Deck 3: Reporting and Analyzing Liabilities,inventory Long-Term Operating Assets, Revenues and Receivables

Question 1

Secured debt holders have a preferred position over other creditors.

Answer 1

True

Question 2

You have been asked to write a financial analysis report for Companies Y and Z. Company Y has a debt-to-equity ratio that is much lower than the industry average, with Company Z having a debt-to-equity ratio much higher than industry average. The times interest earned ratio for Company Y is much higher than the industry average, and the ratio for Company Z is much lower.
Which one of the following statements will not be part of your financial analysis report for these two companies?

A) Company Y is a less leveraged company than Company Z
B) Company Y generates a larger amount of income compared to its obligatory payments to creditors than Company Z
C) Company Y is a less risky company than Company Z
D) Company Z's lower times interest earned means that it may experience more difficulties than Company Y in obtaining attractive financing terms on new borrowings.

Answer 2

Company Y generates a larger amount of income compared to its obligatory payments to creditors than Company Z

Question 3

Identify the following items numbered as 1 through 5 below as either of the following:
A. Current operating liability
B. Current non-operating liability

Answer 3

Question 4

Goodwill is considered to be impaired if the market value of the acquired business is greater than the carrying amount on the balance sheet.

Question 5

Natural resource assets, such as oil reserves or timberlands, as often referred to as wasting assets.

Question 6

Companies should recognize inventory as an expense when purchased.

Question 7

Why must amounts received in advance from customers be deferred?

A) The customer may not pay the entire balance due
B) The company receiving payment has not earned the amount
C) The customer has a right of return
D) All of the above are reasons to defer

Question 8

How do companies use accounts receivables for earnings management and why?