Version 1 1 Test Bank for All chapters All Answers are at the end of Each Chapter Chapt er 1 Student name:__________ 1) A company ’s financial statements reflect information about:
A) future projections of sales, expenses, and other future economic events. B) product information and competitive positions. C) the general economy of the industry in which the company operates. D) economic events that affect a company that can be translated into accounting numbers. 2) All financial statements: A) provide a picture of the company at a moment in time. B) describe changes that took place over a period of time. C) help to evaluate what happened in the past. D) contain the most up to date information about the company. 3) A firm’s financial statements contain trends that give users insight into the firm ’s: A) future market share. B) position within its industry. C) profitability, productivity, and li quidity. D) current market price for common and preferred stock. 4) The ability to raise additional cash by selling assets, issu ing stock, or borrowing more is A) financial flexibility. B) a credit risk indicator. C) a s tock price predictor. D) one way to project earnings. 5) Creditors assess credit risk by comparing a firm ’s required principal and interest payments to estimates of the firm ’s current and future: Version 1 2 A) net assets. B) gross inco me. C) net income. D) cash flows. 6) Professional analysts need information on a company ’s future earnings and cash flow to evaluate audit vulnerabilities, to assess debt repayment prospects and to: A) certify good values in the stock market. B) indemnify creditors against losses. C) certify that no fraud exists in the company. D) value its equity securities. 7) The costs of providing financial information is ultimately borne by: A) management. B) shareholders. C) auditors. D) professional analysts. 8) Which of the following statements is not correct regarding a company's financial statements? A) They may present a picture of the company at a momen t in time. B) They may describe changes that took place over a period of time . C) They reflect economic events that affect the company. D) They are comparable to the statements of other companies as all publicly held companies follow the very pr ecise science of accounting. 9) Which of the following are correct with respect to information contained in financial statements?
A) Information asymmetry occurs when management has access to more and better information than is pre sented in the financial statements. B) Financial statements cannot solve the issue of information asymmetry. C) Financial statements eliminate the issue of and any concern over information asymmetry. D) Financial statements help solve the issue o f information asymmetry which is when management has access to more and better information than do people outside the company. Version 1 3 10) Which is not correct regarding Regulation Fair Disclosure (Reg FD)?
A) It helps level the playing field between individual and institutional investors. B) It does not limit what management can say in private conversations with analysts or investors. C) It was passed by the SEC. D) It limits what management can say in private conversations wit h analysts and investors. 11) Companies that have projected operating cash flows that are more than sufficient to meet debt payments are A) financially risky. B) good credit risk companies. C) undervalued. D) overvalued. 12) Investors who compare a firm ’s discounted future cash flows to the current market price of a stock are using the: A) efficient market hypothesis. B) market -to-market approach. C) fundamental analysis approach. D) tech nical analysis approach. 13) A company ’s financial statements can be used for all of the following purposes except : A) as a scorecard on the company ’s social responsibility. B) as a management report card. C) as an early w arning signal. D) as a measure of accountability. 14) The market analysis known as fundamental analysis A) predicts future trends in the financial drivers of a company ’s economic success or failure. B) relies on price and volume movement of stock. C) has no insights about company value beyond current market price. D) uses microeconomic data to forecast stock values. Version 1 4 15) Investors who follow a fundamental analysis approach:
A) determine the va lue the company ’s assets would yield if sold individually. B) estimate the value of a stock by assessing the amount, timing, and uncertainty of future cash flows that will accrue to the issuing company. C) assess the company ’s ability to meet its de bt-related financial obligations. D) assess the company ’s ability to raise additional cash by selling assets, issuing stock, or borrowing more. 16) In designing audit procedures the auditor will include all of the following except : A) Industry conditions. B) Global economic trends. C) Assessing the reasonableness of the numbers in relation to the company's activities. D) Fraud risk factors that may be present. 17) Analytical review procedures include al l of the following except:
A) simple ratio and trend analysis. B) complex statistical techniques. C) general reasonableness tests. D) comparison of the company ’s reported financial results to benchmarks established by the SEC. 18) Relevant financial information: A) is free from bias and error. B) is measured in a similar manner among different companies. C) can be independently verified. D) is capable of making a difference in a decision. 19) To achieve faithful representation, the financial information must be: A) consistent, unbiased, and relevant. B) relevant, comparable, and timely. C) relevant, consistent, and timely. D) complete, neutral, and free from materi al error.
A) future projections of sales, expenses, and other future economic events. B) product information and competitive positions. C) the general economy of the industry in which the company operates. D) economic events that affect a company that can be translated into accounting numbers. 2) All financial statements: A) provide a picture of the company at a moment in time. B) describe changes that took place over a period of time. C) help to evaluate what happened in the past. D) contain the most up to date information about the company. 3) A firm’s financial statements contain trends that give users insight into the firm ’s: A) future market share. B) position within its industry. C) profitability, productivity, and li quidity. D) current market price for common and preferred stock. 4) The ability to raise additional cash by selling assets, issu ing stock, or borrowing more is A) financial flexibility. B) a credit risk indicator. C) a s tock price predictor. D) one way to project earnings. 5) Creditors assess credit risk by comparing a firm ’s required principal and interest payments to estimates of the firm ’s current and future: Version 1 2 A) net assets. B) gross inco me. C) net income. D) cash flows. 6) Professional analysts need information on a company ’s future earnings and cash flow to evaluate audit vulnerabilities, to assess debt repayment prospects and to: A) certify good values in the stock market. B) indemnify creditors against losses. C) certify that no fraud exists in the company. D) value its equity securities. 7) The costs of providing financial information is ultimately borne by: A) management. B) shareholders. C) auditors. D) professional analysts. 8) Which of the following statements is not correct regarding a company's financial statements? A) They may present a picture of the company at a momen t in time. B) They may describe changes that took place over a period of time . C) They reflect economic events that affect the company. D) They are comparable to the statements of other companies as all publicly held companies follow the very pr ecise science of accounting. 9) Which of the following are correct with respect to information contained in financial statements?
A) Information asymmetry occurs when management has access to more and better information than is pre sented in the financial statements. B) Financial statements cannot solve the issue of information asymmetry. C) Financial statements eliminate the issue of and any concern over information asymmetry. D) Financial statements help solve the issue o f information asymmetry which is when management has access to more and better information than do people outside the company. Version 1 3 10) Which is not correct regarding Regulation Fair Disclosure (Reg FD)?
A) It helps level the playing field between individual and institutional investors. B) It does not limit what management can say in private conversations with analysts or investors. C) It was passed by the SEC. D) It limits what management can say in private conversations wit h analysts and investors. 11) Companies that have projected operating cash flows that are more than sufficient to meet debt payments are A) financially risky. B) good credit risk companies. C) undervalued. D) overvalued. 12) Investors who compare a firm ’s discounted future cash flows to the current market price of a stock are using the: A) efficient market hypothesis. B) market -to-market approach. C) fundamental analysis approach. D) tech nical analysis approach. 13) A company ’s financial statements can be used for all of the following purposes except : A) as a scorecard on the company ’s social responsibility. B) as a management report card. C) as an early w arning signal. D) as a measure of accountability. 14) The market analysis known as fundamental analysis A) predicts future trends in the financial drivers of a company ’s economic success or failure. B) relies on price and volume movement of stock. C) has no insights about company value beyond current market price. D) uses microeconomic data to forecast stock values. Version 1 4 15) Investors who follow a fundamental analysis approach:
A) determine the va lue the company ’s assets would yield if sold individually. B) estimate the value of a stock by assessing the amount, timing, and uncertainty of future cash flows that will accrue to the issuing company. C) assess the company ’s ability to meet its de bt-related financial obligations. D) assess the company ’s ability to raise additional cash by selling assets, issuing stock, or borrowing more. 16) In designing audit procedures the auditor will include all of the following except : A) Industry conditions. B) Global economic trends. C) Assessing the reasonableness of the numbers in relation to the company's activities. D) Fraud risk factors that may be present. 17) Analytical review procedures include al l of the following except:
A) simple ratio and trend analysis. B) complex statistical techniques. C) general reasonableness tests. D) comparison of the company ’s reported financial results to benchmarks established by the SEC. 18) Relevant financial information: A) is free from bias and error. B) is measured in a similar manner among different companies. C) can be independently verified. D) is capable of making a difference in a decision. 19) To achieve faithful representation, the financial information must be: A) consistent, unbiased, and relevant. B) relevant, comparable, and timely. C) relevant, consistent, and timely. D) complete, neutral, and free from materi al error.
