1-1
Chapterj1—OverviewjofjFinancialjReporting,jFinancialjStatementjAnalysis,jandjValuation
MULTIPLEjCHOICE
1. Thejtoolsjforjstudyingkindustryjeconomicsjdoesjnotjinclude:
a. Valuejchainjanalysis
b. ClassificationjusingkPorter’sjfivekforces
c. Classificationjofjcashjflows
d. Economicjattributesjframework
ANS:j C PTS:j j 1
2.
Whichjofjthejfollowingjisjajquestionjanjanalystkwouldkaskjwhenjassessingkthekqualityjofjajfirm’jsjfin
ancialjstatements?
a. Arejthejcompany’sjproductsjdesignedjtojmeetjajspecificjmarketjsegment?
b. Hasjthejfirmjintegratedjforwardjintojretailingjtojfinaljconsumers?
c. Isjthekfirmjdiversifiedjacrossjseveraljgeographicaljmarkets?
d. Dojearningsjincludejnonrecurringjgainsjorjlosses?
ANS:j D PTS:j j 1
3. Whichjofjthejfollowingjeconomicjcharacteristicsjiskconsistentjwithjakgroceryjstorejchain?
a. Minimaljcompetition
b. Extensivejcompetition
c. Highjnetjincomektojsales
d. Differentiatedjproduct
ANS:j B PTS:j j 1
4. Onjakcommonjsizejbasis,jwhichjofjthekfollowingjassetsjisjnormallyjlargestjforjanjelectricjutility?
a. Accountsjreceivable
b. Inventory
c. Property,jPlantkandjEquipment
d. CashjandjMarketablejSecurities
ANS:j C PTS:j j 1
5. Onjajcommonjsizejbasis,jwhichjofjthekfollowingjassetsjisjnormallyjlargestjforjajcommercialjbank?
a. AccountsjandjNotesjReceivable
b. Inventory
c. Property,jPlantjandjEquipment
d. CashjandjMarketablejSecurities
ANS:j A PTS:j j 1
6. WhichjofjthejfollowingjisjnotjonejofjPorter’sjfivejforces?
a. BuyerjPower
b. SupplierjPower
c. ThreatkofjRegulation
d. ThreatjofjSubstitutes
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
, 1-2
ANS:j C PTS:j j 1
7.
WhenjassessingkbuyerjpowerjusingjPorter’sjfivejforces,jwhichjofjthekfollowingjisjnotjconsistenjtjwi
thjlowjbuyerjpower?
a. Brandjloyalty
b. Controljofjdistributionjchannel
c. Largejnumberjofjsuppliers
d. Lowjprice
ANS:j C PTS:j j 1
8.
Thejsecondjstepjinjfinancialjstatementjanalysisjisjtojidentifyjthejcompanyjstrategy.jWhichjofjthjejfol
lowingjisjajquestionjanjanalystjshouldjaskjwhenjperformingjajstrategyjanalysis?
a. Arejindustryjsalesjgrowingkrapidlyjorjslowly?
b Dojearningsjincludejrevenuesjthatjappearjmismatchedjwithkthekbusinessjmodeljemployedjbyjthejfirm
. ?
c. Doesjthejindustryjincludejajlargejnumberjofjfirmsjsellingksimilarjproducts?
d Whatjisjthejcompany’sjdegreekofjgeographicaljdiversification?
.
ANS:j D PTS:j j 1
9.
Thejthirdjstepjinjfinancialjstatementjanalysisjisjtojassessjthejqualityjofjthejfirm’sjfinancialjstatejments.jW
hichjofjthejfollowingkisjajquestionjankanalystjshouldjaskjwhenjperformingjthisjstep?
a. Arejindustryjsalesjgrowingkrapidlyjorjslowly?
b Dojearningsjincludejrevenuesjthatjappearjmismatchedkwithkthekbusinessjmodeljemployedjbyjthejfirm
. ?
c. Doesjthejindustryjincludejajlargejnumberjofjfirmsjsellingjsimilarjproducts?
d Whatjisjthejcompany’sjdegreekofjgeographicaljdiversification?
.
ANS:j B PTS:j j 1
10. Anjexamplejofjankintangiblejassetjis:
a. Ajpatent
b. Land
c. Investmentjinjanotherjcompany
d. Rawjmaterialjinventory
ANS:j A PTS:j j 1
11. Whichjofjthejfollowingjwouldjnotjappearjasjajliabilityjonjthejbalancejsheet?
a. Ajlaborjcontract
b. Ajnotejduektojajbank
c. Salaryjduejemployeesjatjyear-end
d. Accountsjpayable
ANS:j A PTS:j j 1
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
, 1-3
12.
Whichjofjthejfollowingjassetsjwouldjappearjonjthejbalancejsheetjatjanjamountjgreatlyjbelowjitsjfairj
marketkvalue?
a. Inventory
b. Marketablejsecurities
c. Equipment
d. Brandjname
ANS:j D PTS:j j 1
13. Thejaccrualjbasisjofjaccountingjrecognizes:
a. Revenuejwhenjcashjisjreceivedjfromjcustomers
b. Expensesjwhenjpaid
c. Revenuejwhenjalljorjajsubstantialjportionjisjperformed
d. Revenuejwhenjcontractsjarejsigned
ANS:j C PTS:j j 1
14. WhichjofjthejfollowingjisjnotjanjactivityjreportedjinjthejStatementjofjcashjFlows?
a. Operating
b. Investing
c. Manufacturing
d. Financing
ANS:j C PTS:j j 1
15. Thejcashjbasisjmethodjofjaccountingjcanjbejbestjdescribedjas:
a. Thejrecordingkofjtransactionsjandjadjustmentsjsojthatjdebitsjequaljcredits.
b. Thejmethodjthatjequatesjassetsjwithjliabilitiesjandjowners’jequity.
c. Thejmethodjthatjrecognizesjrevenuejwhenkmoneyjisjreceivedkandjexpensesjwhenkmoneyjisjpaid.
d. Thejmethodjthatjmatchesjincurredjexpensesjwithjrelatedjrevenuesjwhenjtheyjarejearned.
ANS:j C PTS:j j 1
16. Ajvaluejchainjforjanjindustryjsetsjforth:
a. Thejlayersjofjmanagementjthejneededjtojbeksuccessful
b. Sequencejofjactivitiesjinvolvedjinjthejcreation,jmanufacture,jandjdistributionjofjitsjproducts.
c. Sequencejofjactivitiesjinvolvedjinjajfirm'sjresearchjandjdevelopmentjactivities.
d. Whetherjthekindustryjisjhorizontallyjorjverticallyjintegrated.
ANS:j B PTS:j j 1
17. Whichjofjthejfollowingjeconomicjcharacteristicsjisjconsistentjwithjajcommercialjbank?
a. Lowjbarriersjtojentry.
b. Highjlevelsjofjresearchjandjdevelopment.
c. Lowjprofitjmarginjonjlendingkactivities.
d. Lowjprofitjmarginjonjfee-basedjfinancialjservices,jsuchjasjmergerjconsulting.
ANS:j C PTS:j j 1
18. Whichjofjthejfollowingjeconomicjcharacteristicsjiskconsistentjwithjakpharmaceuticaljcompany?
a. Lowjbarriersjtojentry.
b. Highjlevelsjofjresearchjandjdevelopment.
c. Lowjprofitjmargins.
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
, 1-4
d. Lowjbusinessjrisk.
ANS:j B PTS:j j 1
19. Whichjofjthejfollowingjeconomicjcharacteristicsjisjconsistentjwithjakgroceryjstorejchain?
a. Lowjbarriersjtojentry.
b. Highjlevelsjofjresearchjandjdevelopment.
c. Highjprofitjmargins.
d. Lowjcapitaljintensity.
ANS:j A PTS:j j 1
20.
Whenjattemptingktojidentifyjthejeconomicjcharacteristicsjofjthejindustryjinjwhichjajparticularjfijrmj
participatesjanjanalystjmightjaskjwhichkofjthejfollowingjquestions?
a. Doesjtechnologicaljchangejplayjanjimportantjrolejinjthekfirmjmaintainingjajcompetitivejadvantage?
b Hasjthejfirmjdiversifiedjacrossjseveraljgeographicjmarkets?
.
c. Hasjthejfirmjrecognizedjrevenuesjatjthejproperjtime?
d Hasjthejfirmjstructuredjtransactionsjtojmakejitjlookkmorekprofitablejthanjeconomicjconditionsjsuggesjt?
.
ANS:j A PTS:j j 1
21. Whichjofjthejfollowingjwouldjnotjinhibitjnewjentrantsjintojajmarket?
a. Existingktechnologicalj expertise.
b. Largejrequiredjcapitaljinvestment.
c. Lackjofjrivalryjamongkcurrentjparticipants.
d. Existingkpatentedj technology.
ANS:j C PTS:j j 1
22. Currentjassetsjarejdefinedjas:
a Cashkandjcashjequivalents.
.
b Alljassetsjexpectedjtojbejquicklyjusedjbyjthejfirm.
.
c Cashkandjotherjassetsjthatjthejfirmkexpectsjtojselljorjconsumejduringkthejnormaljoperatingjcyclejofja
. business,jusuallyjonejyear.
d Cashkandjotherjassetsjthatjthejfirmkexpectsjmaintainjforjajperiodkincludingktheknormaljoperatingjcycle
. ofjajbusiness,jusuallyjonejyear.
ANS:j C PTS:j j 1
23. Whichjofjthejfollowingjisjnotjanjexpensekofjakbusiness?
a. Depreciation
b. Dividends
c. Salaries
d. Advertising
ANS:j B PTS:j j 1
24. Whichjofjthejfollowingjisjnotjajcharacteristicjofjanjextraordinaryjitem?
a. Materialjinjamount.
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
Chapterj1—OverviewjofjFinancialjReporting,jFinancialjStatementjAnalysis,jandjValuation
MULTIPLEjCHOICE
1. Thejtoolsjforjstudyingkindustryjeconomicsjdoesjnotjinclude:
a. Valuejchainjanalysis
b. ClassificationjusingkPorter’sjfivekforces
c. Classificationjofjcashjflows
d. Economicjattributesjframework
ANS:j C PTS:j j 1
2.
Whichjofjthejfollowingjisjajquestionjanjanalystkwouldkaskjwhenjassessingkthekqualityjofjajfirm’jsjfin
ancialjstatements?
a. Arejthejcompany’sjproductsjdesignedjtojmeetjajspecificjmarketjsegment?
b. Hasjthejfirmjintegratedjforwardjintojretailingjtojfinaljconsumers?
c. Isjthekfirmjdiversifiedjacrossjseveraljgeographicaljmarkets?
d. Dojearningsjincludejnonrecurringjgainsjorjlosses?
ANS:j D PTS:j j 1
3. Whichjofjthejfollowingjeconomicjcharacteristicsjiskconsistentjwithjakgroceryjstorejchain?
a. Minimaljcompetition
b. Extensivejcompetition
c. Highjnetjincomektojsales
d. Differentiatedjproduct
ANS:j B PTS:j j 1
4. Onjakcommonjsizejbasis,jwhichjofjthekfollowingjassetsjisjnormallyjlargestjforjanjelectricjutility?
a. Accountsjreceivable
b. Inventory
c. Property,jPlantkandjEquipment
d. CashjandjMarketablejSecurities
ANS:j C PTS:j j 1
5. Onjajcommonjsizejbasis,jwhichjofjthekfollowingjassetsjisjnormallyjlargestjforjajcommercialjbank?
a. AccountsjandjNotesjReceivable
b. Inventory
c. Property,jPlantjandjEquipment
d. CashjandjMarketablejSecurities
ANS:j A PTS:j j 1
6. WhichjofjthejfollowingjisjnotjonejofjPorter’sjfivejforces?
a. BuyerjPower
b. SupplierjPower
c. ThreatkofjRegulation
d. ThreatjofjSubstitutes
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
, 1-2
ANS:j C PTS:j j 1
7.
WhenjassessingkbuyerjpowerjusingjPorter’sjfivejforces,jwhichjofjthekfollowingjisjnotjconsistenjtjwi
thjlowjbuyerjpower?
a. Brandjloyalty
b. Controljofjdistributionjchannel
c. Largejnumberjofjsuppliers
d. Lowjprice
ANS:j C PTS:j j 1
8.
Thejsecondjstepjinjfinancialjstatementjanalysisjisjtojidentifyjthejcompanyjstrategy.jWhichjofjthjejfol
lowingjisjajquestionjanjanalystjshouldjaskjwhenjperformingjajstrategyjanalysis?
a. Arejindustryjsalesjgrowingkrapidlyjorjslowly?
b Dojearningsjincludejrevenuesjthatjappearjmismatchedjwithkthekbusinessjmodeljemployedjbyjthejfirm
. ?
c. Doesjthejindustryjincludejajlargejnumberjofjfirmsjsellingksimilarjproducts?
d Whatjisjthejcompany’sjdegreekofjgeographicaljdiversification?
.
ANS:j D PTS:j j 1
9.
Thejthirdjstepjinjfinancialjstatementjanalysisjisjtojassessjthejqualityjofjthejfirm’sjfinancialjstatejments.jW
hichjofjthejfollowingkisjajquestionjankanalystjshouldjaskjwhenjperformingjthisjstep?
a. Arejindustryjsalesjgrowingkrapidlyjorjslowly?
b Dojearningsjincludejrevenuesjthatjappearjmismatchedkwithkthekbusinessjmodeljemployedjbyjthejfirm
. ?
c. Doesjthejindustryjincludejajlargejnumberjofjfirmsjsellingjsimilarjproducts?
d Whatjisjthejcompany’sjdegreekofjgeographicaljdiversification?
.
ANS:j B PTS:j j 1
10. Anjexamplejofjankintangiblejassetjis:
a. Ajpatent
b. Land
c. Investmentjinjanotherjcompany
d. Rawjmaterialjinventory
ANS:j A PTS:j j 1
11. Whichjofjthejfollowingjwouldjnotjappearjasjajliabilityjonjthejbalancejsheet?
a. Ajlaborjcontract
b. Ajnotejduektojajbank
c. Salaryjduejemployeesjatjyear-end
d. Accountsjpayable
ANS:j A PTS:j j 1
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
, 1-3
12.
Whichjofjthejfollowingjassetsjwouldjappearjonjthejbalancejsheetjatjanjamountjgreatlyjbelowjitsjfairj
marketkvalue?
a. Inventory
b. Marketablejsecurities
c. Equipment
d. Brandjname
ANS:j D PTS:j j 1
13. Thejaccrualjbasisjofjaccountingjrecognizes:
a. Revenuejwhenjcashjisjreceivedjfromjcustomers
b. Expensesjwhenjpaid
c. Revenuejwhenjalljorjajsubstantialjportionjisjperformed
d. Revenuejwhenjcontractsjarejsigned
ANS:j C PTS:j j 1
14. WhichjofjthejfollowingjisjnotjanjactivityjreportedjinjthejStatementjofjcashjFlows?
a. Operating
b. Investing
c. Manufacturing
d. Financing
ANS:j C PTS:j j 1
15. Thejcashjbasisjmethodjofjaccountingjcanjbejbestjdescribedjas:
a. Thejrecordingkofjtransactionsjandjadjustmentsjsojthatjdebitsjequaljcredits.
b. Thejmethodjthatjequatesjassetsjwithjliabilitiesjandjowners’jequity.
c. Thejmethodjthatjrecognizesjrevenuejwhenkmoneyjisjreceivedkandjexpensesjwhenkmoneyjisjpaid.
d. Thejmethodjthatjmatchesjincurredjexpensesjwithjrelatedjrevenuesjwhenjtheyjarejearned.
ANS:j C PTS:j j 1
16. Ajvaluejchainjforjanjindustryjsetsjforth:
a. Thejlayersjofjmanagementjthejneededjtojbeksuccessful
b. Sequencejofjactivitiesjinvolvedjinjthejcreation,jmanufacture,jandjdistributionjofjitsjproducts.
c. Sequencejofjactivitiesjinvolvedjinjajfirm'sjresearchjandjdevelopmentjactivities.
d. Whetherjthekindustryjisjhorizontallyjorjverticallyjintegrated.
ANS:j B PTS:j j 1
17. Whichjofjthejfollowingjeconomicjcharacteristicsjisjconsistentjwithjajcommercialjbank?
a. Lowjbarriersjtojentry.
b. Highjlevelsjofjresearchjandjdevelopment.
c. Lowjprofitjmarginjonjlendingkactivities.
d. Lowjprofitjmarginjonjfee-basedjfinancialjservices,jsuchjasjmergerjconsulting.
ANS:j C PTS:j j 1
18. Whichjofjthejfollowingjeconomicjcharacteristicsjiskconsistentjwithjakpharmaceuticaljcompany?
a. Lowjbarriersjtojentry.
b. Highjlevelsjofjresearchjandjdevelopment.
c. Lowjprofitjmargins.
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
, 1-4
d. Lowjbusinessjrisk.
ANS:j B PTS:j j 1
19. Whichjofjthejfollowingjeconomicjcharacteristicsjisjconsistentjwithjakgroceryjstorejchain?
a. Lowjbarriersjtojentry.
b. Highjlevelsjofjresearchjandjdevelopment.
c. Highjprofitjmargins.
d. Lowjcapitaljintensity.
ANS:j A PTS:j j 1
20.
Whenjattemptingktojidentifyjthejeconomicjcharacteristicsjofjthejindustryjinjwhichjajparticularjfijrmj
participatesjanjanalystjmightjaskjwhichkofjthejfollowingjquestions?
a. Doesjtechnologicaljchangejplayjanjimportantjrolejinjthekfirmjmaintainingjajcompetitivejadvantage?
b Hasjthejfirmjdiversifiedjacrossjseveraljgeographicjmarkets?
.
c. Hasjthejfirmjrecognizedjrevenuesjatjthejproperjtime?
d Hasjthejfirmjstructuredjtransactionsjtojmakejitjlookkmorekprofitablejthanjeconomicjconditionsjsuggesjt?
.
ANS:j A PTS:j j 1
21. Whichjofjthejfollowingjwouldjnotjinhibitjnewjentrantsjintojajmarket?
a. Existingktechnologicalj expertise.
b. Largejrequiredjcapitaljinvestment.
c. Lackjofjrivalryjamongkcurrentjparticipants.
d. Existingkpatentedj technology.
ANS:j C PTS:j j 1
22. Currentjassetsjarejdefinedjas:
a Cashkandjcashjequivalents.
.
b Alljassetsjexpectedjtojbejquicklyjusedjbyjthejfirm.
.
c Cashkandjotherjassetsjthatjthejfirmkexpectsjtojselljorjconsumejduringkthejnormaljoperatingjcyclejofja
. business,jusuallyjonejyear.
d Cashkandjotherjassetsjthatjthejfirmkexpectsjmaintainjforjajperiodkincludingktheknormaljoperatingjcycle
. ofjajbusiness,jusuallyjonejyear.
ANS:j C PTS:j j 1
23. Whichjofjthejfollowingjisjnotjanjexpensekofjakbusiness?
a. Depreciation
b. Dividends
c. Salaries
d. Advertising
ANS:j B PTS:j j 1
24. Whichjofjthejfollowingjisjnotjajcharacteristicjofjanjextraordinaryjitem?
a. Materialjinjamount.
©j2018jCengage.jMayjnotjbejscanned,kcopiedjorjduplicated,jorkpostedjtojajpubliclyjaccessiblej website,j injwholejorjinjpart.
