Intermediate Accounting Test Preparation
Course Introduction
Intermediate Accounting delves into the principles, standards, and procedures of financial accounting beyond the introductory level. The course typically focuses on the conceptual framework of accounting, the presentation and disclosure requirements for financial statements, and a detailed examination of key accounting elements such as assets, liabilities, equity, revenues, and expenses. Students analyze complex transactions, learn about current accounting regulations and practices, and apply critical thinking to real-world scenarios. Emphasis is also placed on ethical considerations, the use of accounting information for decision-making, and preparation for advanced studies or professional certification exams in accounting.
Recommended Textbook
Financial Reporting Financial Statement Analysis and Valuation 8th Edition by James M. Wahlen
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14 Chapters
1088 Verified Questions
1088 Flashcards
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Chapter 1: Overview of Financial Reporting, financial
Statement Analysis, and Valuation
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Under the Sarbanes-Oxley Act ____________________ assumes responsibility for establishing and maintaining adequate internal control structure and procedures.
Answer: management
Q2) Many people view the balance sheet as being a representation of a firm's economic position.What are some issues that reduce the quality of this representation?
Answer: 1.Many valuable resources of a firm that generate cash flows,such as a patent,will only appear as assets if acquired,not when they are internally developed.2.Nonmonetary assets appear at acquisition cost,even though their current market values might exceed acquisition cost.3.Certain rights to use resources and commitments to make future payments may not appear as assets and liabilities.4.Noncurrent liabilities appear at the present value of expected cash flows discounted at an interest rate determined when the liability arose,not at the current rate.
Q3) The prospectus must be filled with the ________ before the company can sell new issues of stocks or bonds
A SEC
Answer: NO ANSWER
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Chapter 2: Asset and Liability Valuation and Income
Measurement
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81 Flashcards
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Sample Questions
Q1) The income statement approach to measuring income tax expense
A) is required by FASB Statement No. 109.
B) compares revenues and expenses recognized for book and tax purposes, eliminates permanent differences, and computes income tax expense based on book income before taxes excluding permanent differences.
C) computes income tax expense as a difference between the tax basis of an asset or a liability and its reported amount in the [balance sheet] that will result in taxable or deductible amounts in some future year(s) when the reported amounts of assets are recovered and the reported amounts of liabilities are settled.
D) is required by IAS 12.
Answer: B
Q2) Refer to Balance Sheet Equation.The payment of a note payable by a firm reduces cash and ______________________________.
Answer: liabilities
Q3) 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
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Chapter 3: Income Flows Versus Cash Flows: Understanding
the Statement of Cash Flows
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Sample Questions
Q1) Free cash flows to all debt and common equity shareholders represents the excess of cash flows from
A) operating activities over cash flows for financing activities
B) investing over cash flows for operating activities
C) investing over cash flows for financing activities
D) operating activities over cash flows for investing activities
Answer: D
Q2) Normally,cash flows from operations will peak during which phase of the product life cycle?
A) Introduction
B) Growth
C) Maturity
D) Decline
Answer: C
Q3) Many analysts use ____________________ as a crude measure of a firm's ability to pay down debt.
Answer: EBITDA
Q4) ____________________ activities relate to the normal operations of the firm,selling goods and providing services.
Answer: Operating
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Chapter 4: Profitability Analysis
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Sample Questions
Q1) Inventory turnover is calculated by dividing ________________________________________ by average inventories.
Q2) The statutory tax rate differs from a firm's average tax rate due to which of the following reasons
A) the statutory tax rate is a marginal tax rate.
B) some expenses are included in book income but do not enter into taxable income.
C) the average tax rate is for a period of three years.
D) the statutory tax rate does not effect GAAP measures of revenues and expenses.
Q3) The ___________________________________ of interest expense on net income equals one minus the marginal tax rate times interest expense.
Q4) When calculating the return on fixed assets sales is divided by
Q5) Another term for earnings power is
A) nonrecurrent revenue.
B) nonrecurrent gains.
C) sustainable earnings. D) net change in equity.
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6
Chapter 5: Risk Analysis
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Sample Questions
Q1) A.What are the three measures that are used to analyze long term solvency risk?
B- describe each measure briefly
Q2) Here are several ratios calculated from Midas Company's financial statements: Days in Receivables = 45
Days in Payables = 36
Days in Inventory = 30
How many days of working capital financing does Midas need to obtain from other sources?
A) 39 days
B) 36 days
C) 56 days
D) 26 days
Q3) The source of risk related interest rate changes and demographic changes is ____________________.
Q4) Refer to the information for Mobile Company.Mobile's quick ratio changed by what percentage from 2009 to 2010?
A) 30%
B) 107%
C) 25%
D) 82%
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Chapter 6: Accounting Quality
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Sample Questions
Q1) Achieving comparability in financial reporting is important to the analysis of multinational firms.However,the data from the reconciliation of foreign firms financial statement to U.S.GAAP must be carefully interpreted.What types of things complicate the analysis of multinational firms?
Q2) All of the following are true regarding a high quality balance sheet except:
A) It should portray the economic resources that can be reasonably expected to generate future economic benefits.
B) It should provide a complete and fair portrayal of all of the firm's obligations at a point in time, including the present value of long-term liabilities for future payments.
C) It should minimize measurement error and bias.
D) It should be optimistic in terms of accounting numbers.
Q3) On the income statement the disposal of a segment of a business should be shown
Q4) ____________________ represents the concept of being able to compare financial statement data across years for any particular firm.
Q5) When evaluating the quality of accounting information the user should consider the reasonableness of the ____________________ made in applying GAAP.
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Page 8
Chapter 7: Financing Activities
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Sample Questions
Q1) Under an operating lease agreement the lessee recognizes ______________________________ each period that the leased asset is used.
Q2) Using the information provided by Santa Corporation calculate the company's 2012 fixed asset ratio.
A) 3.0
B) 3.65
C) 3.23
D) 5.21
Q3) Which of the following is not true concerning the recognition of unrealized gains and losses on foreign currency translation during the consolidation process?
A) Firms do not recognize these gains/losses in current income.
B) Firms recognize these gain/losses in the statement of other comprehensive income
C) Firms increase/reduce their investment accounts by the translation gains/losses
D) Unrealized gains and losses increase/decrease other accumulated comprehensive income in shareholders' equity.
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Chapter 8: Investing Activities
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Sample Questions
Q1) For U.S.GAAP,software development costs are capitalized as intangible assets
A) after a copyright is obtained.
B) once the technological feasibility of the product is established.
C) from the beginning of development.
D) once the product is introduced into the marketplace.
Q2) Goodwill represents
A) the synergies that will be achieved through the acquisition.
B) the difference between the acquisition cost and the market value of the identifiable assets and liabilities.
C) the difference between the acquisition cost and the book value of the identifiable assets and liabilities.
D) the merger premium.
Q3) Unrealized holding gains and losses from investments classified as trading are reported in the ___________________________________.
Q4) Specifically identifiable intangible assets acquired from others may have either a ____________________ useful life or an ____________________ useful life.
Q5) Financial reporting requires firms to ____________________ immediately all R&D costs incurred internally.
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Chapter 9: Operating Activities
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Sample Questions
Q1) ____________________ differences result from including revenues and expenses in income before taxes in a different period than those items affect taxable income.
Q2) Derivatives are financial instruments that derive their value from changes in any of the following underlying securitiesexcept:
A) Stock prices
B) Percentage discount on accounts receivable
C) Interest rates
D) Commodity prices
Q3) The installment method of revenue recognition can be used when cash collectibility is uncertain.The installment method
A) requires that no income is recognized until all installments are received.
B) requires that gross profit is recognized as each installment payment is received.
C) requires that entire cost of the sale be recovered prior to any income being recognized.
D) allows revenue recognition at the time of the sale.
Q4) What are the foiur disclosures required by US.GAAP relating to income taxes?
Q5) ___________________________________ is primarily a question of timing.
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Chapter 10: Forecasting Financial Statements
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Sample Questions
Q1) The objective of forecasting is to develop
A) stand-alone financial statements for future analysis.
B) a set of realistic expectations for future value-relevant payoffs.
C) a balance sheet and income statement that articulate.
D) financial statements for comparison to industry averages.
Q2) As an analyst it is important when projecting sales to make estimates about future changes in sales volume.Compare how you might make estimates about future sales value for a company in a mature industry and one in a rapidly growing industry.
Q3) All of the following are true regarding projected financial statements except:
A) The statement of cash flows is the most critical forecast since it reflects profitability rather than viability.
B) Preparing projected financial statements must incorporate a company's past performance records.
C) Preparing projected financial statements must incorporate a company's current performance records.
D) The income statement demonstrates immediate capability to service debt for banks or real potential for growth in returns for venture capital.
Q4) The formula for forecasting inventory is ____________ /365 X .
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Page 12
Chapter 11: Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach
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Sample Questions
Q1) 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.
Q2) All of the following are steps in the analysis and valuation framework used to understand the fundamentals of a business and determine estimates of its value except: A) Analyze the firm's strategy in terms of the competition.
B) Assess the quality of the firm's accounting and financial reporting.
C) Derive forecasts of future earnings from the firm's projected financial statements.
D) Obtain the national ranking of the firm's external auditors.
Q3) Why do investors typically accept a lower risk-adjusted rate of return on debt capital than equity capital? Suppose a stable,financially healthy,profitable,tax-paying firm that has been financed with all equity and no debt decides to add a reasonable amount of debt to its capital structure.What effect will that change in capital structure likely have on the firm's weighted average cost of capital?
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Chapter 12: Valuation: Cash-Flow-Based Approaches
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Sample Questions
Q1) 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
Q2) Currently financial reporting does not take into account changes in prices,either at the general level or at the specific level.Many analysts believe that not taking price changes into account distorts the meaningfulness of financial reports.How do changing prices affect financial reports?
Q3) If an analyst wants to value a potential investment in the common stock equity in a 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) When should an analyst use nominal cash flows and when should an analyst use real cash flows?
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Page 14
Chapter 13: Valuation: Earnings-Based Approaches
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Sample Questions
Q1) Required earnings are the
A) adjusted net income multiplied by the required rate of return on common equity capital.
B) net income the analyst expects the firm to generate multiplied by the required rate of return on common equity capital.
C) the market value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital.
D) the book value of common equity capital at the beginning of the period multiplied by the required rate of return on common equity capital.
Q2) Explain required income.What does required income represent? How is required income conceptually analogous to interest expense?
Q3) ____________________ are the fundamental,value-relevant attribute of expected future returns.
Q4) Over sufficiently long periods,_________________________ equals free cash flows to common equity.
Q5) The foundation for residual income valuation is the classical _____________________________________________.
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15
Chapter 14: Valuation: Market-Based Approaches
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Sample Questions
Q1) Under the value-to-book model a firm will be valued below book value when A) the ROCE is greater than RE
B) the ROCE is equal to RE
C) the ROCE is less than RE
D) the firm's growth rate is above the industry average
Q2) All of the following are economic factors that can cause a firm's price-earnings ratio to be higher than that of other firms in the same industry except:
A) when investors expect that the firm's strategy enables it to generate and sustain greater profitability for a given cost of equity capital
B) when the firm earns the same profitability but with lower risk and, therefore, a lower cost of equity capital
C) a firm's business model that enables it to generate faster growth in earnings provided the growth creates positive residual ROCE
D) a firm's business model that results in slower growth in earnings and this creates negative residual ROCE
Q3) Industries with relatively high market-to-book ratios are more likely to have ___________________________________ assets.
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Page 16