Chapter 03 Analyzing financing activities QUESTIONS AND ANSWERS A RATED

Chapter 03 Analyzing financing activities QUESTIONS AND ANSWERS A RATED 3. Which of the following would be found listed as a liability on a company's balance sheet? A. Operating lease obligations B. Projected benef ...

Chapter 03 Analyzing financing activities QUESTIONS AND ANSWERS A RATED 3. Which of the following would be found listed as a liability on a company's balance sheet? A. Operating lease obligations B. Projected benefit obligation C. Purchase commitment obligation D. Other postretirement employee benefits 4. Which of the following is not a criterion for defining a lease as a capital lease? A. Ownership is transferred at the end of the lease agreement. B. The lease contains an option to purchase the asset at a bargain price. C. The present value of the lease payments at the beginning of the lease is 75% or more than the value of the asset. D. The lease term is at least 75% of the economic life of the asset. 5. Which of the following is true concerning bond covenants? A. Bond covenants are restrictions placed on bondholders to protect rights of equity holders. B. Violation of a bond covenant requires that a company declares bankruptcy. C. If a company violates a bond covenant, it means it has failed to make interest or principal repayments on debt in a timely manner. D. Bond covenants are legal restrictions placed in order to minimize the risk of default on bonds. 6. Recording a long-term lease as an operating lease, as opposed to a capital lease, for a lessee will cause the following ratios to be: A. Option A B. Option B C. Option C D. Option D 7. If a company leases equipment to other companies and records these leases as operating leases rather than capital leases, its: I. recorded liabilities will be lower. II. recorded assets will be higher. III. total cash flows will be higher. IV. debt to equity ratios will be lower. A. I and III B. II and IV C. I only D. II, III, and IV 8. If a company that leases equipment from another company records these leases as operating leases rather than capital leases, its: I. recorded liabilities will be lower. II. recorded assets will be higher. III. total cash flows will be higher. IV. leverage ratios will be higher. A. I and III B. II and IV C. I only D. II, III, and IV 9. Which one of the following statements is false? A. Short-term obligations may be classified as long-term if the company intends to refinance them on a long-term basis and can demonstrate the ability to do so. B. Violation of a long-term debt covenant automatically means the company must reclassify the debt as current. C. Current liabilities are recorded at their maturity value, and not their present value. D. If a bond is issued at a discount the effective interest rate is greater than the coupon rate. 10. When considering defined benefit pension plans, which of the following will not increase the projected benefit obligation (PBO)? A. A decrease in the discount rate B. An increase in estimated compensation growth C. An increase in expected average length of lives of employees D. A decrease in the expected rate of return on plan assets 11. With respect to pension liabilities, which of the following statements is true? I. The projected benefit obligation (PBO) is always greater than or equal to the accumulated benefit obligation (ABO). II. The vested benefit obligation (VBO) is always as least as or as big as the accumulated benefit obligation (ABO). III. If the PBO is greater than the plan assets, the plan is said to be overfunded. IV. If the weighted-average assumed discount rate is increased, the PBO will decrease. A. I, III, and IV B. I and III C. II and IV D. I and IV 12. The difference between the accumulated benefit obligation (ABO) and the projected benefit obligation (PBO) is: A. the PBO considers non-vested obligations and the ABO does not. B. the PBO takes into account the time value of money and the ABO does not. C. the PBO takes into account future pay increases and the ABO does not. D.the PBO takes into account mortality rates of employees and the ABO does not.