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Question 1 of 20 5.0 PointsAccording to the discounted free cash flow valuation model, the market value of common shares depends upon investors':

( )

A. current expectations about the prospects of current free cash flows.( )

B. current expectations about the prospects of future free cash flows.( )

C. future expectations about the prospects of current free cash flows.( )

D. future expectations about the prospects of future free cash flows.Reset Selection

[ ]Mark for Review What's This?Question 2 of 20 5.0 PointsRecent research indicates that stock returns correlate better with:

( )

A. accrual earnings than realized operating cash flows.( )

B. cash basis earnings than realized operating cash flows.( )

C. future operating cash flows than accrual earnings.( )

D. realized operating cash flows than accrual earnings.Reset Selection

[ ]Mark for Review What's This?Question 3 of 20 5.0 PointsIf firm ABC currently earns $12.00 per share, and has a risk-adjusted cost of equity capital of 12.5%, a share of common stock should theoretically sell for:

( )

https://study.ashworthcollege.edu/portal/tool/0ac76635-677a-4fa7-97f7-643f0c258dce/jsf/delivery/beginTakingAssessment




A. $1.50.( )

B. $12.00.( )

C. $40.00.( )

D. $96.00.Reset Selection

[ ]Mark for Review What's This?Question 4 of 20 5.0 PointsIncome from continuing operations, excluding special or nonrecurring items, is regarded as:

( )

A. expenses.( )

B. permanent earnings.( )

C. transitory earnings.( )

D. value-irrelevant earnings.Reset Selection

[ ]Mark for Review What's This?Question 5 of 20 5.0 PointsIncome or loss from discontinued operations is regarded as:

( )

A. expenses.( )








[ ]Mark for Review What's This?Question 6 of 20 5.0 PointsExtraordinary gains or losses, such as from early extinguishment of debt, are regarded as:

( )

A. expenses.( )




[ ]Mark for Review What's This?Question 7 of 20 5.0 PointsA cumulative effect adjustment to income due to a change in accounting principle is regarded as:

( )

A. permanent earnings.( )

B. sustainable earnings.( )


D. value-irrelevant earnings.





Reset Selection

[ ]Mark for Review What's This?Question 8 of 20 5.0 PointsService revenue in conjunction with the sale of merchandise is an example of:

( )

A. sustainable earnings.( )

B. transitory earnings.( )

C. unsustainable earnings.( )


[ ]Mark for Review What's This?Question 9 of 20 5.0 PointsThe assessment of earnings quality is best accomplished through the use of the:

( )

A. balance sheet and cash flow statement.( )

B. multi-step income statement, balance sheet, and cash flow statement.( )

C. single-step financial statements.( )

D. single-step income statement, balance sheet, and cash flow statement.Reset Selection

[ ]Mark for Review What's This?Question 10 of 20 5.0 PointsAccording to the abnormal earnings approach of equity valuation, investors willingly pay a premium for those firms that:







( )

A. earn an amount equal to the equity cost of capital.( )

B. earn less than the cost of equity capital.( )

C. produce negative abnormal earnings.( )

D. produce positive abnormal earnings.Reset Selection

[ ]Mark for Review What's This?Question 11 of 20 5.0 PointsEarnings in excess of stockholders' required dollar return on invested capital are:

( )

A. abnormal earnings.( )

B. sustainable earnings.( )



[ ]Mark for Review What's This?Question 12 of 20 5.0 PointsA bond that is considered unsecured is referred to as a:

( )

A. callable bond.( )

B. debenture bond.





( )

C. senior bond.( )

D. sinking fund bond.Reset Selection

[ ]Mark for Review What's This?Question 13 of 20 5.0 PointsA source of conflict that may arise between creditors and owners is:

( )

A. low risk investment projects.( )

B. management's usage of repayment funds.( )

C. reduction in dividends by the corporation.( )

D. timely repayment of debt.Reset Selection

[ ]Mark for Review What's This?Question 14 of 20 5.0 PointsWhich one of the following is an example of a negative covenant?

( )

A. Compliance with laws( )

B. Maintenance of insurance( )

C. Restrictions on mergers( )

D. Rights of inspectionReset Selection






[ ]Mark for Review What's This?Question 15 of 20 5.0 PointsAccording to the SEC, any breach of a loan covenant that existed at the balance sheet date that has not been subsequently cured should:

( )

A. be disclosed in the audit report.( )

B. be disclosed in the notes to the financial statements.( )

C. be recorded as an adjustment to the financial statements.( )

D. not be disclosed.Reset Selection

[ ]Mark for Review What's This?Question 16 of 20 5.0 PointsWhen a debt covenant is violated, the related debt must be classified as current if it is:

( )

A. likely that the borrower will not be able to cure the default in the next twelve months.( )

B. possible that the borrower will not be able to cure the default in the next twelve months.( )

C. probable that the borrower will not be able to cure the default in the next twelve months.( )

D. reasonably likely that the borrower will not be able to cure the default in the next twelve months.Reset Selection

[ ]Mark for Review What's This?Question 17 of 20 5.0 PointsEarnings increases arising from management efforts to avoid violation of debt covenants are likely to be:






( )

A. permanent.( )

B. sustainable.( )

C. translated into permanent cash flows.( )

D. unsustainable.Reset Selection

[ ]Mark for Review What's This?Question 18 of 20 5.0 PointsThe most frequently used long-term incentive device in executive compensation packages is:

( )

A. cash bonuses.( )

B. new cars.( )

C. phantom stock.( )

D. stock options.Reset Selection

[ ]Mark for Review What's This?Question 19 of 20 5.0 PointsThe widespread use of accounting-based incentives for executive compensation is controversial for which one of the following reasons?

( )

A. Accounting based incentive plans can encourage managers to adopt a long-term business focus.





( )

B. Earnings growth does not automatically increase shareholder value.( )

C. Executives cannot use their discretion over the accounting policies.( )

D. Managers do not have accounting flexibility.Reset Selection

[ ]Mark for Review What's This?Question 20 of 20 5.0 PointsRegulatory Accounting Principles (RAP) are important to those outside the regulatory agencies because:

( )

A. GAAP does not allow reporting for assets and liabilities consistent with the way in which regulators establish rates.( )

B. GAAP may allow reporting for assets and liabilities consistent with the way in which regulators establish rates.( )

C. Regulatory Accounting Principles are not compatible with GAAP.( )

D. they are required by the SEC.Reset Selection

Part 1 of 1 -

Question 1 of 20 5.0 Points

Table 5-1Top Hat, Inc. Unadjusted Trial Balance

Year 5Sales $600,000Ending Accounts Receivable 180,000




Ending Allowance for Uncollectibles 6,200CRBad Debt Expense 5,000Estimated Uncollectibles 4%Refer to Table 5-1. If Top Hat uses the sales revenue approach for estimating bad debt expense, after the proper adjustments to the accounts are recorded, the Allowance for Uncollectibles account should show a balance of:

A. $6,200.

B. $7,200.

C. $11,200.

D. $25,200.Reset Selection

Mark for Review What's This?


Refer to Table 5-1. If Top Hat uses the gross accounts receivable approach for estimating bad debt expense, after the proper adjustment to the accounts is recorded the Allowance for Uncollectibles account should show a balance of:

A. $6,200.

B. $7,200.

C. $11,200.

D. $25,200.Reset Selection



When a specific account becomes uncollectible, the Accounts Receivable account is credited and which one of the following accounts is debited?

A. Allowance for Returns and Adjustments

B. Allowance for Uncollectibles

C. Bad Debt Expense

D. Miscellaneous Expense

Reset Selection



When goods are returned by customers, the seller will debit __________ and credit Accounts Receivable.

A. Allowance for Uncollectibles

B. Sales

C. Sales Discounts

D. Sales Returns and AdjustmentsReset Selection



Table 5-2 The Gerner Corporation sells to customers on a note basis with 10% credit terms with interest payable quarterly. All notes are due in one year. Gerner made the following sales on April 1, Year 6.

CustomerNote Maturity Interest Due Interest Rate

Potts $50,000 Quarterly 10%Larabee 50,000 NA None

Future Value Present Value

of $50,000 in of $50,000 for

one year: one year:

$55,191 $45,298Note: To encourage sales, Larabee was given a special deal on interest.

Refer to Table 5-2. Which one of the following entries would record the sale to Larabee?

A.

B.

C.

D.

Reset Selection



Refer to Table 5-2. As of June 30, Year 6, which one of the following entries will be made to record the interest earned, but not yet received, by Gerner on the Potts note?

A.

B.

C.

D. Reset Selection



Refer to Table 5-2. As of June 30, Year 6, which one of the following entries will be made to record the interest earned, but not yet received, by Gerner on the Larabee note?

A.

B.

C.

D. There is no entry because the note is non-interest bearing.Reset Selection



ABC, Inc. enters into an arrangement with Matt D Corporation whereby Matt D will assume $100,000 of ABC’s receivables for a 6% fee. Assuming that the transaction has a factoring arrangement with recourse and a $9,000 holdback, which one of the following entries will ABC make to record this transaction?

A.

B.

C.

D. Reset Selection



ABC, Inc. enters into an arrangement with Matt D Corporation whereby Matt D will assume $100,000 of ABC’s receivables for a 6% fee. Assuming the transaction was a collateralized loan, which one of the following entries will ABC make to record this transaction?

A.

B.

C.

D. Reset Selection



Paula Smith accepted a six month 9%, $10,000 Note Receivable from a customer on June 1. Smith has an arrangement with the Regency Bank to discount selected customer notes at 12%. If the note were discounted on July 1 under the terms of agreement with Regency Bank, which one of the following journal entries would

Smith record?

A.

B.

C.

D. Reset Selection



Cook Industries purchased a machine on January 2, Year 5, for $100,000. It paid $20,000 down and financed the balance over 5 years at Fidelity Bank. Terms of the loan were 10% interest payable on December 31 each year with a required $16,000 principal payment. Year 8 proved to be a difficult one and on December 1, Cook negotiated a debt restructuring with Fidelity Bank. The settlement calls for a cash payment of accrued interest plus $4,000 on December 1 and the transfer of 400 acres of land held by Cook that cost $15,000. The land has a current market value of $22,000. Which one of the following entries would be made to record the settlement on Cook’s books?

A.

B.

C.

D.

Reset Selection



Management must periodically assess the reasonableness of the allowance for uncollectibles if it uses the:

A. direct write-off method.

B. percent of sales method only.

C. percent of gross receivables method only.

D. percent of sales or the percent of gross receivables method.Reset Selection



Sales returns and allowances account is:

A. a contra-asset account.

B. a contra-revenue account.

C. on the balance sheet.

D. on the statement of shareholders' equity.Reset Selection



Notes receivable are recorded in the accounts at:

A. fair market value

B. present value

C. maturity value

D. net realizable valueReset Selection



Non-interest bearing notes are initially recorded at:

A. historical cost.

B. maturity value because they bear no interest.

C. present value, based on the prevailing interest for loans of this type.

D. future value, based on the prevailing interest for loans of this type.Reset Selection



The sale of receivables to a third party is called:

A. factoring.

B. collateralizing.

C. discounting.

D. securitization.Reset Selection



When a company transfers receivables with recourse:

A. SFAS No. 5 requires footnote disclosure of the contingent liability.

B. the transferee is responsible for uncollected receivables.

C. there is no contingent liability so no disclosure is required.

D. the transfer may be reported in a variety of ways as GAAP provides no specific reporting guidance related to such transactions.Reset Selection



A restructured loan can differ from the original loan in any of the several ways listed below except:

A. scheduled interest and principle payments may be reduced or eliminated.

B. the repayment schedule may be extended over a longer time period.

C. the loan terms remain the same, but the amount of collateral securing the loan is increased.

D. the customer and lender can settle the loan.Reset Selection



When troubled debt is restructured via continuation with modification of debt terms, the original loan is:

A. continued but interest and principle payments may be reduced or eliminated.

B. continued but the repayment schedule may be extended over a longer time period.

C. continued but the amount of collateral securing the loan is increased.

D. cancelled and a new loan agreement is signed.Reset Selection



When the sum of the future cash flows of a restructured note is above the current note's book value, the debtor recognizes:

A. a gain on the debt restructure.

B. a loss on the debt restructure.

C. neither a gain nor a loss on the debt restructure.

D. both a restructure gain and an early extinguishment loss.Reset Selection


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