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Chapter 1

Multiple Choice
1. Business analysis is the evaluation of a companys prospects and risks for
the purpose of making business decisions. These business decisions extend to: ....
EXCEPT
a. liability valuation
b. credit risk assessment
c. earnings predictions
d. audit testing
e. compensation negotiations
ANS: A REF: Subramanyam, Edisi II, Chapter 1
2. Component of Financial Statement Analysis are: ..... except
a. Profitability Analysis
b. Accounting Analysis
c. Equity Analysis
d. Analysis of cash flow
e. Risk Analysis
ANS: C REF: Subramanyam, Edisi II, Chapter 1
3. Every transaction captured in these three latter statements impacts the
balance sheet. Examples are .... except:
a. revenues affecting earnings and their subsequent reporting in retained
earning
b. expenses affecting earnings and their subsequent reporting in retained
earning
c. equity affecting earnings and their subsequent reporting in retained
earning
d. cash transactions in the statement of cash flows that are summarized in
the cash balance on the balance sheet
e. all revenue and expense accounts that affect one or more balance sheet
accounts.
ANS: C REF: Subramanyam, Edisi II, Chapter 1
4. This section gives preliminary exposure to five important sets of tools for
financial analysis:
a. Comparative financial statement analysis
b. Common-size financial statement analysis
c. Risk analysis
d. Cash flow analysis
e. Valuation
ANS: C REF: Subramanyam, Edisi II, Chapter 1
5. Ratios, like most techniques in financial analysis, are not relevant in
isolation. Instead, they are usefully interpreted in comparison with ...... except
a. prior ratios
b. predetermined standards
c. ratios of competitors
d. ratios of consumer
ANS: D REF: Subramanyam, Edisi II, Chapter 1

True/False
6. Types of business analysis are: credit analysis and equity analysis
ANS: T REF: Subramanyam, Edisi II, Chapter 1
7. financial statement analysis should be, and is, viewed as an important and integral
part of business analysis and all of its component analyses.
ANS: T REF: Subramanyam, Edisi II, Chapter 1
8. The basis of valuation is future value theory
ANS: F REF: Subramanyam, Edisi II, Chapter 1
9. Earnings are determined using the accrual basis of accounting.
ANS: T REF: Subramanyam, Edisi II, Chapter1
10. Colgates balance sheet is a listing of its investing and financing activities
at a point in time
ANS: T REF: Subramanyam, Edisi II, Chapter1
11. Individuals conduct comparative financial statement analysis by reviewing
consecutive balance sheets, income statements, or statements of equity period to
period.
ANS: F REF: Subramanyam, Edisi II, Chapter1
Matching
a. The weak form
b. The strong form
c. Operating activities
d. Investing Activities
e. Financing activities
f. discount rate
g. sales discount

12. ........... represent the carrying out of the business plan given its financing
and investing activities. C
13. ............ refer to methods that companies use to raise the money to pay for
these needs. E
14. Accordingly, to value a security an investor needs information of ....... F
15. The .......... EMH asserts that prices reflect fully the information contained
in historical price movements. A

12. ANS: C REF: Subramanyam, Edisi II, Chapter 1


13. ANS: E REF: Subramanyam, Edisi II, Chapter 1
14. ANS: F REF: Subramanyam, Edisi II, Chapter 1
15. ANS: A REF: Subramanyam, Edisi II, Chapter 1
CHAPTER 2
MULTIPLE CHOICE
1. Which would be issued by auditors where there is a history of significant losses
coupled with uncertain prospects?
A. An "except for" qualification
B. An adverse opinion
C. A disclaimer of opinion
D. An audit warning
ANS: A REF: Subramanyam, Edisi II, Chapter 2
2. Which of the following would require the filing of Form 8-K?
I. Major acquisition
II. Audited financial statements
III. Bankruptcy
IV. Change in management control
A. I and III
B. II and IV
C. I, III and IV
D. I, II, III and IV
ANS: C REF: Subramanyam, Edisi II, Chapter 2
3. Which of the following is not considered part of GAAP?
A. Statements of Financial Accounting Standards (SFAS)
B. International Accounting Standards (IAS)
C. Accounting Research Bulletins (ARB).
D. Accounting Principles Board Opinions (APB).
ANS: B REF: Subramanyam, Edisi II, Chapter 2
4. Which of the following is not considered a monitoring mechanism?
A. The Securities and Exchange Commission (SEC)
B. Top level management
C. The board of director's audit committee
D. The external auditors
ANS: B REF: Subramanyam, Edisi II, Chapter 2
5. Which of the following statements about directors of a company is true?
A. Directors are elected by management of a company.
B. Directors only get paid if the company increases its profitability that year.
C. Directors are shareholders' representatives.
D. All directors of a company are senior managers in that company.
ANS: C REF: Subramanyam, Edisi II, Chapter 2
6. Which of the following statements about accruals and cash flows is true?
A. All cash flows are value relevant.
B. Cash flows cannot be manipulated.
C. Cash flows are more reliable than accruals.
D. All accrual accounting adjustments are value irrelevant.
ANS: C REF: Subramanyam, Edisi II, Chapter 2
7. Which of the following statements about accruals and cash flows is false?
A. Company value can be determined by using accrual accounting numbers.
B. Accrual accounting numbers are subject to accounting distortions.
C. Cash flows are more reliable than accruals.
D. Cash flows cannot be manipulated.
ANS: D REF: Subramanyam, Edisi II, Chapter 2
8. The two primary qualities of accounting information to make it useful for decision
making are:
A. reliability and comparability.
B. relevance and reliability.
C. materiality and comparability.
D. full disclosure and relevance.
ANS: B REF: Subramanyam, Edisi II, Chapter 2
9. Financial accounting data has some inherent limitations. Which of the following
are limitations?
I. Not all economic events are easily quantifiable.
II. Many accounting entries rely heavily on estimates.
III. Historical cost can distort statements.
IV. Inflation can distort accounting data.
A. I, II and III
B. I, III and IV
C. II, III and IV
D. I, II, III and IV
ANS: D REF: Subramanyam, Edisi II, Chapter 2
10. Audit risk represents a danger to users of audited financial statements. The
following are attributes pointing to potential areas of vulnerability except
A. company in financial distress requiring financing.
B. management dominated by one or more strong-willed individuals.
C. deterioration in liquidity or solvency.
D. company earning high profits consistently over a number of years.
ANS: D REF: Subramanyam, Edisi II, Chapter 2

TRUE/FALSE
1. GAAP stands for General American Accounting Principles, and must be adhered to
by publicly traded companies when preparing their financial statements.
ANS: F REF: Subramanyam, Edisi II, Chapter 2
2. FASB stands for Financial Accounting Service Bureau, and is a sub-division of the
Securities and Exchange Commission (SEC).
ANS: F REF: Subramanyam, Edisi II, Chapter 2
3. Under GAAP accounting, a company has the choice of using cash or accrual
accounting in preparing its financial statements.
ANS: F REF: Subramanyam, Edisi II, Chapter 2
4. Under cash accounting, a company must recognize revenues in financial
statements when the revenues are earned or realized.
ANS: F REF: Subramanyam, Edisi II, Chapter 2
5. Under accrual accounting, a company will recognize expenses as they are paid.
ANS: F REF: Subramanyam, Edisi II, Chapter 2
6. Accrual income is a better predictor of future cash flows than current cash flows.
ANS: T REF: Subramanyam, Edisi II, Chapter 2
7. The auditor provides "reasonable", as opposed to "absolute" assurance that the
financial statements provide no material misstatement.
ANS: T REF: Subramanyam, Edisi II, Chapter 2
8. Net income is usually higher than free cash flows.
ANS: T REF: Subramanyam, Edisi II, Chapter 2
9. By using earnings management, managers always try to increase income.
ANS: F REF: Subramanyam, Edisi II, Chapter 2
10. Income smoothing is a form of earnings management.
ANS: T REF: Subramanyam, Edisi II, Chapter 2

MATCHING
h. an accounting error.
i. annual filings made by a company with SEC.
j. qualified.
k. the result of a political process among groups with diverse interests.
l. revenues earned and expenses incurred in generating those revenues should be
reported in the same income statement.
m. management.
n. consistency and comparability.
o. shareholder value.
p. both recurring and nonrecurring components.
q. dividing permanent income by the cost of capital.
1. If a company fails to record a material amount of depreciation in a previous year,
this is considered:
2. 10-K reports are:
3. The management of Finner Company believes that "the statement of cash flows is
not a very useful statement" and does not include it with the company's financial
statements. As a result the auditor's opinion should be:
4. Accounting Standards are best described as:
5. The matching principle requires that:
6. The primary responsibility for fair and accurate financial reporting rests with the:
7. The two secondary qualities of accounting information to make it useful for
decision making are:
8. Economic income measures change in:
9. Economic income includes:
10. For a going concern, company value can be expressed by:

1. ANS: A REF: Subramanyam, Edisi II, Chapter 2


2. ANS: B REF: Subramanyam, Edisi II, Chapter 2
3. ANS: C REF: Subramanyam, Edisi II, Chapter 2
4. ANS: D REF: Subramanyam, Edisi II, Chapter 2
5. ANS: E REF: Subramanyam, Edisi II, Chapter 2
6. ANS: F REF: Subramanyam, Edisi II, Chapter 2
7. ANS: G REF: Subramanyam, Edisi II, Chapter 2
8. ANS: H REF: Subramanyam, Edisi II, Chapter 2
9. ANS: I REF: Subramanyam, Edisi II, Chapter 2
10. ANS: J REF: Subramanyam, Edisi II, Chapter 2
Soal true or false
Chapter 3
1. The company may borrow directly from from investors by issuing securities
such as bonds; such borrowing is called public debt.
ANS: T REF: subramanyam edisi 11, hal 134
2. Lessees often structure a lease so that it can be accounted for as an
operating lease even when the economic characteristics of the lease are more in
line with a capital lease.
ANS: T REF: subramanyam edisi 11, hal 145
3. Contingent liabilities can not arise from litigation, threat of expropriation,
collectibility of receivables, claims arising from product warranties or defects,
guarantees of performance, tax assessments, self-insured risk, and catastrophic
losses of property.
ANS: F REF: subramanyam edisi 11, hal 156
4. One way to finance property, plant, and equipment is to have an outside
party acquire them while a company agrees to use the assets and provide funds
sufficient to service the debt.
ANS: T REF: subramanyam edisi 11, hal 159
5. Equity holders are exposed to the minimum risk associated with a
company.
ANS: F REF: subramanyam edisi 11, hal 166
6. Composition of equity is important because of provisions that can affect
capital rights of common shares and, accordingly, the rights, risk, an return of
equity investors.
ANS: F REF: subramanyam edisi 11, hal 169
7. The book value of common stock is equal to the total assets less liabilities
and claims of securities senior to common stocks at amounts reported on the
balance sheet.
ANS: T REF: subramanyam edisi 11, hal 172
Soal mencocokan
Chapter 3
a) Lease
b) Capital lease
c) Operating lease

1. All other types of leases, are accounted for as ...


ANS: C REF: subramanyam edisi 11, hal 145
2. A lease that transfers substantially all the benefits and risk of ownership is
accounted for as an assetacquisition and aliability incurrence by the lessee. This
type of lease is called a ...
ANS: B REF: subramanyam edisi 11, hal 145
3. A ... is an contractual agreement between a lessor an the lessee.
ANS: B REF: subramanyam edisi 11, hal 145
Chapter 3
1. ... is an agreement by the employer to provide pension benefits to the
employee, and it involves three entities; the employer, who contributes to the
plan; the employee, who derives benefits; and the pension fund.
A. Pension fund
B. Pension plan
C. Defined benefit plan
D. Defined contribution plan
ANS: B REF: subramanyam edisi 11, hal 180
Chapter 4
Multiple Choice
1. Analyzing intercompany and international activities divided to: .........
except
a. Investment securities
b. Equity accounting
c. Derivative securities
d. Liability accounting
e. Fair Value Option
ANS: D REF: Subramanyam, Edisi II, Chapter 4
2. Consolidation involves steps ......... except
a. aggregate the assets
b. aggregate the equity
c. aggregate the revenues
d. aggregate the expenses
e. eliminate intercompany transactions
ANS: B REF: Subramanyam, Edisi II, Chapter 4
3. SFAS 141 requires companies to identify and value specific categories of
intangible assets. These include the following ....... except
a. Trademarks
b. Competition agreements
c. Customer lists
d. Contracts
e. Patent
ANS: B REF: Subramanyam, Edisi II, Chapter 4
4. A variety of financial instruments are used for hedging activities, including
the following:
a. Futures contract
b. Swap contract
c. Option contract
d. All of above
e. None of above
ANS: E REF: Subramanyam, Edisi II, Chapter 4

True/False
5. Companies invest assets in investment securities (also called marketable
securities).
ANS: T REF: Subramanyam, Edisi II, Chapter 4
6. Investment securities can be in the form of either debt or equity.
ANS: T REF: Subramanyam, Edisi II, Chapter 4
7. Redeemable preferred stock and convertible debt securities are
considered equity securities
ANS: F REF: Subramanyam, Edisi II, Chapter 4
8. Goodwill arising from business combination is not amortized.
ANS: T REF: Subramanyam, Edisi II, Chapter 4
9. Consolidated financial statements disregard the separate legal identities of
the parent and its subsidiary in favor of its economic substance.
ANS: T REF: Subramanyam, Edisi II, Chapter 4
10. Goodwill can only be recorded following the recognition of the fair market
values of all tangible (PP&E) and identifiable intangible (trademark) assets acquired.
ANS: T REF: Subramanyam, Edisi II, Chapter 4
Matching
a. To receive revenue and interest income
b. Equity securities
c. To receive dividend and stock price appreciation income
d. Debt securities
e. Gain/Loss on Sale
f. Hedges
g. Goodwill
h. Derivative
11. .......... are securities representing ownership interest in another entity
examples are common stock and nonredeemable preferred stock.
12. The main motivation for a company to purchase equity securities ......... to
receive dividend and stock price appreciation income.
13. The difference between the acquisition price and the fair value of the net
assets of the acquired company is recognized as .........
14. ............ is a financial instrument whose value is derived from the value of
another asset, class of assets, or economic variable such as a stock, bond,
commodity price, interest rate, or currency exchange rate.
15. ..........are contracts that seek to insulate companies from market risks.

11. ANS: B REF: Subramanyam, Edisi II, Chapter 4


12. ANS: C REF: Subramanyam, Edisi II, Chapter 4
13. ANS: G REF: Subramanyam, Edisi II, Chapter 4
14. ANS: H REF: Subramanyam, Edisi II, Chapter 4
15. ANS: F REF: Subramanyam, Edisi II, Chapter 4
16.
17. CHAPTER 5
MULTIPLE CHOICE
1. Trading Marketable Securities:
A. are considered non-current assets.
B. are recorded at amortized cost.
C. are marked to the lower of cost or market each accounting period.
D. are marked to market each accounting period.
ANS: D REF: Subramanyam, Edisi II, Chapter 5
2. The classification of marketable equity securities as trading or available-for-sale is
determined by:
A. management's intent regarding the disposition of the securities.
B. when the securities mature.
C. whether the current assets are greater or less than the current liabilities.
D. whether management wants to mark them to market or not.
ANS: A REF: Subramanyam, Edisi II, Chapter 2
3. The reclassification of trading securities as available-for-sale would produce the
following effect:
A. The balance sheet would need to be adjusted to report the securities at
fair market value and there would be no effect on the income statement.
B. There would be no effect on either the balance sheet or the income
statement.
C. The balance sheet would need to be adjusted to report the securities at
fair market value and unrealized gains or losses on the date of the transfer would
be included in net income.
D. There would be no effect on the balance sheet and unrealized gains or
losses on the date of the transfer would be included in net income.
ANS: D REF: Subramanyam, Edisi II, Chapter 5
4. The equity method of accounting for investments requires:
A. Investment should be marked to market each accounting period.
B. Pro-rata share of investee's earnings should be recorded as investment
income.
C. Company should not have significant influence over investee.
D. Goodwill related to purchase of investee stock to be recorded separately
on balance sheet
ANS: B REF: Subramanyam, Edisi II, Chapter 5
5. Which of the following is incorrect ? An analyst should be aware of the following
when analyzing a company that has significant investments recorded using the equity
method:
A. Cash flow received from investee may be substantially different from
investment income recorded.
B. As investee's liabilities are not recorded on the company's balance sheet,
there may be significant off-balance-sheet financing.
C. They must mark investment in investee to market even though there may
be no ready market in which they can sell their investment.
D. Company must record pro rata share of investee's earnings, which may not
be well correlated with changes in market value of investee.
ANS: C REF: Subramanyam, Edisi II, Chapter 5
TRUE/FALSE
1. Current GAAP requires that only goodwill for acquisitions completed prior to the
elimination of pooling-of-interests in merger accounting be amortized.
ANS: F REF: Subramanyam, Edisi II, Chapter 5
2. If the temporal method is used for foreign in currency translation and the foreign
subsidiary has an excess of monetary assets over monetary liabilities, an increase in
the strength of the dollar will result in translation loss.
ANS: T REF: Subramanyam, Edisi II, Chapter 5
3. Investment securities should always be reported at lower-f-cost-or-market.
ANS: F REF: Subramanyam, Edisi II, Chapter 5
4. All derivates are recorded at market value on the balance sheet.
ANS: T REF: Subramanyam, Edisi II, Chapter 5
5. When using the current rate method to recod foreign subsidiary result, all assets
and liabilities are translated at rate, in effect of the statement date.
ANS: T REF: Subramanyam, Edisi II, Chapter 5
6. One of the problem with consolidated financial statements is that all
intercompany transactions are not reported.
ANS: T REF: Subramanyam, Edisi II, Chapter 5
7. Under SFAS 141, accounting for acquisition can no longer result in an increase in
the consolidated entitys stockholders equity.
ANS: T REF: Subramanyam, Edisi II, Chapter 5
8. The Equity Conformity Rule requires that marketable securities must be marked to
market for tax purposes.
ANS: F REF: Subramanyam, Edisi II, Chapter 5
9. If the temporal method is used for foreign in currency translation and the foreign
subsidiary has an excess of monetary liabilities over monetary assets, an increase in
the strength of the dollar will result in translation loss.
ANS: F REF: Subramanyam, Edisi II, Chapter 5
10. SFAS 159 Requires that once fair value has been adopted for a class of securities,
the company can reverse the option after one year.
ANS: F REF: Subramanyam, Edisi II, Chapter 5
MATCHING
a. Changes in the fair value of noncurrent available-for-sale securities bypass net
income.
b. Hedging.
c. A futures contract.
d. A swap contract.
e. A cash flow hedge.
1. Weaknesses and inconsistencies pertaining to the accounting for marketable
securities carried as noncurrent assets:
2. Activities are designed to protect the company against fluctuations in market
instruments. Speculative activities seek to profit on fluctuations in market
instruments:
3. An agreement between two or more parties to purchase or sell a certain
commodity or financial asset at a future date and at a definite price:
4. An arrangement between two or more parties to exchange future cash flows.
Swaps are typically used to hedge risks such as interest rate and foreign currency
risks:
5. Designed to hedge exposure to volatility in cash flows attributable to a specific
risk:

1. ANS: A REF: Subramanyam, Edisi II, Chapter 5


2. ANS: B REF: Subramanyam, Edisi II, Chapter 5
3. ANS: C REF: Subramanyam, Edisi II, Chapter 5
4. ANS: D REF: Subramanyam, Edisi II, Chapter 5
5. ANS: E REF: Subramanyam, Edisi II, Chapter 5
Chapter 6
1. Income summarizes the financial effects of a businesss operating
activities.
ANS: T REF: subramanyam edisi 11, hal 340
2. Revenues and expenses are the two major components of accounting
income.
ANS: T REF: subramanyam edisi 11, hal 341
3. Extraordinary items are distinguished by their unusual nature and by the
infrequency of their occurrence.
ANS: T REF: subramanyam edisi 11, hal 347
4. Discontinued operations are not separately reported on the income
statement and the balance sheet.
ANS: F REF: subramanyam edisi 11, hal 349
5. Accrual accounting requires estimates of items such as useful lives of
assets, warranty cost, inventory obsolescence, pension assumptions, and
uncollectible receivables.
ANS: T REF: subramanyam edisi 11, hal 352
6. Special items refer to transactions and events that are unusual or
infrequent, but not both.
ANS: T REF: subramanyam edisi 11, hal 354

Chapter 6
a) Permanent or recurring component
b) Transitory component
c) Value irrelevant component

Accounting income can be visualized as comprising of three components:


1. ... where each dollar is equal to 1/r dollars of company value.
ANS: A REF: subramanyam edisi 11, hal 340
2. ... where each dollar is merely equal to one dollar of company value.
ANS: B REF: subramanyam edisi 11, hal 340
3. ... which is irrelevant for valuation.
ANS: C REF: subramanyam edisi 11, hal 34o
Chapter 6
1. ... is typically regarded as the bottom line measure of income.
A. Net income
B. Comprehensive income
C. Income from continuing operations
D. Core income
ANS: A REF: subramanyam edisi 11, hal 343