©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED
FIRST PUBLISH OCTOBER 2024
FINA 470 Exam Questions and Answrs
which of the following best describes the current ratio? - Ans:✔✔-liquidity ratio (ability of current assets
to cover current debt)
which of the following is not likely to be used to measure a company's liquidity? - Ans:✔✔-financial
leverage (leverage refers to long-term debt and solvency)
which of the following is likely to be used to measure a company's solvency? - Ans:✔✔-financial leverage
(leverage refers to long-term debt and solvency)
which of the following items would not typically be included in the components of the current ratio? -
Ans:✔✔-capitalized software development costs (longer term part of PPE)
imagine FASB passes a new rule that required the capitalization of R&D. the effect for a drug company
would be to: - Ans:✔✔-decrease debt to equity ratio (only possibility, deferring expense increases profit
and equity)
this would have no effect on working capital, no effect on the current ratio, and would slow down the
asset turnover due to the increase of the number of assets
Page 1/34
, ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED
FIRST PUBLISH OCTOBER 2024
which of the following increases when accounts receivable is sold? - Ans:✔✔-account receivables
turnover (increases turnover, because less accounts receivable left making for higher turnover)
current ratio is not effected because it just swaps cash for AR
which of the following is not likely to be the cause of a company's low accounts receivable turnover? -
Ans:✔✔-low price of product (price of product has no effect)
poor collection efforts, customers in financial distress, and delays in customer payments would all likely
cause a low accounts receivable turnover
which of the following is not a measure of a company's solvency? - Ans:✔✔-sales to asset ratio
total debt to equity ratio, short-term debt to total debt ratio and long-term debt ratio to equity capital
ratio all include debt and solvency
using LIFO instead of FIFO in a time of rising prices: - Ans:✔✔-lowers the current ratio (inventory is less)
increases inventory turnover (less inventory means higher turnover)
does NOT increase profit margin (profits less)
increases debt to equity ratio (equity is less due to profits being less which makes for a higher ratio)
which of the following statements concerning the current ratio is true? - Ans:✔✔-it is always larger than
the acid-test (quick) ratio (has to be because it includes inventory)
Page 2/34
, ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED
FIRST PUBLISH OCTOBER 2024
companies can window-dress their current ratios
in insolation the current ratio has little meaning
it is NOT a good indicator of solvency of a company (not solvency, liquidity)
which of the following is least likely to affect the quality of recievables? - Ans:✔✔-sales commissions
(only effect is salesmen pushing to accept poor credit)
credit policy, right of return policy and collection procedures are all likely to affect the quality of
receivables
which of the following industries would you expect to have the longest operating cycle? - Ans:✔✔-
aerospace industry
which of the following industries would you expect to have the highest inventory turnover? - Ans:✔✔-
restaurant (food has to be used quickly or it is not as good)
which of the following does not represent future expected cash inflows? - Ans:✔✔-prepaid expenses
(opposite, no cash comes in from prepaids)
account receivables days outstanding at the end of year 2 is closest to - Ans:✔✔-30.6 days (account
receivables divided by the number of sales on credit divided by the amount of days a year (360))
Page 3/34
, ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED
FIRST PUBLISH OCTOBER 2024
accounts payable days outstanding at the end of year 2 is closest to - Ans:✔✔-72.0 days (account
payables divided by the cogs per day) (can find the cogs sold because it is the other part of the gross
profit margin times the reported sales)
days in inventory at the end of year 2 is closest to - Ans:✔✔-60.0 days (AR divided by the dcogs/day)
which of the following will not affect the calculation of leverage ratio? - Ans:✔✔-covenants (existence of
significant debt)
debt covenants themselves do not change the leverage ratios as they do not affect the amount of debt.
an analyst would want to capitalize significant operating leases per A when calculation ratios, and id
assets are significantly undervalued the analyst may want to add to both the asset value and the equity
which would affect the ratios
if a firm capitalizes a lease instead of treating the lease as an operating lease, the effect on the current
ratio and the debt-to equity ratio will be - Ans:✔✔-current ratio: decreased (current liabilities increase
due to the current portion of lease liability being added to current liabilities with the current portion
being added)
debt to equity ratio: increased (lease liability is added to the debt)
if a company's current ratio increases from 1.1 to 1.3 from one year to the next, it can be concluded that:
- Ans:✔✔-liquidity has increased
the current assets have NOT increased because the liabilities could have gone down
Page 4/34
FIRST PUBLISH OCTOBER 2024
FINA 470 Exam Questions and Answrs
which of the following best describes the current ratio? - Ans:✔✔-liquidity ratio (ability of current assets
to cover current debt)
which of the following is not likely to be used to measure a company's liquidity? - Ans:✔✔-financial
leverage (leverage refers to long-term debt and solvency)
which of the following is likely to be used to measure a company's solvency? - Ans:✔✔-financial leverage
(leverage refers to long-term debt and solvency)
which of the following items would not typically be included in the components of the current ratio? -
Ans:✔✔-capitalized software development costs (longer term part of PPE)
imagine FASB passes a new rule that required the capitalization of R&D. the effect for a drug company
would be to: - Ans:✔✔-decrease debt to equity ratio (only possibility, deferring expense increases profit
and equity)
this would have no effect on working capital, no effect on the current ratio, and would slow down the
asset turnover due to the increase of the number of assets
Page 1/34
, ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED
FIRST PUBLISH OCTOBER 2024
which of the following increases when accounts receivable is sold? - Ans:✔✔-account receivables
turnover (increases turnover, because less accounts receivable left making for higher turnover)
current ratio is not effected because it just swaps cash for AR
which of the following is not likely to be the cause of a company's low accounts receivable turnover? -
Ans:✔✔-low price of product (price of product has no effect)
poor collection efforts, customers in financial distress, and delays in customer payments would all likely
cause a low accounts receivable turnover
which of the following is not a measure of a company's solvency? - Ans:✔✔-sales to asset ratio
total debt to equity ratio, short-term debt to total debt ratio and long-term debt ratio to equity capital
ratio all include debt and solvency
using LIFO instead of FIFO in a time of rising prices: - Ans:✔✔-lowers the current ratio (inventory is less)
increases inventory turnover (less inventory means higher turnover)
does NOT increase profit margin (profits less)
increases debt to equity ratio (equity is less due to profits being less which makes for a higher ratio)
which of the following statements concerning the current ratio is true? - Ans:✔✔-it is always larger than
the acid-test (quick) ratio (has to be because it includes inventory)
Page 2/34
, ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED
FIRST PUBLISH OCTOBER 2024
companies can window-dress their current ratios
in insolation the current ratio has little meaning
it is NOT a good indicator of solvency of a company (not solvency, liquidity)
which of the following is least likely to affect the quality of recievables? - Ans:✔✔-sales commissions
(only effect is salesmen pushing to accept poor credit)
credit policy, right of return policy and collection procedures are all likely to affect the quality of
receivables
which of the following industries would you expect to have the longest operating cycle? - Ans:✔✔-
aerospace industry
which of the following industries would you expect to have the highest inventory turnover? - Ans:✔✔-
restaurant (food has to be used quickly or it is not as good)
which of the following does not represent future expected cash inflows? - Ans:✔✔-prepaid expenses
(opposite, no cash comes in from prepaids)
account receivables days outstanding at the end of year 2 is closest to - Ans:✔✔-30.6 days (account
receivables divided by the number of sales on credit divided by the amount of days a year (360))
Page 3/34
, ©GRACEAMELIA 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED
FIRST PUBLISH OCTOBER 2024
accounts payable days outstanding at the end of year 2 is closest to - Ans:✔✔-72.0 days (account
payables divided by the cogs per day) (can find the cogs sold because it is the other part of the gross
profit margin times the reported sales)
days in inventory at the end of year 2 is closest to - Ans:✔✔-60.0 days (AR divided by the dcogs/day)
which of the following will not affect the calculation of leverage ratio? - Ans:✔✔-covenants (existence of
significant debt)
debt covenants themselves do not change the leverage ratios as they do not affect the amount of debt.
an analyst would want to capitalize significant operating leases per A when calculation ratios, and id
assets are significantly undervalued the analyst may want to add to both the asset value and the equity
which would affect the ratios
if a firm capitalizes a lease instead of treating the lease as an operating lease, the effect on the current
ratio and the debt-to equity ratio will be - Ans:✔✔-current ratio: decreased (current liabilities increase
due to the current portion of lease liability being added to current liabilities with the current portion
being added)
debt to equity ratio: increased (lease liability is added to the debt)
if a company's current ratio increases from 1.1 to 1.3 from one year to the next, it can be concluded that:
- Ans:✔✔-liquidity has increased
the current assets have NOT increased because the liabilities could have gone down
Page 4/34
