Accounting for Managers
Exam Materials
Course Introduction
Accounting for Managers introduces essential accounting concepts and practices tailored for managerial decision-making. The course covers the preparation and analysis of financial statements, budgeting, cost behavior, and performance evaluation.
Emphasizing practical applications, it equips future managers with the skills to interpret financial data, assess organizational performance, and make informed business decisions. Topics also include internal control systems, variance analysis, and the ethical considerations of financial reporting, providing a comprehensive foundation for effective management in various organizational settings.
Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 6th Edition by Clyde P. Stickney
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14 Chapters
732 Verified Questions
732 Flashcards
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Page 2
Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
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Sample Questions
Q1) Another important step in financial statement analysis is to assess the quality of a firm's ________________________________________ and if necessary adjust them for such characteristics as sustainability or comparability.
Answer: financial statements
Q2) Which of the following activities reported in the Statement of Cash Flows is a financing activity?
A) Repayment of outstanding debt.
B) Investing in equity securities of other companies.
C) Payment of dividends.
D) Issuing debt.
Answer: B
Q3) Which of the following is not a characteristic of an extraordinary item?
A) Material in amount.
B) Nonrecurring.
C) Unusual given the nature of the firm's activities.
D) Requires a cash outflow.
Answer: D
Q4) Normally, intense rivalries have a tendency to reduce ____________________.
Answer: profitability
3
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Chapter 2: Asset and Liability Valuation and Income
Measurement
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Sample Questions
Q1) Current replacement cost represents
A) the amount a firm would have to pay currently to acquire an asset it now holds
B) the amount a firm would have to pay currently to acquire an asset it does not now hold
C) the amount a firm would have to pay in the future to acquire an asset it now holds
D) the amount a firm would have to pay to purchase a comparably depreciated version of the asset it now holds
Answer: A
Q2) Items, such as interest revenue on municipal bond holdings, that do not affect taxable income or income taxes paid in any year are referred to as _____________________________________________.
Answer: permanent differences
Q3) Firms recognize the reduction in service potential of assets such as building and equipment using the process of ____________________.
Answer: depreciation
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Chapter 3: Income Flows Versus Cash Flows: Key
Relationships in the Dynamics of a Business
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Q1) The payment of dividends would be classified as
activities in the statement of cash flows.
Answer: financing
Q2) Which of the following is not one of the reasons why net income differs from cash flows from operations under the indirect method of calculating cash flows?
A) non-cash items, such as depreciation and amortization
B) changes in working capital accounts
C) gains and losses related to the sale of plant, property and equipment
D) sale or repurchase of capital stock
Answer: D
Q3) When preparing the statement of cash flows using the indirect method an increase in accounts payable would appear as
A) a decrease in the operating activities section
B) an increase in the operating activities section
C) a use of cash in the investing activities section
D) a source of cash in the investing activities section
Answer: B
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Page 5
Chapter 4: Profitability Analysis
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Sample Questions
Q1) Return on assets will likely differ across firms and across time, three elements of risk that will help explain these differences are ________________________________________, cyclicality of sales and stage and length of product life cycle.
Answer:
Q2) Which of the following might an analyst not want to eliminate from past earnings when using past earnings to forecast future earnings.
A) nonrecurring gains from the sale of assets.
B) unusual asset impairment charges.
C) nonrecurring restructuring charges.
D) revenue from the sale of inventory.
Q3) Which of the following industries would you expect to have, on average, high asset turnover and low profit margin?
A) Hotels
B) Grocery stores
C) Utilities
D) Oil and Gas extraction
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Chapter 5: Risk Analysis
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Sample Questions
Q1) In bankruptcy prediction analysis a type ____________________ error is classifying a firm as nonbankrupt when it ultimately goes bankrupt.
Q2) Cash flow from operations indicates the amount of cash that the firm derived from operations after funding ______________________________.
Q3) Bankruptcy analysis research has gone through many iterations, from univariate bankruptcy prediction models to sophisticated logit models. However, after examining the results of the research there appear to be a number of common factors that consistently explain bankruptcy. These factors can be grouped into investment factors, financing factors, operating factors. For each of the three groups discuss specific factors that have been found to significantly explain bankruptcy.
Q4) Common shareholders benefit with increasing proportions of debt in the capital structure as long as the firm maintains an excess of ____________________ over the after-tax cost of debt
Q5) The source of risk related interest rate changes and demographic changes is ____________________.
Q6) Financially healthy firms frequently close any cash flow gap in their operating cycles with ________________________________________.
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Page 7
Chapter 6: Quality of Accounting Information and Adjustments to Reported Financial Statement Data
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Sample Questions
Q1) Which of the following items is consistent with earnings being informative about current performance and informing the analyst that level of current earnings is sustainable?
A) The firm recognizes an unexpected gain
B) The firm recognizes a fair value gain on a financial asset as a result of a favorable move in interest rates.
C) The firm recognizes additional expenses this period due to pre-opening costs associated with new stores.
D) The firm experiences a large jump in sales and earnings as a result of successful research and development of new products.
Q2) When evaluating the quality of accounting information the user should consider the ____________________ of the measurements made.
Q3) One definition of earnings management is that it occurs when managers use
A) judgment in financial reporting to alter financial reports to mislead stakeholder.
B) an accounting method that is inconsistent with other industry members.
C) more conservative accounting estimates than other companies.
D) pro forma accounting results as opposed to GAAP results.
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Page 8
Chapter 7: Revenue Recognition and Related Expenses
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Sample Questions
Q1) Finale Company's accounting manager decided to start capitalizing the company's routing repairs and maintenance expense, starting in 2006. What effect will this change have on the company's 2007 income and assets respectively?
A) overstate, overstate
B) overstate, understate
C) understate, understate
D) understate, overstate
Q2) Application of the LIFO and FIFO inventory methods result in differences in the balance sheet, income statement and cash flow statement. Compare and contrast the effect of the two methods on each financial statement and determine the advantages and disadvantages of each method.
Q3) One sign that a company may be recognizing sales too early is that it has unusually large amounts of ______________________________.
Q4) An analyst can estimate the average total life of depreciable assets by
A) dividing average depreciable assets by depreciation expense for the year.
B) dividing depreciation expense for the year by average depreciable assets.
C) dividing average gross depreciable assets by accumulated depreciation.
D) Subtracting depreciation expense from accumulated depreciation.
Q5) ___________________________________ is primarily a question of timing.
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Chapter 8: Liability Recognition and Related Expenses
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Q1) A security that has both equity and debt characteristics is referred to as a
Q2) A minimum liability for pension expense is reported when
A) the projected benefit obligation exceeds the fair value of pension plan assets.
B) the pension expense reported for the period is greater than the funding amount for the same period.
C) the accumulated benefit obligation exceeds the fair value of pension plan assets.
D) vested benefits exceed the fair value of pension plan assets.
Q3) Which of the following is not one of the GAAP classifications for derivatives?
A) Speculative investment
B) Fair value hedge
C) Asset-Liability hedge
D) Cash flow hedge
Q4) Assume that you are currently negotiating a lease transaction in the role of the lessee. Discuss whether you would rather structure the lease as an operating lease or a capital lease and why. In addition, provide the conditions that would require that the lease be accounted for as a capital lease.
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Chapter 9: Intercorporate Entities
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Sample Questions
Q1) Securities that are purchased in order to take advantage of short-term changes in market value should be classified as ____________________ securities.
Q2) Olivia Co. owns 4,000 of the 10,000 outstanding shares of Hobbitt Corp. common stock and exercises significant influence over the company. During 2006, Hobbitt earns $80,000 and pays cash dividends of $30,000. If the beginning balance in the investment account was $160,000, the balance at December 31, 2006 should b
A) $192,000
B) $172,000
C) $180,000
D) $160,000
Q3) Interpretation No. 46 relates to the issue of whether an investing firm is the primary beneficiary in a variable-interest entity. When is an entity classified as a variable interest entity?
Q4) Under the equity method the investor's share of investee income
____________________ the investment account and dividends
____________________ the investment account.
Q5) The ____________________ method views a corporate acquisition as conceptually identical to the purchase of any single asset.
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Chapter 10: Forecasting Financial Statements
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Sample Questions
Q1) Baseball Card Land, Inc. sells baseball cards and other memorabilia. The company tries to maintain a cash balance equivalent to approximately 30 days of sales. Sales in 2006 amounted to $352,412 and the company expects growth in 2007 of 33% and in 2008 of 40%. Given the information provided about Baseball Card Land what is the company's 2008 projected annual sales?
A) $656,191
B) $493,377
C) $187,483
D) $542,333
Q2) A company that has a cost structure in which its costs grow at a lesser rate than its sale enjoys ___________________________________.
Q3) To ensure that the financial statements articulate it is important that the change in the cash balance on the balance sheet each year agrees with
A) the cash collections from sales in the projected income statement.
B) the cash provided by or used by operations on the projected statement of cash flows.
C) the net change in cash on the projected statement of cash flows.
D) the net change in working capital from period to period.
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Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
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Sample Questions
Q1) One rational for using expected dividends in valuation is
A) Dividends are a necessary payment in order for a firm to have value.
B) Dividends are paid in cash, and cash serves as a measurable common denominator for comparing the future benefits of alternative investment opportunities.
C) Dividends are the most reliable measure of value because most companies payout dividends to shareholders.
D) Dividend payout ratios are set based on profitability.
Q2) Equity based valuation models are based on all metrics except A) dividends B) cash flow
C) working capital D) earnings
Q3) Provide the rationale for using expected dividends in a valuation model.
Q4) Dividends measure the cash that ____________________ ultimately receive from investing in an equity share.
Q5) A company with a market beta of 1 has systemic risk ____________________ to the average amount of systemic risk of all equity securities in the market.
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Chapter 12: Valuation: Cash-Flow-Based Approaches
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Sample Questions
Q1) The risk-adjusted discount rate used to compute the present value of all the projected free cash flows for common equity shareholders equals the
Q2) Operating liabilities include all of the following except A) accounts payable B) pension obligations
C) accrued taxes
D) long-term debt
Q3) Continuing free cash flows represent
A) the cash flows remaining after deducting cash flows attributable to debt holders B) the free cash flows after the point at which the firm has settled into a long-run steady-state growth rate.
C) all sustainable free cash flows
D) all after-tax free cash flows
Q4) ________________________________________ typically include accounts payable, accrued expenses, accrued taxes, deferred taxes, pension obligations and other retirement benefit obligations.
Q5) Provide the rationale for using expected free cash flow in valuation.
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Chapter 13: Valuation: Earnings-Based Approaches
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Sample Questions
Q1) The ______________________________ valuation model uses expected future net income and the book value of common shareholders' equity as the basis for valuation.
Q2) If investors have invested $25,000 of common equity in a company and it is determined that the required earnings of the company are $2,250 each period, then investors must expect to earn what return?
A) the risk free rate
B) 9%
C) 11%
D) the market premium
Q3) Assume that a firm had shareholders' equity on the balance sheet at a book value of $1,600 at the end of 2005. During 2006 the firm earns net income of $1,300, pays dividends to shareholders of $600, and uses $300 to repurchase common shares. The book value of shareholders equity at the end of 2006 is:
A) $2,000
B) $400
C) $3,800
D) $2,600
Q4) What is meant by the term clean surplus accounting?
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Chapter 14: Valuation: Market-Based Approaches
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Sample Questions
Q1) The market-to-book ratio is calculated by
A) dividing a firm's market value of total equity by the book value of total equity.
B) dividing a firm's market value of common equity by the book value of total equity.
C) dividing a firm's market value of common equity by the book value of common equity.
D) dividing a firm's market value of total equity by the book value of total debt.
Q2) Under the value-to-book model a firm will be valued below book value when
A) the ROCE is greater than R<sub>E</sub>
B) the ROCE is equal to R<sub>E</sub>
C) the ROCE is less than R<sub>E</sub>
D) the firm's growth rate is above the industry average
Q3) Under the value-to-book model a firm in steady state equilibrium earning ROCE = R<sub>E</sub> will
A) create additional shareholder wealth and be valued above book value.
B) maintain shareholder wealth and be valued at book value.
C) destroy shareholder wealth and be valued below book value.
D) be in a no growth state.
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Page 16