FIN 461 EXAM 3 QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026

FIN 461 EXAM 3 QUESTIONS WITH VERIFIED SOLUTIONS LATEST UPDATE 2026 Comparison of a company's financial results to other peer companies for the same time period is called: A) Technical Analysis B) Time-Series Analysis C) Cross-Sectional Analysis D) None of the Above - Answers Cross-Sectional Analysis In order to assess a company's ability to fulfill its long-term obligations, an analyst would most likely examine A) Activity Ratios B) Liquidity Ratios C) Solvency Ratios - Answers Solvency Ratios Which ratio would a company most likely use to measure its ability to meet short-term obligations? A) Current Ratio B) Payables turnover C) Gross profit margin - Answers Current Ratio Which of the following ratios would be most useful in determining a company's ability to cover its lease and interest payments? A) ROA B) Total Asset Turnover C) Fixed charge coverage - Answers Fixed charge coverage Chapter 7, Number 5, 6, 7, 10-15, 17-19 - Answers ok An analyst observes a decrease in a company's inventory turnover. Which of the following would most likely explain this trend? A) The company installed a new inventory management system, allowing more efficient inventory management B) Due to problems with obsolescent inventory last year, the company wrote off a large amount of its inventory at the beginning of the period C) The company installed a new inventory management system but experienced some operational difficulties resulting in duplicate orders being placed with suppliers - Answers The company installed a new inventory management system but experienced some operational difficulties resulting in duplicate orders being placed with suppliers Which of the following would best explain an increase in receivables turnover? A) The company adopted new credit policies last year and began offering credit to customers with weak credit history B) Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of collectible amounts and wrote off a large amount of its receivables C) To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement - Answers Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of collectible amounts and wrote off a large amount of its receivables Assuming no changes in other variables, which of the following would decrease ROA? A) A decrease in the effective tax rate B) A decrease in interest expense C) An increase in average assets - Answers An increase in average assets What does the P/E ratio measure? A) The "multiple" that the stock market places on a company's EPS B) The relationship between dividends and market prices C) The earnings for one common share of stock - Answers The "multiple" that the stock market places on a company's EPS A creditor most likely would consider a decrease in which of the following ratios to be positive news? A) Interest coverage (times interest earned). B) Debt-to-total assets C) Return on assets - Answers Debt-to-total assets When developing forecasts, analysts should most likely: A) develop possibilities relying exclusively on the results of financial analysis B) use the results of financial analysis, analysis of other information, and judgement C) aim to develop extremely precise forecasts using results of financial analysis - Answers use the results of financial analysis, analysis of other information, and judgement Inventory cost is least likely to include: A) production-related storage costs B) costs incurred as a part of normal waste of materials C) transportation costs of shipping inventory to customers - Answers transportation costs of shipping inventory to customers Chapter 8, Questions 2, 4, 6, 7, 18-25, 26-45 - Answers ok Carrying inventory at a value above its historical cost would most likely be permitted if: A) the inventory was held by a producer of agricultural products B) the financial statements were prepared using US GAAP C) the change resulted from a reversal of a previous write-down - Answers the inventory was held by a producer of agricultural products Fernando's Pasta purchased inventory and later wrote it down. The current net realizable value is higher than the value when written down. Fernando's inventory balance will most likely be: A) higher if it complies with IFRS B) higher if it complies with US GAAP C) the same under US GAAP and IFRS - Answers higher if it complies with IFRS Zint AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the cost of replacing inventory, during periods of rising prices, the cost of sales reported by: A) Zint is too low B) Nutmeg is too low C) Nutmeg is too high - Answers Nutmeg is too low Like many technology companies, TechnoTools operates in an environment of declining prices. Its reported profits will tend to be highest if it accounts for inventory using the A) FIFO method B) LIFO method C) weighted average cost method - Answers LIFO method Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be: A) lower B) higher C) dependent upon the interaction with accounts payable - Answers higher Zimt AG wrote down the value of its inventory in 2007 and reversed the write-down in 2008. Compared to the ratios that would have been calculated if the write-down had never occurred, Zimt's reported 2007: A) current ratio was too high B) gross margin was too high C) inventory turnover was too high - Answers inventory turnover was too high Zimt AG wrote down the value of its inventory in 2007 and reversed the write-down in 2008. Compared to the results that the company would have reported if the write-down had never occurred, Zimt's reported 2008: A) profit was overstated B) cash flow from operations was overstated C) year-end inventory balance was overstated - Answers profit was overstated Compared to a company that uses the FIFO method, during periods of rising prices a company that uses the LIFO method will most likely appear more A) liquid B) efficient C) profitable - Answers efficient Nutmeg Inc. uses the LIFO method to account for inventory. During years in which inventory unit costs are generally rising and in which the company purchases more inventory than it sells to customers, its reported gross profit margin will most likely be: A) lower than it would be if the company used the FIFO method B) higher than it would be if the company used the FIFO method C) about the same as it would be if the company used the FIFO method - Answers lower than it would be if the company used the FIFO method Compared to using the FIFO method to account for inventory, during periods of rising prices, a company using the LIFO method is most likely to report higher: A) Net income B) cost of sales C) income taxes - Answers cost of sales Carey Company adheres to US GAAP, whereas Jonathan Company adheres to IFRS. It is least likely that: A) Cared has reversed an inventory write-down B) Jonathon has reversed an inventory write-down