Is using.
19. Compared to using the Singapore dollar as Acceletron ’ s functional currency for 2007, if
the U.S. dollar were the functional currency it is most likely that Redline ’ s consolidated
A. inventories will be higher.
B. receivable turnover will be lower.
C. fi xed - asset turnover will be higher.
20. If the U.S. dollar were chosen as the functional currency for Acceletron in 2007, Redline
could reduce its balance sheet exposure to exchange rates by
A. selling SGD 30 of fi xed - assets for cash.
B. issuing SGD 30 of long - term debt to buy fi xed assets.
C. issuing SGD 30 in short - term debt to purchase marketable securities.
21. Redline ’ s consolidated gross profi t margin for 2007 would be highest if Acceletron
accounted for inventory using
A. FIFO and its functional currency were the U.S. dollar.
B. LIFO and its functional currency were the U.S. dollar.
C. FIFO and its functional currency were the Singapore dollar.
22. If the current rate method is used to translate Acceletron ’ s fi nancial statements into U.S.
dollars, Redline ’ s consolidated fi nancial statements will most likely include Acceletron ’ s
A. $3,178 in revenues.
B. $118 in long - term debt.
C. negative translation adjustment to shareholder equity.
23. If Acceletron ’ s fi nancial statements are translated into U.S. dollars using the temporal
method, Redline ’ s consolidated fi nancial statements will most likely include Acceletron ’ s
A. $336 in inventory.
B. $956 in fi xed assets.
C. $152 in accounts receivable.
24. When translating Acceletron ’ s fi nancial statements into U.S. dollars, Redline is least likely
to use an exchange rate of USD per SGD
A. 0.671.
B. 0.588.
C. 0.654.
Chapter 17
1. Which of the following mechanisms is least likely to discourage management manipulation
of earnings?
A. Debt covenants.
B. Securities regulators.
C. Class action lawsuits.
2. High earnings quality is most likely to
A. Result in steady earnings growth.
B. Improve the ability to predict future earnings.
C. Be based on conservative accounting choices.
3. The best justifi cation for using accrual - based accounting is that it
A. Refl ects the company ’ s underlying cash fl ows.
B. Refl ects the economic nature of a company ’ s transactions.
C. Limits management ’ s discretion in reporting fi nancial results.
4. The best justifi cation for using cash - based accounting is that it
A. Is more conservative.
B. Limits management ’ s discretion in reporting fi nancial results.
C. Matches the timing of revenue recognition with that of associated expenses.
5. Which of the following is not a measure of aggregate accruals?
A. The change in net operating assets.
B. The difference between operating income and net operating assets.
C. The difference between net income and operating and investing cash fl ows.
6. Consider the following balance sheet information for Profi le, Inc.:
Year ended 31 December 2007 2006
Cash and short - term investments 14,000 13,200
Total current assets 21,000 20,500
Total assets 97,250 88,000
Current liabilities 31,000 29,000
Total debt 50,000 45,000
Total liabilities 87,000 79,000
Profi le ’ s balance - sheet - based accruals ratio in 2007 was closest to
A. 12.5%.
B. 13.0%.
C. 16.2%.
7. Rodrigue SA reported the following fi nancial statement data for the year ended 2007:
Average net operating assets 39,000
Net income 14,000
Cash fl ow from operating activity 17,300
Cash fl ow from investing activity (12,400)
Rodrigue ’ s cash - fl ow - based accruals ratio in 2007 was closest to
A. – 8.5%.
B. – 19.1%.
C. 23.3%.
8. Cash collected from customers is least likely to differ from sales due to changes in
A. Inventory.
B. Deferred revenue.
C. Accounts receivable.
9. Reported revenue is most likely to have been reduced by management ’ s discretionary
estimate of
A. Warranty provisions.
B. Inventory damage and theft.
C. Interest to be earned on credit sales.
10. Zimt AG reports 2007 revenue of € 14.3 billion. During 2007, its accounts receivable
rose by € 0.7 billion, accounts payable increased by € 1.1 billion, and unearned revenue
increased by € 0.5 billion. Its cash collections from customers in 2007 were closest to
A. € 14.1 billion.
B. € 14.5 billion.
C. € 15.2 billion.
11. Cinnamon Corp. began the year with $12 million in accounts receivable and $31 million
in deferred revenue. It ended the year with $15 million in accounts receivable and
$27 million in deferred revenue. Based on this information, the accrual - basis earnings
included in total revenue were closest to
A. $1 million.
B. $7 million.
C. $12 million.
12. Which of the following is least likely to be a warning sign of low - quality revenue?
A. A large decrease in deferred revenue.
B. A large increase in accounts receivable.
C. A large increase in the allowance for doubtful accounts.
13. An unexpectedly large reduction in the unearned revenue account is most likely a sign
that the company
A. Accelerated revenue recognition.
B. Overstated revenue in prior periods.
C. Adopted more conservative revenue recognition practices.
14. Canelle SA reported 2007 revenue of € 137 million. Its accounts receivable balance
began the year at € 11 million and ended the year at € 16 million. At year - end, € 2
million of receivables had been securitized. Canelle ’ s cash collections from customers
(in € millions) in 2007 were closest to
A. € 130.
B. € 132.
C. € 134.
15. In order to identify possible understatement of expenses with regard to noncurrent
assets, an analyst would most likely beware management ’ s discretion to
A. Accelerate depreciation.
B. Increase the residual value.
C. Reduce the expected useful life.
16. A sudden rise in inventory balances is least likely to be a warning sign of
A. Understated expenses.
B. Accelerated revenue recognition.
C. Ineffi cient working capital management.
17. A warning sign that a company may be deferring expenses is sales revenue growing at a
slower rate than
A. Unearned revenue.
B. Noncurrent liabilities.
C. Property, plant, and equipment.
18. An asset write - down is least likely to indicate understatement of expenses in
A. Prior years.
B. Future years.
C. The current year.
19. Ranieri Corp. reported the following 2007 income statement:
Sales 93,000
Cost of sales 24,500
SG & A 32,400
Interest expense 800
Other income 1,400
Income taxes 14,680
Net income 22,020
Ranieri ’ s core operating margin in 2007 was closest to
A. 23.7%.
B. 38.8%.
C. 73.7%.
120 Learning Outcomes, Summary Overview, and Problems
20. Sebastiani AG reported the following fi nancial results for the years ended 31 December:
2007 2006
Sales 46,574 42,340
Cost of sales 14,000 13,000
SGA 13,720 12,200
Operating income 18,854 17,140
Income taxes 6,410 5,656
Net income 12,444 11,484
Compared to core operating margin in 2006, Sebastiani ’ s core operating margin in 2007 was
A. Lower.
B. Higher.
C. Unchanged.
21. A warning sign that ordinary expenses are being classifi ed as nonrecurring or nonoperating
expenses is
A. Falling core operating margin followed by a spike in positive special items.
B. A spike in negative special items followed by falling core operating margin.
C. Falling core operating margin followed by a spike in negative special items.
22. Which of the following obligations must be reported on a company ’ s balance sheet?
A. Capital leases.
B. Operating leases.
C. Purchase commitments.
23. The most accurate estimate for off - balance - sheet fi nancing related to operating leases
consists of the sum of
A. future payments.
B. future payments less a discount to refl ect the related interest component.
C. future payments plus a premium to refl ect the related interest component.
24. The intangible asset goodwill represents the value of an acquired company that cannot
be attached to other tangible assets. This noncurrent asset account is charged to an
expense
A. As amortization.
B. When it becomes impaired.
C. At the time of the acquisition.
25. Total accruals measured using the balance sheet is most likely to differ from total accruals
measured using the statement of cash fl ows when the company has made acquisitions
A. Financed by debt.
B. In exchange for cash.
C. In exchange for stock.