Corporate Finance, 5e (Berk/DeMarzo)
Chapter 2 Introduction to Financial Statement Analysis
2.1 Firms' Disclosure of Financial Information
1) U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on which form? ...
Corporate Finance, 5e (Berk/DeMarzo) Chapter 2 Introduction to Financial Statement Analysis 2.1 Firms' Disclosure of Financial Information 1) U.S. public companies are required to file their annual financial statements with the U.S.
Securities and Exchange Commission on which form? A)10-A B)10-K C)10-Q D)10-SEC Answer: B Diff: 1 Section: 2.1 Firms' Disclosure of Financial Information Skill: Definition 2) Which of the following is NOT a financial statement that every public company is required to produce? A)Income Statement B)Statement of Sources and Uses of Cash C)Balance Sheet D)Statement of Stockholders' Equity Answer: B Diff: 2 Section: 2.1 Firms' Disclosure of Financial Information Skill: Conceptual 3) The third party who checks annual financial statements to ensure that they are prepared according to GAAP and verifies that the information reported is reliable is the: A) NYSE Enforcement Board. B)Accounting Standards Board. C)Securities and Exchange Commission (SEC). D)auditor. Answer: D Diff: 1 Section: 2.1 Firms' Disclosure of Financial Information Skill: Definition 4) What is the role of an auditor in financial statement analysis? Answer: Key points: 1.To ensure that the annual financial statements are prepared accurately. 2.To ensure that the annual financial statements are prepared according to GAAP. 3.To verify that the information used in preparing the annual financial statements is reliable. Diff: 2 Section: 2.1 Firms' Disclosure of Financial Information Skill: Conceptual 5) What are the four financial statements that all public companies must produce? Answer: 1.Balance Sheet 2.Income Statement 3.Statement of Cash Flows 4.Statement of Stockholder's Equity Diff: 2 Section: 2.1 Firms' Disclosure of Financial Information Skill: Conceptual 2.2 The Balance Sheet 1) Which of the following balance sheet equations is INCORRECT? A)Assets - Liabilities = Shareholders' Equity B)Assets = Liabilities + Shareholders' Equity C)Assets - Current Liabilities = Long Term Liabilities D)Assets - Current Liabilities = Long Term Liabilities + Shareholders' Equity Answer: C Diff: 2 Section: 2.2 The Balance Sheet Skill: Conceptual 2) Cash is a: A)long-term asset. B)current asset. C)current liability. D)long-term liability. Answer: B Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 3) Accounts payable is a: A) long-term liability.
B)current asset. C)long-term asset. D)current liability. Answer: D Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 4) A 30-year mortgage loan is a: A) long-term liability. B)current liability. C)current asset. D)long-term asset. Answer: A Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 5) Which of the following statements regarding the balance sheet is INCORRECT? A)The balance sheet provides a snapshot of the firm's financial position at a given point in time. B)The balance sheet lists the firm's assets and liabilities. C)The balance sheet reports stockholders' equity on the right-hand side. D)The balance sheet reports liabilities on the left-hand side. Answer: D Diff: 2 Section: 2.2 The Balance Sheet Skill: Conceptual 6) Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago. This reduction in value results in: A) an impairment charge. B)depreciation expense. C)an operating expense. D)goodwill. Answer: A Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 7) Which of the following is an example of an intangible asset? A)Brand names and trademarks B)Patents C)Customer relationships D)All of the above are intangible assets. Answer: D Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 8) On the balance sheet, short-term debt appears: A) in the Stockholders' Equity section. B)in the Operating Expenses section. C)in the Current Assets section. D)in the Current Liabilities section. Answer: D Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 9) On the balance sheet, current maturities of long-term debt appear: A) in the Stockholders' Equity section. B)in the Operating Expenses section. C)in the Current Assets section. D)in the Current Liabilities section. Answer: D Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 10) The firm's assets and liabilities at a given point in time are reported on the firm's: A) income statement or statement of financial performance. B)income statement or statement of financial position. C)balance sheet or statement of financial performance. D)balance sheet or statement of financial position. Answer: D Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 11) The statement of financial position is also known as the: A) balance sheet. B)income statement. C)statement of cash flows. D)statement of stockholder's equity. Answer: A Diff: 1 Section: 2.2 The Balance Sheet Skill: Definition 12) Zoe Dental Implements has gross property, plant and equipment totaling $1.4 million, depreciation expense this year of $200,000, and accumulated depreciation of $750,000. What is the book value of Zoe's property, plant and equipment? A)$1.4 million B)$1.2 million C)$550,000 D)$650,000 Answer: D Explanation: Book value = $1,400,000 - $750,000 = $650,000 Diff: 2 Section: 2.2 The Balance Sheet Skill: Analytical 13) Zoe Dental Implements has gross property, plant and equipment totaling $1.4 million, depreciation expense this year of $200,000, and accumulated depreciation last year of $550,000. What is Zoe's net property, plant and equipment? A)$1.4 million B)$1.2 million C)$550,000 D)$650,000 Answer: D Explanation: Ending Accumulated Depreciation = $550,000 + $200,000 = $750,000. Net PP&E = $1,400,000 - $750,000 = $650,000 Diff: 2 Section: 2.2 The Balance Sheet Skill: Analytical Use the following information for ECE incorporated: Assets $200
million Shareholder Equity $100
million Sales $300
million Net Income $15 million Interest Expense $2 million 14) If ECE's stock is currently trading at $24.00 and ECE has 25 million shares outstanding, then ECE's market-to-book ratio is closest to: A) 0.24.
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