Question 1

Which of the following is not an activity reported in the Statement of cash Flows?
A) Operating
B) Investing
C) Manufacturing
D) Financing

Accepted Answer

Manufacturing is not an activity reported in the Statement of Cash Flows. The three activities reported in the Statement of Cash Flows are Operating, Investing, and Financing.

Question 2

On a common size basis,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

Accepted Answer

A

Question 3

When assessing buyer power 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

Accepted Answer

A large number of suppliers indicates low buyer power, as buyers have more options and can negotiate better terms.

Question 4

Which of the following economic characteristics is 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.

Accepted Answer

Commercial banks typically have a low profit margin on lending activities, as their primary income source comes from collecting interest on loans. This is in contrast to investment banks, which may have high profit margins on fee-based services like merger consulting.

Option A is incorrect because commercial banks often have high barriers to entry due to regulatory requirements and the need for significant capital.

Option B is generally associated with industries requiring significant innovation or technology, which is not a major factor in commercial banking.

Option D is incorrect because commercial banks typically generate most of their revenue from lending activities, not fee-based financial services.

Question 5

A value chain for an industry 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.

Accepted Answer

A value chain for an industry outlines the sequence of activities involved in the creation, manufacture, and distribution of its products. It starts with the raw materials and ends with the delivery of the finished product to the customer. The value chain helps companies identify areas where they can create value and competitive advantage.

Question 6

Which of the following is a 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?

Accepted Answer

An analyst would ask if earnings include nonrecurring gains or losses to assess the quality of a firm's financial statements. This is because nonrecurring items can distort the true financial performance of a company and make it difficult to compare it to other companies. Options A, B, and C are not related to the assessment of financial statements.

Question 7

When attempting to identify the economic characteristics of the industry in which a particular firm participates an analyst might ask which of the following questions?
A) Does technological change play an important role in the firm maintaining a competitive advantage?
B) Has the firm diversified across several geographic markets?
C) Has the firm recognized revenues at the proper time?
D) Has the firm structured transactions to make it look more profitable than economic conditions suggest?

Accepted Answer

The question about technological change is relevant to understanding the economic characteristics of an industry, as it can significantly impact competitive dynamics and industry evolution. The other options are more related to firm-specific strategies and accounting practices rather than industry characteristics.

Question 8

Which of the following assets 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

Accepted Answer

Brand names are often recorded at historical cost or not at all if internally generated, which can be significantly lower than their fair market value.

Question 9

The third step in financial 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?

Accepted Answer

When assessing the quality of the firm's financial statements, an analyst should ask if the earnings include revenues that appear mismatched with the business model employed by the firm. This helps to identify any potential manipulation or inconsistencies in the financial statements. The other options (A, C, and D) are not directly related to assessing the quality of financial statements.

Question 10

An example of an intangible asset is:
A) A patent
B) Land
C) Investment in another company
D) Raw material inventory

Accepted Answer

A patent is an example of an intangible asset because it is a legal right granted to the owner to prevent others from using or selling the invention for a specific period. It cannot be touched or seen but has economic value.

Other options such as land, investment in another company, and raw material inventory are tangible assets as they have a physical existence and can be seen or touched.

Question 11

Which of the following would 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

Accepted Answer

A labor contract is not a liability but rather an agreement between the employer and employee. The other three options (B, C, and D) are all examples of liabilities that would appear on the balance sheet.

Question 12

On a common size basis,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

Accepted Answer

Property, Plant and Equipment is typically the largest asset on an electric utility's balance sheet due to the expensive infrastructure required to generate and distribute electricity. Accounts receivable, inventory and cash and marketable securities are typically much smaller in comparison.

Question 13

Which of the following economic characteristics is consistent with a grocery store chain?
A) Minimal competition
B) Extensive competition
C) High net income to sales
D) Differentiated product

Accepted Answer

Grocery stores typically face extensive competition from other grocery chains, local stores, and online retailers. This competition results in lower profit margins and a focus on cost efficiency. Minimal competition, high net income to sales, and differentiated products are not typically associated with the grocery store industry.

Question 14

The cash basis method of 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.

Accepted Answer

The cash basis method of accounting recognizes revenue when money is received and expenses when money is paid. It does not take into account accruals or deferred payments, but focuses solely on the actual cash transactions. This method is often used by small businesses or individuals who do not have complex transactions and do not need to adhere to Generally Accepted Accounting Principles (GAAP).

Question 15

The tools for studying 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.

Accepted Answer

Classification of cash flows is not a tool commonly used for studying industry economics. The other options, value chain analysis, Porter's five forces, and economic attributes framework, are all commonly used methods for analyzing industry economics.

Question 16

Which of the following is not one of Porter's five forces?
A) Buyer Power
B) Supplier Power
C) Threat of Regulation
D) Threat of Substitutes

Accepted Answer

Porter's five forces include buyer power, supplier power, threat of substitutes, threat of new entrants, and competitive rivalry. Threat of regulation is not one of the five forces.

Question 17

Which of the following economic characteristics is consistent with a pharmaceutical company?
A) Low barriers to entry.
B) High levels of research and development.
C) Low profit margins.
D) Low business risk.

Accepted Answer

High levels of research and development are consistent with a pharmaceutical company. These companies often invest heavily in research in order to come up with new drugs and treatments.

Question 18

The second step in financial 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?

Accepted Answer

To analyze a company's strategy, an analyst should ask about the company's degree of geographical diversification. This helps to determine the company's exposure to different markets, as well as opportunities for growth or potential risks. The other options given are important questions, but they do not specifically pertain to analyzing the company's strategy.

Question 19

Which of the following economic characteristics is consistent with a grocery store chain?
A) Low barriers to entry.
B) High levels of research and development.
C) High profit margins.
D) Low capital intensity.

Accepted Answer

Grocery store chains typically have low barriers to entry, as the industry does not require highly specialized technology or significant research and development.

Question 20

The accrual basis of 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

Accepted Answer

The accrual basis of accounting recognizes revenue when it is earned or all or a substantial portion of the service or sale has been performed, regardless of when the cash is received. Similarly, expenses are recognized when they are incurred and not necessarily when they are paid. This method provides a more accurate picture of a company's financial performance and positions.

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

Which of the following is not an activity reported in the Statement of cash Flows?

On a common size basis,which of the following assets is normally largest for a commercial bank?

When assessing buyer power using Porter's five forces,which of the following is not consistent with low buyer power?

Which of the following economic characteristics is consistent with a commercial bank?

A value chain for an industry sets forth:

Which of the following is a question an analyst would ask when assessing the quality of a firm's financial statements?

When attempting to identify the economic characteristics of the industry in which a particular firm participates an analyst might ask which of the following questions?

Which of the following assets would appear on the balance sheet at an amount greatly below its fair market value?

The third step in financial 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?

An example of an intangible asset is:

Which of the following would not appear as a liability on the balance sheet?

On a common size basis,which of the following assets is normally largest for an electric utility?

Which of the following economic characteristics is consistent with a grocery store chain?

The cash basis method of accounting can be best described as:

The tools for studying industry economics does not include:

Which of the following is not one of Porter's five forces?

Which of the following economic characteristics is consistent with a pharmaceutical company?

The second step in financial statement analysis is to identify the company strategy.Which of the following is a question an analyst should ask when performing a strategy analysis?

Which of the following economic characteristics is consistent with a grocery store chain?

The accrual basis of accounting recognizes: