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Financial Reporting and Analysis (1 Assessment)


Financial Reporting and Analysis
1 of 30
In the statement of cash flows, interest paid by a company is most likely included in: either the operating or financing section under U.S. GAAP.

only the financing section under both IFRS and U.S. GAAP.

either the operating or financing section under IFRS.

2 of 30
A company owns its own office building which it purchased in 2011 for $1,000,000. The real estate market has been volatile in the last few years. The company uses the revaluation model as allowed by IFRS and the following table shows the fair market values since 2011:

Year-End Year Fair Market Value ($ thousands) 2011 1,000 2012 600 2013 800 2014 1,300 The impact (in $ thousands) on the income statement in 2014 will most likely be a gain of:

300.

500.

200.

3 of 30
An entry made to record an accrual, such as bad debt expense, that is not yet reflected in the accounting system is best described as a(n): trial balance entry.

adjusting entry.

ledger entry.

4 of 30
The following information is available about a company ($ millions):
1

Year ended 31 December Sales Net income Cash flow from operations

2012 322.8 27.2 15.3

2011 320.1 26.8 38.1

During 2012, the company most likely experienced a significant decrease in: inventory, anticipating lower demand for its products in 2013.

the proportion of interest-bearing debt relative to trade accounts payable.

the proportion of sales made on a cash basis.

5 of 30
A firm reports sales of 50,000 for the year ended 31 December 2012. Its accounts receivable balances were 6,000 at 1 January 2012, and 7,500 at 31 December 2012. The company's cash collections from sales for 2012 is closest to: 48,500. 51,500. 42,500.

6 of 30
The following table shows changes to the number of common shares outstanding for a company during 2012: 1 January 1 June 1 August 31 December 180,000 shares outstanding 60,000 shares issued 2-for-1 stock split 480,000 shares outstanding

To calculate earnings per share for 2012, the company’s weighted average number of shares outstanding is closest to: 430,000.

215,000.

315,000.

7 of 30
Which of the following ratios is most likely to be used as a measure of operating performance? Defensive interval ratio

2

Working capital turnover ratio Cash ratio

8 of 30
The following table provides selected ratios for a company's two main operating segments during the past two years:

Profit Asset Segmen Asset Margin EBIT/Assets Debt/Assets Turnover t (%) Growt h (%) Curren Prio Curren Prio Curren Prio Curren Prio t r t r t r t r 1 12 18.0 19.0 64.8 76.0 3.6 4.0 0.55 0.43 2 15 23.0 26.0 66.7 88.4 2.9 3.4 0.62 0.51
Which of the following statements is most appropriate? The segment: that had the lowest profit margin experienced the most aggressive expansion.

that earned the most per dollar invested last year failed to do so again in the current year.

that is currently most efficient is also financed the most conservatively.

9 of 30
A retailer that prepares its financial statements in accordance with IFRS has 100 office chairs in its inventory with a suggested retail price of $240 each. ? It paid on average $200 each to a supplier for these chairs. ? Demand for office chairs has been low for quite a while and the retailer estimates it can sell those chairs for $180 each if it offers free shipping to its customers at an average cost of $10 per chair. ? The supplier has also lowered its price to $160 in response to the low demand.

The total carrying amount of these 100 office chairs on the retailer’s balance sheet would be closest to:
$16,000.

$17,000.

$18,000.

10 of 30
3

Issuance of common stock is most accurately classified as a(n): financing activity.

investing activity.

operating activity.

11 of 30
Under International Financial Reporting Standards (IFRS), the statement of comprehensive income should most appropriately begin with: gross revenue.

the ending total comprehensive income from the prior year.

the profit or loss from the income statement.

12 of 30
A company's most recent balance sheet shows the following values (NZ$ thousands):

Accounts payable 3,800 Long-term debt 5,590 Other long-term 800 liabilities Common stock 1,200 Retained earnings 1,810 The company’s debt-to-capital ratio is closest to:
1.86.

0.65.

0.77.

13 of 30
When a company issues common stock as part of the conversion of a convertible bond, the cash flow statement will most likely: include the transaction because it materially affects the company's financial position.

omit the transaction but disclose it in a separate note or supplementary statement.

omit the transaction without disclosure.

14 of 30
4

The following information is available for a company ($): December 31, 2011: Total assets Net income for the year Dividends paid Assets are equally financed with debt and equity 50% of the equity comes from contributed capital December 31, 2012: Total assets Net income (loss) for the year No new debt or equity issued or repurchased In 2012, the company most likely: paid a dividend of $1,000. 92,000 (3,000) 100,000 4,000 0

did not pay a dividend because it incurred a loss.

paid a dividend of $5,000.

15 of 30
All else being equal and ignoring tax effects, compared with using the straight-line method of depreciation, the use of an accelerated method of depreciation in the early years of an asset's life would most likely result in a decrease in the firm's: asset turnover ratio.

cash flow from operations.

shareholders' equity.

16 of 30
The following tables present excerpts from financial statements for two merchandising companies following the format found in each of their annual reports.

Company A (US$ millions) Assets Noncurrent assets Current assets Total assets 9,640 2,096 11,736 Assets

Company B (? millions) Current assets Noncurrent assets Total assets 4,333 19,923 24,256

5

Which of the companies most likely prepares its financial statements in accordance with U.S. GAAP?

Only Company B

Only Company A

Both companies

17 of 30
A retailer that prepares its financial statements in accordance with IFRS has 100 office chairs in its inventory with a suggested retail price of $240 each. ? It paid on average $200 each to a supplier for these chairs. ? Demand for office chairs has been low for quite a while and the retailer estimates it can sell those chairs for $180 each if it offers free shipping to its customers at an average cost of $10 per chair. ? The supplier has also lowered its price to $160 in response to the low demand. $17,000.

$16,000.

$18,000.

18 of 30
A firm incurred the following costs related to production during the past year:

Fixed production overhead costs Raw materials costs Labor costs Freight-in costs for raw materials Warehousing costs for finished goods

$ millions 3.0 6.0 4.0 1.0 2.0

The total capitalized inventory cost (in US$ millions) for the year is closest to: 16.0.

13.0.

6

14.0.

19 of 30
A company is buying back its common shares to offset the dilution of earnings from its stock option program. Which of the following statements best describes the effect on the financial statements of the amount spent to buy back the stocks? The amount spent reduces: cash from financing activities.

cash from operating activities.

net income.

20 of 30
According to the International Financial Reporting Standards framework, which of the following qualities of financial information is least likely cited as one of the two fundamental characteristics that make financial information useful? Relevance

Accrual accounting

Faithful representation

21 of 30
The following information is available for a company that prepares its financial statements in accordance with U.S. GAAP: ? ? It has production facilities with a net book value of $28.4 million. Recently, several other companies have entered the market, and the company now estimates that it will be able to generate cash flows of only $3 million per year for the next seven years with its facilities. ? The firm has a cost of capital of 10%.

The impairment loss (in $ millions) on the production facilities will most likely be reported in the company’s financial statements as a: 13.8 impairment loss on the income statement.

7.4 reduction in the balance sheet carrying amount.

13.8 reduction in operating cash flows.

22 of 30
Which of the following is most likely considered an example of high-quality financial reporting?

7

The selection of the longest reasonable depreciable life for an asset

The selection of a depreciation method that results in lower earnings than would have arisen from using the economic depreciation Decreasing the percent of sales ratio used to estimate bad debt expenses when collection difficulties have increased

23 of 30
A company issued bonds in 2012 that mature in 2022. The measurement basis that will most likely be used on the 2012 balance sheet for the bonds is: amortized cost.

market value.

historical cost.

24 of 30
A company's balance sheet shows the following values ():

Cash Marketable securities Accounts receivable Inventory Prepaid expenses Current liabilities
The company’s cash ratio is closest to: 0.37.

12,000 3,000 16,500 8,745 2,305 32,580

0.97.

0.46.

25 of 30
A company with a tax rate of 40% sold a capital asset with a net book value of $500,000 for $570,000 during the year. Which of the following amounts related to the asset sale will most likely be reported as a line item on its income statement for the year? $42,000

$570,000

$70,000

8

26 of 30
If a company that leases assets for its own use classifies its leases as finance leases instead of as operating leases, its financial statements in the first year would most likely report: higher debt.

higher equity.

lower cash from operations.

27 of 30
Which of the following is most likely a benefit of debt covenants for the borrower? Limitations on the company's ability to pay dividends

Restrictions on how the borrowed money may be invested

Reduction in the cost of borrowing

28 of 30
According to International Financial Reporting Standards, which of the following is a condition that must be met for revenue recognition to occur? Payment has been partially received.

Goods have been delivered to the customer.

Costs can be reliably measured.

29 of 30
A company purchased a 2,000 million long-term asset in 2012 when the corporate tax rate was 30%.

Asset’s Year-End Value for Accounting purposes Tax purposes

2013 ( millions) 1,800 1,280

2012 ( millions) 1,900 1,600

On 15 January 2013, the government lowered the corporate tax rate to 25% for 2013 and beyond. The deferred tax liability ( millions) as of 31 December 2013, is closest to:

231.

156.

9

130.

30 of 30
The following information is available about a company (in $ thousands).

Year 2011 2012 2013

Reported Earnings 1,500 1,800 2,500

Operating Cash Flow 1,200 1,300 1,400

Accounts Receivables 500 1,400 3,500

Ending Inventory 1,300 1,600 2,200

Which of the following would least likely be an accounting warning sign for this company? The relationship between reported earnings and: operating cash flow.

ending inventory.

accounts receivables.

10


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