Question 1

Analytical review procedures may be performed at various times within the audit.

Accepted Answer

Analytical review procedures can be performed at various stages of an audit, including during planning, fieldwork, and final review. It is an important tool to detect any irregularities or inconsistencies in financial data and to ensure the accuracy of financial statements.

Question 2

The studies cited [(Barker,1999), (Demirakos et al,2003),and (Asquith et al,2004)],all agree on the fact that multi-period discounted valuation models seem to play a significant role in analysts' normal valuation activity.

Accepted Answer

The answer of The studies cited [(Barker,1999), (Demirakos et al,2003),and...

Question 3

The authors (Tom Copeland,Tim Keller,and Jack Morrin)maintain that the correct way to value dot.coms is by using the classic discounted-cash-flow (DCF)approach to valuating,reinforcing the continued importance of basic economics and finance.

Accepted Answer

The authors maintain that the correct way to value dot.coms is by using the classic discounted-cash-flow (DCF) approach to valuating, which is a method from basic economics and finance.

Question 4

The financial literature and valuation books strongly support the use of multiperiod discounted valuation model either in terms of earnings or cash flow.

Accepted Answer

Multiperiod discounted valuation model is widely accepted and used in financial literature and valuation books for both earnings and cash flow. This model takes into account the future expected cash flows and discounts them to their present value, providing an estimate of the company's worth or value. It is considered a more accurate and precise method of valuation compared to other models.

Question 5

The information on a firm's lifo reserve can be used to improve the analysis of inventory,liquidity in general,and the debt position.

Accepted Answer

The LIFO reserve, which represents the difference between inventory valued using LIFO and inventory valued using FIFO, can provide insights into a firm's inventory management practices, as well as its liquidity position and debt levels. For example, a large LIFO reserve may suggest that a firm is prioritizing inventory management over minimizing taxable income (since LIFO can result in lower taxes), while a negative LIFO reserve may indicate that a firm is experiencing rising inventory costs that could impact its profitability. Analyzing the LIFO reserve can also help investors and analysts understand a company's working capital needs and cash flow position.

Question 6

Usually,a company must make estimates in the preparation of financial statements as of a given date.

Accepted Answer

Financial statements usually require estimations, such as determining the useful life of assets, calculating depreciation and amortization expenses, and estimating allowances for bad debts. These estimations enable companies to report their financial position and performance fairly and accurately.

Question 7

Visually,a pie graph can mislead because of an illusion.

Accepted Answer

A pie graph can mislead because the angle and size of the slices can create an illusion of one slice being bigger or smaller than it actually is.

Question 8

Ideally,a proposed comprehensive budget should be compared with financial ratios that have been agreed upon as part of the firm's corporate objectives.

Accepted Answer

Evaluating a proposed budget with financial ratios that align with the firm's overall objectives is a best practice in financial planning and analysis.

Question 9

A decline in the acid-test ratio indicates a reduced ability to pay current liabilities with funds from the sale of inventory.

Accepted Answer

A decline in the acid-test ratio indicates a reduced ability to pay current liabilities without relying on the sale of inventory, as this ratio excludes inventory from current assets.

Question 10

Profitability ratios are the most likely ratios to be selected for corporate objectives.

Accepted Answer

Profitability ratios are often used to measure a company's ability to generate profits and are therefore commonly used as corporate objectives. These ratios include return on assets (ROA), return on equity (ROE), gross margin, and net profit margin. Other ratios such as liquidity, solvency, and efficiency ratios may also be important, but profitability ratios are often the primary focus for corporate objectives.

Question 11

The following data are presented for Hillsdale Company. $\begin{array}{llcc}
2012&  \text {Net income as reported   } & \$60,000 \
2012& \text { Inventory reserve  } &\$30,000\
 2011&\text {Inventory reserve   } &\$20,000\
2012& \text {Income taxes  } &\$20,000\
2012& \text {  Income hefnre incomp taxes} &\$80,000\
 \text {  } &\
\end{array}$
  
Required:
Compute the approximate income for 2012 if inventory had been valued at approximate current cost.

Accepted Answer

The answer of The following data are presented for Hillsdale...

Question 12

A column graph has columns in horizontal form.

Accepted Answer

A column graph has columns in vertical form, while a bar graph has bars in horizontal form.

Quiz 11: Expanded Analysis