FINANCIAL STATEMENT ANALYSIS
VALUATION 6TH EDITION ACTUAL EXAM
PAPER QUESTIONS WITH SOLUTIONS
GRADED A
◉ 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. Answer: (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:. Answer: 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:. Answer: 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? Answer: 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?
A) For debt issued at par: interest expense reported on the income
statement equals the cash paid for interest.
B) For bond repurchases: Gain (loss) on bond repurchase = Cash paid to
repurchase minus Net book value of bonds.
C) For debt issued at a discount: interest expense reported on the income
statement equals cash interest payment.
VALUATION 6TH EDITION ACTUAL EXAM
PAPER QUESTIONS WITH SOLUTIONS
GRADED A
◉ 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. Answer: (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:. Answer: 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:. Answer: 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? Answer: 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?
A) For debt issued at par: interest expense reported on the income
statement equals the cash paid for interest.
B) For bond repurchases: Gain (loss) on bond repurchase = Cash paid to
repurchase minus Net book value of bonds.
C) For debt issued at a discount: interest expense reported on the income
statement equals cash interest payment.
