Managerial Accounting
Midterm Exam
Course Introduction
Managerial Accounting focuses on the internal use of accounting information by managers to plan, control, and make informed business decisions. The course introduces cost behaviors, budgeting, performance evaluation, and various types of cost analysis techniques that aid in operational and strategic planning. Students learn how to analyze financial data, prepare budgets, perform variance analysis, and use relevant costing for decision-making processes within organizations, emphasizing how accounting tools and concepts support effective management and organizational objectives.
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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67 Verified Questions
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Sample Questions
Q1) Which of the following economic characteristics is consistent with a commercial bank?
A) Low barriers to entry.
B) High levels of research and development.
C) Low profit margin on lending activities.
D) Low profit margin on fee-based financial services, such as merger consulting.
Answer: C
Q2) When assessing the threat of new entrants what questions might an analyst ask about an industry?
Answer: 11ea92c5_78cc_030e_9469_c9fce0f4b575_TB5976_00
Q3) The threat of new entrants is measured by whether there are entry barriers, such as capital investment, ________________________________________, patents, or regulation that inhibit new entrants.
Answer: technological expertise
Q4) What is an industry's value chain?
Answer: The sequence of activities involved in the creation, manufacture and distribution of its products and services.
Q5) Normally, intense rivalries have a tendency to reduce ____________________. Answer: profitability
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Chapter 2: Asset and Liability Valuation and Income
Measurement
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49 Flashcards
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Sample Questions
Q1) Why might income tax expense on the income statement differ from actual income taxes paid to the government?
A) There are timing differences to when income is recognized and there are items that may or may not be subject to taxation.
B) The IRS uses the accrual method of calculating income.
C) Financial statement preparers can use an estimated tax rate.
D) The IRS requires deferral of most expenses.
Answer: A
Q2) A change in the _________________________ or _________________________ will not change a preset series of cash flows, however it will change the present value of those cash flows. Answer: interest rate, discount rate
Q3) What valuation methods reflect historical cost? Discuss the advantages and disadvantages of valuing assets and liabilities using historical valuations.
Answer: Valuation methods reflecting historical cost include: 11ea92c5_789d_2a81_9469_3720069b8771_TB5976_00 The main advantages of using historical valuations are simplicity, less subjectivity and reliability. The disadvantages include lack of relevance.
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Chapter 3: Income Flows Versus Cash Flows: Key
Relationships in the Dynamics of a Business
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Sample Questions
Q1) A company in the growth phase of its product life cycle will normally have the following pattern of cash flows
A) Negative cash flows from operations, negative cash flows from investing and positive cash flows from financing.
B) Negative or positive cash flows from operations, negative cash flows from investing and positive cash flows from financing.
C) Positive cash flows from operations, positive cash flows from investing and positive cash flows from financing.
D) Negative or positive cash flows from operations, negative cash flows from investing and negative cash flows from financing.
Answer: B
Q2) Cash collected from customers would appear in the operating activities section of a statement of cash flows prepared using the ____________________ method
Answer: indirect
Q3) ____________________ activities relate to transactions between the firm and its creditors and owners.
Answer: Financing
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Page 5
Chapter 4: Profitability Analysis
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Sample Questions
Q1) EPS is an ambiguous measure of profitability because it reflects operating performance in the numerator and ________________________________________ in the denominator.
Answer:
Q2) In order to measure how profitable a firm is in generating a return for its common shareholders a financial analyst would examine the return on _____________________________________________.
Answer:
Q3) Firms that have either convertible securities or stock options or warrants outstanding have __________________________________________________.
Answer:
Q4) Return on common stockholders' equity can be disaggregated into profit margin, asset turnover and __________________________________________________.
Answer:
Q5) Firms with ____________________ levels of operating leverage experience greater variability in their return on assets.
Answer:
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Chapter 5: Risk Analysis
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Sample Questions
Q1) Economic theory teaches that differences in market returns must relate to differences in
A) book value
B) perceived risk
C) price-earnings ratio
D) bankruptcy risk
Q2) In bankruptcy prediction analysis a type ____________________ error is classifying a firm as bankrupt and it ultimately survives.
Q3) Discuss the differences between Chapter 7 and Chapter 11 bankruptcy filings?
Q4) Refer to the financial statement data for Patriot Comp. for 2006 and 2005. Complete the table by computing the ratios.
Q5) The source of risk related to technology, regulation and availability of raw materials is ____________________.
Q6) The ________________________________________ ratio indicates the number of times that net income before interest expense and income taxes exceeds interest expense.
Q7) Financially healthy firms frequently close any cash flow gap in their operating cycles with ________________________________________.
Page 7
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Chapter 6: Quality of Accounting Information and Adjustments to Reported Financial Statement Data
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Sample Questions
Q1) The date on which a firm commits itself to a formal plan to dispose of a segment is the
A) disposal date
B) measurement date
C) commitment date
D) sale date
Q2) Healy and Wahlen state that one type of earnings management occurs when managers use judgement in financial reporting to alter financial reports in order to mislead some stakeholder about the economic performance of the company. Earnings management is a consequence of a judgement by management which results in lower economic information content of the financial reports. Discuss four reasons that discourage managers from practicing earnings management.
Q3) When evaluating the quality of accounting information the user should consider the ____________________ of the measurements made.
Q4) Gains and losses differ from revenues and expenses in that they are produced by ____________________ activities.
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Page 8
Chapter 7: Revenue Recognition and Related Expenses
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Sample Questions
Q1) ___________________________________ is primarily a question of timing.
Q2) Most publicly traded firms in the United States use the _________________________ method of depreciation.
Q3) 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?
Q4) A contractor would not use ________________________________________ method of income recognition when there is substantial uncertainty regarding the total costs it will incur in completing the project. or
Q5) A company that uses LIFO will experience a ______________________________ during a period it sells more units than it purchases.
Q6) Under current accounting rules an asset is ____________________ when its carrying amount is deemed "not recoverable".
Page 9
Q7) A Company that uses FIFO will find that its ___________________________________ account tends to be somewhat out of date.
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Chapter 8: Liability Recognition and Related Expenses
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Sample Questions
Q1) The lessor in a capital lease recognizes both a(n) ____________________ and ____________________ equal to the present value of all future cash flows.
Q2) Derivative instruments acquired to hedge exposure may be classified as either a fair value hedge or a cash flow hedge. Distinguish between the two types of hedges.
Q3) ____________________ over sufficiently long time periods equals cash inflows minus cash outflows from operating, investing, and financing activities
Q4) Derivative instruments acquired to hedge exposure to changes in the fair value of an asset or liability are ______________________________ hedges.
Q5) Derivative instruments acquired to hedge exposure to variability in expected future cash are _________________________ hedges.
Q6) An agreement in which a purchaser agrees to pay specified amounts periodically to a seller for products or services is known as a ________________________________________.
Q7) Liabilities requiring the future delivery of goods or services appear on the balance sheet at the ______________________________ of those goods and services.
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10
Chapter 9: Intercorporate Entities
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Q1) 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?
Q2) When a company has a minority passive investment it will recognize changes in the market value of the investment as ____________________ gains and losses.
Q3) 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
Q4) An investing firm consolidates the variable interest entity if it absorbs the majority of the entity's expected ____________________ if they occur, receives a majority of the entity's expected ______________________________ if they occur, or both.
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Page 11
Chapter 10: Forecasting Financial Statements
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Sample Questions
Q1) Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity. Which of the following companies would most likely not be able to increase prices in the near future?
A) A firm in a capital intensive industry that is expected to operate near capacity for the near future.
B) A firm in a capital intensive industry in which excess capacity exists.
C) A firm operating in an industry that is expected to maintain its current production processes.
D) A firm operating in an industry that is transitioning from the introduction phase to the high growth phase of its life cycle.
Q2) To develop forecasts of individual assets the analyst must first link historical growth rates for individual assets to historical growth rates in ____________________ and other activity-based drivers.
Q3) For some types of assets, such as accounts receivable asset growth typically ____________________ future sales growth.
Q4) The analyst can capture projected levels of operating activity by using ______________________________ to develop forecasts for individual assets.
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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) To determine the appropriate weights to use in the weighted average cost of capital, an analyst will need to determine the ______________________________ of the debt, preferred stock and common equity capital.
Q5) Under the assumption of clean surplus accounting how would you compute total dividends paid to common equityholders in order to value the firm?
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Chapter 12: Valuation: Cash-Flow-Based Approaches
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Sample Questions
Q1) Operating liabilities include all of the following except A) accounts payable
B) pension obligations
C) accrued taxes
D) long-term debt
Q2) 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
Q3) If an analyst wants to value a potential investment in the common stock equity of a firm the analyst should discount the projected free cash flows at the
A) required return on equity capital
B) weighted average cost of capital
C) risk free rate
D) market risk premium
Q4) 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) Over sufficiently long periods, _________________________ equals free cash flows to common equity.
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) 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
Q4) Clean surplus accounting means that ____________________ include all direct capital transactions between the firm and the common equity shareholders.
Q5) What is meant by the term clean surplus accounting?
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Chapter 14: Valuation: Market-Based Approaches
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Q1) The ______________________________ represents the value of the firm, based on book value of equity and forecasts of expected future earnings, in the absence of discounting for risk.
Q2) Valuation using market multiples captures
A) absolute valuation per dollar of book value or per dollar of earnings.
B) dollar of book value or dollar of earnings per dollar of common equity.
C) relative valuation per dollar of book value or per dollar of earnings.
D) intrinsic valuation per dollar of book value or per dollar of earnings.
Q3) Sometimes a high market to book ratio is a result of having __________________________________________________.
Q4) A company is expected to have a value of $142,857 at the start of next period and investors require a 14 percent return on equity capital. Using the assumptions of the price-earnings ratio what would be the company's earnings for the current year?
A) $20,000
B) $14,286
C) $2,800
D) $12,500
Q5) The risk of the firm increases the _____________________________________________.
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