Question 56 

Which of the following reasons is least likely a valid limitation of ratio analysis? 

A) Determining the target or comparison value for a ratio is difficult.

B) Conclusions cannot be made from viewing one set of ratios.

C) It is difficult to find comparable industry ratios.

D) Calculation of ratios involves a large degree of subjectivity.

Question 57 

Which of the following items are most appropriately used to assess the quality of a firm’s earnings and to correctly classify the repurchase by a firm of its own stock? 

   More indicative of quality earnings      Repurchase of stock 

A)    Operating cash flow                 Investing cash flow 

B)    Operating cash flow                 Financing cash flow 

C)    Total cash flow                     Financing cash flow 

D)    Total cash flow                     Investing cash flow 

Question 58 

For an organization with a simple capital structure, the computation of earnings per share is least likely to consider: 

A) the weighted average number of preferred shares outstanding.

B) net income.

C) preferred dividends.

D) the weighted average number of common shares outstanding.

Question 59 

A firm has both prepaid expenses and unearned revenue on its balance sheet. Which of the following pairs correctly classifies these two items? 

  Prepaid expenses    Unearned revenue 

A)  Current asset         Current asset 

B)  Current liability       Current asset 

C)  Current liability       Current liability 

D)  Current asset         Current liability  

Question 60 

An analyst determined the following information concerning Franklin, Inc.’s stamping machine:

  ♣ Acquired seven years ago for $22 million 

  ♣ Straight line method used for depreciation 

  ♣ Useful life estimated to be 12 years 

  ♣ Salvage value originally estimated to be $4 million 

The stamping machine is expected to generate $1,500,000 per year for five more years and will then be sold for $1,000,000. The stamping machine is:

A) impaired because its carrying value exceeds expected future cash flows.

B) impaired because expected salvage value has declined.

C) not impaired because annual expected revenue exceeds annual depreciation.

D) not impaired because it continues to produce material revenue.

答案和详解如下：

Question 56 

The correct answer was D) Calculation of ratios involves a large degree of subjectivity. 

There is not a great deal of subjectivity involved in calculating ratios. The mechanical formulas for the calculations are fairly standard and objective for the activity, liquidity, solvency, and profitability ratios, for instance. On the other hand, determining the target or comparison value for a ratio is difficult as it requires some range of acceptable values and that introduces an element of subjectivity. Conclusions cannot be made from viewing one set of ratios as all ratios must be viewed relative to one another in order to make meaningful conclusions. It can be difficult to find comparable industry ratios, especially when analyzing companies that operate in multiple industries.

This question tested from Session 10, Reading 41, LOS b

Question 57 

The correct answer was B) 

Operating cash flow provides a check on the quality of a firm’s earnings. Specifically, a stable relationship between operating cash flows and net income is an indication of better quality earnings. Because of potentially large swings in investment or financing cash inflows and outflows, total cash flow has less of a relationship to earnings than does operating cash flow. 

The repurchase of stock involves a use of funds and is strictly a financing cash flow. Had it been a purchase of

stock of a different firm, then it would have been an investing cash flow. 

This question tested from Session 8, Reading 34, LOS h

Question 58 

The correct answer was A)

The equation for Basic EPS (net income – preferred dividends / weighted average number of common shares outstanding) does not include the number of preferred shares outstanding, because the objective is to determine the earnings available to the common shareholder. 

This question tested from Session 8, Reading 32, LOS h, (Part 1)

Question 59 

The correct answer was D) Current asset  Current liability 

A prepaid expense represents cash paid in advance of recognizing an expense (e.g., full year of insurance premiums paid upfront). This results in a decrease in cash and a corresponding increase in prepaid expense and is best classified as a current asset. 

Unearned revenue represents cash received in advance of recognizing revenue (e.g., deposit received on a large contract). This results in an increase in cash and a corresponding increase in unearned revenue and is best classified as a current liability. 

This question tested from Session 8, Reading 33, LOS c

Question 60 

The correct answer was A) impaired because its carrying value exceeds expected future cash flows. 

The carrying value of the stamping machine is its cost less accumulated depreciation. Depreciation taken through 7 years was ($22,000,000 - $4,000,000) / 12 × 7 = $10,500,000, so carrying value is $22,000,000 - $10,500,000 = $11,500,000. Because the $11,500,000 carrying value is more than expected future cash flows of (5 × $1,500,000) + $1,000,000 = $8,500,000, the stamping machine is impaired. 

This question tested from Session 9, Reading 37, LOS d

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[此贴子已经被作者于2008-11-28 6:01:27编辑过]

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