1. The primary purpose of the annual report of a publicly-held corporation is to:

a. Prepare the corporation income tax return

b. Promote the wealth of the top management of the corporation

c. Fully disclose the status and progress of the corporation to its stockholders

d. Sell more shares to the public
 
 

2. Which of the following is NOT part of the financial section of the annual report?

a. Financial highlights of the previous five years

b. Consolidated balance sheet

c. Consolidated statement of earnings (Income Statement)

d. Consolidated statement of Cash Flows
 
 

3. The auditor’s report is:

a. a prediction of future income and dividends

b. an evaluation of the management

c. a form of compliance with tax rules and regulations

d. an opinion of a CPA as to whether the financial statements are presented in accordance with generally accepted accounting principles.
 
 

4. An auditors report covers what period of time?

a. all years since the start of the corporation

b. the most recent fiscal year

c. the most recent three years

d. The period of time specified in the opinion itself
 
 

5. The difference between a "qualified" and an "adverse" opinion is:

a. An auditor will issue a qualified opinion when he disagrees with part of the financial statements but agrees that the statements taken as a whole are not misleading. In contrast, an adverse opinion would be issued if the auditor felt that the statements taken as a whole are misleading.

b. There is no real difference since both are negative opinions

c. "Adverse" refers to an economic setback whereas "Qualified" refers to the adherence to generally accepted accounting principles.

d. "Qualified" is a highly desirable opinion suggesting that the auditor feels that this company qualifies as a good investment opportunity. An adverse opinion suggests that the auditor does not encourage investments.
 
 

6. There are three main issues dealt with in footnotes. Which of the following is NOT one of these issues?

a. Summary of significant accounting policies

b. Discussion of Company's adherence to generally accepted accounting principles

c. Presentation of detailed information about key figures shown on the financial statements.

d. Description of events that may have a significant impact on the company but are difficult to quantify.
 
 

7. The part of the financial section of the annual report entitled "management discussion and analysis of operations" is designed to:

a. Give the reader an understanding of events that impacted the financial statements

b. Issue disclaimers about the future stock prices

c. Translate the financial statements into plain English

d. Disclose the personnel changes in the top management ranks
 
 

8: The issuance of financial statements of a publicly held corporation is the responsibility of:

a. The Securities and Exchange Commission

b. The American Institute of Certified Public Accountants

c. The New York Stock Exchange and similar exchanges where a company’s stock is traded

d. The management of the corporation
 
 

9. If the Gap, Inc. reported that 2002 sales increased by 8% in both 2001 and 2002, what total revenue would be reported in the 2002 income statement assuming that year 2000 sales were exactly $7 billion.

a. $7.560 billion

b. $8.165 billion

c. $8.120 billion

d. $8.465 billion
 
 

10. If Portfolio Inc. reported 2002 earnings before taxes of $60 million and it accrues tax expense at a 30% effective rate, what is the earnings per share if the weighted average number of shares for 2002 is 10 million? (Hint: First calculate after tax net income, and then divide it by the number of shares to get earnings per share.)

a. $6.00

b. $5.10

c. $4.20

d. $1.80
 
 

11. Using the balance sheet equation, assets = liabilities + stockholders’ equity, select the best financial structure of the following companies assuming that each earns net income at 10% of revenue and interest on long term debt is 5%:

a. Company P: $100 million = $95 million + $5 million

b. Company Q: $300 million = $170 million + $130 million

c. Company R: $200 million = $50 million + $150 million

d. Company S: $500 million = $10 million + $490 million
 
 

12. "Equivalents" to cash are:

a. undeposited checks from customers

b. checking accounts

c. high quality treasury notes such as U.S Treasury notes

d. short term loans to employees
 
 

13. The equation in the case reading representing the statement of cash flows explains:

a. how much borrowing will be needed in future years

b. how much dividend payment is affordable next year

c. The factors causing a change in cash and equivalents for the year just ended

d. The factors causing a change in net income for the year just ended
 
 

14. CFO (cash from operations) includes:

a. net income and adjustments to cash basis

b. stockholder equity and net income

c. net income and depreciation

d. net income plus adjustments to cash basis plus proceeds of asset sales.
 
 

15. Select the statement below that best describes the cash flow of Company X as summarized in equation form:

Beginning cash – CFO + CFI – CFF = Ending Cash
                100 – 100   + 300  – 200   = 100

a. management was prudent to keep cash constant

b. operations are not generating cash requiring long term assets to be sold because debt repayment came due

c. cash was transferred from investing activities to financing activities

d. the company had a net loss for the period