[1940] Ch. 45 BALAN…
3 months, 2 weeks ago

Some fundamental multiple-choice questions derived from this chapter:

1. What is one purpose of comparing balance sheets over a period of time according to the passage?
a) To check the accuracy of reported earnings per share figures
b) To determine the effect of losses or profits on a company's financial position
c) To judge the relationship between a company's resources and earning power
d) All of the above

2. In the analysis comparing the balance sheets of Manhattan Shirt Company between 1929 and 1932, what conclusion is drawn?
a) The company strengthened its financial position despite reported losses
b) The company's earnings were overstated during this period
c) The company's inventory valuation method led to inaccurate financials
d) The company understated its liabilities

3. What can be concluded from the figures comparing 1919 and 1920 for U.S. Rubber Company?
a) The company's earnings were overstated due to inventory inflation
b) The company paid out too much in dividends
c) The company improved its working capital position
d) The company invested too heavily in plant expansion

4. How does the exhibit of Corn Products Refining Company contrast with that of U.S. Steel Corporation over a similar 30 year period?
a) Corn Products was more profitable but took on more debt
b) Corn Products expanded without suffering declining returns
c) Corn Products invested more in plant but earned less overall
d) Corn Products paid out more dividends from lower earnings

5. What is indicated when a company's balance sheet shows a large amount of short-term bank debt?
a) The company is conservatively financed
b) The company's earnings are unstable
c) The company may face a financial problem
d) The company has insufficient inventory

6. What is meant by the term "inventory inflation" as used in the passage?
a) Increasing inventory to inflate assets
b) Speculative increase in inventory prices
c) Overstating the value of inventory
d) Expanding inventory with borrowed funds

7. What is indicated when a company takes significant charges against its surplus account?
a) Reported earnings were overstated
b) Dividends were too high
c) Liabilities were understated
d) Goodwill was written down

Answers: DAABC BA

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