1. What are restrictions that impose limits on the actions of a borrower called?
A. Conditions
B. Collateral
C. Covenants
D. Chattels
2. Barrhead Ltd. has a covenant that requires them to maintain a current ratio of 1 to 3. Which of the following users most likely imposed the covenant?
A. Banker
B. Shareholders
C. Canada Revenue Agency
D. Management
3. Which of the following are the two primary concerns of creditors?
A. Security and the ability of the borrower to make payments
B. Security and profitability
C. Solvency and the ability of the borrower to make payments
D. Solvency and profitability
4. The type of analysis a creditor requires depends on the nature of the credit being provided. The nature of the credit means:
A. the amount of the credit.
B. the value and type of security.
C. whether the credit is for the short or long term.
D. the ability of the borrower to pay interest.
5. An equity investor would be primarily concerned with:
A. the amount of assets that the company has pledged as collateral.
B. the current and future value of the company's shares.
C. a company's ability to pay their creditors in the near term.
D. the company's ability to pay their income taxes.
6. What is the first step in the successful analysis of an entity?
A. Read the financial statements.
B. Prepare a financial ratio analysis.
C. Interview management.
D. Find as much information as possible about the entity.
7. What section of the annual report is intended to provide readers with a view of the entity through the eyes of management?
A. Financial statements
B. Audit report
C. Statement of management's responsibility
D. Management discussion and analysis
8. Why is it important to separate a company's earnings into permanent earnings and transitory earnings?
A. To aid in the evaluation of management.
B. To help predict future earnings and cash flows.
C. To assist short-term creditors with their decisions.
D. To aid in determining taxable income.
9. Which of the following types of income would be considered to be permanent earnings?
A. A gain on the sale of equipment resulting from the discontinuance of a business segment.
B. Income from a business segment that is expected to be sold within the next year.
C. Income resulting from the successful settlement of a major lawsuit.
D. Income resulting from a store opened during the most recent fiscal year.
10. What are revenues, expenses, gains and losses that are part of the normal operations of the firm, but that are not expected to occur frequently, called?
A. Extraordinary items
B. Unusual items
C. Irregular items
D. Discontinued items