1. Earnings management is:
A. Fraud and other illegal acts
B. Operating & discretionary accounting methods to adjust earnings to a desired
outcome
C. Audit failure
D. Gross misstatement of accounting information requiring earnings restatements


2. A “low risk” stock would be expected to have:
A. A Beta (â) equal to one
B. An earnings growth rate substantially above 20%
C. A â substantially below one
D. A â substantially above one plus an earnings growth rate over 15%

3. Earnings management normally can best be evaluated during what financial analysis process step?
A. Purpose
B. Corporate overview
C. Quantitative financial analysis
D. Accounting analysis

4. Which of the following is NOT a required financial statement according to GAAP?
A. Balance Sheet
B. Statement of Business Consolidations
C. Cash Flow Statement
D. Statement of Stockholders' Equity
E. Trick question, none of these are actually required


5. Other comprehensive income is found:
A. In the income statement
B. Only in the notes to the financial statements, usually note one on accounting policies
C. In the statement of stockholders' equity
D. In the statement of cash flows

6. Treasury stock is:
A. An asset
B. A negative stockholders' equity item
C. Securities that have characteristics of both debt and equity
D. Non-recurring items

7. On the statement of cash flows, capital expenditures are:
A. Part of cash from investing activities
B. Part of cash from operations
C. Part of cash from financing activities
D. Part of the statement of stockholders' equity, but not part of the statement of cash
flows

8. Which of the following ratios is part of the Du Pont Model?
A. Operating Cash Flow Ratio
B. Return on Equity
C. Current Ratio
D. Dividend Payout

9. Pro forma financial information:
A. Is always presented on a generally accepted accounting principles (GAAP) basis
B. Usually focuses on pro forma earnings, usually on a non-GAAP basis
C. Is illegal
D. Is found in the statement of stockholders' equity

10. Which of the following statements is correct?
A. Capital leases are off-balance-sheet & recorded as a periodic rental expense
B. Special purpose entities are often used to record marketable securities as equity items
C. Special purpose entities are separate entities used for structured financing
arrangements such as synthetic leases
D. Leases are never used by airlines & department stores

11. Derivatives typically are used as part of risk management of corporations. Generally, this means that:
A. Derivatives are used only for speculation to substantially increase net income
B. Derivatives are used primarily for hedging to reduce various types of risk
C. Derivatives are used for off-balance-sheet reporting, which reduces credit risk
D. Derivatives are seldom used by major corporations because they typically only
increase financial risks

12. Which of the following is a potential “failure event” that suggests increased credit risk?
A. Troubled debt restructuring
B. Bond rating downgrading
C. “Big bath” write-off
D. Going concern audit qualification
E. All of the above

ANSWERS



1. Earnings management is:

A. Fraud and other illegal acts

B. Operating & discretionary accounting methods to adjust earnings to a desired outcome

C. Audit failure

D. Gross misstatement of accounting information requiring earnings restatements

E. None of the above



2. A “low risk” stock would be expected to have:

A. A Beta (â) equal to one

B. An earnings growth rate substantially above 20%

C. A â substantially below one

D. A â substantially above one plus an earnings growth rate over 15%



3. Earnings management normally can best be evaluated during what financial analysis process step?

A. Purpose

B. Corporate overview

C. Quantitative financial analysis

D. Accounting analysis



4. Which of the following is NOT a required financial statement according to GAAP?

A. Balance Sheet

B. Statement of Business Consolidations

C. Cash Flow Statement

D. Statement of Stockholders' Equity

E. Trick question, none of these are actually required



5. Other comprehensive income is found:

A. In the income statement

B. Only in the notes to the financial statements, usually note one on accounting policies

C. In the statement of stockholders' equity

D. In the statement of cash flows



6. Treasury stock is:

A. An asset

B. A negative stockholders' equity item

C. Securities that have characteristics of both debt and equity

D. Non-recurring items



7. On the statement of cash flows, capital expenditures are:

A. Part of cash from investing activities

B. Part of cash from operations

C. Part of cash from financing activities

D. Part of the statement of stockholders' equity, but not part of the statement of cash

flows



8. Which of the following ratios is part of the Du Pont Model?

A. Operating Cash Flow Ratio

B. Return on Equity

C. Current Ratio

D. Dividend Payout



9. Pro forma financial information:

A. Is always presented on a generally accepted accounting principles (GAAP) basis

B. Usually focuses on pro forma earnings, usually on a non-GAAP basis

C. Is illegal

D. Is found in the statement of stockholders' equity



10. Which of the following statements is correct?

A. Capital leases are off-balance-sheet & recorded as a periodic rental expense

B. Special purpose entities are often used to record marketable securities as equity items

C. Special purpose entities are separate entities used for structured financing arrangements such as synthetic leases

D. Leases are never used by airlines & department stores



11. Derivatives typically are used as part of risk management of corporations. Generally, this means that:

A. Derivatives are used only for speculation to substantially increase net income

B. Derivatives are used primarily for hedging to reduce various types of risk

C. Derivatives are used for off-balance-sheet reporting, which reduces credit risk

D. Derivatives are seldom used by major corporations because they typically only

increase financial risks



12. Which of the following is a potential “failure event” that suggests increased credit risk?

A. Troubled debt restructuring

B. Bond rating downgrading

C. “Big bath” write-off

D. Going concern audit qualification

E. All of the above