Exam (elaborations) Liberty University ACCT 370 Quiz 2 Power answer

Exam (elaborations) Liberty University ACCT 370 Quiz 2 Power answer Liberty University ACCT 370 Quiz 2 Power answer A+ Guarantee: Corona Industries purchased a stamping machine on January 2, 20X1, for $100,000. It made an initial payment of $20,000 and financed the balance over 5 years at State Bank. The loan terms were for annual payments of $16,000 plus 10% interest, payable on December 31 each year. The year 20X4 proves to be a difficult year and on December 1, 20X4 Corona negotiates a debt restructuring with State Bank. The settlement calls for cash payment of accrued interest plus $4,000 on December 1 and the transfer of 200 acres of land held by Corona that cost $15,000. The land has a current fair value of $22,000. On December 1, 20X4, how much interest is accrued on this loan? When receivables are bundled and transferred to another organization that issues securities collateralized by the transferred receivables, the arrangement is defined as: If a note receivable from a customer is discounted at a bank with recourse and the customer defaults on final payment, the seller: Management must periodically assess the reasonableness of the allowance for credit losses if it uses the XYZ Co.’s 20X2 ratio of allowance for credit losses to gross receivables has declined from the ratio at the end of 20X1. To help evaluate whether the reduction in XYZ’s ratio is reasonable, an analyst should do all of the following except: The use of a bank manager’s discretion in the timing and amount of loan loss provisions and loan charge-offs can falsely understate the losses and: Which of the following is not a purpose served by debt covenants? Covenants that place direct restrictions on managerial decisions are called: When conflicts of interest exist, lenders generally take all of the following actions at the creation of a contract except: A decrease in market-wide interest rates will result in a/an: Liberty University ACCT 370 Quiz 2 Power answer Which of the following is not an accurate statement regarding the compensation committee? A qualitative assessment of the business, its customers and suppliers, and management’s character and capability is known as: An earnings surprise: As transitory or value-irrelevant components become a larger part of a firm’s reported earnings, which of the following effects would you not expect to witness? If most firms’ price/earnings ratios are between 10 and 15, what is the range of the riskadjusted interest rate? A simplified version of the discounted free cash flow valuation model assumes a zerogrowth perpetuity for future cash flows. This assumption is best applied to: Which of the following statements is false regarding the flows to equity model? When assessing a company's credit risk: Condensed financial data are presented below for the Phoenix Corporation: 20X2 20X1 Accounts receivable $ 267,500 $230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate 30% The current ratio for 20X2 is (rounded): The days receivable outstanding for 20X2 is (rounded): The profit margin used to calculate return on assets for 20X2 is (rounded): The days inventory held for 20X2 is (rounded): If there is no preferred stock, the return on common equity for 20X2 is (rounded): In a common size balance sheet for 20X2, accounts receivable is expressed as: The accounts receivable turnover for 20X2 is (rounded): (Assume all sales are on account.) The interest coverage for 20X2 is: The inventory turnover for 20X2 is (rounded): The long-term debt to assets for 20X2 is (rounded): The quick ratio for 20X2 is (rounded): (Assume that total current assets include cash, marketable securities, accounts receivable and inventory). The return on assets ratio for 20X2 is (rounded): The total asset turnover ratio for 20X2 is (rounded): Return on Assets (ROA) measures a firm’s Advanced technology and performance capabilities, consistent quality, availability in multiple colors and sizes, prompt delivery, technical support services, customer financing, distribution channels, or some other feature of importance to customers are examples of: Which of the following is not correct with respect to an analyst’s use of financial information? The financial statement reporting "filter" is A type of analysis that helps identify similarities and differences across companies or business units at a single moment in time is: Which statement below is not correct with respect to a company’s strategy? Revision restatements differ from reissuance restatements in that revision restatements address misstatements All the following disclosures would appear in the Summary of Significant Accounting Policies except: The Summary of Significant Accounting Policies When a company changes from straight-line depreciation to double-declining-balance depreciation, the change is reported Angela Dams purchases new equipment for $66,000 with an estimated useful (service) life of 6 years and a salvage value of $6,000. The company depreciates the equipment over six years. After two years, the company revises its estimate to total useful life of 8 years, with no change in salvage value. Depreciation for year 3 will be: What is the primary accounting and reporting issue arising from accounting changes? Accounting changes may be Which of the following is false regarding uncollectible accounts? A study of discretionary accounting accruals found that abnormal accruals in the year prior to reporting covenant violations: When agents do not act in the best interest of their principals, the cost is borne by which of the following? Which of the following is an accounting strategy most likely used by management to meet EPS guidance? Financial ratio, percentage, and trend comparisons can be distorted by all of the following except: Although a company’s earnings are important in financial statement analysis, with respect to credit evaluations and lending decisions an analysis of its cash flows is: The Common Stock account is reported on the balance sheet at the: The time that the performance obligation is satisfied for revenue recognition is usually: When reporting a change in an accounting principle, the general rule requires that the current year’s income from continuing operations reflect: Using the same accounting methods to record and report similar events from period to period demonstrates: If an inventory error is discovered during the reporting year, Analysts must be aware that with the use of absorption costing, as inventory absorbs more fixed costs, reported net income tends to: IFRS accounting for inventory (IAS 2) does not permit which of the following cost flow assumptions? The use of the lower of cost or market (Old-LCM) method to value inventory indicates a probable loss has been sustained. This is an application of the accounting principle of: Which of the following statements regarding inventory accounting is false? The following information pertains to the Fan Company’s inventory item B1008: March 1 Inventory Balance 400 units @$3.10 5 Purchase 1,400 units @$3.20 14 Purchase 280 units @$3.25 31 Inventory Balance 520 units In a periodic inventory system, the ending FIFO inventory is Manufacturing costs not considered to be closely associated with production are called: A perpetual inventory system: Goods available for sale needs to be allocated between: When troubled debt is restructured via continuation with modification of debt terms, the original loan is: If a bank sells a mortgage portfolio at a price that yields the purchasers a return that is lower than the average yield on the mortgages in the portfolio, the selling price: Frank Ritter, Inc. enters into an arrangement with Hisker Enterprises whereby Hisker will assume $100,000 of Ritter’s receivables for a 6% fee. These receivables have a related allowance for doubtful accounts of $3,500. Assuming the transaction was a factoring arrangement without recourse, which one of the following entries will Ritter make? If sales terms, customer creditworthiness, and accounting methods remain constant, the percentage change in sales and the percentage change in accounts receivable: An analyst notes that ABC Inc.’s allowance for uncollectible accounts as a percentage of year-end accounts receivable has changed. Which of the following would not be a plausible explanation for the change? Edsel Inc. has the following unadjusted year end trial balance information available for 2018: Credit sales $600,000 Ending accounts receivable balance $180,000 Ending allowance for uncollectibles $ 1,500 Estimated uncollectibles 2% If Edsel uses the gross accounts receivable approach for estimating the bad debt provision, the allowance for uncollectibles account, after the proper adjustments to the accounts are recorded, should show a balance of: In the utilities industry, image advertising and customer safety advertising are: A typical rate formula for a public utility includes: Contract terms: With respect to executive pay, which of the following is not correct? Financial statement forecasts are: A bond that is considered unsecured is referred to as a: Prior to the announcement of unexpected bad earnings (a negative earnings surprise), a firm’s stock price will generally exhibit: Which one of the following is an example of sustainable earnings? In the process of determining fair value, the exit price refers to: By using accruals and deferrals, accrual accounting: The two ways to implement the discounted cash flow valuation approach are: Which of the following statements is false regarding the business valuation process? With respect to financial ratios: Select one of the following statements that best reflects the relationship between the operating cycle and the cash conversion cycle: Which of the following is not correct with respect to computing ROCE? Trend statements are better than common size statements at indicating which of the following? Strategies to gain a competitive advantage include product differentiation and: Manero Company included the following information in its annual report: Sales $ 178,400 $162,500 $155,500 Cost of goods sold 115,000 102,500 100,000 Operating expenses 50,000 50,000 45,000 Operating income 13,400 10,000 10,500 In a common-size income statement for 20X2, the cost of goods sold is expressed as: 1. Accounting errors or irregularities can occur for which reasons? A. simple oversight. B. misapplication of GAAP. C. management exploitation of the flexibility in GAAP. D. all of these answer choices are correct. 2. The accounts receivable turnover ratio: A. is not useful in determining changes in customer payment patterns. B. uses total sales and not just credit sales in the computation. C. is computed using net credit sales and average accounts receivable. D. is computed using net credit sales and ending accounts receivable. 3. Accrual accounting decouples measured earnings from operating cash inflows and outflows. 4. Accrued liabilities represent: A. income that has not yet been recognized on the income statement. B. expenses that have not yet been recognized on the income statement. C. expenses that have been recognized on the income statement but not yet been paid. D. income that has been recognized on the income statement but not yet collected. 5. Activity ratios describe the profitability of a company. 6. The Additional Paid-In Capital account is reported on the balance sheet at the: A. current market value of the stock minus par value. B. original sales price of the stock minus the par value. C. net realizable value of the stock minus par value. D. discounted present value of the future dividends minus par value. 7. Advanced technology and performance capabilities, consistent quality, availability in multiple colors and sizes, prompt delivery, technical support services, customer financing, distribution channels, or some other feature of importance to customers are examples of: A. competitive advantage. B. differentiation. C. product leadership. D. low-cost leadership. 8. All the following disclosures would appear in the Summary of Significant Accounting Policies except: A. inventory method. B. depreciation method. C. revenue recognition method. D. financing method. 9. Although a company’s earnings are important, an analysis of its cash flows is central to credit evaluations and lending decisions. 10. An analyst interested in learning the degree to which a