FIN 461 FINAL TEST QUESTIONS
AND ANSWERS
Which of the following situations will most likely motivate managers to inflate earnings in
the current period? - Answer- possibility of bond covenant violation
Which of the following best describes an opportunity for management to issue low-
quality financial reports? - Answer- ineffective board of directors
Bias in revenue recognition would least likely be suspected if: - Answer- reported
revenue is higher than the previous quarter
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: - Answer- an asset under US GAAP and reduction of the
carrying value debt under IFRS
Consolidated Enterprises issues $10 million face value, five year bonds with a coupon
rate of 6.5 percent. At the time of issuance, the market interest rate is 6.0 percent.
Using the effective interest rate method of amortization, the carrying value after one
year will be closest to: - Answer- 10.17 million
Debt covenants are least likely to place restrictions on the issuers ability to: - Answer-
issue additional equity
Financial reports of the lowest level of quality reflect: - Answer- fictitious events
Which of the following statements most likely describes a situation that would motivate a
manager to issue low-quality financial reports? - Answer- the managers compensation
is tied to stock price performance
Jordan's response about the financial statement impact of Alpha's decision to capitalize
the cost of its new computer system is most likely correct with respect to: - Answer-
higher cash flow from operating activities
Jordan's response about the ratio impact of Alpa's decision to capitalize interest costs is
most likely correct with respect to the - Answer- fixed asset turnover ratio
AND ANSWERS
Which of the following situations will most likely motivate managers to inflate earnings in
the current period? - Answer- possibility of bond covenant violation
Which of the following best describes an opportunity for management to issue low-
quality financial reports? - Answer- ineffective board of directors
Bias in revenue recognition would least likely be suspected if: - Answer- reported
revenue is higher than the previous quarter
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: - Answer- an asset under US GAAP and reduction of the
carrying value debt under IFRS
Consolidated Enterprises issues $10 million face value, five year bonds with a coupon
rate of 6.5 percent. At the time of issuance, the market interest rate is 6.0 percent.
Using the effective interest rate method of amortization, the carrying value after one
year will be closest to: - Answer- 10.17 million
Debt covenants are least likely to place restrictions on the issuers ability to: - Answer-
issue additional equity
Financial reports of the lowest level of quality reflect: - Answer- fictitious events
Which of the following statements most likely describes a situation that would motivate a
manager to issue low-quality financial reports? - Answer- the managers compensation
is tied to stock price performance
Jordan's response about the financial statement impact of Alpha's decision to capitalize
the cost of its new computer system is most likely correct with respect to: - Answer-
higher cash flow from operating activities
Jordan's response about the ratio impact of Alpa's decision to capitalize interest costs is
most likely correct with respect to the - Answer- fixed asset turnover ratio
