Financial Statement Analysis and Valuation Exam Questions Answered Correctly Latest Update 2024
(Already Passed)
Bally Corporation purchases an investment in Monte Carlo, Inc. at a purchase price of $7 million cash,
representing 40% of the book value of Monte Carlo, Inc. During the year, Monte Carlo reports net
income of $1,200,000 and pays $295,000 of cash dividends. At the end of the year, the market value of
Bally's investment is $8.5 million. What is the year-end balance of the equity investment in Monte
Carlo? - Answers The year-end balance of the investment account is computed as follows:
Beginning balance $7,000,000
+ Share of investee's net income
($1,200,000 × 40%) = 480,000
- Dividends received from Best Pictures
($295,000 × 40%) = (118,000)
Ending balance $7,362,000
Valley View Corporation reported that short-term investments consisted of the following (in millions) on
December 31, 2018:
Amortized cost Fair value
Short-term investments/
available-for-sale securities: $528.3 $528.4
Short-term investments/
trading securities: $62.2 $51.0
Total short-term investments: $590.5 $579.4
Which of the following is true?
A) Valley View's 2013 balance sheet includes short-term investments of $590.5 million.
B) Unrealized losses of $11.2 million on trading securities are included in 2018 income.
, C) There are no net unrealized gains on available-for-sale securities.
D) Accumulated other comprehensive income included no unrealized gains or losses. - Answers (B)
Unrealized gains and losses for trading securities are included in current-year income. Answer Ais not
correct because the investments are recorded at fair value of $579.4 million on the balance sheet.
Answer C and D are not correct since a net unrealized gain of 0.1 million on available-for-sale securities
is included in accumulated other comprehensive income.
Selected 2015 balance sheet and income statement information for The Gap, Inc. (in millions) follows:
Year-end accounts payable: $ 1,242
Average accounts payable: $1,193
Sales: $16,148
Cost of goods sold: $9,855
Accounts payable days outstanding (also called days purchases in accounts payable for our term project
using the Campbell Soup Company handout) for 2015 is: - Answers APDO = Accounts payable / average
daily COGS = $1,242 / [$9, days]
= 46.0 days
A Contingent Liability must have the following criteria before the loss and liability must be recorded in
the financial statements: - Answers The obligation will probably require payment at some point in the
future and the obligation is estimable.
Watson Electric Corp. sells $200,000 of bonds to private investors. The bonds have a 9% coupon rate
and interest is paid semiannually. The bonds were sold to yield 10%. What periodic (semi-annual)
interest payment does Watson make? - Answers Coupon rates are used to compute the dollar amount in
interest payments paid to the bondholder semiannually.
Watson pays $200,000 × 9% × ½ year = $9,000.
Which one of the following is not correct?
(Already Passed)
Bally Corporation purchases an investment in Monte Carlo, Inc. at a purchase price of $7 million cash,
representing 40% of the book value of Monte Carlo, Inc. During the year, Monte Carlo reports net
income of $1,200,000 and pays $295,000 of cash dividends. At the end of the year, the market value of
Bally's investment is $8.5 million. What is the year-end balance of the equity investment in Monte
Carlo? - Answers The year-end balance of the investment account is computed as follows:
Beginning balance $7,000,000
+ Share of investee's net income
($1,200,000 × 40%) = 480,000
- Dividends received from Best Pictures
($295,000 × 40%) = (118,000)
Ending balance $7,362,000
Valley View Corporation reported that short-term investments consisted of the following (in millions) on
December 31, 2018:
Amortized cost Fair value
Short-term investments/
available-for-sale securities: $528.3 $528.4
Short-term investments/
trading securities: $62.2 $51.0
Total short-term investments: $590.5 $579.4
Which of the following is true?
A) Valley View's 2013 balance sheet includes short-term investments of $590.5 million.
B) Unrealized losses of $11.2 million on trading securities are included in 2018 income.
, C) There are no net unrealized gains on available-for-sale securities.
D) Accumulated other comprehensive income included no unrealized gains or losses. - Answers (B)
Unrealized gains and losses for trading securities are included in current-year income. Answer Ais not
correct because the investments are recorded at fair value of $579.4 million on the balance sheet.
Answer C and D are not correct since a net unrealized gain of 0.1 million on available-for-sale securities
is included in accumulated other comprehensive income.
Selected 2015 balance sheet and income statement information for The Gap, Inc. (in millions) follows:
Year-end accounts payable: $ 1,242
Average accounts payable: $1,193
Sales: $16,148
Cost of goods sold: $9,855
Accounts payable days outstanding (also called days purchases in accounts payable for our term project
using the Campbell Soup Company handout) for 2015 is: - Answers APDO = Accounts payable / average
daily COGS = $1,242 / [$9, days]
= 46.0 days
A Contingent Liability must have the following criteria before the loss and liability must be recorded in
the financial statements: - Answers The obligation will probably require payment at some point in the
future and the obligation is estimable.
Watson Electric Corp. sells $200,000 of bonds to private investors. The bonds have a 9% coupon rate
and interest is paid semiannually. The bonds were sold to yield 10%. What periodic (semi-annual)
interest payment does Watson make? - Answers Coupon rates are used to compute the dollar amount in
interest payments paid to the bondholder semiannually.
Watson pays $200,000 × 9% × ½ year = $9,000.
Which one of the following is not correct?
