Question 1

Which forces typically 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.

Accepted Answer

Substitutes and potential entry represent horizontal competition in a value chain, as they directly affect the competitive landscape among firms operating at the same level of the market. Substitutes offer alternative options to consumers, while potential entry refers to the threat of new competitors entering the market.

Question 2

Current assets are defined as
A) cash and cash equivalents.
B) all assets expected to be quickly used by the firm.
C) cash and other assets that the firm expects to sell or consume during the normal operating cycle of a business, usually one year.
D) cash and other assets that the firm expects maintain for a period including the normal operating cycle of a business, usually one year.

Accepted Answer

Current assets are assets that the firm expects to sell or consume during the normal operating cycle of a business, usually one year. This includes cash, accounts receivable, inventory, and short-term investments. Option A is too narrow, as it only includes cash and cash equivalents. Option B is too broad, as it includes all assets that are quickly used by the firm, including long-term assets that are not considered current assets. Option D is incorrect, as it includes assets that the firm expects to maintain for a period longer than the normal operating cycle, which would be considered non-current assets.

Question 3

Which of the following activities reported in the Statement of Cash Flows is not a financing activity?
A) Repayment of outstanding debt.
B) Investing in equity securities of other companies.
C) Payment of dividends.
D) Issuing debt.

Accepted Answer

Investing in equity securities of other companies is an investing activity, not a financing activity. Financing activities typically involve obtaining or repaying capital from borrowing or issuing securities, as well as paying dividends to shareholders.

Question 4

Which of the following is not a 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.

Accepted Answer

An extraordinary item may or may not require a cash outflow. The other characteristics of an extraordinary item are that it is material in amount, nonrecurring, and unusual given the nature of the firm's activities.

Question 5

Which of the following is not an expense of a business?
A) Depreciation
B) Dividends
C) Salaries
D) Advertising

Accepted Answer

Dividends are payouts to shareholders, which are not considered expenses of a business. Depreciation, salaries, and advertising are all expenses that are incurred by a business.

Question 6

Which of these is not an intangible asset?
A) trademark
B) patent
C) equipment
D) goodwill

Accepted Answer

Intangible assets are those assets that do not have a physical existence, such as trademarks, patents, and goodwill. Equipment is a tangible asset as it has physical existence.

Question 7

Which of the following is an independent entity comprising 15 members and a full-time professional staff that specifies acceptable accounting principles known as the IFRS?
A) FASB
B) IASB
C) SEC
D) GAAP

Accepted Answer

The independent entity comprising 15 members and a full-time professional staff that specifies acceptable accounting principles known as the IFRS is the IASB (International Accounting Standards Board). FASB (Financial Accounting Standards Board) is a similar organization that is responsible for setting accounting standards in the United States. SEC (Securities and Exchange Commission) is a regulatory agency responsible for enforcing financial reporting requirements and overseeing the securities industry. GAAP (Generally Accepted Accounting Principles) refers to a set of accounting standards and guidelines followed in the United States.

Question 8

All of the following are the 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.

Accepted Answer

Targeting growth opportunities that diversify exchange rates, risk exposure, and political uncertainty is not a building block for financial statement analysis. The other options, including describing strategies, evaluating financial statements, and identifying economic characteristics, are all important building blocks for financial statement analysis.

Question 9

When a firm attempting to create unique products or services for particular market niches, in order to achieve relatively high profit margins, this is best known as
A) a quality strategy
B) a low-cost leadership strategy
C) a vertical integration strategy
D) a product differentiation strategy

Accepted Answer

A product differentiation strategy is a business approach that seeks to make a company's products or services unique in some way. This strategy is focused on creating offerings that stand out in the market and appeal to specific market niches. By doing this, the company can charge higher prices and achieve relatively high profit margins.

Question 10

Opinions on the effectiveness of the internal control system and the fairness of the amounts reported in the financial statements are known as:
A) Management Discussion and Analysis.
B) Assurance Opinions.
C) Notes to the Financial Statements
D) Management Assessments.

Accepted Answer

The opinions on the effectiveness of the internal control system and the fairness of the amounts reported in the financial statements are provided by independent auditors in their assurance opinions. Management Discussion and Analysis and Notes to the Financial Statements are both parts of the financial statements but do not provide opinions on the effectiveness of internal controls or fairness of amounts reported. Management Assessments refer to management's own assessment of their internal control system and do not provide an independent opinion.

Question 11

Extraordinary gains and losses arise from events that have all the following characteristics except:
A) they are unusual given the nature of the firm's activity.
B) they are nonrecurring.
C) they are material in amount.
D) they result from terminated involvement in a line of business.

Accepted Answer

Gains and losses resulting from terminated involvement in a line of business are considered ordinary gains and losses, and not extraordinary. Extraordinary gains and losses are events that are unusual, nonrecurring, and material in amount, but not necessarily related to terminated involvement in a line of business.

Question 12

Which forces typically 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

Accepted Answer

Vertical competition is the competition between firms that operate at different stages of the same value chain. In this case, the forces that represent vertical competition are the buyer power and supplier power. These forces can affect the profitability and competitiveness of companies in the same value chain. Potential entry, substitutes, and rivalry among existing firms are more related to horizontal competition.

Question 13

All of the following are 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.

Accepted Answer

While all of the options listed are barriers for entry in the pharmaceutical industry, the largest asset being capital intensive property, plant, and equipment is not unique to pharmaceutical companies and is also a barrier for entry in the grocery store industry. Therefore, D is the correct answer as it does not provide an exclusive reason for higher barriers for entry in the pharmaceutical industry.

Question 14

The following steps make up the steps in financial statement analysis. 
1) Identify the strategies the firm pursues to gain and sustain a competitive advantage.
2) Analyze the current profitability and risk of the firm using information in the
Financial statements.
3) Value the firm.
4) Identify the economic characteristics and competitive dynamics of the industry in
Which a particular firm participates.
5) Assess the quality of the firm's financial statements and, if necessary, adjust them for
Such desirable characteristics as sustainability or comparability.
6) Prepare forecasted financial statements.
Which of the following is the proper order for these interrelated sequential steps?
A) 4,1,5,2,6,3
B) 1,2,3,4,5,6
C) 1,4,2,5,6,3
D) 1,4,2,5,3,6

Accepted Answer

The correct sequence for financial statement analysis involves understanding the industry and competitive dynamics first (4), then identifying the firm's strategies (1), assessing the quality of financial statements and making necessary adjustments (5), analyzing the firm's current profitability and risk (2), preparing forecasted financial statements (6), and finally valuing the firm (3). This sequence ensures a comprehensive understanding of both the external environment and the firm's internal strategies before making financial adjustments, analyses, and valuations.

Question 15

Which of the following would 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.

Accepted Answer

Lack of rivalry among current participants would not inhibit new entrants; instead, it may encourage them to enter the market. Existing technological expertise, large required capital investment, and existing patented technology are all barriers to entry that may discourage new entrants.

Question 16

What is the principal activity of security analysts?
A) to assign credit ratings.
B) to apply IFRS adjustments.
C) to value firms.
D) to assess the need for audits.

Accepted Answer

The principal activity of security analysts is to value firms. They analyze financial information, market trends, and industry dynamics to determine the value of a company's stock and make recommendations to investors. Option A is incorrect as assigning credit ratings is the responsibility of credit rating agencies. Option B is incorrect as applying IFRS adjustments is typically done by accountants. Option D is incorrect as assessing the need for audits is generally the responsibility of company management and auditors.

Question 17

Which SEC form may be the 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

Accepted Answer

Form 10-K is the most comprehensive annual report filed by publicly traded companies with the SEC. It includes information about the company's financial performance, operations, and outlook for the future. The Form 10-K provides detailed information about the industry in which the company operates, as well as the competitive landscape and the company's strategy for growth and success. Reading through the Form 10-K can be a great way to gain insight into the economics of an industry and the particular strategy a firm has selected for competing.

Question 18

Which financial statement 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) statement of cash flows.
B) statement of stockholders' equity.
C) income statement.
D) balance sheet.

Accepted Answer

The balance sheet provides information about a company's assets, liabilities, and equity at a specific point in time. By examining the current assets and liabilities on the balance sheet, you can see whether the company has enough liquidity to pay for goods when payment is due in 30 days. Specifically, you would want to look at the current ratio (current assets divided by current liabilities) to see whether the company has enough current assets to cover its current liabilities.

Question 19

The primary purpose of the 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.

Accepted Answer

The primary purpose of the balance sheet is to report the financial position of the reporting entity at a particular point in time. It provides information about the entities' assets, liabilities, and equity, which helps in assessing the entities' liquidity, solvency, and financial flexibility. Balance sheet does not report the current value of the business or measure net income or cash inflows and outflows for the period.

Question 20

Which two organizations are working together to harmonize financial reporting worldwide?
A) FASB and IASB
B) GAAP and FASB
C) SEC and FASB
D) EU and SEC

Accepted Answer

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are working together to harmonize financial reporting worldwide through convergence projects to establish a single set of accounting standards for use in financial statements.

Quiz 1: Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Which forces typically represent horizontal competition in a value chain?

Current assets are defined as

Which of the following activities reported in the Statement of Cash Flows is not a financing activity?

Which of the following is not a characteristic of an extraordinary item?

Which of the following is not an expense of a business?

Which of these is not an intangible asset?

Which of the following is an independent entity comprising 15 members and a full-time professional staff that specifies acceptable accounting principles known as the IFRS?

All of the following are the building blocks for financial statement analysis except:

When a firm attempting to create unique products or services for particular market niches, in order to achieve relatively high profit margins, this is best known as

Opinions on the effectiveness of the internal control system and the fairness of the amounts reported in the financial statements are known as:

Extraordinary gains and losses arise from events that have all the following characteristics except:

Which forces typically represent vertical competition in a value chain?

All of the following are reasons that pharmaceutical companies have higher barriers for entry than grocery stores except:

Which of the following would not inhibit new entrants into a market?

What is the principal activity of security analysts?

Which SEC form may be the best place to start learning about the economics of an industry and the particular strategy a firm has selected for competing in the industry?

Which financial statement would you look at to determine whether a company will be able to pay for the goods when payment is due in 30 days?

The primary purpose of the balance sheet is to:

Which two organizations are working together to harmonize financial reporting worldwide?