Question 1

Extraordinary gains and losses arise from events that have all the following characteristics except:
A) they are unusual given the nature of the firm's activity.
B) they are nonrecurring.
C) they are material in amount.
D) they result from terminated involvement in a line of business.

Accepted Answer

The termination of involvement in a line of business does not necessarily make an event extraordinary, as it may be a normal part of the firm's activity. Therefore, events that result from terminated involvement in a line of business are not always considered extraordinary gains or losses.

Question 2

All of the following are reasons that pharmaceutical companies have higher barriers for entry than grocery stores except:
A) There is lengthy government testing and approval required.
B) Research and development is a lengthy and uncertain process.
C) Patent protection is needed for exclusive rights.
D) The largest asset is typically capital intensive Property, Plant and Equipment.

Accepted Answer

While all of the options may be barriers for entry into the pharmaceutical industry, the largest asset for pharmaceutical companies is actually their intellectual property, or specifically their drug patents. Grocery stores may also have property, plant, and equipment, but it is not their largest asset and does not typically require the same level of investment as pharmaceutical research and development.

Question 3

Which forces typically represent horizontal competition in a value chain?
A) rivalry among existing firms and supplier power.
B) potential entry and buyer power.
C) substitutes and potential entry.
D) buyer power and supplier power.

Accepted Answer

Horizontal competition in a value chain typically involves substitutes and potential entry, as these forces directly compete with existing firms in the same market level.

Question 4

Current assets are defined as
A) cash and cash equivalents.
B) all assets expected to be quickly used by the firm.
C) cash and other assets that the firm expects to sell or consume during the normal operating cycle of a business, usually one year.
D) cash and other assets that the firm expects maintain for a period including the normal operating cycle of a business, usually one year.

Accepted Answer

Current assets are defined as cash and other assets that the firm expects to sell or consume during the normal operating cycle of a business, usually one year. This includes inventory, accounts receivable, and prepaid expenses, in addition to cash and cash equivalents. Option A is too narrow as it only includes cash and cash equivalents. Option B is too general as it includes all assets that are quickly used by the firm, rather than specifically those that will be sold or consumed within a year. Option D is incorrect as it includes assets that will be held for a period longer than the normal operating cycle of a business.

Question 5

Opinions on the effectiveness of the internal control system and the fairness of the amounts reported in the financial statements are known as:
A) Management Discussion and Analysis.
B) Assurance Opinions.
C) Notes to the Financial Statements
D) Management Assessments.

Accepted Answer

Assurance opinions are provided by external auditors who assess the effectiveness of the company's internal control system and provide an opinion on the fairness of the amounts reported in the financial statements. Management discussion and analysis is a section in the annual report where management provides an overview of the company's performance and outlook. Notes to the financial statements provide additional details and explanations about the information presented in the financial statements. Management assessments are evaluations conducted by the company's management on its own internal control system.

Question 6

Which of the following is an independent entity comprising 15 members and a full-time professional staff that specifies acceptable accounting principles known as the IFRS?
A) FASB
B) IASB
C) SEC
D) GAAP

Accepted Answer

The independent entity comprising 15 members and a full-time professional staff that specifies acceptable accounting principles known as the International Financial Reporting Standards (IFRS) is the International Accounting Standards Board (IASB). FASB (A) stands for the Financial Accounting Standards Board, which sets accounting standards for U.S. companies, while SEC (C) stands for the Securities and Exchange Commission, which is a government agency responsible for regulating securities markets. GAAP (D) stands for Generally Accepted Accounting Principles, which are accounting standards used in the United States.

Question 7

The primary purpose of the balance sheet is to:
A) report the current value of the business.
B) measure the net income of a business up to a particular point in time.
C) report the difference between cash inflows and cash outflows for the period.
D) report the financial position of the reporting entity at a particular point in time.

Accepted Answer

The primary purpose of the balance sheet is to report the financial position of the reporting entity at a particular point in time. It provides information on the assets, liabilities, and equity of the business, and serves as a snapshot of the company's financial standing. It does not measure the net income or cash flows for a particular period.

Question 8

What is the principal activity of security analysts?
A) to assign credit ratings.
B) to apply IFRS adjustments.
C) to value firms.
D) to assess the need for audits.

Accepted Answer

The principal activity of security analysts is to value firms by analyzing financial statements, economic indicators, market trends, and other relevant information to determine a fair price for a company's stock or other securities. They also provide recommendations to buy, hold, or sell securities based on their analysis. Assigning credit ratings, applying IFRS adjustments, and assessing the need for audits are not typically within the scope of security analysts' responsibilities.

Question 9

Which of the following is not a characteristic of an extraordinary item?
A) Material in amount.
B) Nonrecurring.
C) Unusual given the nature of the firm's activities.
D) Requires a cash outflow.

Accepted Answer

An extraordinary item does not necessarily require a cash outflow. It could be a gain or loss that is nonrecurring and unusual given the company's nature of business.

Question 10

Which of these is not an intangible asset?
A) trademark
B) patent
C) equipment
D) goodwill

Accepted Answer

Intangible assets are non-physical assets that have value to a company. Trademarks, patents, and goodwill are examples of intangible assets. Equipment is a physical asset and is, therefore, not an intangible asset.

Question 11

Which financial statement would you look at to determine whether a company will be able to pay for the goods when payment is due in 30 days?
A) statement of cash flows.
B) statement of stockholders' equity.
C) income statement.
D) balance sheet.

Accepted Answer

The balance sheet provides information about a company's assets and liabilities, including its current assets and current liabilities. If the company has enough current assets (such as cash or accounts receivable) to cover its current liabilities (such as accounts payable), it is more likely to be able to pay for the goods when payment is due in 30 days. The statement of cash flows shows changes in cash and cash equivalents during a period, but it does not provide information about current assets and liabilities. The statement of stockholders' equity and income statement also do not provide this information.

Question 12

Which of the following is not an expense of a business?
A) Depreciation
B) Dividends
C) Salaries
D) Advertising

Accepted Answer

Dividends are payments made to shareholders as a share of the company's profits, and are not considered an expense of the business. Depreciation, salaries, and advertising are all expenses incurred by the business in order to generate revenue.

Question 13

Which forces typically represent vertical competition in a value chain?
A) potential entry and substitutes.
B) buyer power and rivalry among existing firms
C) supplier power and potential entry.
D) buyer power and supplier power

Accepted Answer

Buyer power and supplier power represent the forces of vertical competition in a value chain. Buyer power refers to the bargaining power of buyers to negotiate prices, quality, and services from the suppliers. Supplier power refers to the bargaining power of suppliers to negotiate prices, delivery, and terms with the buyers. These two forces represent the upward and downward pressure in the value chain, respectively. The other options (A, B, and C) represent the forces of horizontal competition or substitution.

Question 14

The following steps make up the steps in financial statement analysis. 1.Identify the strategies the firm pursues to gain and sustain a competitive advantage.
2)Analyze the current profitability and risk of the firm using information in the
Financial statements.
3)Value the firm.
4)Identify the economic characteristics and competitive dynamics of the industry in
Which a particular firm participates.
5)Assess the quality of the firm's financial statements and,if necessary,adjust them for
Such desirable characteristics as sustainability or comparability.
6)Prepare forecasted financial statements.
Which of the following is the proper order for these interrelated sequential steps?
A) 4,1,5,2,6,3
B) 1,2,3,4,5,6
C) 1,4,2,5,6,3
D) 1,4,2,5,3,6

Accepted Answer

The correct order for financial statement analysis is: 4) Identify the economic characteristics and competitive dynamics of the industry, 1) Identify the strategies the firm pursues, 5) Assess the quality of the firm's financial statements, 2) Analyze the current profitability and risk, 6) Prepare forecasted financial statements, and 3) Value the firm.

Question 15

Which of the following activities reported in the Statement of Cash Flows is not a financing activity?
A) Repayment of outstanding debt.
B) Investing in equity securities of other companies.
C) Payment of dividends.
D) Issuing debt.

Accepted Answer

Investing in equity securities of other companies is categorized as an investing activity, not a financing activity. The other options listed are all financing activities as they involve obtaining or repaying money from lenders or investors.

Question 16

Which two organizations are working together to harmonize financial reporting worldwide?
A) FASB and IASB
B) GAAP and FASB
C) SEC and FASB
D) EU and SEC

Accepted Answer

FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) are working together to harmonize financial reporting worldwide. They have been working on the convergence project since 2002 to develop a set of high-quality, compatible accounting standards that can be used globally.

Question 17

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

Accepted Answer

Lack of rivalry among current participants could actually encourage new entrants as it may indicate a less competitive market. The other options - existing technological expertise, large required capital investment, and existing patented technology - would all provide barriers to entry for new competitors.

Question 18

Which SEC form may be the best place to start learning about the economics of an industry and the particular strategy a firm has selected for competing in the industry?
A) Form 8-K
B) Form 10-K
C) Form MD&A
D) Form FSAP

Accepted Answer

Form 10-K includes a detailed analysis of a company's financial statements, operations, and risks, as well as a discussion of the industry and market competition. This makes it a good place to start learning about a firm's strategy for competing in its industry and the economic conditions of the industry.

Question 19

When a firm attempting to create unique products or services for particular market niches,in order to achieve relatively high profit margins,this is best known as
A) a quality strategy
B) a low-cost leadership strategy
C) a vertical integration strategy
D) a product differentiation strategy

Accepted Answer

A product differentiation strategy is about creating unique products or services for particular market niches in order to achieve relatively high profit margins. This strategy involves investing in research and development and marketing efforts to differentiate a firm's products from its competitors in the market. By offering differentiated products, the firm can charge a premium price and enjoy higher profit margins.

Question 20

All of the following are the building blocks for financial statement analysis except:
A) Targeting growth opportunities that diversify exchange rates, risk exposure, and political uncertainty.
B) 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.
C) Evaluating the financial statements, including the accounting concepts and methods that underlie them and the quality of the information they provide.
D) Identification of the economic characteristics of the industries and the relation of those economic characteristics to the various financial statement ratios.

Accepted Answer

Targeting growth opportunities that diversify exchange rates, risk exposure, and political uncertainty is not a building block for financial statement analysis. The other three options are the building blocks for financial statement analysis.

Quiz 1: Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Extraordinary gains and losses arise from events that have all the following characteristics except:

All of the following are reasons that pharmaceutical companies have higher barriers for entry than grocery stores except:

Which forces typically represent horizontal competition in a value chain?

Current assets are defined as

Opinions on the effectiveness of the internal control system and the fairness of the amounts reported in the financial statements are known as:

Which of the following is an independent entity comprising 15 members and a full-time professional staff that specifies acceptable accounting principles known as the IFRS?

The primary purpose of the balance sheet is to:

What is the principal activity of security analysts?

Which of the following is not a characteristic of an extraordinary item?

Which of these is not an intangible asset?

Which financial statement would you look at to determine whether a company will be able to pay for the goods when payment is due in 30 days?

Which of the following is not an expense of a business?

Which forces typically represent vertical competition in a value chain?

Which of the following activities reported in the Statement of Cash Flows is not a financing activity?

Which two organizations are working together to harmonize financial reporting worldwide?

Which of the following would not inhibit new entrants into a market?

Which SEC form may be the best place to start learning about the economics of an industry and the particular strategy a firm has selected for competing in the industry?

When a firm attempting to create unique products or services for particular market niches,in order to achieve relatively high profit margins,this is best known as

All of the following are the building blocks for financial statement analysis except: