Fin 461 final exam Questions and Answers
Innovative Inventions, Inc. needs to raise €10 million. If the company chooses to issue zero-
coupon bonds, its debt-to-equity ratio will most likely - -rise as the maturity date
approaches.
-Oil Exploration LLC paid $45,000 in printing, legal fees, commissions, and other costs
associated with its recent bond issue. It is most likely to record these costs on its financial
statements as - -an asset under USGAAP and reduction of the carrying value of the debt
under IFRS.
-The information provided by a low-quality financial report will most likely: - -impede the
assessment of earnings quality.
-Low quality earnings most likely reflect: - -company activities which are unsustainable.
-An audit opinion of a company's financial reports is most likely intended to: - -assure that
financial information is presented fairly.
-Which of the following is an indication that a company may be recognizing revenue pre-
maturely? Relative to its competitors, the company's: - -days sales outstanding is
increasing.
-Galambos Corporation had an average receivables collection period of 19 days in 2003.
Galambos has stated that it wants to decrease its collection period in 2004 to match the
industry average of 15 days. Credit sales in 2003 were $300 million, and analysts expect
credit sales to increase to $400 million in 2004. To achieve the company's goal of decreas-
ing the collection period, the change in the average accounts receivable balance from 2003
to 2004 that must occur is closest to: - -$836,000.
-When comparing financial statements prepared under IFRS with those prepared under US
GAAP, analysts may need to make adjustments related to: - -unrealized gains and losses for
available-for-sale securities.
-An analyst is evaluating the balance sheet of a US company that uses last in, first out
(LIFO) accounting for inventory. The analyst collects the following data:
Inventory reported on balance sheet LIFO reserve
Average tax rate
31 Dec 05 $500,000 $ 50,000
30%
31 Dec 06 $600,000 $70,000
30%
After adjusting the amounts to convert to the first in, first out (FIFO) method, inventory at
31 December 2006 would be closest to: - -$670,000.
Innovative Inventions, Inc. needs to raise €10 million. If the company chooses to issue zero-
coupon bonds, its debt-to-equity ratio will most likely - -rise as the maturity date
approaches.
-Oil Exploration LLC paid $45,000 in printing, legal fees, commissions, and other costs
associated with its recent bond issue. It is most likely to record these costs on its financial
statements as - -an asset under USGAAP and reduction of the carrying value of the debt
under IFRS.
-The information provided by a low-quality financial report will most likely: - -impede the
assessment of earnings quality.
-Low quality earnings most likely reflect: - -company activities which are unsustainable.
-An audit opinion of a company's financial reports is most likely intended to: - -assure that
financial information is presented fairly.
-Which of the following is an indication that a company may be recognizing revenue pre-
maturely? Relative to its competitors, the company's: - -days sales outstanding is
increasing.
-Galambos Corporation had an average receivables collection period of 19 days in 2003.
Galambos has stated that it wants to decrease its collection period in 2004 to match the
industry average of 15 days. Credit sales in 2003 were $300 million, and analysts expect
credit sales to increase to $400 million in 2004. To achieve the company's goal of decreas-
ing the collection period, the change in the average accounts receivable balance from 2003
to 2004 that must occur is closest to: - -$836,000.
-When comparing financial statements prepared under IFRS with those prepared under US
GAAP, analysts may need to make adjustments related to: - -unrealized gains and losses for
available-for-sale securities.
-An analyst is evaluating the balance sheet of a US company that uses last in, first out
(LIFO) accounting for inventory. The analyst collects the following data:
Inventory reported on balance sheet LIFO reserve
Average tax rate
31 Dec 05 $500,000 $ 50,000
30%
31 Dec 06 $600,000 $70,000
30%
After adjusting the amounts to convert to the first in, first out (FIFO) method, inventory at
31 December 2006 would be closest to: - -$670,000.
