FIN 458 Test 1 Flashcards - Chap 1

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FIN 458 Test 1

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Terms in this set (69)
The tools for studying c

industry economics does not
include:
a. Value chain analysis
b. Classification using Porter's

five forces
c. Classification of cash flows
d. Economic attributes
framework
Which of the following is a d

question an analyst would ask
when assessing the quality of
a firm's financial statements?
a. Are the company's

products designed to meet a
specific market segment?
b. Has the firm integrated

forward into retailing to final
consumers?
c. Is the firm diversified across

several geographical
markets?
d. Do earnings include
nonrecurring gains or losses?
FIN 458 Test 1

https://quizlet.com/363907715/fin-458-test-1-flash-cards/ 1/34
Which of the following b

economic characteristics is
consistent with a grocery
store chain?
a. Minimal competition
b. Extensive competition
c. High net income to sales
d. Differentiated product
On a common size basis, c

which of the following assets
is normally largest for an
electric utility?
a. Accounts receivable
b. Inventory
c. Property, Plant and

Equipment
d. Cash and Marketable

Securities
On a common size basis, a

which of the following assets
is normally largest for a
commercial bank?
a. Accounts and Notes

Receivable
b. Inventory
c. Property, Plant and

Equipment
d. Cash and Marketable

Securities
FIN 458 Test 1

When assessing buyer power c

using Porter's five forces,
which of the following is not
consistent with low buyer
power?
a. Brand loyalty
b. Control of distribution
channel
c. Large number of suppliers
d. Low price
The second step in financial d

statement analysis is to
identify the company strategy.
Which of the following is a
question an analyst should
ask when performing a
strategy analysis?
a. Are industry sales growing

rapidly or slowly?
b. Do earnings include
revenues that appear
mismatched with the business
model employed by the firm?
c. Does the industry include a

large number of firms selling
similar products?
d. What is the company's

degree of geographical
diversification?
FIN 458 Test 1

The third step in financial b

statement analysis is to assess
the quality of the firm's
financial statements. Which of
the following is a question an
analyst should ask when
performing this step?
a. Are industry sales growing

rapidly or slowly?
b. Do earnings include
revenues that appear
mismatched with the business
model employed by the firm?
c. Does the industry include a

large number of firms selling
similar products?
d. What is the company's

degree of geographical
diversification?
Which of the following would a

not appear as a liability on the
balance sheet?
a. A labor contract
b. A note due to a bank
c. Salary due employees at

year-end
d. Accounts payable
Which of the following assets d

would appear on the balance
sheet at an amount greatly
below its fair market value?
a. Inventory
b. Marketable securities
c. Equipment
d. Brand name
FIN 458 Test 1
The accrual basis of c

accounting recognizes
a. Revenue when cash is

received from customers
b. Expenses when paid
c. Revenue when all or a

substantial portion is
performed
d. Revenue when contracts

are signed
The cash basis method of c

accounting can be best
described as:
a. The recording of
transactions and adjustments
so that debits equal credits.
b. The method that equates

assets with liabilities and
owners' equity.
c. The method that recognizes

revenue when money is
received and expenses when
money is paid.
d. The method that matches

incurred expenses with
related revenues when they
are earned.
FIN 458 Test 1

A value chain for an industry b

sets forth
a.The layers of management

the needed to be successful
b. Sequence of activities
involved in the creation,
manufacture, and distribution
of its products.
c. Sequence of activities
involved in a firm's research
and development activities.
d. Whether the industry is

horizontally or vertically
integrated.
Which of the following c

consistent with a commercial
bank?
a. Low barriers to entry.
b. High levels of research and

development.
c. Low profit margin on

lending activities.
d. Low profit margin on fee-

based financial services, such
as merger consulting.

consistent with a
pharmaceutical company?

development.
c. Low profit margins.
d. Low business risk.

FIN 458 Test 1
Which of the following a

consistent with a grocery
store chain?

development.
c. High profit margins.
d. Low capital intensity
Which of the following would c

not inhibit new entrants into a
market?
a. Existing technological
expertise.
b. Large required capital

investment.
c. Lack of rivalry among

current participants.
d. Existing patented
technology
Which of the following is nota d

characteristic of an
extraordinary item?
a. Material in amount.
b. Nonrecurring.
c. Unusual given the nature of

the firm's activities.
d. Requires a cash outflow
FIN 458 Test 1

Which of the following a

activities is an operating
activity?a. Collections of
accounts receivable.
b. Investing in equity
securities of other companies.
c. Payment of dividends.
d. Issuing common stock
All of the following are the a

building blocks for financial
statement analysis except:
a. Targeting growth
opportunities that diversify
exchange rates, risk exposure,
and political uncertainty.
b. Describing strategies that a

firm pursues to differentiate
itself from competitors in
order to evaluate competitive
advantages, sustainability of
the firm's earnings, and its
risks.
c. Evaluating the financial

statements, including the
accounting concepts and
methods that underlie them
and the quality of the
information they provide.
d. Identification of the
economic characteristics of
the industries and the relation
of those economic
characteristics to the various
financial statement ratios.
FIN 458 Test 1

All of the following are d

reasons that pharmaceutical
companies have higher
barriers for entry than
grocery stores except:
a. There is lengthy
government testing and
approval required.
b. Research and development

is a lengthy and uncertain
process.
c. Patent protection is needed

for exclusive rights.
d. The largest asset is typically

capital intensive Property,
Plant and Equipment.
Which forces typically d

represent vertical competition
in a value chain?
a. Potential entry and

substitutes.
b. Buyer power and rivalry

among existing firms
c. Supplier power and

potential entry.
d. Buyer power and supplier

power
FIN 458 Test 1

Which forces typically c

represent horizontal
competition in a value chain?
a. Rivalry among existing firms

and supplier power.
b. Potential entry and buyer

power.
c. Substitutes and potential

entry.
d. Buyer power and supplier

power.
Which SEC form may be the b

best place to start learning
about the economics of an
industry and the particular
strategy a firm has selected
for competing in the industry?
a. Form 8-K
b. Form 10-K
c. Form MD&A
d. Form FSAP
he primary purpose of the d

balance sheet is to:
a. Report the current value of

the business.
b. Measure the net income of

a business up to a particular
point in time
c. Report the difference

between cash inflows and
cash outflows for the period.
d. Report the financial

position of the reporting
entity at a particular point in
time
FIN 458 Test 1

Which financial statement d

would you look at to
determine whether a
company will be able to pay
for the goods when payment
is due in 30 days?
a. Statementof cash flows.
b. Statement of stockholders'
equity.
c. Income statement.
d. Balance sheet.
The two categories of c

shareholders' equity usually
found on the balance sheet of
a corporation are
a. Contributed capital and

property, plant, and
equipment.
b. Retained earnings and

notes payable.
c. Common stock and

retained earnings.
d. Contributed capital and

equity securities
Which financial statement for b

a business would you look at
to determine the company's
earnings performance during
an accounting period?
a. Balance sheet.
b. Income statement.
c. Statement of cash flows.

d. The Management
Assessment
FIN 458 Test 1

On the statement of cash b

flows, depreciation would be
classified as?
a. A financing activity.
b. An operating activity.
c. An investing activity.
d. A noncash activity.
Net income is equal to:

b
a. Assets minus Liabilities
b. Revenues and Gains minus

Expenses and Losses
c. Shareholders' Equity minus

Assets
d. Revenues and Assets minus

Expenses and Liabilities
Why is the operating activities b

section of the statement of
cash flows often believed to
be the most important part of
the statement?
a. Because it shows the

dividends that have been paid
to stockholders.
b. Because it indicates a
company's ability to generate
cash from sales to meet
current cash payments for
goods or services.
c. Because shows the net

increase or decrease in cash
during the period.
d. Because it gives the most

information about how
operations have been
financed.
FIN 458 Test 1

One rationale for the b

statement of cash flows is to
a. ensure that the cash

account balances at year-
end.
b. reconcile differences
between net income and cash
receipts and disbursements.
c. calculate the company's

free cash flow.
d. examine the cash effects of

income from discontinued
operations, extraordinary
items and
changes in accounting
principles.
Which of the following is not d

one of the reasons why net
income differs from cash
flows from
operations under the indirect

method of calculating cash
flows?
a. non-cash items, such as

depreciation and amortization
b. changes in working capital

accounts
c. gains and losses related to

the sale of plant, property
and equipment
d. sale or repurchase of
capital stock
FIN 458 Test 1

A company in the growth b

phase of its product life cycle
will normally have the
following pattern of
cash flows
a. Negative cash flows from

operations, negative cash
flows from investing and
positive cash
flows from financing.
b. Negative or positive cash

flows from operations,
negative cash flows from
investing and
positive cash flows from

financing.
c. Positive cash flows from

operations, positive cash
flows from investing and
positive cash
flows from financing.
d. Negative or positive cash

flows from operations,
investing and

financing
FIN 458 Test 1

Which of the following is an b

adjustment that would need
to be made to net income
when calculating
cash flows from operations

under the indirect method?
a. Subtract amortization
expense
b. subtract gain on sale of

subsidiary
c. add an increase in accounts

receivable
d. add a decrease in accounts

payable
If a firm is growing and b

expanding its accounts
receivable and inventories
faster than its current
operating liabilities its cash

flow from operation will
normally be
a. greater than net income
b. less than net income
c. greater than the change in

working capital from
operations
d. greater than the change in

cash
FIN 458 Test 1

Firms with short operating b

cycles will experience less of
a lag between the creation
and delivery of
their products and the

collection of cash from
customers because
a. their cash flow from

operations will be much
greater than their working
capital from
operations.
b. their cash flow from

operations will not differ
much from their working
capital from
operations.
c. their cash flow from

operations will be much less
than their working capital
from
operations.
d. there will be no relation

between their cash flow from
operations and working
capital from
operations.
Normally, cash flows from c

operations will peak during
which phase of the product
life cycle?
a. Introduction
b. Growth
c. Maturity
d. Decline
FIN 458 Test 1


investing activities will start
providing cash during which
phase of the
product life cycle?
a. Introduction
b. Growth
c. Maturity
d. Decline

financing will start using cash
during which phase of the
product life
cycle?
a. Introduction
b. Growth
3-3
c. Maturity
d. Decline
Free cash flows to all debt d

and common equity
shareholders represents the
excess of cash flows from
a. operating activities over

cash flows for financing
activities
b. investing over cash flows

for operating activities
c. investing over cash flows

for financing activities
d. operating activities over

cash flows for investing
activities
FIN 458 Test 1

When preparing the a

statement of cash flows using
the indirect method, an
increase in inventories
would appear as
a. a decrease in the operating

activities section
b. an increase in the operating

activities section
c. a use of cash in the

investing activities section
d. a source of cash in the

When preparing the b

the indirect method, an
increase in accounts payable
would appear as

activities section

activities section


FIN 458 Test 1

When preparing the c

the indirect method, the
payment of dividends
would appear as

activities section

activities section

financing activities section

When preparing the b

the indirect method, the sale
of marketable
securities would appear as
a. a use of cash in the

b. a source of cash in the



FIN 458 Test 1

In a statement of cash flows, b

interest received from
sources other than a
company's investments
would be classified as cash

inflows from
a. lending activities.
b. operating activities.
3-4
c. investing activities.
d. financing activities.
An example of an item that is c

deducted from net income
when preparing the operating
activities
section of the statement of

cash using the indirect
method is
a. depreciation expense.
b. compensation expense
related to stock option plans.
c. income from an investment

accounted for using the
equity method.
d. unrealized losses on
trading investments
FIN 458 Test 1

Which of the following is the b

correct formula for
calculating cash collections
from customers?
a. sales for the period plus

accounts receivable at the
beginning of the period
b. sales for the period plus

beginning of the period minus
accounts
receivable at the end of the

period
c. sales for the period plus

end of the period
d. sales for the period plus

end of the period minus
accounts
receivable at the beginning of

the period
. Outback Corp. recorded c

sales of $1,300,000 in 2010, in
addition the company's
accounts receivable
balance grew from $120,000

at the beginning of 2010 to
$165,000 at the end of 2010.
How much cash
did Outback collect from

customers in 2010?
a. $1,300,000
b. $1,345,000
c. $1,255,000
d. $1,135,000
FIN 458 Test 1
. Toro Company recognized c

$655,000 of cost of goods
sold in 2010, in addition its
implementation of a
just-in-time inventory system

allowed it to reduce its
inventory from $325,000 at
the beginning of the
year to $230,000 at the end

of 2010. How much cash did
Toro spend for inventory in
2010?
a. $655,000
b. $980,000
c. $560,000
d. $620,000
FIN 458 Test 1

Fizzzle Inc. sold a piece of c

equipment during the period
for $230,000 and recorded a
gain of $45,000
on the sale. How should this

gain be treated when
preparing the operating
activities section of the

the indirect method?
a. A sale of equipment is an
investing activity; the
transaction will not affect the
operating
activities section.
b. The gain is added back to

net income in the operating
activities section.
c. The gain is subtracted from

net income in the operating
activities section.
d. The entire sales price is

subtracted from net income in
the operating activities
section.
FIN 458 Test 1

The expense incurred by b

issuing stock options should
be
a. classified as a financing
activity.
b. added back to net income

in the operating activities
section.
c. subtracted from net income

in the operating activities
section.
d. does not appear in the

statement of cash flows.
Lagos Corp. recorded sales b

of $345,000 in 2010, in
addition its accounts
receivable and accounts
payable balances at the

beginning and end of 2010
were as follows:
Jan. 1, 2010 Dec. 31, 2010
Accounts Receivable $65,000

$90,000
Accounts Payable $32,000

$28,000
How much cash did Lagos

collect from customers in
2010?
a. $345,000
b. $320,000
c. $324,000
d. $316,000
FIN 458 Test 1

As products move through c

the maturity phase,
companies invest to ___________
productive capacity.
a. increase
b. decrease
c. maintain
d. Not enough information to

answer this question.
Under the indirect method of c

preparing the statement of
cash flows, add backs to net
income include
all of the following except:
a. depreciation expense
b. deferred tax expense
c. gains on sale of equipment
d. share-based compensation

transactions would not create
a cash flow?
a. Payment of a cash dividend.
b. The company purchased

some of its own stock from a
stockholder.
c. Amortization of patent for

the period.
d. Sale of equipment at book

value (i.e. no gain or loss)
FIN 458 Test 1

Which of the following would b

not be a cash flow from
investing activities?
a. Sale of a patent.
b. Collection of interest
revenue on a long-term note
receivable.
c. Collection of principal of a
note receivable.
d. Purchase of long-term
investments.
Which of the following is a b

cash flow from operating
activities?
a. Sale of long-term
investments in common stock.
b. Purchase of merchandise
for resale.
c. Payment of a note payable.
d. Sale of a piece of land no

longer used in operations.
A cash inflow from financing c

activities includes:
a. receipt of interest
payments.
3-8
b. proceeds from selling

equipment.
c. proceeds from issuance of

bonds payable.
d. proceeds from selling

investments in equity
securities of another
company.
FIN 458 Test 1

. Kraco Corporation reported b

2010 net income of $450,000,
including the effects of
depreciation expense of
$60,000, and amortization
expense on a patent of
$10,000. Also, cash
of $50,000 was borrowed on

a 5-year note payable. Based
on this data, total cash inflow
from
operating activities using the

indirect method for 2010 was
a. $570,000
b. $520,000
c. $470,000
d. $440,000
FIN 458 Test 1

. Adophus, Inc.'s 2010 income b

statement reported total
revenues of $850,000 and
total expenses
(including $40,000
depreciation) of $720,000.
The 2010 balance sheet
reported the following:
accounts receivable
beginning balance of $50,000
and ending balance of
$40,000; accounts
payable beginning balance of

$22,000 and ending balance
of $28,000. Therefore, based
only
on this information and using

the indirect method, the 2010
net cash inflow from
operating
activities was
a. $126,000
b. $186,000
c. $166,000
d. $174,000
FIN 458 Test 1

Tinker Company reported b

sales revenue of $500,000
and total expenses of
$450,000
(including depreciation) for

the year ended December 31,
2010. During 2010, accounts
receivable decreased by
$5,000, merchandise
inventory increased by
$4,000, accounts payable
increased by $6,000, and

depreciation expense of
$10,000 was recorded.
Assuming no other
data is needed and using the
indirect method, the net cash
inflow from operating
activities for
2010 was
a. $60,000
b. $67,000
c. $44,000
d. $51,000
FIN 458 Test 1


statements about the
statement of cash flows is
correct?
a. A purchase of equipment is
classified as a cash inflow
from investing activities.
b. Cash dividends paid are

classified as cash flows from
operating activities.
c. Cash dividends received on

stock investments are
classified as cash flows from
operating activities.
d. A company with a net loss

on the income statement will
always have a net cash
outflow from operating

activities.
FIN 458 Test 1

Norton Company reported c

total sales revenue of
$55,000, total expenses of
$45,000, and net
income of $10,000 on its

income statement for the year
ended December 31, 2010.
During
2010, accounts receivable

increased by $4,000,
merchandise inventory
increased by $6,000,
accounts payable decreased

by $2,000, and depreciation
of $18,000 was recorded.
Therefore,
based only on this

information, the net cash flow
from operating activities using
the indirect
method for 2010 was:
a. $30,000
b. $10,000
c. $16,000
d. $19,000
FIN 458 Test 1

Krenshaw Company reported b

total sales revenue of
$80,000, total expenses of
$72,000, and
net income of $8,000 for the

year ended December 31,
2009. During 2009, accounts
receivable increased by
$3,000, merchandise
inventory decreased by
$2,000, accounts payable
increased by $1,000, and

$5,000 in depreciation
expense was recorded.
Assuming no other
adjustments to net income are
needed, the net cash inflow
from operating activities using
the
indirect method was
a. $19,000
b. $13,000
c. $10,000
d. $11,000
FIN 458 Test 1

Which statement is false c

regarding the preparation of
the indirect method of the
statement of
cash flows?
a. An increase in merchandise
inventory is subtracted from
net income.
b. Depreciation expense is
added to net income.
c. An increase in accounts
receivable is added to net
income.
d. An increase in accounts
payable is added to net
income.
Lui Company's 2010 income c

statement reported total sales
revenue of $350,000. The
2009-
2010 comparative balance

sheets showed that accounts
receivable increased by
$20,000. The
2010 "cash receipts from

customers" would be
a. $270,000
b. $250,000
c. $330,000
d. $40,000
FIN 458 Test 1

Which of the following d

statements is true?
a. A cash dividend is an
operating cash outflow.
b. Cash paid to repurchase

treasury stock is an investing
cash outflow.
c. Cash paid to acquire stock

in another company is a
financing outflow.
d. Purchase of a patent is an
investing cash outflow.

statements is false?
a. Purchase of equipment is
an investing cash outflow.
b. Sale of equipment creates

investing cash outflow equal
to its selling price.
c. Purchase of short-term
investments is an investing
cash outflow.
d. Purchase of a patent is an
investing cash outflow.

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4/3/22, 9:10 PM FIN 458 Test 1 Flashcards | Quizlet

Study sets, textbooks, questions Upgrade: free 7-da...

FIN 458 Test 1

Terms in this set (69)

The tools for studying c

a. Value chain analysis

b. Classification using Porter's

c. Classification of cash flows

Which of the following is a d

a. Are the company's

b. Has the firm integrated

c. Is the firm diversified across

FIN 458 Test 1

Which of the following b

c. High net income to sales

On a common size basis, c

c. Property, Plant and

d. Cash and Marketable

On a common size basis, a

a. Accounts and Notes

c. Property, Plant and

d. Cash and Marketable

FIN 458 Test 1

When assessing buyer power c

c. Large number of suppliers

The second step in financial d

a. Are industry sales growing

c. Does the industry include a

d. What is the company's

FIN 458 Test 1

The third step in financial b

a. Are industry sales growing

c. Does the industry include a

d. What is the company's

Which of the following would a

b. A note due to a bank

c. Salary due employees at

Which of the following assets d

The accrual basis of c

a. Revenue when cash is

b. Expenses when paid

c. Revenue when all or a

d. Revenue when contracts

The cash basis method of c

b. The method that equates

c. The method that recognizes

d. The method that matches

FIN 458 Test 1

A value chain for an industry b

a.The layers of management

d. Whether the industry is

Which of the following c

a. Low barriers to entry.

b. High levels of research and

c. Low profit margin on

d. Low profit margin on fee-

Which of the following b

a. Low barriers to entry.

b. High levels of research and

c. Low profit margins.

d. Low business risk.

Which of the following a

a. Low barriers to entry.