ACG3173 - Midterm Review

A number of assumptions about future events must be made regarding a defined benefit plan. Which of the following does not represent one of the assumptions?

-Termination date for the firm -How long the firm will continue Does represent: -Interest rates -Employee turnover -Mortality rates -Compensation

Under the Employee Retirement Income Security Act, a company can be liable for its pension plan up to

30 percent of its net worth

A defined contribution plan

A pension plan that establishes the basis on which an employer will contribute to the pension fund.

Which of the following will not cause times interest earned to drop? Assume no other changes than those listed.

A rise in preferred stock dividends.

Which of the following can offer a type of comparison in financial statement analysis?

All of the answers are correct -past ratios and figures -industry averages -statistics of competitors

Company A uses lifo and Company B uses fifo for inventory valuation. Otherwise, the firms are of similar size and have the same revenue and expense. Assume inflation. In analyzing liquidity and profitability of the two firms, which of the following will hold true?

Company B will have a relatively higher profit and higher current ratio

Horizontal Analysis ($ Value Method) is figured by

Current year - Prior Year

When analyzing a firm's long term debt paying ability, we only want to determine the firm's ability to pay the principal.

False

Horizontal Analysis (% Method) is figured by

Horizontal $ Value / Prior Year Revenue

Which of the following statements is incorrect?

In most sectors, NAICS provides for compatibility at the industry (six-digit) level.

Which of these statements is false?

In vertical analysis, a figure from the year's statement is compared with the base selected from the prior statement.

defined benefit plan

Plan that promises employee a retirement benefit amount based on a formula

A manufacturing firm will most likely have the heaviest investment in which type of assets?

Property, plant and equipment.

Suppose you are comparing two firms (in the steel industry). One firm is large and the other is small. What type of numbers would be most meaningful for statement analysis?

Relative numbers would be most meaningful for both the large and small firm, especially for interfirm comparisons.

Which of the following is a government document that provides industry statistics?

Standard Industrial Classification (SIC) Manual

Which of the following statements best compares long-term borrowing capacity ratios?

The debt to tangible net worth ratio is more conservative than the debt/equity ratio.

Which of the following statements is not true relating to a defined contribution pension plan?

This type of plan presents substantial problems in estimating the pension liability.

For NAICS, each country can add additional detailed industries, provided the additional detail aggregates to the NAICS level.

True

Vertical analysis compares each amount with a base amount selected from the same year.

True

The debt ratio indicates

a comparison of liabilities to total assets

A debt ratio indicates

a comparison of liabilities with total assets

Which of the following types of business would normally have the longest operating cycle?

a seller of resort property

Gross receivables is figured by

accounts receivables + allowances

Average gross receivables is figured by

beginning of year gross receivables + end of year gross receivables / 2

Average inventory is figured by

beginning of year inventory + end of year inventory / 2

Which of these items represents a definite commitment to pay out funds in the future?

bonds payable

If a firm has pledged its receivables and its inventory, then the best indicator of its short-term liquidity may be indicated by:

cash ratio

Which of the following accounts WOULD NOT be classified as a current asset?

cash restricted for retirement of bonds

Statements in which all items are expressed only in relative terms (percentages of a base) are termed:

common-size statements

Prepayments should be reported in the

current asset section of the balance sheet

Acid test ratio is figured by

current assets - inventory / current liabilies

Typically, which of the following would be considered to be the most indicative of a firm's short term debt paying ability?

current ratio

Which of the following ratios would generally be used to evaluate a firm's overall liquidity position?

current ratio

A defined benefit plan shifts the risk to the employee as to whether the pension funds will grow to provide for a reasonable pension payment upon retirement.

false

Compensating balances reduce the amount of cash available to the borrower to meet obligations and they decrease the effective interest rate for the borrower.

false

Times interest earned indicates a firm's long-term, debt-paying ability from the balance sheet view.

false

Which of the following types of business would have the shortest operating cycle?

grocery store

Times interest Earned is figured by

income before taxes + interest / interest

In computing debt to tangible net worth, which of the following is not subtracted in the denominator?

investments

A fixed charge coverage

is an income statement indication of debt carrying ability

A retailing firm has which type of inventory?

merchandise

Which of the following ratios does not represent some form of comparison between accounts in current assets and accounts in current liabilities?

merchandise inventory turnover

A times interest earned ratio indicates that

none of the answers are correct

Which of the current assets will not generate cash in the future?

prepayments

Included in the Employee Retirement Income Security Act are the following

provisions requiring minimum funding of pension plans, minimum rights to employees upon termination of their employment, and creation of the Pension Benefit Guaranty Corporation.

A defined contribution plan

retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account

f a firm has substantial capital or financing leases disclosed in the notes but not capitalized in the financial statements, then

the debt ratio will be understated.

Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm. Which of the following is not one of the techniques used in analysis?

theory consistency

Liquidity ratios can be used

to measure the firm's ability to meet its current obligations.

Horizontal analysis compares each amount with a base amount for a selected base year.

true

If an employee is in the pension plan, rights under this plan will be lost if the employee leaves the firm prior to receiving a vested interest.

true

The operating cycle is the time before the acquisition of inventory and the realization of cash from selling the inventory.

true

To qualify as a marketable security the investment must be readily marketable and it must be the intent of management to convert the investment to cash within the current operating cycle or a year, whichever is longer.

true