Test Bank all - Chapter 1—Overview of Financial Reporting, Fi...

Financial Reporting Financial Statement Analysis and Valuation, 9e James Wahlen, Stephen Baginski, Mark Bradshaw (Test Bank all Chapters)

• / 4

1-1

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 1—Overview of Financial Reporting, Financial Statement Analysis, and Valuation

MULTIPLE CHOICE

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

ANS: C PTS: 1

• 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?

ANS: D PTS: 1

• Which of the following economic characteristics is consistent with a grocery store chain?
• Minimal competition
• Extensive competition
• High net income to sales
• Differentiated product

ANS: B PTS: 1

• 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

ANS: C PTS: 1

• 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

ANS: A PTS: 1

• Which of the following is not one of Porter’s five forces?
• Buyer Power
• Supplier Power
• Threat of Regulation
• Threat of Substitutes

ANS: C PTS: 1 2 / 4

1-2

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• 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

ANS: C PTS: 1

• The second step in financial statement analysis is to identify the company strategy. Which of the

following is a question 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?

ANS: D PTS: 1

• 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?

ANS: B PTS: 1

10. An example of an intangible asset is:

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

ANS: A PTS: 1

• 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

ANS: A PTS: 1

• 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

ANS: D PTS: 1 3 / 4

1-3

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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

ANS: C PTS: 1

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

ANS: C PTS: 1

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

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

ANS: C PTS: 1

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.

ANS: B PTS: 1

• 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.

ANS: C PTS: 1

• 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.

ANS: B PTS: 1

• Which of the following economic characteristics is consistent with a grocery store chain?
• Low barriers to entry.
• High levels of research and development.
• / 4