Ratio analysis is most useful for comparing companies:
A)in different industries that use the same accounting standards.
B)of different size in the same industry.
C)that operate in multiple lines of business.
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答案:B
Ratio analysis is a useful way of comparing companies that are similar in operations but different in size. Ratios of companies that operate in different industries are often not directly comparable. For companies that operate in several industries, ratio analysis is limited by the difficulty of determining appropriate industry benchmarks.
In an environment of increasing prices, the last-in first-out (LIFO) inventory cost method results in:
A)cost of sales near current cost and inventory below replacement cost.
B)inventory near replacement cost and cost of sales below current cost.
C)cost of sales below current cost and inventory above replacement cost.
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答案:A
LIFO assumes the most recently purchased items are the first items sold. In an increasing or decreasing price environment, LIFO results in cost of sales that are nearer to current costs compared to other inventory cost methods, and inventory values based on outdated prices (below replacement cost if prices are increasing, above replacement cost if prices are decreasing).
When comparing capitalizing versus expensing costs which of the following statements is most accurate?
A)Capitalizing costs creates higher cash flows from operations and lower cash flows from investing.
B)Expensing costs creates lower cash flows from operations and lower cash flows from investing.
C)Capitalizing costs creates lower cash flows from operations and higher cash flows from investing.
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答案:A
Although net cash flows are not affected by the choice of capitalization or expensing, the components of cash flow are affected. Because, a firm that capitalizes classifies the expenditure as investing (not operations), cash flow from operations will be higher for firms that capitalize and investing cash flows will be lower than that of an expensing firm.
The difference between income tax expense and taxes payable is a:
A)deferred tax liability.
B)timing difference.
C)deferred income tax expense.
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答案:C
Taxes payable is defined as the taxes due to the government as determined by taxable income and the tax rate, while income tax expense is the amount actually recognized on the income statement. Deferred income tax expense is defined as the difference in income tax expense and taxes payable. Each individual deferred item is expected to be paid (or recovered) in future years.
Over time, the reported amount of the annual interest expense on a long-term bond issued at a discount will:
A)remain constant.
B)increase.
C)decrease.
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答案:B
A portion of the discount must be amortized to the interest expense each year. The amortized amount is debited to interest expense and credited to debt. So debt goes up. The interest expense is debt times the effective interest rate. Thus, interest expense will increase over time.
If management is manipulating financial reporting to avoid breaching an interest coverage ratio covenant on the firm debt, they are most likely to:
A)understate assets.
B)capitalize leases.
C)overstate earnings.
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答案:C
Debt covenants may require a firm to maintain a minimum interest coverage ratio (EBIT / interest expense). Manipulating the financial statements to increase the interest coverage ratio would most likely involve overstating earnings, or possibly understating liabilities (for example by using operating leases instead of capital leases) to decrease interest expense. Understating or overstating assets would not affect the interest coverage ratio.
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