Financial Accounting for MBAs
Learning Objectives – coverage by question
True/
False
Multiple
Choice Exercises Problems Essay
Questions
LO1
... [Show More] Identify and
discuss the
users and
suppliers of
financial
statement
information.
1-4 1-2 - 1 1-2
LO2 Identify and
explain the four
financial
statements, and
define the
accounting
equation.
5-10 3-19 1-8 2-5 3
LO3 Explain and
apply the basics
of profitability
analysis.
11-13 20-25 9-10 6-7 4
LO4 Describe
business
analysis within
the context of a
competitive
environment.
14 26-27 - 8 -
LO5 Describe
the accounting
principles and
regulations that
frame financial
statements.
15 28-30 - 9-10 5
Module 1: Financial Accounting for MBAs
True/False
Topic: Users of Financial Statement Information
LO: 1
1. Shareholders demand financial information primarily to assess profitability and risk whereas
bankers demand information primarily to assess cash flows to repay loan interest and principle.
Answer: True
Rationale: While both shareholders and bankers are interested in all the information company’s
provide, shareholders care about more about a company’s profitability and bankers care more about
solvency and creditworthiness.
Topic: Publicly available financial reports
LO: 1
2. Publicly traded companies are required to provide quarterly financial reports directly to the public.
Answer: False
Rationale: Companies provide electronic versions of quarterly financial statements to the SEC that
posts them to the internet for the public to access them.
Topic: Users of Financial Statement Information
LO: 1
3. Publicly traded companies provide financial information primarily to satisfy the SEC and the tax
authorities (that is, the Internal Revenue Service).
Answer: False
Rationale: Demand for information extends to many users, the regulators such as the SEC and the
IRS are only one class of users.
Topic: SEC filings
LO: 1
4. Publicly traded companies must provide to the Securities Exchange Commission annual audited
financial statements (10K reports) and quarterly audited financial statements (10Q reports).
Answer: False
Rationale: Quarterly reports do not need to be audited.
Topic: Balance Sheet
LO: 2
5. If a company reports retained earnings of $175.3 million on its balance sheet, it must also report
$175.3 million in cash.
Answer: False
Rationale: The accounting equation requires total assets to equal total liabilities plus stockholders’
equity. That does not imply, however, that liability and equity accounts relate directly to specific
assets.
Topic: Balance Sheet
LO: 2
6. A balance sheet shows a company’s position over a period of time, whereas an income statement,
statement of stockholders’ equity, and statement of cash flows show its position at a point in time.
Answer: False
Rationale: The statement is reversed: A balance sheet shows a company’s position at a point in time,
whereas an income statement, statement of equity, and statement of cash flows show its position
over a period of time.
Topic: Accounting Equation
L: O2
7. Assets must always equal liabilities plus equity.
Answer: True
Rationale: The accounting equation is Assets = Liabilities + Equity. This relation must always hold.
Topic: Income Statement
LO: 2
8. The income statement reports net income which is defined as the company’s profit after all
expenses and dividends have been paid.
Answer: False
Rationale: The statement contains two errors. First, net income does not include any dividends
during the period; these are a distribution of profits and not part of its calculation. Second, the income
statement is prepared on an accrual basis and thus includes expenses incurred (as opposed to paid).
Topic: Statement of Cash Flows
LO: 2
9. A statement of cash flows reports on cash flows for operating, investing and financing activities at
a point in time.
Answer: False
Rationale: A statement of cash flows reports on cash flows for operating, investing, and financing
activities over a period of time.
Topic: Statement of Stockholders’ Equity
LO: 2
10. An increase in treasury stock would be reflected in the statement of stockholders’ equity.
Answer: True
Rationale: The statement of stockholders’ equity reports on changes in the accounts that make up
stockholders’ equity. This includes contributed capital, retained earnings, and treasury stock.
Topic: Return on Assets
LO: 3
11. Return on Assets (ROA) measures the profit the company makes on each dollar of total assets it
uses.
Answer: True
Rationale: Return on Assets profitability metric that measures how much profit the company made for
each dollar of assets the company holds on average during the year.
Topic: Return on Assets
LO: 3
12. Return on Assets (ROA) = Net Income / Sales × Asset Turnover
Answer: True
Rationale: Return on Assets = Net income / Average Assets. The disaggregation of the ROA into its
components
Topic: Asset Turnover
LO: 3 [Show Less]