Financial & Managerial Accounting for MBAs, 6e E
m m m m m m m
aston, Halsey, McAnally (Test Bank, 100- Verified)
m m m m m m
Financial Accounting for MBAsm m m
Learning Objectives – Coverage by question
m m m m m
True/False MultiplemChoice Exercises Problems Essays
LO1m–
1
mExplainmand massess mthemf our
mmainmbusiness mactivities.
LO2m–
mIdentif ymand mdiscuss mthemuser 1-m4 1, m2 2
s mand msuppliers mof mf inancialmst
atement minf ormation.
LO3m–
mDescribemand mexaminemthemf 5-10 3-19 1-8 1-5,m10 3,m4
ourmf inancialmstatements, mand
mdef inemthemaccounting mequati
on.
LO4m–
11-13 20-25 1, m9, m10 6,m7 5
mExplainmand mapply mthembasic
s mof mprof itability manalysis.
LO5m–
mAssess mbusiness moperations 14 26, m27 8
mwithinmthemcontext mof mamcomp
etitivemenvironment.
LO6m–
mAccess mreports mfiled mwithmthe
mSECm(Appendix m1A).
LO7m–mDescribemthe
accounting mprinciples mand mreg 15 28-30 9 6
ulations mthat mf ramemf inancialmst
atements m(Appendix m1B).
,Module 1: Financial Accounting for MBAs
m m m m m
True/False
Topic:mUsersmofmFinancial mStatem ent mInform ationm
LO:m2
1. Shareholders mdemand mf inancialminf ormationmprimarily mto massess mprof itability mand mrisk mwhereas mbank
ers mdemand minf ormationmprimarily mto massess mcashmf lows mto mrepay mloanminterest mand mprincipal.
Answer: mTrue
Rationale: mWhilembothmshareholders mand mbankers mareminterested minmallmtheminformationmcompaniesmprov
ide,mshareholders mcaremabout mmoremaboutmamcompany’s mprof itability mand mbankers mcaremmoremabout ms
olvency mand mcreditworthiness.
Topic:mPubliclymAvailablemFinancial mReport
smLO:m2
2. Publicly mtraded mcompanies maremrequired mto mprovidemquarterly mf inancialmreports mdirectly mto mthempublic.
Answer: mFalse
Rationale: mCompanies mprovidemelectronic mversions mof mquarterly mf inancialmstatements mto mthemSEC, mwh
ichmposts mthemmto mthemInternet mf ormthempublic mto maccess mthem.
Topic:mUsersmofmFinancial mStatem ent mInform ationm
LO:m2
3. Publicly m traded m companies m providem financialm informationm primarily m tom satisf y m them SECm and m the
m tax mauthorities m(that mis, mthemInternalmRevenuemService).
Answer: mFalse
Rationale: mDemand mf orminformationmextends mto mmany musers; mthemregulators msuchmas mthemSECmand mthe
mIRS maremonly monemclass mof musers.
Topic:mSECmFilingsmLO:
2
4. Publicly m traded m companies m must m providem tom them Securities m Exchangem Commissionm annualm audi
ted mf inancialmstatements m(10-Kmreports)mand mquarterly maudited mf inancialmstatements m(10-Qmreports).
Answer: mFalse
Rationale: mQuarterly mreports mdo mnot mneed mto mbemaudited.
Topic:mBalancemSheetmL
O:m3
5. If mamcompany mreports mretained mearnings mof m$175.3mmillionmonmits mbalancemsheet, mitmmust malso mreport m$
175.3mmillionminmcash.
Answer: mFalse
, Rationale: m Themaccounting mequationmrequires mtotalmassets mtomequalmtotalmliabilitiesmplusmstockholders’
mequity.mThat mdoes mnotmimply,mhowever, mthat mliability mand mequity maccounts mrelatemdirectly mtomspecific ma
ssets.
Topic:mBalancemSheetmLO:
3
6. Ambalancemsheet mshows mamcompany’s mpositionmovermamperiod mof mtime, mwhereas manmincomemstate
ment, mstatement mof mstockholders’mequity,mand mstatement mofmcashmflows mshowmitsmpositionmatmampo
int minmtime.
Answer: mFalse
Rationale: m Themstatement mis mreversed: mAmbalancemsheet mshows mamcompany’smpositionmatmampoint minmt
ime, mwhereas manmincomemstatement, mstatement mofmequity,mand mstatement mof mcashmf lows mshowmitsmpos
itionmovermamperiod mof mtime.
Topic:mAccountingmEquation
mLO:m3
7. Assets mmust malways mequalmliabilities mplus mequity.
Answer: mTrue
Rationale: mThemaccounting mequationmis mAssets m= mLiabilities m+ mEquity. mThis mrelationmmust malways mhold.
Topic:mIncomemStatementmLO:
3
8. Themincomemstatement mreports mnet mincomemwhichmis mdef ined mas mthemcompany’s mprof it maf termallmexpe
nses mand mdividends mhavembeenmpaid.
Answer: mFalse
Rationale: m Themstatement mcontains mtwo merrors. mFirst, mnet mincomemdoes mnot mincludemany mdividendsmdu
ring mthemperiod;mthesemaremamdistributionmof mprof its mand mnotmpart mof mits mcalculation.mSecond, mtheminco
memstatement mis mprepared monmanmaccrualmbasismand mthus mincludesmexpenses mincurred m(as mopposedm
to mpaid).
Topic:mStatementmofmCashmFlowsm
LO:m3
9. Amstatement mof mcashmflows mreportsmonmcashmflows mformoperating, minvesting mand mfinancing mactivities ma
t mampoint minmtime.
Answer: m False
Rationale: m Amstatement mof mcashmf lows mreportsmonmcashmf lowsmf ormoperating, minvesting,mand mf inancing
mactivities movermamperiod mof mtime.
Topic:mStatementmofmStockholders’ mEquity mLO:
3
10. Anmincreaseminmcommonmstock mwould mbemref lected minmthemstatement mof mstockholders’mequity.
Answer: m True
Rationale: m Themstatement mof mstockholders’mequitymreportsmonmchanges minmthemaccounts mthat mmakemu
p mstockholders’mequity. mThis mincludes mcontributed mcapital, mretained mearnings, mand mothermequity.
, ReturnmonmAssets
4
11. ReturnmonmAssets m(ROA)mmeasures mthemprof it mthemcompany mmakes monmeachmdollarmof mtotalmassets mitmuses.
Answer: mTrue
Rationale: mReturnmonmAssets mis mamprofitabilitymmetric mthat mmeasures mhowmmuchmprofitmthemcompanym
mademf ormeachmdollarmof massets mthemcompany mholds monmaveragemduring mthemyear.
Topic:mReturnmonmAsset
smLO:m4
12. ReturnmonmAssets m(ROA)m= m(Net mIncomem/mSales)m× mAsset mTurnover
Answer: mTrue
Rationale: mReturnmonmAssets m= mNet mIncomem/mAveragemAssets. mThis mis mthemdisaggregationmofmthemRO
Aminto mits mcomponents
Topic:mAssetmTurnovermLO:
4
13. Considermtwo mcompanies m(Amand mB)mwithmequalmprof itmmargins mof m18%. mCompany mAmhas manmasset mtur
novermof m1.2mand mCompany mBmhas manmasset mturnovermof m1.5. mIf mallmelsemis mequal, mCompany mBmwithmits’
mhighermasset mturnover, mis mless mprof itablembecausemit mrequires mmoremrevenuemto mturnmits massets mover.
Answer: mFalse
Rationale: mAsset mturnovermis manmefficiency mmetric.mThemhighermthemturnover, mthemmoremeff icient mthemc
ompany mismwithmitsmassetsmand mthus, mthemmoremprof itable. mAlgebraically, mROAm= mPMm× mAT. mCompan
y mAmabovemis mless mprof itable:m18% m× m1.2m=m21.6% mwhereas mCompany mB’s mROAmis m18% m× m1.5m= m27.
0%.
Topic:mFinancial mAccountingmandmBusiness mAnalysism
LO:m5
14. Financialmstatements mareminf luenced mby mfivemimportant mforces mthat mdeterminemamcompany’s mcompetiti
vemintensity: m(A)mindustrymcompetition, m(B)mbuyermpower, m(C)msuppliermpower, m(D)mproduct msubstitutes
, mand
(E)mthreat mof mentry.
Answer: mTrue
Rationale: mBy msystematically mconsidering mthesemf ivembusiness mforces,mwemcanmgainmbetterminsightsmf r
ommf inancialmstatements.
Topic:mAuditmReportmLO:
7
15. Am“clean”maudit mreport masserts—among mothermthings—
that m(a)mthemauditormhas mprepared mallmnecessary mf inancialmstatements mand m(b)mmanagement mhas mexp
ressed mits mopinionmthat mthey maremprepared minmconf ormity mwithmGAAP.
Answer: mFalse
Rationale: m Themstatement mis mreversed: mAm“clean”maudit mreport masserts—among mothermthings—
that m(a)mmanagement mhas mprepared mallmnecessary mf inancialmstatements mand m(b)mthemauditormhas mexp
ressed mits mopinionmthat mthey maremprepared minmconf ormity mwithmGAAP.
m m m m m m m
aston, Halsey, McAnally (Test Bank, 100- Verified)
m m m m m m
Financial Accounting for MBAsm m m
Learning Objectives – Coverage by question
m m m m m
True/False MultiplemChoice Exercises Problems Essays
LO1m–
1
mExplainmand massess mthemf our
mmainmbusiness mactivities.
LO2m–
mIdentif ymand mdiscuss mthemuser 1-m4 1, m2 2
s mand msuppliers mof mf inancialmst
atement minf ormation.
LO3m–
mDescribemand mexaminemthemf 5-10 3-19 1-8 1-5,m10 3,m4
ourmf inancialmstatements, mand
mdef inemthemaccounting mequati
on.
LO4m–
11-13 20-25 1, m9, m10 6,m7 5
mExplainmand mapply mthembasic
s mof mprof itability manalysis.
LO5m–
mAssess mbusiness moperations 14 26, m27 8
mwithinmthemcontext mof mamcomp
etitivemenvironment.
LO6m–
mAccess mreports mfiled mwithmthe
mSECm(Appendix m1A).
LO7m–mDescribemthe
accounting mprinciples mand mreg 15 28-30 9 6
ulations mthat mf ramemf inancialmst
atements m(Appendix m1B).
,Module 1: Financial Accounting for MBAs
m m m m m
True/False
Topic:mUsersmofmFinancial mStatem ent mInform ationm
LO:m2
1. Shareholders mdemand mf inancialminf ormationmprimarily mto massess mprof itability mand mrisk mwhereas mbank
ers mdemand minf ormationmprimarily mto massess mcashmf lows mto mrepay mloanminterest mand mprincipal.
Answer: mTrue
Rationale: mWhilembothmshareholders mand mbankers mareminterested minmallmtheminformationmcompaniesmprov
ide,mshareholders mcaremabout mmoremaboutmamcompany’s mprof itability mand mbankers mcaremmoremabout ms
olvency mand mcreditworthiness.
Topic:mPubliclymAvailablemFinancial mReport
smLO:m2
2. Publicly mtraded mcompanies maremrequired mto mprovidemquarterly mf inancialmreports mdirectly mto mthempublic.
Answer: mFalse
Rationale: mCompanies mprovidemelectronic mversions mof mquarterly mf inancialmstatements mto mthemSEC, mwh
ichmposts mthemmto mthemInternet mf ormthempublic mto maccess mthem.
Topic:mUsersmofmFinancial mStatem ent mInform ationm
LO:m2
3. Publicly m traded m companies m providem financialm informationm primarily m tom satisf y m them SECm and m the
m tax mauthorities m(that mis, mthemInternalmRevenuemService).
Answer: mFalse
Rationale: mDemand mf orminformationmextends mto mmany musers; mthemregulators msuchmas mthemSECmand mthe
mIRS maremonly monemclass mof musers.
Topic:mSECmFilingsmLO:
2
4. Publicly m traded m companies m must m providem tom them Securities m Exchangem Commissionm annualm audi
ted mf inancialmstatements m(10-Kmreports)mand mquarterly maudited mf inancialmstatements m(10-Qmreports).
Answer: mFalse
Rationale: mQuarterly mreports mdo mnot mneed mto mbemaudited.
Topic:mBalancemSheetmL
O:m3
5. If mamcompany mreports mretained mearnings mof m$175.3mmillionmonmits mbalancemsheet, mitmmust malso mreport m$
175.3mmillionminmcash.
Answer: mFalse
, Rationale: m Themaccounting mequationmrequires mtotalmassets mtomequalmtotalmliabilitiesmplusmstockholders’
mequity.mThat mdoes mnotmimply,mhowever, mthat mliability mand mequity maccounts mrelatemdirectly mtomspecific ma
ssets.
Topic:mBalancemSheetmLO:
3
6. Ambalancemsheet mshows mamcompany’s mpositionmovermamperiod mof mtime, mwhereas manmincomemstate
ment, mstatement mof mstockholders’mequity,mand mstatement mofmcashmflows mshowmitsmpositionmatmampo
int minmtime.
Answer: mFalse
Rationale: m Themstatement mis mreversed: mAmbalancemsheet mshows mamcompany’smpositionmatmampoint minmt
ime, mwhereas manmincomemstatement, mstatement mofmequity,mand mstatement mof mcashmf lows mshowmitsmpos
itionmovermamperiod mof mtime.
Topic:mAccountingmEquation
mLO:m3
7. Assets mmust malways mequalmliabilities mplus mequity.
Answer: mTrue
Rationale: mThemaccounting mequationmis mAssets m= mLiabilities m+ mEquity. mThis mrelationmmust malways mhold.
Topic:mIncomemStatementmLO:
3
8. Themincomemstatement mreports mnet mincomemwhichmis mdef ined mas mthemcompany’s mprof it maf termallmexpe
nses mand mdividends mhavembeenmpaid.
Answer: mFalse
Rationale: m Themstatement mcontains mtwo merrors. mFirst, mnet mincomemdoes mnot mincludemany mdividendsmdu
ring mthemperiod;mthesemaremamdistributionmof mprof its mand mnotmpart mof mits mcalculation.mSecond, mtheminco
memstatement mis mprepared monmanmaccrualmbasismand mthus mincludesmexpenses mincurred m(as mopposedm
to mpaid).
Topic:mStatementmofmCashmFlowsm
LO:m3
9. Amstatement mof mcashmflows mreportsmonmcashmflows mformoperating, minvesting mand mfinancing mactivities ma
t mampoint minmtime.
Answer: m False
Rationale: m Amstatement mof mcashmf lows mreportsmonmcashmf lowsmf ormoperating, minvesting,mand mf inancing
mactivities movermamperiod mof mtime.
Topic:mStatementmofmStockholders’ mEquity mLO:
3
10. Anmincreaseminmcommonmstock mwould mbemref lected minmthemstatement mof mstockholders’mequity.
Answer: m True
Rationale: m Themstatement mof mstockholders’mequitymreportsmonmchanges minmthemaccounts mthat mmakemu
p mstockholders’mequity. mThis mincludes mcontributed mcapital, mretained mearnings, mand mothermequity.
, ReturnmonmAssets
4
11. ReturnmonmAssets m(ROA)mmeasures mthemprof it mthemcompany mmakes monmeachmdollarmof mtotalmassets mitmuses.
Answer: mTrue
Rationale: mReturnmonmAssets mis mamprofitabilitymmetric mthat mmeasures mhowmmuchmprofitmthemcompanym
mademf ormeachmdollarmof massets mthemcompany mholds monmaveragemduring mthemyear.
Topic:mReturnmonmAsset
smLO:m4
12. ReturnmonmAssets m(ROA)m= m(Net mIncomem/mSales)m× mAsset mTurnover
Answer: mTrue
Rationale: mReturnmonmAssets m= mNet mIncomem/mAveragemAssets. mThis mis mthemdisaggregationmofmthemRO
Aminto mits mcomponents
Topic:mAssetmTurnovermLO:
4
13. Considermtwo mcompanies m(Amand mB)mwithmequalmprof itmmargins mof m18%. mCompany mAmhas manmasset mtur
novermof m1.2mand mCompany mBmhas manmasset mturnovermof m1.5. mIf mallmelsemis mequal, mCompany mBmwithmits’
mhighermasset mturnover, mis mless mprof itablembecausemit mrequires mmoremrevenuemto mturnmits massets mover.
Answer: mFalse
Rationale: mAsset mturnovermis manmefficiency mmetric.mThemhighermthemturnover, mthemmoremeff icient mthemc
ompany mismwithmitsmassetsmand mthus, mthemmoremprof itable. mAlgebraically, mROAm= mPMm× mAT. mCompan
y mAmabovemis mless mprof itable:m18% m× m1.2m=m21.6% mwhereas mCompany mB’s mROAmis m18% m× m1.5m= m27.
0%.
Topic:mFinancial mAccountingmandmBusiness mAnalysism
LO:m5
14. Financialmstatements mareminf luenced mby mfivemimportant mforces mthat mdeterminemamcompany’s mcompetiti
vemintensity: m(A)mindustrymcompetition, m(B)mbuyermpower, m(C)msuppliermpower, m(D)mproduct msubstitutes
, mand
(E)mthreat mof mentry.
Answer: mTrue
Rationale: mBy msystematically mconsidering mthesemf ivembusiness mforces,mwemcanmgainmbetterminsightsmf r
ommf inancialmstatements.
Topic:mAuditmReportmLO:
7
15. Am“clean”maudit mreport masserts—among mothermthings—
that m(a)mthemauditormhas mprepared mallmnecessary mf inancialmstatements mand m(b)mmanagement mhas mexp
ressed mits mopinionmthat mthey maremprepared minmconf ormity mwithmGAAP.
Answer: mFalse
Rationale: m Themstatement mis mreversed: mAm“clean”maudit mreport masserts—among mothermthings—
that m(a)mmanagement mhas mprepared mallmnecessary mf inancialmstatements mand m(b)mthemauditormhas mexp
ressed mits mopinionmthat mthey maremprepared minmconf ormity mwithmGAAP.
