Question 1

Shareholders demand financial information primarily to assess profitability and risk whereas bankers demand information primarily to assess cash flows to repay loan interest and principal.

Accepted Answer

Shareholders are interested in profitability and risk to evaluate their investment's performance and potential growth, while bankers focus on cash flows to ensure the borrower can meet their loan repayment obligations.

Question 2

Publicly traded companies are required to provide quarterly financial reports directly to the public.

Accepted Answer

Publicly traded companies are required to file quarterly financial reports with the Securities and Exchange Commission (SEC), which then makes them available to the public.

Question 3

Publicly traded companies provide financial information primarily to satisfy the SEC and the tax authorities (that is, the Internal Revenue Service).

Accepted Answer

Publicly traded companies provide financial information primarily to inform investors and stakeholders, ensuring transparency and aiding in investment decisions, while also complying with SEC regulations and tax requirements.

Question 4

Publicly traded companies must provide to the Securities Exchange Commission annual audited financial statements (10-K reports) and quarterly audited financial statements (10-Q reports).

Accepted Answer

Publicly traded companies are required to provide annual audited financial statements (10-K reports) to the Securities Exchange Commission (SEC), but their quarterly financial statements (10-Q reports) are not required to be audited.

Question 5

If a company reports retained earnings of $175.3 million on its balance sheet, it must also report $175.3 million in cash.

Accepted Answer

Retained earnings represent the cumulative amount of net income a company keeps after paying dividends to shareholders, not necessarily the amount of cash available.

Question 6

A balance sheet shows a company's position over a period of time, whereas an income statement, statement of stockholders' equity, and statement of cash flows show its position at a point in time.

Accepted Answer

A balance sheet shows a company's financial position at a specific point in time, whereas an income statement, statement of stockholders' equity, and statement of cash flows show its financial performance over a period of time.

Question 7

The income statement reports net income which is defined as the company's profit after all expenses and dividends have been paid.

Accepted Answer

The income statement reports net income which is defined as the company's profit after all expenses have been paid, but before dividends are distributed. Dividends are not an expense but a distribution of earnings to shareholders and are accounted for separately from net income.

Question 8

An increase in common stock would be reflected in the statement of stockholders' equity.

Accepted Answer

An increase in common stock is directly reflected in the statement of stockholders' equity as it is a component of shareholders' equity, showing changes in the equity section of the balance sheet.

Question 9

Return on Assets (ROA) measures the profit the company makes on each dollar of total assets it uses.

Accepted Answer

ROA is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources (total assets). It indicates how efficiently a company is using its assets to generate earnings.

Question 10

Return on Assets (ROA) = (Net Income / Sales) × Asset Turnover

Accepted Answer

ROA is calculated by dividing net income by sales and then multiplying the result by asset turnover.

Question 11

Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its' higher asset turnover, is less profitable because it requires more revenue to turn its assets over.

Accepted Answer

A higher asset turnover ratio indicates that Company B is more efficient at using its assets to generate revenue, which could lead to higher profitability, not less, assuming profit margins are equal.

Question 12

Financial statements are influenced by five important forces that determine a company's competitive intensity: (A) industry competition, (B) buyer power, (C) supplier power, (D) product substitutes, and (E) threat of entry.

Accepted Answer

These five forces are part of Porter's Five Forces framework, which analyzes the competitive environment of an industry and can influence a company's financial performance.

Question 13

A "clean" audit report asserts-among other things-that (a) the auditor has prepared all necessary financial statements and (b) management has expressed its opinion that they are prepared in conformity with GAAP.

Accepted Answer

A "clean" audit report, also known as an unqualified opinion, asserts that the financial statements are prepared by management and are presented fairly in all material respects in accordance with GAAP (Generally Accepted Accounting Principles). The auditor's role is to audit these statements and express an opinion on their fairness, not to prepare the financial statements or express management's opinion.

Question 14

Which of the following groups would likely not be interested in the financial statements of a large public company such as Procter & Gamble?

Accepted Answer

All the groups listed (shareholders, employees, competitors, and taxing agencies) have a vested interest in the financial statements of a large public company like Procter & Gamble. Shareholders are interested in the company's profitability and financial health; employees may be interested in the company's stability and prospects for raises or bonuses; competitors might look for insights into the company's strategy or financial performance; and taxing agencies require financial statements to assess tax liabilities.

Question 15

The SEC adopted Regulation FD, to curb public companies' practice of:

Accepted Answer

Regulation FD (Fair Disclosure) was adopted by the SEC to address the issue of selective disclosure, where public companies would disclose material nonpublic information to certain investors or analysts before making the information available to the general public. This regulation aims to promote full and fair disclosure.

Question 16

A list of assets, liabilities and equity can be found on which of the following?

Accepted Answer

The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, listing its assets, liabilities, and equity.

Question 17

Which of the following items would not be found on a balance sheet? (Select all that apply)

Accepted Answer

Dividends are not found on a balance sheet because they are a distribution of profits to shareholders and are not considered an asset or liability.

Question 18

A company's net cash flow will equal its net income …

Accepted Answer

Net cash flow and net income rarely equal each other because net income includes non-cash items like depreciation and amortization, while net cash flow accounts for actual cash in and out, including investing and financing activities.

Question 19

Which of the following statements are correct (select all that apply)?

Accepted Answer

The answer of Which of the following statements are correct...

Question 20

The Goodyear Tire & Rubber Company's December 31, 2016 financial statements reported the following (in millions):
 What did Goodyear report for retained earnings at December 31, 2016?

Accepted Answer

The answer of The Goodyear Tire & Rubber Company's December...

Quiz 1: Financial Accounting for MBAS