ACCT-UB 3 - Financial Statement Analysis

Chapter 4 Quiz
Prof. Jim Resnik

Starting in the next page you will find 10 multiple choice questions. After reading the chapter in your
textbook (or e-book) please make a conscientious effort to answer all 10 questions. You may submit this
same file with one choice Marked as your response for each question, or you may submit a file or picture
showing each question’s number (1 through 10) and each question’s selected answer (choice a, b, c or
d). You may submit a single response for this quiz, so please don’t rush to submit and make sure you
submit the correct file. Second submissions will not be possible. Once an assignment is closed, its
solutions will be made available and submissions will no longer be accepted. Extensions requested after
as assignment’s due date are not possible. Quizzes are individual work; please do not work on this quiz
with anyone and do not comment on this quiz with anyone before it is closed.
1. Which of the following would not be classified as a current asset?

A. Inventory
B. Accounts payable
C. Accounts receivable
D. Prepaid expenses

2. Analysis of a company's assets will help evaluate its:

I. liquidity.
II. solvency.
III. operational capacity.
IV. financing ability.

A. I, II, III, and IV

B. I, II, and IV
C. II, III, and IV
D. I, II, and III

3. Financial Statements of ABC Corp. indicates that ending inventory levels in 2005 and 2006 were $200,000 and
$350,000 respectively. Cost of goods sold for 2005 and 2006 were $1,900,000 and $2,200,000 respectively. Purchases
in 2006 were:

A. $1,950,000
B. $2,150,000
C. $2,350,000
D. $1,850,000

4. One advantage of LIFO over FIFO under normal conditions is that:

A. it reports higher retained earnings.

B. it results in higher cash flows.
C. it results in higher current ratios.
D. it results in higher gross margins.
5. Which of the following is not considered an intangible asset?

A. Goodwill
B. Customer lists
C. Prepaid advertising expenses
D. Memberships

6. Target Inc. has 30 million shares outstanding and trades at $50 per share. Target has net identifiable assets with a
book value of $1,000 million and a fair value of $1,200 million. Acquirer Corporation purchases all of Target Inc. stock
for $60 per share. How much will Acquirer records as goodwill upon acquiring Target?

A. $300 million
B. $500 million
C. $600 million
D. $800 million

7. Look Good Corporation has current assets of $1.1 million and current liabilities of $1 million. It is close to year-end, and
it would like to increase its current ratio. Which of the following will achieve this?

A. Encourage customers to pay their bills more quickly.

B. Increase short-term borrowings by $0.1 million.
C. Sell building for $0.2 million in cash.
D. Liquidate some of its trading marketable securities.

8. LIFO liquidation occurs when:

A. a firm changes from LIFO to another inventory method.

B. a firm experiences an increase in cost of raw materials.
C. the LIFO reserves decline in value.
D. the quantity of goods sold is greater than the quantity produced.
9. Goodwill is:

A. the excess of the purchase price of net assets over the book value of net assets.
B. the excess of the appraised value of net assets over the book value of net assets.
C. the excess of the purchase price of net assets over the fair value of net assets.
D. the excess of the appraised value of net assets over the fair value of net assets.

10. With respect to LIFO, which of the following is incorrect?

A. If a company uses LIFO for tax purposes, it must use it for GAAP purposes.
B. If the LIFO reserve increases in a given year, cost of goods sold under the LIFO inventory costing is higher than it
would have been if FIFO had been used for that year.
C. LIFO results in better matching on the income statement than FIFO.
D. LIFO results in inventory levels on the balance sheet that are closer to current cost than FIFO.