Question 1

In calculating the book value per common share,total owners equity must be allocated to the respective common and preferred.

Accepted Answer

Book value per common share is calculated by dividing the total common shareholders' equity by the number of common shares outstanding. Total owners equity must be allocated to the respective common and preferred before calculating the book value per common share.

Question 2

If treasury stock is purchased and retired at a cost in excess of its book value,book value per share (for the remaining shares)will decrease.

Accepted Answer

When treasury stock is purchased and retired at a cost higher than its book value, it reduces the total equity more than the reduction in the number of shares, leading to a decrease in book value per share for the remaining shares.

Question 3

The allocation to the respective common and preferred equities in calculation of the book value per common share will depend upon the preferential rights of preferred shares.Liquidation,cumulative and participating preferences of the preferred shares must be satisfied; the balance of owners' equity then becomes the common share equity.

Accepted Answer

The answer of The allocation to the respective common and...

Question 4

Earnings per share is computed by dividing the number of shares issued into the net income for the period.

Accepted Answer

Earnings per share (EPS) is computed by dividing the net income for the period by the average number of shares outstanding during that period, not by the number of shares issued.

Question 5

It is possible for companies with revenues totalling in excess of $10 million dollars to be exempt from an audit.

Accepted Answer

In some countries, companies with revenues exceeding $10 million dollars may qualify for an exemption from a full audit under certain conditions, such as having fewer than a certain number of employees or shareholders. However, this varies by jurisdiction and the rules may differ depending on the industry or sector in which the company operates.

Question 6

Where there is a deficit in total owners' equity,the ratio of total liabilities to total assets will be greater than 1 to 1; e.g.,1.2 to 1.

Accepted Answer

The answer of Where there is a deficit in total...

Question 7

To apply a vertical analysis to the balance sheet,the base amount usually selected is:

Accepted Answer

In vertical analysis of a balance sheet, each item is expressed as a percentage of total assets, which is the base amount.

Question 8

IFRS standards require the presentation of comparative financial statements by most companies for the current year as well as:

Accepted Answer

IFRS standards generally require companies to present financial statements for the current year and one preceding year for comparison purposes.

Question 9

A company's return on investment is affected by the market price of its shares.

Accepted Answer

Return on investment (ROI) is calculated based on the company's net income and the initial investment cost, not the market price of its shares. The market price affects the market value but not the ROI directly.

Question 10

The current ratio is a measure of the adequacy of a company's working capital.

Accepted Answer

The current ratio compares a company's current assets to its current liabilities, which helps to assess whether the company has enough working capital to meet its short-term obligations. Therefore, it is a measure of the adequacy of a company's working capital.

Question 11

If a company's ratio of net income to net sales (generally referred to as profit margin)is low,then return on investment will be low.

Accepted Answer

A low profit margin does not necessarily result in a low return on investment (ROI). ROI is influenced by multiple factors including asset turnover and leverage, not just profit margins. A company can have a low profit margin but still achieve a high ROI if it efficiently utilizes its assets or leverages its operations effectively.

Question 12

An unqualified opinion is given if an audit has not been completed.

Accepted Answer

An unqualified opinion is given when an auditor concludes that the financial statements of a company are presented fairly, in all material respects, and in accordance with applicable financial reporting framework. It is not related to whether an audit has been completed or not.

Question 13

The negotiating of a collective agreement is a contractual decision that may necessitate the use of financial analysis.

Accepted Answer

This is true as financial analysis may be necessary to determine the financial implications of certain proposals or demands made during the negotiation process.

Question 14

Liquidity ratios essentially provide information about a company's ability to meet its short term obligations,while solvency ratios evaluate a company's long-term going-concern potential.

Accepted Answer

Liquidity ratios focus on short-term obligations and the ability to meet them quickly, while solvency ratios assess a company's long-term financial stability and viability.

Question 15

A price-earnings ratio of 10 to 1 implies an earnings rate on market value per share of 10%.

Accepted Answer

The answer of A price-earnings ratio of 10 to 1...

Question 16

Ratio analysis is aided by the presentation of comparative statements.

Accepted Answer

Comparative statements provide useful information for ratio analysis as they show changes or patterns over time, allowing for better interpretation of ratios and trends in a company's financial performance.

Question 17

Disclosure of significant accounting policies results from application of the:

Accepted Answer

The full disclosure principle requires that financial statements include all necessary information to understand the entity's financial condition and operating results, including significant accounting policies.

Question 18

A company which offers "n/15" credit terms assuming 360 days in year would be expected to have a receivable turnover of about 24 times a year.

Accepted Answer

"n/15" credit terms typically mean that the customer has "net" 15 days to make a payment. Assuming a 360-day year, this means that the company expects payment within 15/360 = 0.0417 or 4.17% of a year. Therefore, the receivable turnover would be approximately 1/0.0417 or 24 times a year.

Question 19

An adverse opinion is given if the auditor disagrees with the company on decisions made.This is generally not a serious condition as it relates only to a difference of opinion.

Accepted Answer

An adverse opinion is a serious condition that indicates the financial statements do not fairly represent the company's financial position or operations. It is given when the auditor believes there are material misstatements in the financial statements that are not corrected by management or when the scope of the audit is limited in a way that the auditor is unable to obtain sufficient evidence.

Question 20

The quick ratio will always be less than or equal to the current ratio.

Accepted Answer

The quick ratio is a more conservative measure of liquidity as it only considers cash, cash equivalents, and accounts receivable, while the current ratio includes all current assets. Therefore, the quick ratio is always lower than or equal to the current ratio.

Quiz 11: Financial Instruments: Investments in Bonds and Equity Securities