Question 1

An award of stock that is not transferable or subject to forfeiture for a period of years is called

Accepted Answer

A) phantom stock. 
B) treasury stock. 
C) restricted stock. 
D) preferred stock. 
A) phantom stock. 
B) treasury stock. 
C) restricted stock. 
D) preferred stock.

Question 2

When one party to a business relationship can make decisions that benefit him or her but harm the other party a

Accepted Answer

A) lawsuit is automatically filed. 
B) contract arises. 
C) conflict of interest arises. 
D) contingent liability arises. 
A) lawsuit is automatically filed. 
B) contract arises. 
C) conflict of interest arises. 
D) contingent liability arises.

Question 3

Discretionary accounting accruals are

Accepted Answer

A) cash financial statement adjustments,which accrue revenue or expenses. 
B) noncash financial statement adjustments,which accrue revenue or expenses. 
C) cash financial statement adjustments,which accrue only revenue. 
D) noncash financial statement adjustments,which accrue only expenses. 
A) cash financial statement adjustments,which accrue revenue or expenses. 
B) noncash financial statement adjustments,which accrue revenue or expenses. 
C) cash financial statement adjustments,which accrue only revenue. 
D) noncash financial statement adjustments,which accrue only expenses.

Question 4

When a debt covenant is violated,the related debt must be classified as current if it is

Accepted Answer

A) probable that the borrower will not be able to cure the default within the next twelve months. 
B) probable that the borrower will not be able to cure the default within the next fifteen months. 
C) probable that the borrower will be able to cure the default in the next twelve months. 
D) probable that the borrower will be able to cure the default in the next fifteen months. 
A) probable that the borrower will not be able to cure the default within the next twelve months. 
B) probable that the borrower will not be able to cure the default within the next fifteen months. 
C) probable that the borrower will be able to cure the default in the next twelve months. 
D) probable that the borrower will be able to cure the default in the next fifteen months.

Question 5

Firms may meet earnings benchmarks via operational excellence or by taking real actions to maintain accounting appearances.Explain why the latter approach may be detrimental to a firm's stockholders.

Accepted Answer

Many of the actions management can take

Question 6

Shareholders usually benefit when managers take real actions to maintain appearances of the firm's performance.

Accepted Answer

A) True 
 B)False

Question 7

Long-term incentive components of executive compensation plans should include stock options

Accepted Answer

A) to enhance the short-term focus of executives. 
B) to mitigate the short-term focus of executives. 
C) to mitigate the long-term focus of executives. 
D) to encourage better performance by low-level staff. 
A) to enhance the short-term focus of executives. 
B) to mitigate the short-term focus of executives. 
C) to mitigate the long-term focus of executives. 
D) to encourage better performance by low-level staff.

Question 8

Research shows that managers sometimes use accounting flexibility to evade contract constraints in order to gain bonus benefits.

Accepted Answer

A) True 
 B)False

Question 9

Stock options provide a set of "golden handcuffs" for retaining executives during the restriction period.

Accepted Answer

A) True 
 B)False

Question 10

Financial covenants establish minimum financial tests with which a borrower must comply.

Accepted Answer

A) True 
 B)False

Question 11

The failure of a company to pay other debts,such as payables or other loans,when due is called

Accepted Answer

A) routine default. 
B) non-default. 
C) cross default. 
D) compliance default. 
A) routine default. 
B) non-default. 
C) cross default. 
D) compliance default.

Question 12

IRS regulations govern the

Accepted Answer

A) computation of net income for GAAP. 
B) computation of net income for tax purposes. 
C) computation of gross profit for GAAP. 
D) computation of net income for the SEC. 
A) computation of net income for GAAP. 
B) computation of net income for tax purposes. 
C) computation of gross profit for GAAP. 
D) computation of net income for the SEC.

Question 13

"Triggers" enable the lender to decide whether it might be appropriate to modify or waive restrictions,or to demand immediate repayment.

Accepted Answer

A) True 
 B)False

Question 14

Compensation plans should

Accepted Answer

A) not link incentive plans to financial performance. 
B) not be based on long-term business goals. 
C) align shareholders' incentives with the objectives of managers. 
D) align managers' incentives with the objectives of shareholders. 
A) not link incentive plans to financial performance. 
B) not be based on long-term business goals. 
C) align shareholders' incentives with the objectives of managers. 
D) align managers' incentives with the objectives of shareholders.

Question 15

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

Accepted Answer

A) loan loss provision. 
B) loan charge-offs. 
C) allowance for loans. 
D) accumulated loan loss. 
A) loan loss provision. 
B) loan charge-offs. 
C) allowance for loans. 
D) accumulated loan loss.

Question 16

The wide use of accounting-based incentives is controversial because earnings growth does not automatically translate into increased shareholder value.

Accepted Answer

A) True 
 B)False

Question 17

In the utilities industry,image advertising and customer safety advertising are

Accepted Answer

A) both paid for by customers. 
B) both paid for by shareholders. 
C) both treated as operating expenses under RAP. 
D) both treated as operating expenses under GAAP. 
A) both paid for by customers. 
B) both paid for by shareholders. 
C) both treated as operating expenses under RAP. 
D) both treated as operating expenses under GAAP.

Question 18

Rate regulation provides incentives for public utility managers to

Accepted Answer

A) artificially decrease the asset base. 
B) artificially increase the asset base. 
C) artificially decrease operating expenses. 
D) artificially decrease taxes. 
A) artificially decrease the asset base. 
B) artificially increase the asset base. 
C) artificially decrease operating expenses. 
D) artificially decrease taxes.

Question 19

When conflicts of interest exist,lenders impose higher interest rates to reflect greater default risk.

Accepted Answer

A) True 
 B)False

Question 20

Based on a comprehensive survey of U.S.companies,the most common financial performance measure used in annual and long-term incentive plans for senior executives is

Accepted Answer

A) return on equity. 
B) economic value added. 
C) return on capital. 
D) net income or revenues. 
A) return on equity. 
B) economic value added. 
C) return on capital. 
D) net income or revenues.

An award of stock that is not transferable or subject to forfeiture for a period of years is called

When one party to a business relationship can make decisions that benefit him or her but harm the other party a

Discretionary accounting accruals are

When a debt covenant is violated,the related debt must be classified as current if it is

Firms may meet earnings benchmarks via operational excellence or by taking real actions to maintain accounting appearances.Explain why the latter approach may be detrimental to a firm's stockholders.

Shareholders usually benefit when managers take real actions to maintain appearances of the firm's performance.

Long-term incentive components of executive compensation plans should include stock options

Research shows that managers sometimes use accounting flexibility to evade contract constraints in order to gain bonus benefits.

Stock options provide a set of "golden handcuffs" for retaining executives during the restriction period.

Financial covenants establish minimum financial tests with which a borrower must comply.

The failure of a company to pay other debts,such as payables or other loans,when due is called

IRS regulations govern the

"Triggers" enable the lender to decide whether it might be appropriate to modify or waive restrictions,or to demand immediate repayment.

Compensation plans should

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

The wide use of accounting-based incentives is controversial because earnings growth does not automatically translate into increased shareholder value.

In the utilities industry,image advertising and customer safety advertising are

Rate regulation provides incentives for public utility managers to

When conflicts of interest exist,lenders impose higher interest rates to reflect greater default risk.

Based on a comprehensive survey of U.S.companies,the most common financial performance measure used in annual and long-term incentive plans for senior executives is

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

An award of stock that is not transferable or subject to forfeiture for a period of years is called

When one party to a business relationship can make decisions that benefit him or her but harm the other party a

Discretionary accounting accruals are

When a debt covenant is violated,the related debt must be classified as current if it is

Firms may meet earnings benchmarks via operational excellence or by taking real actions to maintain accounting appearances.Explain why the latter approach may be detrimental to a firm's stockholders.

Shareholders usually benefit when managers take real actions to maintain appearances of the firm's performance.

Long-term incentive components of executive compensation plans should include stock options

Research shows that managers sometimes use accounting flexibility to evade contract constraints in order to gain bonus benefits.

Stock options provide a set of "golden handcuffs" for retaining executives during the restriction period.

Financial covenants establish minimum financial tests with which a borrower must comply.

The failure of a company to pay other debts,such as payables or other loans,when due is called

IRS regulations govern the

"Triggers" enable the lender to decide whether it might be appropriate to modify or waive restrictions,or to demand immediate repayment.

Compensation plans should

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

The wide use of accounting-based incentives is controversial because earnings growth does not automatically translate into increased shareholder value.

In the utilities industry,image advertising and customer safety advertising are

Rate regulation provides incentives for public utility managers to

When conflicts of interest exist,lenders impose higher interest rates to reflect greater default risk.

Based on a comprehensive survey of U.S.companies,the most common financial performance measure used in annual and long-term incentive plans for senior executives is

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