Download CSC Volume 1 Section 4 (Chapter 11, 12) 99. 4b_32. Question 49 _ A

CSC Volume 1 Section 4 (Chapter 11, 12)
99. 4b_32. Question 49 _
A company uses cash on hand to build a warehouse and stock it with inventory. How will
these transactions be classified when they are accounted for in the cash flow statement?
A.
As investing activities.
B.
As operating and financing activities.
0%
C.
As operating and investing activities
Student Response
D.
As operating, investing and financing activities.
General Feedback: The purchase of capital assets, which include property, plant and
equipment, are classified as investing activities on the cash flow statement. Changes in
inventory are classified as operating activities. If the company had borrowed money to
finance the construction of the warehouse, that would have been classified as a financing
activity. Text reference: Chapter 12: Corporations and their Financial Statements.
Score: 0/1
Total score: 11/15 = 73.3333%
1. Which term describes the action taken by a stock exchange to correct a gross
imbalance in buy and sell orders?
A.
A halt in trading.
0%
B.
A suspension in trading.
C.
A cancellation of listing (delisting).
D.
A delayed opening.
Student Response
General Feedback: Shortly before the opening of trading, an exchange can order
trading in a security to be delayed. The need for this action might arise if a heavy influx
of buy and/or sell orders for a particular security materialized. The delay gives exchange
traders time to sort out the orders and match up buys with sells to allow fair and orderly
trading when the delay order is removed. A delayed opening in one security does not
affect trading in other listed securities. Text reference: Chapter 11: Financing and Listing
Securities.
Score: 0/1
3. What is a common method of ensuring some stability in the secondary market for a
new issue?
A.
Placing a holding period on trading. 0%
B.
Restricting share sales.
C.
Escrowing shares.
Student Response
D.
Listing the shares in the OTC market only.
General Feedback: Escrowing shares ties the value of shares held by these
shareholders to what happens to the property used to obtain these shares. In addition, it
prevents their owners from selling their shares before a proper market can develop. This
ensures some stability in the secondary market performance of the new issue after the
completed offering. Text reference: Chapter 11: Financing and Listing Securities.
Score: 0/1
12. What is deducted from the trade receivables account before it is shown on the
Statement of Financial Position?
A.
Prepaid expenses.
B.
Financing costs.
0%
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C.
Sales expenses.
D.
Allowance for doubtful accounts.
Student Response
General Feedback: The net amount of trade receivables (trade receivables minus the
allowance for doubtful accounts) is shown on the statement of financial position. Text
reference: Chapter 12: Corporations and their Financial Statements.
Score: 0/1
14. Which piece of information is included in the Notes to the Financial Statements?
A.
The auditor’s opinion on the financial statements.
B.
The use of derivatives.
Student Response
C.
The interest paid on long term debt. 0%
D.
The share profits of associates.
General Feedback: To avoid clutter, a firm includes detailed financial information in
the Notes. This includes accounting policies, descriptions of fixed assets and long term
debt features and information on the use of derivatives. Text reference: Chapter 12:
Corporations and their Financial Statements.
Score: 0/1
Total score: 14/15 = 93.3333%
1. Who bears the primary risk in a "bought" deal?
A.
Issuer.
B.
Distributors.
C.
Selling Group.
0%
D.
Dealer.
Student Response
General Feedback: When a new security issue is brought to market through a bought
deal, the dealer assumes the primary risk that the issue will not be sold. They purchase all
of the securities from the issuing company - thus guaranteeing to the issuer the amount
that will be received for the issuance. Then, they distribute these securities, sometimes
using a financing group or other distributors. However, should the securities remain
unsold, or sell at a lower price than the Dealer had paid to the issuer, the Dealer will
suffer the loss. Text reference: Chapter 11: Financing and Listing Securities.
Score: 0/1
8. What asset would likely have the most uncertain value in the event of a company’s
liquidation?
A.
Capital equipment.
B.
Mineral reserves.
C.
The trademark.
100% Student Response
D.
Investments in subsidiaries.
General Feedback: A trademark may mean much in the way of brand recognition for a
company but would be difficult to assess dollar value were the trademark to be sold. Text
reference: Chapter 12: Corporations and their Financial Statements.
Score: 1/1
13. Company A owns 35% of the common shares of Company B and Company B earned
income of $100 million and paid a common dividend of $20 million. How would the
ownership of Company B be reflected on the financial statements of Company A?
A.
As a long-term asset worth $80 million.
B.
With dividend income of $20 million.
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C.
With income of $35 million. 100% Student Response
D.
Company A need not report its ownership interest of Company B.
General Feedback: If a parent company (Company A) owns between 20% and 50% of
the voting shares of a subsidiary (Company B), the parent will use the equity accounting
method to reflect its ownership of the net income of the subsidiary. The parent's
percentage ownership of the net income of the subsidiary is added to the parent's
Statement of Comprehensive Income using the Equity Income account. In this case,
Company A will add Equity Income of $35 million ($100 million x 35%) to its income.
Text reference: Chapter 12: Corporations and their Financial Statements.
Score: 1/1
15. SBS Inc. purchased land 5 years ago for $4,500,000. At the end of the last fiscal year
it was worth $4,200,000 but this year it is now assessed at $5,000,000. What should be
the land value recorded on SBS’ statement of financial position this year?
A.
$4,200,000
B.
$4,500,000
100% Student Response
C.
$4,600,000
D.
$5,000,000
General Feedback: Often shareholders’ equity is referred to as the book value of the
company, and this represents the total value of the company’s assets that shareholders
would theoretically receive if the company were liquidated. However, this item does not
necessarily indicate the amount shareholders will receive for their ownership interest in
the event of sale. The market value of the shareholders’ interest may be worth a lot more
or less than the book value, largely depending upon the company’s earning power and
prospects. Text reference: Chapter 12: Corporations and their Financial Statements.
Score: 1/1
Total score: 12/15 = 80.0000%
3. Which statement about the competitive tender process is false?
A.
Commissions are paid to dealers who purchase Government of Canada bonds.
100% Student Response
B.
A bidder may submit several bids at different prices to increase the chances of
having bonds awarded to them.
C.
Primary distributors may submit one non-competitive bid that will be filled at the
average price.
D.
The minimum size for a competitive bid is $100,000.
General Feedback: No commissions are paid to dealers who purchase bonds from the
Government of Canada. Text reference: Chapter 11: Financing and Listing Securities.
Score: 1/1
7. For which of the following reasons is a bought deal considered more beneficial to an
issuer than a traditional underwriting?
A.
It is less risky for the issuer. 0%
B.
Larger amounts of capital can be raised.
C.
A wider distribution of the securities is usually achieved.
D.
The underwriting cost is usually significantly lower.
Student Response
General Feedback: The underwriting cost in a bought deal is significantly lower than
with a traditional underwriting. In both cases, the dealer is acting as principal so the
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issuer risk is similar. The distribution is narrower with a bought deal as they are
frequently sold as private placements. Text reference: Chapter 11: Financing and Listing
Securities.
Score: 0/1
12. AMZ Corporation is a large Canadian multi-national, with divisions operating in a
number of geographical areas and different industries. Where within the financial
statements would the scope of the various enterprises be revealed?
A.
Statement of Financial Position.
0%
B.
Statement of Comprehensive Income.
C.
Statement of Cash Flows.
D.
Notes to the Financial Statements.
Student Response
General Feedback: The Notes to the Financial Statements are valuable addendums to
the financial statements. Rather than incorporating certain detailed reporting with the
statements themselves, the Notes are used to report significant items, not required to be
included on other statements, such as Segmented Results. An examination of this report
allows you to determine a company's exposure to different currency risks, the various
industries it is involved in, etc. - in each of its different segments. In general, if you are
doing an in-depth analysis of a company, you should closely review the Notes section, as
that is where you will find a great deal of potentially significant information that would
not be disclosed by a simple review of the financial statements. Text reference: Chapter
12: Corporations and their Financial Statements.
Score: 0/1
14. A company's financial statements show the following entries:
Net Income before extraordinary items:
$1,250,000
Depreciation: $7,500
Amortization: $500
Equity Income:
$50,000
Dividends Paid:
$1,250
If the cash and temporary investments balance at the beginning of the year was $150,000,
and there are no other transactions, what will the closing balance be for cash and
temporary investments on the cash flow statement at the end of the year?
A.
$1,206,750
B.
$1,440,750
0%
C.
$1,356,750
Student Response
D.
$1,540,750
General Feedback: The cash flow statement is designed to demonstrate illustrate the
actual cash flows through a company during a fiscal period. Examination of this
statement helps to focus on the sources and uses of capital, and gives additional insight
into liquidity issues. The net income reported on the Consolidated Statement of Earnings
Statement of Comprehensive Income records more than the company’s cash flows for the
reporting period. When net income is calculated for a company, some of the items are not
really flows of cash. They are just bookkeeping entries for recording purposes. Take
amortization as an example. Amortization is used to record the expense of an asset over
the accounting periods. However, no actual money changes hands; the bank balance is
not increased or decreased by this amount. For this question, the answer is found this way:
Net Income + Depreciation +Amortization – Equity Income – Dividends Paid + End of
4
Year Cash Balance. Text reference: Chapter 12: Corporations and their Financial
Statements.
Score: 0/1
Total score: 13/15 = 86.6667%
9. A company uses cash on hand to build a warehouse and stock it with inventory. How
will these transactions be classified when they are accounted for in the cash flow
statement?
A.
As investing activities.
B.
As operating and financing activities.
0%
C.
As operating and investing activities
Student Response
D.
As operating, investing and financing activities.
General Feedback: The purchase of capital assets, which include property, plant and
equipment, are classified as investing activities on the cash flow statement. Changes in
inventory are classified as operating activities. If the company had borrowed money to
finance the construction of the warehouse, that would have been classified as a financing
activity. Text reference: Chapter 12: Corporations and their Financial Statements.
Score: 0/1
14. A company's earnings statement shows the following entries:
Net Income before extraordinary items:
$5,250,000
Depreciation: $60,500
Amortization: $1,000
Minority Interest:
$90,000
Dividends Paid:
$8,250
If the cash and temporary investments balance at the beginning of the year was
$15,000,000, and there are no other transactions, what will the closing balance be for
cash and temporary investments on the cash flow statement at the end of the year?
A.
$20,213,250 0%
B.
$20,229,750
C.
$20,393,250
Student Response
D.
$20,009,250
General Feedback: The cash flow statement is designed to demonstrate the actual cash
flows through a company during a fiscal period. Examination of this statement helps to
focus on the sources and uses of capital, and gives additional insight into liquidity issues.
The net income reported on the Statement of Comprehensive Income records more than
the company's cash flows for the reporting period. When net income is calculated for a
company, some of the items are not really flows of cash. They are just bookkeeping
entries for recording purposes. For this question, the answer is found this way: Net
Income + Depreciation + Amortization + Minority Interest - Dividends Paid + End of
Year Cash Balance. Text reference: Chapter 12: Corporations and their Financial
Statements.
Score: 0/1
Total score: 14/15 = 93.3333%
5. Which participant in an underwriting would likely receive an override payment?
A.
The financing group.
Student Response
5
B.
The banking group.
C.
The selling group.
D.
The dealers group.
0%
General Feedback: During an underwriting, certain fees for specific services are
standard. The Financing Group may obtain an override, which is an additional payment
over and above their original entitlement on the entire issue in payment for their services
as financial advisors and syndicate managers or leads. Text reference: Chapter 11:
Financing and Listing Securities.
Score: 0/1
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