Financial Reporting
Review Questions
Course Introduction
Financial Reporting focuses on the principles, standards, and procedures involved in preparing and presenting financial statements for external users. The course examines the conceptual framework underpinning financial accounting, the recognition and measurement of assets, liabilities, equity, revenues, and expenses, and the disclosure requirements established by generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). Students will learn how to analyze and interpret financial statements to assess organizational performance, make informed economic decisions, and ensure compliance with relevant regulatory and ethical considerations. Through practical exercises and case studies, this course develops the skills necessary for critical evaluation and effective communication of financial information.
Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 7th Edition by James M. Whalen
Available Study Resources on Quizplus
14 Chapters
1065 Verified Questions
1065 Flashcards
Source URL: https://quizplus.com/study-set/2796
Page 2
Chapter 1: Overview of Financial Reporting, Financial
Statement Analysis, and Valuation
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/55698
Sample Questions
Q1) What is the rationale for the statement of cash flows?
Answer: 1.The timing of cash receipts from customers does not necessarily coincide with the recognition of revenue,and the timing of cash expenditures does not necessarily coincide with the recognition of expenses under the accrual basis of accounting. Normally cash expenditures precede the recognition of expenses and cash receipts occur after the recognition of revenue.
2.The firm may need to acquire new property,plant,and equipment; retire outstanding debt; or reacquire shares of its common stock when there is insufficient cash available.
Q2) An example of an intangible asset is
A) a patent
B) land
C) investment in another company
D) raw material inventory
Answer: A
Q3) Under the Sarbanes-Oxley Act ____________________ assumes responsibility for establishing and maintaining adequate internal control structure and procedures.
Answer: management
To view all questions and flashcards with answers, click on the resource link above.
Page 3
Chapter 2: Asset and Liability Valuation and Income Measurement
Available Study Resources on Quizplus for this Chatper
80 Verified Questions
80 Flashcards
Source URL: https://quizplus.com/quiz/55699
Sample Questions
Q1) What level are inputs for estimating fair values based on a firm's own assumptions about the fair value of an asset or a liability,such as using various data to estimate present values?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.
Answer: C
Q2) If a portfolio manager had to estimate the fair value of investments in timber,which of the following would he/she most likely identify as the level of inputs to determine this?
A) Level 1.
B) Levels 1 and 2.
C) Levels 2 or 3.
D) All levels would be applicable.
Answer: C
Q3) Net income equals revenues plus ____________________ minus expenses and ____________________.
Answer: gains,losses
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
88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/55700
Sample Questions
Q1) The length of the operating cycle is another factor that may cause cash flow from operations to differ from
Answer: working capital from operations
Q2) 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 decreased by $4,000,merchandise inventory decreased by $6,000,accounts payable increased by $2,000,and depreciation of $8,000 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) $18,000
D) $19,000
Answer: A
Q3) Free cash flows to all debt and common equity shareholders represents the excess of cash flow from operations over cash flows from
Answer: investing activities
Page 5
To view all questions and flashcards with answers, 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/55701
Sample Questions
Q1) The computation of the additional shares to be issued on the exercise of stock options assumes that the firm would repurchase common shares on the open market using an
Amount equal to the sum of all the following except:
A) any cash proceeds from such exercise
B) net incremental shares issued
C) any unamortized compensation expense on those options
D) any tax benefits that would be credited to additional paid-in capital
Q2) Which of the following would not be considered a committed fixed cost ( a cost that is incurred regardless of the level of activity during the period)?
A) depreciation expense
B) amortization expense
C) advertising expense
D) rent expense
Q3) Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.
Q4) Inventory turnover is calculated by dividing ________________________________________ by average inventories. cost of goods sold
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
81 Verified Questions
81 Flashcards
Source URL: https://quizplus.com/quiz/55702
Sample Questions
Q1) Which of the following is a measure of market equity risk?
A) Bankruptcy
B) Beta
C) Overdue amounts
D) Defaults
Q2) All of the following are common domestic risks faced by companies except:
A) recessions
B) technology
C) inflation
D) demographic shifts
Q3) The operating cycle must not only generate cash to supply ________________________________________ needs,it must generate sufficient cash to service debt.
Q4) Which of the following states of financial distress would be considered the most troubling for an investor or creditor?
A) failing to make a required interest payment on time
B) paying an accounts payable after the billing date
C) restructuring debt
D) defaulting on a principal payment on debt
Q5) Discuss the differences between Chapter 7 and Chapter 11 bankruptcy filings?
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Financing Activities
Available Study Resources on Quizplus for this Chatper
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/55703
Sample Questions
Q1) Which kind of dividends have an interest-bearing promise to pay dividends?
A) property dividend
B) stock dividend
C) liquidating dividend
D) scrip dividend
Q2) Which is the first date when employees can exercise their stock options?
A) vesting date
B) grant date
C) exercise date
D) liquidating date
Q3) 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.
Q4) Which of the following is not normally recognized as a liability on the balance sheet?
A) Warranties Payable.
B) Bonds payable.
C) Subscription Fees Received in Advance.
D) Employment Commitments.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Investing Activities
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/55704
Sample Questions
Q1) When a foreign entity operates as a relatively self-contained and integrated unit within a foreign country,normally,its functional currency is the ____________________________________________________________.
Q2) Unrealized holding gains and losses from investments classified as available for sale are reported in _____________________________________________. other comprehensive income
Q3) When one company acquires another company it may not be able to estimate the potential losses inherent in the acquired assets or the potential liability of the acquired company,for these reasons the acquirer may establish
Q4) Carlson Company began constructing a building for its own use in January 2012.During 2012,Carlson incurred interest of $70,000 on specific construction debt and $15,000 on other borrowings.Interest computed on the weighted-average amount of accumulated expenditures for the building during 2012 as $60,000. Required:
What amount of interest should Carlson capitalize?
Q5) An _________________________ occurs when the carrying amount of a company's long-lived assets are not recoverable.
To view all questions and flashcards with answers, click on the resource link above. Page 9
Chapter 8: Operating Activities
Available Study Resources on Quizplus for this Chatper
92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/55705
Sample Questions
Q1) A company that uses FIFO will find that its ___________________________________ account tends to be somewhat out of date.
Q2) Which of the following statements best describes the difference between U.S.GAAP and IFRS with respect to revenue recognition?
A) IFRS has a substantial amount of industry specific guidance for revenue recognition.
B) IFRS revenue recognition is not consistent with U.S. GAAP in principle.
C) There are subtle differences in the wording of U.S. GAAP as compared with IFRS.
D) IFRS has four criteria and U.S. GAAP has five conditions for revenue recognition.
Q3) All of the following are true regarding accrual accounting except:
A) Accrual basis measures operating success by the extent to which accomplishments exceed efforts.
B) Accrual basis measures operating success by the extent to which revenues exceed expenses.
C) Accrual basis reports operating activities in terms of their success in generating value.
D) Accrual basis for the recognition of expenses is not required under IFRS.
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Accounting Quality
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/55706
Sample Questions
Q1) Many users of financial statements believe that the quality of accounting information for intangible assets is low because firms seldom report intangible asset resources on the balance sheet.However,from the perspective of accounting quality what are arguments in favor of expensing most intangibles and not recording them on the balance sheet?
Q2) Which of the following items is consistent with earnings being informative about current performance and informing the analyst that level of current earnings are not 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.
Q3) Some firms attempt to maximize the amount of restructuring charge in a particular year,analysts refer to this as the _________________________ approach.
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
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/55707
Sample Questions
Q1) Projected financial statements can be used to assess the sensitivity of all of the following except:
A) a firm's liquidity
B) a firm's leverage to changes in assumptions
C) conditions under which the firm's debt covenants may become binding
D) unusual patterns for projected total assets.
Q2) All of the following statements are true regarding ratios and forecasts except:
A) Ratios cannot confirm whether forecast assumptions will turn out to be correct.
B) Ratios can tell whether future sales growth was accurately captured.
C) Ratios cannot tell whether assumptions about future cash flows are realistic.
D) Ratios can tell whether growth rates for sales are consistent with past sales growth performance.
Q3) If a firm competes in a ___________________________________ industry that the analyst expects will operate near capacity for the next few years,then price increases will
Q4) Realistic expectations are ____________________ and ____________________.
Q5) Financial statement forecasts should rely on ____________________ within financial statements.
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/55708
Sample Questions
Q1) Identify the types of firm-specific factors that increase a firm's nondiversifiable risk (systematic risk).Identify the types of firm-specific factors that increase a firm's diversifiable risk (idiosyncratic risk or nonsystematic risk).Why do models of risk-adjusted expected returns include no expected return premia for diversifiable risk?
Q2) Why is the dividends valuation approach applicable to firms that do not pay periodic (quarterly or annual)dividends?
Q3) One rationale 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.
Q4) 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.
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
62 Verified Questions
62 Flashcards
Source URL: https://quizplus.com/quiz/55709
Sample Questions
Q1) A disadvantage of the free cash flow valuation method is
A) The terminal value tends to dominate the total value in many cases.
B) The projection of free cash flows depends on earnings estimates.
C) The free cash flow method is not rigorous.
D) The free cash flow method is not used widely in practice.
Q2) Steady-state growth in ___________________________________ could be driven by long-run expectations for growth attributable to economy-wide inflation,general economic productivity,the population,or long-run growth in industry's sales.
ree cash flows
Q3) If an analyst wants to value a potential investment in the net operating assets of a division of another firm,the relevant cash flows the analyst should use are
A) free cash flow from operations
B) free cash flows for all debt and equity capital stakeholders
C) free cash flows to common equity shareholders
D) cash flow from operations
Q4) One disadvantage of the free cash flow valuation method is that many times the ______________________________ dominates the total value.
Q5) What is the purpose of a free cash flow analysis?
To view all questions and flashcards with answers, click on the resource link above. Page 14
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/55710
Sample Questions
Q1) Which of the following would likely be the most useful when valuing a dot.com company?
A) Net asset value
B) Dividend yield
C) Discounted cash flow
D) Price-earnings
Q2) Investors have invested $25,000 in common equity in a company.Given the risk inherent in the company the investors expect to earn a 15 percent return.In addition,the investors expect the company to return all income to investors in the form of dividends.The company is forecasted to earn $4,000 the first year,$5,000 the second year,$4,500 the third year and $3,750 each year after the third year.For this company determine the company's residual income valuation
Q3) Economists sometimes argue that earnings are not a _________________________ attribute on which to base valuation.
Q4) Provide the intuition for the residual income valuation model.In addition,define residual income.
Q5) Accounting for the book value of common shareholders' equity in a firm can be expressed as follows: BV<sub>t</sub> = BV<sub>t-1 </sub>+ ____________________ - D<sub>t.</sub>
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Valuation: Market-Based Approaches
Available Study Resources on Quizplus for this Chatper
64 Verified Questions
64 Flashcards
Source URL: https://quizplus.com/quiz/55711
Sample Questions
Q1) Which of the following ratios give a perspective on risk in the capital structure?
A) Book value per share
B) Price/earnings ratio
C) Degree of financial leverage
D) Dividend yield
Q2) Assume a zero-growth rate for earnings and dividends in each situation below.Also assume that all earnings are paid out as dividends and that the earnings-based valuation model is being used.
Situation 1: Das Company's earnings are expected to be $9 per share and its stock price is $36.What is the required rate of return on the firm's equity?
Situation 2: South Company's earnings are expected to be $6 per share and its required rate of return on equity is 26%.What is the current price of the stock?
Situation 3: Jones Company's current stock price is $60 and its required rate of return on equity is 15%.What is the firm's expected earnings?
Q3) What information can a PEG ratio provide about a company's stock price? What does a PEG ratio greater than one mean? less than one?
To view all questions and flashcards with answers, click on the resource link above. Page 16