Question
Which of the following economic characteristics is consistent with a grocery store chain? Minimal Competition Extensive Competition High net Income to Sales Differentiated Product Which
Which of the following economic characteristics is consistent with a grocery store chain?
Minimal Competition
Extensive Competition
High net Income to Sales
Differentiated Product
Which of the following assets would appear on the balance sheet at an amount greatly below its fair market value?
Inventory
Marketable Securities
Equipment
Brand Name
The accrual basis for accounting recognizes
Revenue when cash is received from customers
Expenses when Paid
Revenue when all or a substantial portion is performed
Revenue when contracts are signed
A value chain for an industry sets forth
The layers of management needed to be successful
Sequence of activities involved in the creation, manufacture, and distribution of its products
Sequence of activities involved in a firms research and development activities
Whether the industry is horizontally or vertically integrated.
Which of the following is not a characteristic of an extraordinary item?
Material in amount
Nonrecurring
Unusual given the nature of the firms activities
Requires a cash outflow
The following steps make up the steps in financial statement analysis
Identify the strategies the firm pursues to gain and sustain a competitive advantage
Analyze the current profitability and risk of the firm using information in the financial statements
Value the firm
Identify the economic characteristics and competitive dynamics of the industry in which a particular firm participates.
Assess the quality of the firms financial statements and, if necessary, adjust them for such desirable characteristics as sustainability and comparability.
Prepare forecasted financial statements
Which of the following is the proper order for these interrelated sequential steps?
4,1,5,2,6,3
1,2,3,4,5,6
4,6,2,5,1,3
1,4,2,5,3,6
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?
Form 8-K
Form 10-K
Form MD&A
Form FSAP
Which of the following valuation methods reflects current market values?
Acquisition cost
Present value of cash flows using historical interest rates
Fair value measurement of Level 1 financial assets or liabilities.
Adjusted acquisition cost
The use of acquisition cost (historical cost) as a valuation method is justified on the basis that acquisition cost is:
Timeliness
Relevance
Subjectivity
Objectivity
Permanent tax differences arise when there are revenues and expenses
That firms include in income tax returns, but do not ever appear in the income statement
That are included in both the tax return and income statement, but in different accounting periods.
That firms include in the income statement, but do not ever appear in income tax returns
That are not included in either the tax return or the income statement
The traditional accounting model delays the recognition of value changes of assets and liabilities until what event occurs?
A change in value
A market transaction
A balance sheet date
Cash is received, or cash is paid
What level are inputs for estimating fair values are those inputs include quoted prices for similar assets or liabilities in active or inactive markets, other observable information such as yield curves and price indexes, and other observable data such as market-based correlation estimates.
Level 1
Level 2
Level 3
None of the above
Which of the following is an adjustment that would need to be made to net income when calculating cash flows from operations under the indirect method?
Subtract amortization expense
Subtract gain on sale of subsidiary
Add an increase in accounts payable
Add a decrease in accounts payable
If a firm is growing and expanding its accounts receivable and inventories faster than its current operating liabilities in its cash flow from operation will normally be
Greater than net income
Less than net income
Greater than the change in working capital from operations
Greater than the change in cash
Outback Corp. recorded sales of $1,300,000 in 2010, in addition the companys accounts receivable balance grew from $120,000 at the beginning of 2010 to $165,000 at the end of 2010. How much cash did Outback collect from customers in 2010?
$1,300,000
$1,345,000
$1,255,000
$1,135,000
Toro company recognized $655,000 of cost of goods sold in 2010, in addition its implementation of a just-in-time inventory system allowed it to reduce its inventory from $325,000 at the beginning of the year to $230,000 at the end of 2010. How much cash did Toro spend for inventory in 2010?
$655,000
$980,000
$560,000
$620,000
Krenshaw Company reported total sales revenue of $80,000, total expenses of $72,000, and net income of $8,000 for the year ended December 31, 2009. During 2009, accounts receivable increased by $3,000, merchandise inventory decreased by $2,000, accounts payable increased by $1,000 and $5,000 in depreciation expense was recorded. Assuming no other adjustments to net income are needed, the net cash inflow from operating activities using the indirect method was
A. $19,000
B. $13,000
C. $10,000
D. $11,000
Firms with high levels of operating leverage experience which of the following in comparison to firms with low levels of operating leverage
Higher levels of risk in operations
Lower expected rates of return
Lower variability in returns on assets
Higher sales
Sustainable earnings represent
The level of earnings expected to persist in the future
The level of earnings and the growth in the level of earnings expected to persist in the future
The growth rate of future earnings
Retained Earnings
The next 4 questions require that you use the financial statements for Net Devices, Inc. that contained on the last two pages of this exam.
Refer to the information for Net Devices Inc. What is the rate of return on assets for Net Devices for 2011?
11.64%
14.50%
12.60%
13.90%
Refer to the information for Net Devices Inc. What is the accounts receivable turnover ratio for Net Devices for 2011? Use end of 2011 receivables.
24.65
14.85
14.81
10.50
Refer to the information for net Devices Inc. What is Net Devices return on common shareholders equity for 2011?
51.26%
30.89%
35.81%
42.16%
Refer to the information for Net Devices Inc. What is the days supply of inventory for Net Devices for 2011? Use the 2011 ending inventory.
35.37 days
60.03 days
41.01 days
58.59 days
Which of the following is the primary objective in most valuation assignments that incorporate financial statement analysis?
To value a firms equity securities
To look for unrecorded liabilities
To establish a firms strategy within the industry
To define markets for the firm
Which is the best indicator for assessing a firms long-term solvency risk is its ability to generate what over a period of years?
Sales
Earnings
Positive cash flows
Income from continuing operations
Here are several ratios calculated from Marcus Companys financial statements:
Days in Receivables = 45
Days in Payables = 36
Days in Inventor = 30
How many days of working capital financing does Marcus need to obtain from other sources?
39 days
36 days
56 days
26 days
The quick acid test ratio contains all of the following except:
Cash
Accounts receivable
Marketable securities
Prepaid expenses
Which of the following properly links the factors affecting a firms ability to generate cash with its need to use cash in Investing?
Ability to generate cash Need to use cash
Profitability of goods and services sold Working capital requirements
Sales of existing plant assets Plant capacity requirements
Borrowing capacity Debt service requirements
Profitability of goods and services sold Debt service requirements
The best measure of a firms sustainable income is
Net income
Income from continuing operations
Income from extraordinary items
Income before extraordinary items and changes in accounting principles
Which of the following is not considered a motive to manage earnings?
To create optimal manager compensation payments
To create optimal job security for senior management
To create optimal measures of assets and liabilities for balance sheet purposes
To manage reported earnings in order to reduce industry-specific regulatory actions
On November 15, 2016, Jacobs Co. sold a segment of its business for $2,750,000. The net book value of the segment at the time of its disposal was $3,000,000. Jacobs had pretax operating income of $1,750,000 for 2016 which included $380,000 earned by the discontinued segment prior to its disposal. Assume Jacobs tax rate is 30%.
Required:
Compute the total net of tax impact on the 2016 income statement that is associated with the discontinued operations. Combine both the gain (loss) on asset disposals and operating income (loss) on discontinued operations.
$959,000 combined gain and operating income
$266,000 combined gain and operating income
$175,000 combined loss and operating income
$91,000 combined gain and operating income
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