SAINT ACC498 module 1 pretest

Which of the following is true concerning bond covenants?
Bond
covenants are restrictions placed on bondholders to protect rights of equity
holders.
Violation
of a bond covenant requires that a company declares bankruptcy.
If
a company violates a bond covenant, it means it has failed to make interest or
principal repayments on debt in a timely manner.
Bond
covenants are legal restrictions placed in order to minimize the risk of
default on bonds.
Points Received: 2 of 2
Comments:
Question 2. Question
:
When preparing a projected income statement, which of the
following additional information, other than the financial statements would
probably not be relevant?
The
competitive environment
New
versus old store mix
Expected
capital expenditure
Expected
level of macroeconomic activity
Points Received: 2 of 2
Comments:
Question 3. Question
:
Which of the following combinations of accounting practices
will lead to the highest reported earnings in an inflationary environment?
Choice
A
Choice
B
Choice
C
Choice
D
Points Received: 2 of 2
Comments:
Question 4. Question
:
Reling Company reports the following information as of
12/31/05
The book value per
share of common stock is:
$12.20
$12.40
$15.25
$15.50
Points Received: 2 of 2
Comments:
Question 5. Question
:
You have been provided the following information about Wert
Inc.
Return on Assets for 2006 is:
13.71%
12.68%
10.77%
13.21%
Points Received: 2 of 2
Comments:
Question 6. Question
:
An analyst should
treat preferred stock on a firm’s balance sheet as debt when calculating
leverage ratios if the preferred stock is:
redeemable
by shareholders
convertible
into common stock
issued
at a variable dividend rate
callable
by the issuer
Points Received: 2 of 2
Comments:
Question 7. Question
:
Which of the following will affect observed price earnings
ratio (lagged ratio):
I. Quality of
earnings
II. Business risk
III. Risk free rate of interest
IV. Expected growth
All
of the above
IN II, III and IV
II
and IV
I,
II and IV
Points Received: 0 of 2
Comments:
Question 8. Question
:
A lessee must account for a lease as a capital lease if:
I. lease transfers ownership to lessee at the end of the
lease.
II. lease contains option to purchase the asset at the end
of the lease at a bargain price.
III. lease is longer than 20 years.
IV. present value of lease is greater than 10% of lessee’s
assets.
I
and II
I,
II and III
I,
III and IV
I,
II and IV
Points Received: 2 of 2
Comments:
Question 9. Question
:
Which of the following would be considered the most
discretionary of the following cash outflows?
Interest
payment
Payment
to suppliers
Repurchase
of stock
Dividend
payments
Points Received: 2 of 2
Comments:
Question 10. Question
:
Parent Company Inc. successfully bids for Child Company Inc.
in year X1. Parent Company Inc. has purchased all of Child’s shares outstanding
for $8,500. Following are excerpts from both companies’ financial statements
for year X1, prior to the acquisition.
Also assume the following information: the acquisition was
accounted for using the purchase method. $1,500 of the excess price relates to
depreciable assets, and those assets have an additional useful life of 10 years
at the time of the acquisition. Parent Company Inc. uses the straight line
depreciation method and has a 34% tax rate. The combined net income for both
companies for year X2 (excluding any expenses that need to be recorded as a
result of the purchase method accounting for the merger) was $1,560.
What would be total assets in the consolidated financial
statements for the date on which the merger became effective?
$50,008
$49,498
$41,508
$44,113
Points Received: 2 of 2
Comments:
Question 11. Question
:
WidgetCo and Tools Inc. both operate in the same industry.
They are capital-intensive companies producing widgets. Below are selected data
Which of the following statements is ?
Widget
has higher RNOA than Tools
Widget
has lower RNOA than Tools
Widget
has same RNOA as Tools
Insufficient
information to calculate RNOA
Points Received: 2 of 2
Comments:
Question 12. Question
:
One advantage of LIFO over FIFO under normal conditions is
that:
it
reports higher retained earnings.
it
results in higher cash flows.
it
results in higher current ratios.
it
results in higher gross margins.
Points Received: 2 of 2
Comments:
Question 13. Question
:
Which of the following is not a common tool used in
financial statement analysis?
Random
walk analysis
Ratio
analysis
Common
size statement analysis
Trend
series analysis
Points Received: 2 of 2
Comments:
Question 14. Question
:
The treasurer of Simmons Corporation, a newly formed
software company is trying to ascertain Simmons cash flows for the next three
months. Expected sales are:
50% of sales are made for cash. Simmons expects to receive
25% in the month following the sale and 20% in the second month following the
sale. The remaining 5% are expected to be un-collectible. Gross margin is 20%,
and purchases are made one month prior to sale. Purchases are paid one month
after received.
Cash outflows in March for purchases will be:
$240
$220
$200
$176
Points Received: 2 of 2
Comments:
Question 15. Question
:
Which of the following is a change in an accounting
estimate?
I. A change from straight line depreciation to an
accelerated depreciation method.
II. A change in estimated salvage value of depreciable
asset.
III. A change in estimated useful life of an asset.
IV. Recording depreciation for the first time on machinery
purchased five years ago.
I,
II, III and IV
II,
III and IV
I,
III and IV
II
and III
Points Received: 2 of 2
Comments:
Question 16. Question
:
If a company changes the useful life of its assets from 10
years to 12 years, this will be recorded as:
a
non-recurring gain.
an
extraordinary item.
a
change in accounting principle.
None
of the above
Points Received: 2 of 2
Comments:
Question 17. Question
:
Which of the following represents an investing
activity in the statement of cash flows
depreciation
of plant assets
sale
of plant assets at a loss
stock
dividend
purchase
of inventory
Points Received: 2 of 2
Comments:
Question 18. Question
:
Variability in earning numbers:
Is
desirable as it increases variance of earnings and hence value of stock options
Increases
if a company increases its operating leverage
Increases
if a company decreases its financial leverage
Is
independent of operating leverage
Points Received: 2 of 2
Comments:
Question 19. Question
:
What would be the net income in the consolidated income
statement for year X2 assuming any excess purchase price relates to goodwill,
and goodwill was found to be impaired by $830?
$1,461
$1,560
$1,012.2
$730
Points Received: 2 of 2
Comments:
Question 20. Question
:
Fristy Corporation has a book value of equity of $5,000 at
the beginning of 2005, and net income of $1,000 for year ended 2005. It pays no
dividends and its cost of equity capital is 10%. It expects return on beginning
of year equity to remain constant for 2006 and 2007 and decrease to 10%
thereafter. What should its price to book value be at the end of 2005 (pick
closest number)?
1.0
1.05
1.09
1.19
Points Received: 2 of 2
Comments:
Question 21. Question
:
Which of the following is not a common characteristic of a
company choosing to use LIFO rather than FIFO?
Larger
inventory balances
Higher
variability in inventory balances
Greater
expected tax savings
Larger
in size
Points Received: 2 of 2
Comments:
Question 22. Question
:
As a general rule, revenue is normally recognized when it
is:
measurable
and earned.
measurable
and received.
realizable
and earned.
realizable.
Points Received: 2 of 2
Comments:
Question 23. Question
:
An asset is considered to be liquid if:
it
is readily converted into a current asset.
it
is an intangible asset.
it
is readily converted into cash.
it
is part of retained earnings.
Points Received: 2 of 2
Comments:
Question 24. Question
:
The reliability of a
short-term cash forecast depends most heavily on the quality of:
Cost
of goods sold forecast
Current
ratio forecast
Sales
forecast
Shares
outstanding forecast
Points Received: 2 of 2
Comments:
Question 25. Question
:
Which of the following does not represent future expected
cash inflows?
accounts
receivable
prepaid
expenses
inventory
notes
receivable
Points Received: 2 of 2
Comments: