Question 1

A company issues a $100,000, 9% bond and receives $99,000 (ignoring transaction costs). This implies that the effective interest rate is less than 9%.

Accepted Answer

A) True 
 B)False

Question 2

Companies must report the economic pension cost in their financial statements.

Accepted Answer

A) True 
 B)False

Question 3

A plan is said to be underfunded, if:

Accepted Answer

A) the pension obligation is more than the asset value. 
B) the pension obligation is less than the asset value. 
C) the pension obligation is equal to the asset value. 
D) None of the above 
A) the pension obligation is more than the asset value. 
B) the pension obligation is less than the asset value. 
C) the pension obligation is equal to the asset value. 
D) None of the above

Question 4

Synthetic leases may achieve all of the following benefits to the borrower except:

Accepted Answer

A) window-dress the balance sheet. 
B) increase cash flow. 
C) reduce tax expense on the income statement. 
D) increase net income. 
A) window-dress the balance sheet. 
B) increase cash flow. 
C) reduce tax expense on the income statement. 
D) increase net income.

Question 5

Which of the following statements concerning contingencies is correct?

I. Gain contingencies are recorded if they are probable and reasonably estimable.
II. Unredeemed frequent flyer mileage is an example of a loss contingency.
III. A loss contingency is a form of off-balance sheet financing.
IV. Loss contingencies are not recognized unless there is a greater than 95% chance they will be realized.

Accepted Answer

A) I, II, III, and IV 
B) II, III, and IV 
C) II and III 
D) II only 
A) I, II, III, and IV 
B) II, III, and IV 
C) II and III 
D) II only

Question 6

Retail Inc. has both operating and capital leases. Below is a portion of its lease footnote taken from its 2006 financial statements.
$\begin{array}{lrr}
&\text { Capital}&\text {  Operating }\
\text { MLP (in millions) }\
2007 & \$ 233 & \$ 529 \
2008 & 201 & 567 \
2009 & 199 & 554 \
2010 & 180 & 540 \
2011 & 145 & 528 \
 \underline{\text { Thereafter }} & \underline{1,050} & \underline{5,941} \
 \text { Total MLP } &2,008 &  \underline{ \underline{\$ 8,659}}\
\text { Less interest } & \underline{ 680} \
\text { Present value of MLP } & \underline{ \underline{ \$ 1,328 }}\
\text { Current } & 100 \
\text { Long term } & \$ 1,228
\end{array}$

a. Obtain a crude estimate of the remaining length of the operating and capital leases.
b. Estimate the interest rate implicit in the capital leases.
c. Compute the present value of the operating leases.

Accepted Answer

a.A crude estimate of the remaining leng

A company issues a $100,000, 9% bond and receives $99,000 (ignoring transaction costs). This implies that the effective interest rate is less than 9%.

Companies must report the economic pension cost in their financial statements.

A plan is said to be underfunded, if:

Synthetic leases may achieve all of the following benefits to the borrower except:

Overview of Financial Statement Analysis

Financial Reporting and Analysis

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters

Exam 3: Analyzing Financing Activities

A company issues a $100,000, 9% bond and receives $99,000 (ignoring transaction costs). This implies that the effective interest rate is less than 9%.

Companies must report the economic pension cost in their financial statements.

A plan is said to be underfunded, if:

Synthetic leases may achieve all of the following benefits to the borrower except:

Overview of Financial Statement Analysis

Financial Reporting and Analysis

Analyzing Investing Activities

Analyzing Investing Activities: Intercorporate Investments

Analyzing Operating Activities

Cash Flow Analysis

Return on Invested Capital and Profitability Analysis

Prospective Analysis

Credit Analysis

Equity Analysis and Valuation

Filters