multiple choice questions 1 when assessing earnings quality financial analysts are c 4315551


1. When assessing earnings quality, financial analysts are concerned that management may attempt to manipulate information to make earnings appear better or worse than they really are. Which of the following would NOTsuggest poor earnings quality?

a) reduction of the allowance for doubtful accounts

b) consistent application of GAAP

c) significantly higher net income than cash flows from operations

d) reliance on share issuances to offset repeated negative cash flow from operations

2. Which of the following is a limitation of the balance sheet?

a) Many items that are of financial value are omitted.

b) Judgments and estimates are used.

c) Current fair value is not reported.

d) All of these answer choices are correct.

3. The statement of financial position is useful for all of the following EXCEPT

a) assessing a company's risk.

b) evaluating a company's liquidity.

c) evaluating a company's financial flexibility.

d) determining free cash flows.

4. The statement of financial position is useful for all of the following EXCEPTto

a) compute rates of return.

b) analyze cash inflows and outflows for the period.

c) evaluate capital structure.

d) assess future cash flows.

5. The statement of financial position is useful for analyzing all of the following EXCEPT

a) liquidity.

b) solvency.

c) profitability.

d) financial flexibility.

6.An enterprise’s ability to pay its debts and related interest is called

a) liquidity.

b) financial flexibility.

c) the amount of time expected to pass until an asset is realized.

d) solvency.

7.An enterprise’s ability to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities is called

a) financial flexibility.

b) liquidity.

c) the quick ratio.

d) solvency.

8. Generally, as financial flexibility increases, the risk of enterprise or business failure will

a) increase.

b) decrease.

c) stay the same.

d) be eliminated.

9.Which of the following is NOT a limitation of the statement of financial position?

a) Many assets are reported at historical cost.

b) Judgments and estimates are used.

c) Only “hard” numbers are reported.

d) Disclosure of all pertinent information in the notes.

10.Monetary assets represent

a) only cash.

b) contractual rights to receive cash.

c) equity investments in other companies.

d) cash or claims to future cash flows that are fixed and determinable in amounts and timing.

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