Question 1

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

Accepted Answer

Collections of accounts receivable is an operating activity as it relates to the primary operations of the business in generating revenue and receiving payment for goods or services provided to customers. Investing in equity securities, payment of dividends, and issuing common stock are all related to financing and investing activities.

Question 2

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

Accepted Answer

The IASB (International Accounting Standards Board) is an independent entity comprised of 15 members and a full-time professional staff that specifies acceptable accounting principles known as IFRS (International Financial Reporting Standards). FASB (Financial Accounting Standards Board) is a similar organization in the United States, but it does not set IFRS. The SEC (Securities and Exchange Commission) is a government agency that requires publicly-traded companies in the United States to follow GAAP (Generally Accepted Accounting Principles), which are a different set of accounting principles from IFRS.

Question 3

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 is a comprehensive annual report that provides detailed information about a company's financial performance, management discussions and analysis (MD&A), and the risks and opportunities in the industry it operates in. It also includes information on the company's competitors and the strategies they employ. Therefore, Form 10-K may be the best place to start learning about the economics of an industry and a firm's specific strategy for competing in that industry.

Question 4

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 involves creating unique products or services for specific market niches in order to achieve higher profit margins. The focus is on creating distinctiveness and value in the eyes of customers, rather than just competing on price (which would be a low-cost leadership strategy). Quality and vertical integration may be important components of a product differentiation strategy, but they alone do not capture the essence of this approach.

Question 5

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 assets that are expected to be sold or consumed during the normal operating cycle of a business, usually within one year. This includes cash and other assets such as inventory, accounts receivable, and short-term investments. Choice A only includes cash and cash equivalents, while choice B is too broad and does not specifically include assets expected to be sold or consumed in the near future. Choice D is incorrect because it implies that current assets can be held for longer than one year, which is not the case.

Question 6

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 options - evaluating the financial statements, describing strategies pursued by the firm, and identifying economic characteristics of industries - are all important building blocks for financial statement analysis.

Question 7

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) 4,6,2,5,1,3
D) 1,4,2,5,3,6

Accepted Answer

The proper order for preparing forecasted financial statements is: 4) Sales forecast, 1) Production budget, 5) Direct materials budget, 2) Direct labor budget, 6) Overhead budget, 3) Cash budget.

Question 8

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

Extraordinary gains and losses are defined as events that are unusual, nonrecurring, and material in amount. However, gains and losses that result from terminated involvement in a line of business are not considered extraordinary because they are expected to occur when a firm exits a particular business.

Question 9

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 independent auditors who evaluate the effectiveness of internal control systems and provide an opinion on the fairness of the amounts reported in the financial statements. Management Discussion and Analysis, Notes to the Financial Statements, and Management Assessments are all documents prepared by the company's management and provide information about the financial statements, but they do not provide assurance opinions on the effectiveness of internal controls or the fairness of the reported amounts.

Question 10

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 are the forces that represent vertical competition in a value chain. Vertical competition refers to the competition between firms at different stages of the value chain. In the case of buyer power, it is the power of the downstream firms to negotiate lower prices or better terms with their suppliers. In the case of supplier power, it is the power of the upstream firms to charge higher prices or dictate terms to their buyers.

Question 11

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. They analyze financial and economic data to estimate the value of a company and provide investment recommendations. They also monitor market trends and economic news to adjust their valuations and recommendations accordingly.

Question 12

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 on a company's assets, liabilities, and equity at a specific point in time. By analyzing the current assets and liabilities, one can determine whether the company has sufficient liquidity to pay for goods when payment is due in 30 days. The statement of cash flows would show cash inflows and outflows, but it does not provide a snapshot of the company's current financial position. The statement of stockholders' equity and income statement focus more on the company's earnings and how they are distributed to shareholders, rather than its current liquidity.

Question 13

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 can have either a positive or negative impact on the company's financial statements, and it must be both material in amount and unusual given the nature of the firm's activities. However, the fact that it requires a cash outflow is not a characteristic of an extraordinary item.

Question 14

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 true for pharmaceutical companies, the largest asset for a pharmaceutical company is typically its research and development, not Property, Plant, and Equipment. Grocery stores, on the other hand, typically require a significant amount of investment in tangible assets such as real estate, equipment, and inventory.

Question 15

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

The answer of Which forces typically represent horizontal competition in...

Question 16

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 a balance sheet is to report the financial position of the reporting entity at a particular point in time. It provides information about the entity's assets, liabilities, and equity, which are used to determine the entity's net worth at a given moment. It does not report the current value of the business or measure the net income of the business up to a particular point in time, nor does it report the difference between cash inflows and cash outflows for the period.

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 would not inhibit new entrants into a market. In fact, a lack of rivalry could make it easier for new entrants to enter and gain market share. The other options, such as existing technological expertise, large required capital investment, and existing patented technology, would likely keep new entrants out of the market or make it more difficult for them to compete.

Question 18

Which of these would be considered Property,Plant,and Equipment?
A) Trademark
B) Office Building
C) Patent
D) Goodwill

Accepted Answer

Property, Plant, and Equipment are tangible assets used in the operations of a business. The office building would be considered a tangible asset and therefore would be classified as Property, Plant, and Equipment. The other choices, such as a trademark, patent, and goodwill, are intangible assets and would not be considered Property, Plant, and Equipment.

Question 19

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

Accepted Answer

Dividends are distributions of the business's profits to its owners or shareholders, and are not considered an expense of the business itself. Depreciation, salaries, and advertising are all expenses that a business incurs in order to generate revenue.

Question 20

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 are collaborating to develop a single set of high-quality, global accounting standards known as International Financial Reporting Standards (IFRS).

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

Which of the following activities is an operating activity?

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

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:

Current assets are defined as:

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

Prepare forecasted financial statements. Which of the following is the proper order for these interrelated sequential steps?

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

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

Which forces typically represent vertical competition in a value chain?

What is the principal activity of security analysts?

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 a characteristic of an extraordinary item?

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?

The primary purpose of the balance sheet is to:

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

Which of these would be considered Property,Plant,and Equipment?

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

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