Hi, I would like to solve this multple choice questions 1. Which of the following is not true about generally accepted accounting principles (GAAP)?

Hi,

I would like to solve this multple choice questions

1. Which of the following is not true about generally accepted accounting principles (GAAP)?

a. GAAP provide specific guidelines as to how to account for specific events impacting the financial performance of the firm.

b. The scrupulous application GAAP accounting rules ensures consistency in comparing one firm's financial performance to another.

c. It is customary for definitive agreements of purchase and sale to require that a target company represent that its financial books are kept in accordance with GAAP.

d. GAAP guarantees that a firm's financial books are accurate.

e. Differences between how a firm records actual financial transactions and how they should be recorded based on GAAP may indicate fraud or mismanagement.

2. Which of the following is not true about common size financial statements?

a. Such statements are used to uncover data irregularities.

b. Such statements are constructed by calculating the percentage each line item of the income statement, balance sheet, and cash flow statement is of annual sales.

c. Such statements are useful for comparing businesses of different sizes in the same industry at different moments in time.

d. Common size statements applied over a number of consecutive periods may be used to determine if the target firm is deferring necessary spending.

e. Common size statements may be calculated for both quarterly and annual financial data.

3. Target is a wholly owned subsidiary of MegaCorp Inc. MegaCorp supplies a number of services to target. Target sells some of its products to other MegaCorp subsidiaries. Target also buys products from other MegaCorp subsidiaries that are used as inputs in producing Target's products. Which of the following adjustments should the acquirer make to Target's financial statements before valuing the firm?

a. Deduct the actual cost of services required by Target that are being supplied by the parent without charge from target's cost of sales.

b. Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at below market prices and the actual market prices for such products from Target's cost of sales.

c. Deduct the difference between the cost of products purchased from other MegaCorp subsidiaries at above market prices and actual market prices from Target's cost of sales.

d. A and B only

e. None of the above

4. A target firm's standalone value is best defined by which of the following statements:

a. What a business would be worth as part of another firm

b. What a business would be worth as a going concern following a takeover bid

c. What a business would be worth as a going concern in the absence of a takeover bid

d. What the target is worth after the closing date following a takeover

e. None of the above

5. Which of the following is true of pro forma financial statements?

a. Pro forma statements purport to show what the combined firms would look adjusted for synergy and the terms of the deal

b. Pro forma statements are the same as GAAP statements

c. Pro forma statements show what the combined firms would look excluding the effects of synergy

d. a and b only

e. None of the above

6. The financial modeling process used to value a firm consists of a series of steps. These include which of the following:

a. Analyzing the target firm's historical statements to identify the primary determinants of cash flow.

b. Project three-to-five years (or more) of annual pro forma financial statements. This three-to-five year period is called the planning period.

c. Estimating the present value projected pro forma cash flows during the planning period.

d. Estimating the terminal value.

e. All of the above

7. An increase in gross margin over time could indicate what about the firm:

a. It has been able to reduce its costs compared to sales

b. It has been able to raise prices

c. It has been able to achieve a combination of (a) and (b)

d. It was forced to lower its prices

e. A, B, or C

8. Common items found on a balance sheet include all of the following except for which of the following:

a. Receivables

b. Cost of sales

c. Inventory

d. Long-term debt

e. Payables

9. Common items found on a balance sheet include all of the following except for which of the following:

a. Receivables

b. Cost of sales

c. Inventory

d. Long-term debt

e. Payables

10. Common items found on a cash flow statement include all of the following except for which of the following:

a. Net income

b. Change in working capital

c. Principal repayments on outstanding debt

d. Retained earnings

e. The proceeds of asset sales