Indicate the answer choice that best completes the statement or answers the question.

Name: Class: Date: Chapter 01: Overview of Financial Reporting, Financial Statement Analysis, and Valuation Powered by Cognero Page 1 Indicate the answer choice that best completes the statement or answers the question.

1.The tools for studying industry economics does not include:

• Value chain analysis
• Classification using Porter’s five forces
• Classification of cash flows
• Economic attributes framework

2.Which of the following is a question an analyst would ask when assessing the quality of a firm’s financial statements?

• Are the company’s products designed to meet a specific market segment?
• Has the firm integrated forward into retailing to final consumers?
• Is the firm diversified across several geographical markets?
• Do earnings include nonrecurring gains or losses?

3.Which of the following economic characteristics is consistent with a grocery store chain?

• Minimal competition
• Extensive competition
• High net income to sales
• Differentiated product

4.On a common size basis, which of the following assets is normally largest for an electric utility?

• Accounts receivable
• Inventory
• Property, Plant and Equipment
• Cash and Marketable Securities

5.On a common size basis, which of the following assets is normally largest for a commercial bank?

• Accounts and Notes Receivable
• Inventory
• Property, Plant and Equipment
• Cash and Marketable Securities

6.Which of the following is not one of Porter’s five forces?

• Buyer Power
• Supplier Power
• Threat of Regulation
• Threat of Substitutes

7.When assessing buyer power using Porter’s five forces, which of the following is not consistent with low buyer power?

• Brand loyalty
• Control of distribution channel
• Large number of suppliers
• Low price

8.The second step in financial statement analysis is to identify the company strategy. Which of the following is a question Financial Reporting, Financial Statement Analysis and Valuation, 10e James Wahlen, Stephen Baginski, Mark Bradshaw (Test Bank, All Chapters. 100% Original Verified, A+ Grade)

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an analyst should ask when performing a strategy analysis?

• Are industry sales growing rapidly or slowly?
• Do earnings include revenues that appear mismatched with the business model employed by the firm?
• Does the industry include a large number of firms selling similar products?
• What is the company’s degree of geographical diversification?

• The third step in financial statement analysis is to assess the quality of the firm’s financial statements. Which of the

following is a question an analyst should ask when performing this step?

• Are industry sales growing rapidly or slowly?
• Do earnings include revenues that appear mismatched with the business model employed by the firm?
• Does the industry include a large number of firms selling similar products?
• What is the company’s degree of geographical diversification?

10. An example of an intangible asset is:

• A patent
• Land
• Investment in another company
• Raw material inventory

• Which of the following would not appear as a liability on the balance sheet?
• A labor contract
• A note due to a bank
• Salary due employees at year-end
• Accounts payable

• Which of the following assets would appear on the balance sheet at an amount greatly below its fair market value?
• Inventory
• Marketable securities
• Equipment
• Brand name

13. The accrual basis of accounting recognizes:

• Revenue when cash is received from customers
• Expenses when paid
• Revenue when all or a substantial portion is performed
• Revenue when contracts are signed

• Which of the following is not an activity reported in the Statement of cash Flows?
• Operating
• Investing
• Manufacturing
• Financing

15. The cash basis method of accounting can be best described as:

• The recording of transactions and adjustments so that debits equal credits. 2 / 4

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• The method that equates assets with liabilities and owners’ equity.
• The method that recognizes revenue when money is received and expenses when money is paid.
• The method that matches incurred expenses with related revenues when they are earned.

16. A value chain for an industry sets forth:

• The layers of management the needed to be successful
• Sequence of activities involved in the creation, manufacture, and distribution of its products.
• Sequence of activities involved in a firm's research and development activities.
• Whether the industry is horizontally or vertically integrated.

• Which of the following economic characteristics is consistent with a commercial bank?
• Low barriers to entry.
• High levels of research and development.
• Low profit margin on lending activities.
• Low profit margin on fee-based financial services, such as merger consulting.

• Which of the following economic characteristics is consistent with a pharmaceutical company?
• Low barriers to entry.
• High levels of research and development.
• Low profit margins.
• Low business risk.

• Which of the following economic characteristics is consistent with a grocery store chain?
• Low barriers to entry.
• High levels of research and development.
• High profit margins.
• Low capital intensity.

• When attempting to identify the economic characteristics of the industry in which a particular firm participates an

analyst might ask which of the following questions?

• Does technological change play an important role in the firm maintaining a competitive advantage?
• Has the firm diversified across several geographic markets?
• Has the firm recognized revenues at the proper time?
• Has the firm structured transactions to make it look more profitable than economic conditions suggest?

• Which of the following would not inhibit new entrants into a market?
• Existing technological expertise.
• Large required capital investment.
• Lack of rivalry among current participants.
• Existing patented technology.

22. Current assets are defined as:

• Cash and cash equivalents.
• All assets expected to be quickly used by the firm. 3 / 4

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• Cash and other assets that the firm expects to sell or consume during the normal operating cycle of a business,

usually one year.

• Cash and other assets that the firm expects maintain for a period including the normal operating cycle of a

business, usually one year.

• Which of the following is not an expense of a business?
• Depreciation
• Dividends
• Salaries
• Advertising

• Which of the following is not a characteristic of an extraordinary item?
• Material in amount.
• Nonrecurring.
• Unusual given the nature of the firm’s activities.
• Requires a cash outflow.

• Which of the following activities is an operating activity?
• Collections of accounts receivable.
• Investing in equity securities of other companies.
• Payment of dividends.
• Issuing common stock

• What is the principal activity of security analysts?
• To assign credit ratings.
• To apply IFRS adjustments.
• To value firms.
• To assess the need for audits.

• All of the following are the building blocks for financial statement analysis except:
• Targeting growth opportunities that diversify exchange rates, risk exposure, and political uncertainty.
• Describing strategies that a firm pursues to differentiate itself from competitors in order to evaluate

competitive advantages, sustainability of the firm’s earnings, and its risks.

• Evaluating the financial statements, including the accounting concepts and methods that underlie them and the

quality of the information they provide

• Identification of the economic characteristics of the industries and the relation of those economic

characteristics to the various financial statement ratios.

• Which strategy is used when a firm is attempting to create unique products or services for particular market?
• A quality strategy
• A low-cost leadership strategy
• A vertical integration strategy
• A product differentiation strategy

• The following steps make up the steps in financial statement analysis:
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