Question 1

IRS regulations govern the computation of net income for the SEC.

Accepted Answer

A) True 
 B)False

Question 2

Technical default occurs only when the borrower fails to make interest and principal payments when due.

Accepted Answer

A) True 
 B)False

Question 3

Accounting-based incentive plans can encourage managers to adopt a long-term business focus.

Accepted Answer

A) True 
 B)False

Question 4

Information about a company's executive compensation practices can be found in the company's annual report.

Accepted Answer

A) True 
 B)False

Question 5

Critics of stock options as a form of compensation argue that stock options encourage managers to cater to Wall Street's short-term earnings expectations.

Accepted Answer

A) True 
 B)False

Question 6

When one party to a business relationship can make decisions that benefit him or her but harm the other party a conflict of interest arises.

Accepted Answer

A) True 
 B)False

Question 7

One way to reduce conflicts of interest between lenders and borrowers is by writing contracts that restrict the borrowers' ability to harm lenders by taking risky actions.

Accepted Answer

A) True 
 B)False

Question 8

It is commonly believed that to some degree many companies use accounting loopholes to "massage their numbers."

Accepted Answer

A) True 
 B)False

Question 9

Managers cater to Wall Street (i.e.,try to meet earnings benchmarks)for which of the following reasons?

Accepted Answer

A) to build credibility with the capital market. 
B) to maintain or increase the firm's stock price. 
C) to build the external reputation of management. 
D) All of these are reasons managers cite for meeting earnings benchmarks. 
A) to build credibility with the capital market. 
B) to maintain or increase the firm's stock price. 
C) to build the external reputation of management. 
D) All of these are reasons managers cite for meeting earnings benchmarks.

Question 10

The widespread use of accounting-based incentives to determine executive compensation is controversial for which one of the following reasons?

Accepted Answer

A) Earnings growth automatically increases shareholder value. 
B) Accounting based incentive plans can encourage managers to adopt a long-term business focus. 
C) Executives can use their discretion over the accounting policies. 
D) Managers do not have accounting flexibility. 
A) Earnings growth automatically increases shareholder value. 
B) Accounting based incentive plans can encourage managers to adopt a long-term business focus. 
C) Executives can use their discretion over the accounting policies. 
D) Managers do not have accounting flexibility.

Question 11

In the utilities industry,rate formulas are established to allow the utilities to set total allowed revenues to recover

Accepted Answer

A) only the administrative costs of operations. 
B) only the operating costs associated with operations. 
C) all operating costs,depreciation,taxes,and a fair return on invested capital. 
D) all operating costs other than depreciation and taxes,and a fair return on invested capital. 
A) only the administrative costs of operations. 
B) only the operating costs associated with operations. 
C) all operating costs,depreciation,taxes,and a fair return on invested capital. 
D) all operating costs other than depreciation and taxes,and a fair return on invested capital.

Question 12

Debt covenants can be designed to serve a signaling function by assuring a steady flow of information from borrower to lender.

Accepted Answer

A) True 
 B)False

Question 13

Financial executives overwhelmingly believe that meeting earnings benchmarks helps maintain or increase the firm's stock price.

Accepted Answer

A) True 
 B)False

Question 14

Seizure of collateral is one possible remedy for breach of covenant restrictions.

Accepted Answer

A) True 
 B)False

Question 15

Stock options are the most common short-term incentive device.

Accepted Answer

A) True 
 B)False

Question 16

A bank's estimated bad debt expense associated with its loan receivables is the loan loss provision.

Accepted Answer

A) True 
 B)False

Question 17

A lender may be protected from deterioration of the borrower's creditworthiness if the commercial lending agreement requires the borrower to maintain a

Accepted Answer

A) current ratio above a certain level. 
B) return on assets above a certain level. 
C) specified return on equity. 
D) specified accounts receivable turnover. 
A) current ratio above a certain level. 
B) return on assets above a certain level. 
C) specified return on equity. 
D) specified accounts receivable turnover.

Question 18

Payment default occurs when the borrower violates one or more loan covenants but has made all principal and interest payments.

Accepted Answer

A) True 
 B)False

Question 19

Debt covenants help guard against conflicts of interest between creditors and bank regulators.

Accepted Answer

A) True 
 B)False

Question 20

Decreasing discretionary spending for such items as research and development is a popular technique for meeting earnings targets.

Accepted Answer

A) True 
 B)False

IRS regulations govern the computation of net income for the SEC.

Technical default occurs only when the borrower fails to make interest and principal payments when due.

Accounting-based incentive plans can encourage managers to adopt a long-term business focus.

Information about a company's executive compensation practices can be found in the company's annual report.

Critics of stock options as a form of compensation argue that stock options encourage managers to cater to Wall Street's short-term earnings expectations.

When one party to a business relationship can make decisions that benefit him or her but harm the other party a conflict of interest arises.

One way to reduce conflicts of interest between lenders and borrowers is by writing contracts that restrict the borrowers' ability to harm lenders by taking risky actions.

It is commonly believed that to some degree many companies use accounting loopholes to "massage their numbers."

Managers cater to Wall Street (i.e.,try to meet earnings benchmarks)for which of the following reasons?

The widespread use of accounting-based incentives to determine executive compensation is controversial for which one of the following reasons?

In the utilities industry,rate formulas are established to allow the utilities to set total allowed revenues to recover

Debt covenants can be designed to serve a signaling function by assuring a steady flow of information from borrower to lender.

Financial executives overwhelmingly believe that meeting earnings benchmarks helps maintain or increase the firm's stock price.

Seizure of collateral is one possible remedy for breach of covenant restrictions.

Stock options are the most common short-term incentive device.

A bank's estimated bad debt expense associated with its loan receivables is the loan loss provision.

A lender may be protected from deterioration of the borrower's creditworthiness if the commercial lending agreement requires the borrower to maintain a

Payment default occurs when the borrower violates one or more loan covenants but has made all principal and interest payments.

Debt covenants help guard against conflicts of interest between creditors and bank regulators.

Decreasing discretionary spending for such items as research and development is a popular technique for meeting earnings targets.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

Receivables

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters

Exam 7: The Role of Financial Information in Contracting

IRS regulations govern the computation of net income for the SEC.

Technical default occurs only when the borrower fails to make interest and principal payments when due.

Accounting-based incentive plans can encourage managers to adopt a long-term business focus.

Information about a company's executive compensation practices can be found in the company's annual report.

Critics of stock options as a form of compensation argue that stock options encourage managers to cater to Wall Street's short-term earnings expectations.

When one party to a business relationship can make decisions that benefit him or her but harm the other party a conflict of interest arises.

One way to reduce conflicts of interest between lenders and borrowers is by writing contracts that restrict the borrowers' ability to harm lenders by taking risky actions.

It is commonly believed that to some degree many companies use accounting loopholes to "massage their numbers."

Managers cater to Wall Street (i.e.,try to meet earnings benchmarks)for which of the following reasons?

The widespread use of accounting-based incentives to determine executive compensation is controversial for which one of the following reasons?

In the utilities industry,rate formulas are established to allow the utilities to set total allowed revenues to recover

Debt covenants can be designed to serve a signaling function by assuring a steady flow of information from borrower to lender.

Financial executives overwhelmingly believe that meeting earnings benchmarks helps maintain or increase the firm's stock price.

Seizure of collateral is one possible remedy for breach of covenant restrictions.

Stock options are the most common short-term incentive device.

A bank's estimated bad debt expense associated with its loan receivables is the loan loss provision.

A lender may be protected from deterioration of the borrower's creditworthiness if the commercial lending agreement requires the borrower to maintain a

Payment default occurs when the borrower violates one or more loan covenants but has made all principal and interest payments.

Debt covenants help guard against conflicts of interest between creditors and bank regulators.

Decreasing discretionary spending for such items as research and development is a popular technique for meeting earnings targets.

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

Receivables

Inventories

Long-Lived Assets

Financial Instruments As Liabilities

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters