired company. ValTrick meticulously audits each financial statement and scores A+ rated corporate governance. Theyve have never had conflicts with regulators or auditors. Earnings quality will likely be judged as:

a. Acceptable by regulators & compliant with local GAAP.

b. Low-quality due to lack of completeness.

c. Low-quality due to classification.

46. Which of the following would likely improve ROE and sustainable growth in future accounting periods?

1. Increase depreciation expenses
2. Increase R&D spending
3. Increase borrowing

47. Jaspers BBQ sells BBQ sandwiches to people. Every five or ten years Jaspers BBQ sells old grills used in the making of BBQ. If it sells the grills for more than they are on the books for it realizes an operating profit. If it sells the grills for less than they are on the books for it calls the sale restructuring and realizes a non-operating loss. This behavior is likely:

a. compliant with GAAP, non-sustainable

b. non-compliant with GAAP, non-sustainable

c. non-compliant with GAAP, sustainable.

48. David is a portfolio manager. He is concerned about the liquidity and solvency of companies in his portfolio. What quantitative measure could help him rank the positions in his portfolio for potential problems?

1. Accruals ratio
2. Beneish M-Score
3. Altman Z-Score

49. After making an acquisition, why would the acquiring company be motivated to make goodwill a larger % of the acquisition price than the fair market value of the assets acquired?

1. Tax benefits from goodwill
2. Objective impairment tests of goodwill.
3. Lower future depreciation expenses.

50. Improving upon any of these metrics might be desirable for a company, but which of the following metrics would not automatically also improve ROE?

1. Interest coverage ratio
2. Inventory days on hand
3. Gross profit margin