Financial Statement Analysis

Solved Exam Questions

https://quizplus.com/study-set/343
14 Chapters
1070 Verified Questions
 Financial Statement Analysis
Solved Exam Questions
Course Introduction
Financial Statement Analysis is designed to equip students with the skills necessary to

interpret and evaluate financial statements for informed decision-making. The course

covers the fundamentals of analyzing income statements, balance sheets, and cash

flow statements to assess a company's performance, profitability, liquidity, and solvency.

Emphasis is placed on the use of key financial ratios, trend analysis, and comparative

analysis, as well as understanding the impact of accounting policies and managerial

estimates. By the end of the course, students will be adept at using financial statement

data to support investment, lending, and managerial decisions.

Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 9th Edition James M. Wahlen

Available Study Resources on Quizplus

14 Chapters
1070 Verified Questions
1070 Flashcards
Source URL: https://quizplus.com/study-set/343

Page 2
 Chapter 1: Overview of Financial Reporting, Financial

Statement Analysis, and Valuation

Available Study Resources on Quizplus for this Chatper
101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/5599

Sample Questions
Q1) What are three activities reported in the statement of cash flows and what
information does each activity provide?
Answer: 1.Operating activities - Provides information on cash generated and used by a
firm in its normal activities of selling goods and providing services.
2.Investing activities - Provides information about the firm's use of cash in the acquisition
of long-lived productive assets and cash provided by the disposal of long-lived
productive assets.In addition,cash provided and used by investment in debt and equity
securities are included in this category.
3.Financing activities - Provides information about cash provided and used by short-
and long-term borrowing and from issuing or repurchasing capital stock.In
addition,cash used for dividends is reported in this category.

Q2) Obtaining a competitive advantage by being the first company to introduce new
concepts or ideas is referred to as
________________________________________.
Answer: first mover advantage

Q3) Cash and cash equivalents are considered ____________________ assets.

Answer: Monetary

To view all questions and flashcards with answers, click on the resource link above.

Page 3
 Chapter 2: Asset and Liability Valuation and Income

Recognition
Available Study Resources on Quizplus for this Chatper
79 Verified Questions
79 Flashcards
Source URL: https://quizplus.com/quiz/5600

Sample Questions
Q1) Discuss the two principal reasons income before taxes for financial reporting differs
from taxable income.
Answer: 1.Permanent Differences--Revenues and expenses that firms include in net
income to shareholders,but which never appear in the income tax return.
2.Temporary Differences--Revenues and expenses that firms include in both net income
to shareholders and in taxable income but in different periods.

Q2) Refer to the Balance Sheet Equation.If ORP Corporation sells $25,000 of its product on
account,it will see an increase in non-cash assets and
___________________________________.
Answer: retained earnings

Q3) The accounting equation is represented by Assets= Liabilities + Stockholders' Equity

which of the following would cause a change in the stockholders' equity accounts:
A) Sale of Land for cash and a note receivable for the balance
B) Collection of an account receivable
C) Purchased an asset for cash and 10,000 shares of preferred stock
D) Purchased inventory on account
Answer: C

To view all questions and flashcards with answers, click on the resource link above.

Page 4
Chapter 3: Income Flows versus Cash Flows: Understanding

the Statement of Cash Flows

Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/5601

Sample Questions
Q1) Norton Company reported total sales revenue of $55,000,total expenses of
$45,000,and net income of $10,000 on its income statement for the year ended
December 31,2010.During 2010,accounts receivable increased by $4,000,merchandise
inventory increased by $6,000,accounts payable decreased by $2,000,and depreciation
of $18,000 was recorded.Therefore,based only on this information,the net cash flow from
operating activities using the indirect method for 2010 was:
A) $30,000
B) $10,000
C) $16,000
D) $19,000
Answer: C

Q2) Under the ______________________________ of preparing the statement of

cash flow's operating activities section firms list the cash flows from selling goods and
services and then subtract the cash outflows to providers of goods and services.
Answer: direct method

Q3) ____________________ activities relate to the acquisition and sale of

noncurrent assets,particularly property,plant and equipment.
Answer: Investing

To view all questions and flashcards with Page

answers,
5 click on the resource link above.
 Chapter 4: Profitability Analysis
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/5602

Sample Questions
Q1) Adjustments for dilutive securities and the adjustment to weighted average number
of
Shares outstanding presumes that the dilutive securities are converted to common
shares:
A) as of the beginning of the year.
B) as of the end of the year.
C) as of the middle of the year.
D) as of the point in time where the maximum number of shares are outstanding.

Q2) To calculate diluted EPS,the accountant does all of the following except:
A) adds back to net income any compensation expense recognized on the employee
stock options
B) adds back any interest expense (net of taxes) on convertible bonds
C) adds back any dividends on convertible preferred stock the firm subtracted in
computing net income to common shareholders.
D) enters only the net incremental shares issued (shares issued under options minus
assumed shares repurchased) in the computation of diluted EPS.

Q3) Firms that have either convertible securities or stock options or warrants outstanding
have __________________________________________________.

To view all questions and flashcards with answers, click on the resource link above.

Page 6
 Chapter 5: Risk Analysis
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/5603

Sample Questions
Q1) The source of risk related to management competence,strategic direction and
lawsuits is _________________________.

Q2) Large current ratios indicate the availability of cash and near cash assets to repay
____________________ coming due within the next year.

Q3) All of the following are common international risks faced by companies except:
A) asset expropriation
B) exchange rate changes
C) political unrest
D) dependence on one or a few suppliers

Q4) On January 1,2012,Deputron Company's beginning inventory was $600,000.During

2012,the company purchased $2,600,000 of additional inventory,and on December
31,2012 Creek's ending inventory was $565,000.
Required:
What was Deputron's inventory turnover for 2012?

Q5) Marker's 2012 Long-term Debt to Shareholders' Equity ratio is:

A) 31.4%
B) 29.4%
C) 34.0%
D) 45.8%

To view all questions and flashcards with Page 7 click on the resource link above.
answers,
 Chapter 6: Accounting Quality
Available Study Resources on Quizplus for this Chatper
75 Verified Questions
75 Flashcards
Source URL: https://quizplus.com/quiz/5604

Sample Questions
Q1) Achieving comparability in financial reporting is important to the analysis of
multinational firms.However,the data from the reconciliation of foreign firm's financial
statement to U.S.GAAP must be carefully interpreted.What types of things complicate the
analysis of multinational firms?

Q2) Banks Corp.reported net income of $595,000 in 2012.During 2012 Banks reported a
loss of $87,435 from a peripheral activity.The loss was included as part of income from
continuing operations.Assuming that the loss is a one-time event and that Banks has an
effective tax rate of 35%,calculate Banks' adjusted net income.Show all of your
calculations for credit.
In addition,discuss why analysts might make an adjustment of this type.

Q3) Which of the following does not describe an extraordinary gain or loss?
A) infrequent in occurrence
B) peripheral to the company's core business
C) unusual in nature
D) material in amount

Q4) Quality accounting information should be informative as to both the

__________________________________________________ of the current
period's earnings and the long-run sustainability of profits.

Q5) A change in the useful life of an asset is treated as a(n)_____________

To view all questions and flashcards with Page 8 click on the resource link above.
answers,
 Chapter 7: Financing Activities
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/5605

Sample Questions
Q1) Which is the date when a firm gives a stock option to employees?
A) vesting date
B) grant date
C) exercise date
D) market date

Q2) Financial reporting requires that firms recognize product financing arrangements as
liabilities
If which of the following conditions is met?
A) The arrangement requires the sponsoring firm to purchase the inventory, substantially
Identical inventory, or processed goods of which the inventory is a component at
specified prices.
B) The selling or sponsoring firm physically controls the inventory.
C) The payments made to the other entity cover all acquisition, holding, and financing
Costs.
D) Both A and C are correct.

Q3) Derivative instruments acquired to hedge exposure to variability in expected future

cash are _________________________ hedges.

To view all questions and flashcards with answers, click on the resource link above.

Page 9
 Chapter 8: Investing Activities
Available Study Resources on Quizplus for this Chatper
100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/5606

Sample Questions
Q1) All of the following are difficulties encountered in determining fair values except:
A) the need to make assumptions about the effect of technological and other
improvements when using the prices of new assets currently available on the market in
the valuation process
B) the need to identify comparable assets currently available in the market to value
assets in place
C) the absence of U.S.GAAP and IFRS standards related to reporting long-lived assets
D) the absence of active markets for many used fixed assets, particularly those specific
to a particular firm's needs

Q2) Based on the information concerning Snowflake Corp.what is the market value of the
company's shareholders' equity at the acquisition date?
A) $1,775,000
B) $475,000
C) $2,250,000
D) $0

To view all questions and flashcards with answers, click on the resource link above.

Page 10
 Chapter 9: Operating Activities
Available Study Resources on Quizplus for this Chatper
78 Verified Questions
78 Flashcards
Source URL: https://quizplus.com/quiz/5607

Sample Questions
Q1) The major difference between accounting for pensions and the accounting for other
postretirement benefits is that firms:
A) do not need to report an excess of the accumulated benefits obligations over assets
in a postretirement benefits fund as a liability on the balance sheet.
B) do not need to disclose any estimates used in calculating projected benefits.
C) postretirement benefits are normally not material for most companies and do not
need to be disclosed.
D) do not need to set aside funds for future postretirement benefits as they do for
pension benefits.

Q2) Under the completed contract method:

A) revenue and cost are recognized during the production cycle, but gross profit
recognition is deferred until the contract is completed.
B) revenue, cost, and gross profit are recognized during the production cycle.
C) revenue, cost, and gross profit are recognized at the time the contract is completed.
D) None of these are correct.

Q3) ___________________________________ is primarily a question of timing.

Q4) What are the five steps to apply the core principles of revenue recognition?

To view all questions and flashcards with answers, click on the resource link above.

Page 11
 Chapter 10: Forecasting Financial Statements
Available Study Resources on Quizplus for this Chatper
63 Verified Questions
63 Flashcards
Source URL: https://quizplus.com/quiz/5608

Sample Questions
Q1) An analyst using the inventory turnover ratio to calculate future levels of inventory
may face the problem that:
A) the method reduces the potential understatement inherent in average balances.
B) the method can introduce artificial volatility in ending balances.
C) the method results in understating inventory each year.
D) the method results in overstating inventory each year.

Q2) As a firm progresses through the introduction life-cycle stage,what type of flexible
account will it be more likely to use to balance the balance sheet?
A) dividends
B) growth related assets
C) issued equity
D) stock buy-backs

Q3) Financial statement forecasts should rely on _________________________

across financial statements.

Q4) A firm in a mature industry with little expected change in its market share might
anticipate volume increases equal to the growth rate in the
_________________________ within its geographic markets.

Q5) The formula for forecasting inventory is ____________ /365 X.

To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Risk-Adjusted Expected Rates of Return and the

Dividends Valuation Approach

Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/5609

Sample Questions
Q1) Normally,valuation methods are designed to produce reliable estimates of the value
of a firm's ______________________________.

Q2) Under the cash-flow-based valuation approach,free cash flows can be used instead
of dividends as the expected future payoffs to the investor in the numerator of the
general valuation model because:
A) this approach focuses on earnings as a measure of the capital that a firm creates.
B) over the life of the firm, the free cash flows into the firm and cash flows paid out of the
firm in dividends to shareholders will be equivalent.
C) over the life of the firm, the free cash flows out of the firm for investments and cash
flows paid into the firm in dividends from these investments will be equivalent.
D) this approach focuses on wealth distribution to shareholders.

Q3) Suppose a firm has a market beta of 1.24 and the risk-free interest rate is 6.25.In
addition,the excess return over the risk-free rate is 6.3%.Calculate the firm's cost of equity
capital using the CAPM model.

Q4) Provide the rationale for using expected dividends in a valuation model.

Q5) Why are dividends value-relevant to common equity shareholders?

To view all questions and flashcards with answers, click on the resource link above.
Page 13
 Chapter 12: Valuation: Cash-Flow-Based Approaches
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/5610

Sample Questions
Q1) Starting with free cash flows from operations,discuss how an analyst would measure
free cash flows to common equity shareholders.

Q2) The conceptual framework for free cash flows separates all assets and liabilities into
the following categories:
A) Current and non-current
B) Monetary and non-monetary
C) Operating and non-operating
D) Operating and financial

Q3) If a firm generates a rate of return on

__________________________________________________ equal to the
discount rate used by the investor then it does not matter if an analyst uses cash flows
to the investor or cash flows to the firm.

Q4) Nonsystematic risk factors would include all of the following except:
A) the sustainability of the firm's strategy
B) the firm's ability to generate revenue growth
C) the firm's ability to control expenses
D) unemployment levels

Q5) The forecasting and valuation process is particularly difficult for

______________________________ when the near term free cash flows tend to
be negative.
Page 14
To view all questions and flashcards with answers, click on the resource link above.
 Chapter 13: Valuation: Earnings-Based Approaches
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/5611

Sample Questions
Q1) Why is the weighted average cost of capital not used as the discount rate when
computing residual income?

Q2) To measure a firm's economic performance and position in a given period,it makes
sense to
Measure all of the following except:
A) The daily free cash flow published by the Wall Street Journal
B) Expenses incurred for resources consumed in that period
C) A portion of the long-lived resources consumed during that period
D) The cost of commitments made during that period to pay retirement benefits to
employees in future periods

Q3) The foundation for residual income valuation is the classical

_____________________________________________.

Q4) What are the four components that make up dirty surplus accounting according to
the FASB?
.

Q5) The value of a share of common equity should equal the present value of the
_____________________________________________ that the shareholders
will receive.

Q6) What is meant by the term clean surplus accounting?

Page 15
To view all questions and flashcards with answers, click on the resource link above.
 Chapter 14: Valuation: Market-Based Approaches
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/5612

Sample Questions
Q1) Which of the following is not a reason why price-earnings ratios would differ across
firms?
A) Risk
B) Profitability
C) Growth
D) Operating leverage

Q2) a.Compute the price-earnings ratio under the following sets of assumptions:
A.
\(\begin{array} { c c c c }
& \text { Cost of Equity } & \text { Growth Rate } &P/R\\
\text { Scenario } & \text { Capital } & \text { in Earnings } &\text { Ratio }\\
\hline 1 & 0.13 & 0.09 & \\
2 & 0.13 & 0.11 & \\
3 & 0.15 & 0.09 & \\
4 & 0.18 & 0.09 & \\
5 & 0.18 & 0.11 &
\end{array}\)
b.Assess the sensitivity of the price-earnings ratio to changes in the cost of equity
capital and changes in the growth rate.

To view all questions and flashcards with answers, click on the resource link above.

Page 16