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Which of the following statements concerning quality of earnings is correct?

1) All other things being equal, the more cyclical the industry within which a company operates, the lower its quality of earnings.
2) The smoother the earnings stream of a company, the greater the quality of the earnings.
3) Quality of earnings is independent of business risk.
4) Quality of earnings is largely beyond management's control.

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Collen Von
Collen VonLv2
28 Sep 2019

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8. Your company issued bonds at a premium. Which of the following statements is NOT true?
A. The contra account, premium on bonds payable, is amortized each year by shifting part of its balance to interest expense.
B. On the date of issuance, the stated interest rate was greater than the market interest rate.
C. As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond.
D. The account used to record the premium has a normal debit balance.

9. Which of the following would help a company improve its quick ratio without necessarily lowering the liability risk to a creditor?
A. Borrowing money on a long-term note just before the end of the accounting period.
B. Shifting resources from long-term assets to short-term assets such as supplies and inventory.
C. Shifting obligations from long-term liabilities to short-term liabilities.
D. Acquiring inventory by issuing a long-term note.

10. Which of the following is not used to calculate the times interest earned ratio?
A. Net income.
B. Income tax expense.
C. Interest earned on investments.
D. Interest expense.

11. Which of the following statements regarding treasury stock is true?
A. When a company reissues treasury stock for more than it originally paid for the stock, it does not report a gain.
B. When a company purchases treasury stock or pays a dividend, it increases total stockholders' equity.
C. Treasury stock is reported as an asset on the balance sheet.
D. Treasury stock is reported as issued and outstanding stock.

16. Typically, all other things equal, a profitable company that pays little or no dividends:
A. is a bad investment.
B. will reinvest profits which can lead to greater growth potential.
C. will experience relatively stable stock prices over time.
D. will appeal to investors who desire distributions of profit.

17. If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is:
A. Dividends Payable.
B. Common Stock.
C. Share Capital.
D. Retained Earnings.

20. Limited Liability Companies (LLCs) are like general partnerships in that:
A. income tax is not paid by the company itself.
B. the business has a separate legal identity.
C. liability is limited.
D. amounts paid to the owners are recorded as salaries expense.

21. Which of the following statements regarding financing activities is NOT true?
A. Cash dividends paid to a company's stockholders are reported as cash outflows from financing activities.
B. When a company issues stock for cash, it reports a cash inflow from financing activities.
C. When a company repurchases stock with cash, it reports a cash outflow for financing activities.
D. When a company repays a loan, it reports a cash outflow from investing activities.

22. Which of the following statements regarding quality of income ratio is NOT true?
A. A quality of income ratio will increase if a company's working capital management allows current assets such as inventory to increase out of control.
B. Variations in the ratio can be seasonal and are the result of sales fluctuations rather than reasons for alarm.
C. The quality of income ratio measures the portion of income that was generated in cash.
D. The quality of income ratio is useful when compared to industry competitors or to prior periods.

23. Which of the following types of information is not provided by the statement of cash flows?
A. Company management of current assets and liabilities.
B. Expenditures on long-term assets.
C. Current profitability as measured by specific revenues and expenses.
D. Reliance on external financing.

24. Cash and cash equivalents include:
A. assets that have stable long-term value.
B. assets that are short-term, highly liquid, and are purchased within three months of maturity.
C. assets that consistently grow in value over the long run.
D. assets that are expected to be used up within a year.

QUESTION 1

Determine the cost of sales for a firm with the following financial ratios and data:

Current ratio = 3.0; Quick ratio = 2.0; Current liabilities $1,000,000; Inventory turnover 6 times

a.

$6,000,000
b.

$3,000,000
c.

$2,000,000
d.

$1,000,000

8.3 points

QUESTION 2

What would be the times interest earned of a company, if its total interest charges are $20,000, sales are $220,000, and its net profit margin is 6 percent? Assume a tax rate of 40 percent.

a.

2.65
b.

2.1
c.

1.1
d.

1.2

8.3 points

QUESTION 3

A firm's current ratio is 1.5 and its quick ratio is 1.0. If its current liabilities are $10,000, what are its inventories?

a.

$20,000
b.

$ 5,000
c.

$10,000
d.

$15,000

8.3 points

QUESTION 4

If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must

a.

increase its equity multiplier
b.

increase sales and increase assets
c.

decrease its equity multiplier
d.

reduce sales and increase assets

8.3 points

QUESTION 5

The sales-to-inventory ratio:

a.

is technically inferior to other commonly used ratios.
b.

is superior to the inventory turnover ratio.
c.

as a determination of financial performance, is good comparison tool.
d.

was developed by the Dupont Corporation and is satisfactory when used to make comparisons between the firm and the industry as a whole.

8.5 points

QUESTION 6

Primary sources of comparative financial data include

a.

Dun and Bradstreet
b.

Richard Moore, Inc.
c.

Framingham Financial Library
d.

New York Times

8.3 points

QUESTION 7

____ indicate the ability of the firm to meet its short-term financial obligations

a.

Leverage ratios
b.

Profitability ratios
c.

Activity ratios
d.

Liquidity ratios

8.3 points

QUESTION 8

If a firm’s common size income statement shows that the earnings after tax percentage is too low, the firm may have spent too much money:

a.

on total assets as a percentage of long-term liabilities.
b.

on cost of goods sold as a percentage of sales.
c.

on taxes paid as a percentage of stockholders’ equity.
d.

on expenses as a percentage of current assets.

8.3 points

QUESTION 9

The ____ ratio indicates the percentage of a firm's earnings that are distributed as dividends.

a.

payout
b.

earnings
c.

return on earnings
d.

dividend yield

8.3 points

QUESTION 10

The work of the external independent auditor includes a letter that states that the financial information represents fairly the financial position of the company and that these statements were:

a.

based on the company's accounting information system (AIS)
b.

constructed in conformity with generally accepted accounting principles
c.

developed using management's choice of accounting enhancement techniques
d.

an accurate picture of the company's market position

8.3 points

QUESTION 11

The greater the amount of financial leverage used by a firm, the greater its ____, all other things being equal.

a.

liquidity
b.

profitability
c.

size
d.

risk

8.3 points

QUESTION 12

The type of ratio that indicates the firm’s ability to provide adequate returns in the form of dividends and share price appreciation is:

a.

Profitability ratios
b.

Asset management ratios
c.

Financial leverage management ratios
d.

Liquidity ratios

8.5 points

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Question 1

The correlation of stock market returns between the U.S. and Japan is ____ and ____.

High, increasing.

High, decreasing.

Low, increasing.

Low, decreasing.

Low, remaining constant.

Question 5

Which of the following is not a reason given for why forecaster are so often incorrect?

There is a temptation for economic forecasters to stay fairly close to the "norm," that is, "group think."

Many analysts are simply too short-sighted.

Economists and economic forecaster often suffer from information overload.

Some economic forecasters are too broad-minded, trying to include a number of ideas in their forecasts.

None of the above (that is, all are reasons cited for why forecasters are often incorrect)

Question 6

Which of the following statements concerning asset allocation is false?

Diversification across international boundaries can improve risk-adjusted portfolio returns.

Economies expected to grow at an above-average rate with above-average profit growth should be considered as candidates to overweight in a global portfolio.

Severe currency blockages should not impact global diversification selections.

Portfolio allocation among asset classes may provide higher portfolio returns while lowering portfolio risk levels.

None of the above (that is, all statements are true).

Question 17

Defensive companies are firms where

Sales, earnings and cash flows are extremely uncertain and not necessarily related to the economy.

Sales, earnings and cash flows are likely to withstand changes caused by the economic environment.

Sales, earnings and cash flows are heavily influenced by aggregate business activity.

Sales, earnings and cash flows are growing exponentially.

None of the above.

Question 18

Speculative companies are firms where

Sales, earnings and cash flows are extremely uncertain and not necessarily related to the economy.

Sales, earnings and cash flows are likely to withstand changes caused by the economic environment.

Sales, earnings and cash flows are heavily influenced by aggregate business activity.

Sales, earnings and cash flows are growing exponentially.

None of the above.

Question 19

A firm that follows a defensive competitive strategy could

Lower production costs.

Create a strong brand image.

Use its buying power to obtain price concessions.

a and b

b and c

Question 22

A growth company can invest in projects that generate a return greater than the firm's

Return on equity.

Cost of debt.

Cost of equity.

Cost of capital.

Return on assets.

Question 33

A bond denominated in U.S. dollars and sold in Japan to Japanese investors is called a

Samurai bond.

Eurobond.

Yankee bond.

Euroyen bond

Foreign bond.

Question 43

Futures contracts are similar to forward contracts in that they both

Have volatile price movements and strong interest from buyers and sellers.

Give the holder the option to make a transaction in the future.

Have similar liquidity.

Have similar credit risk.

None of the above.

Question 46

Which of the following is not considered a "cost of carry"?

Commissions for physical storage

An opportunity cost for the net amount of invested capital

A premium for the convenience of consuming the asset now

A risk premium for uncertainty

All of the above are considered costs of carry.

Question 48

The most popular financial futures in terms of average daily volume is the

OEX contracts.

S&P 500 contracts.

LIBOR contracts.

T-bill contracts.

T-bond contracts.

Question 49

The bond that maximizes the difference between the invoice price and the delivery price is referred to as the

Cheapest-to-deliver.

Conversion bond.

Delivery bond.

Cheapest to substitute.

Cost-of-carry.

Question 50

An investor who wants a long position in a ____ must first place the order with a broker, who then passes it on to the trading pit or electronic network. Details of the order are then passed on to the exchange clearinghouse.

Call option

Put option

Forward contract

Futures contract

None of the above

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