Question 1

LST Company is a publicly traded company with $120 million in sales. Historically, LST does not extend credit to customers beyond net 45 terms. To help promote sale of a new product introduced into the market this year, LST offered financing terms to customers purchasing the new product. As a result, sales increased by 15% from the prior year and accounts receivable increased by 5%. At the end of their fiscal year LST had a $15 million sale to a new customer that was recorded as a note receivable. LST recognizes revenue when goods leave the facility. During the financial audit the auditors discovered that the customer did not receive the product until three days after the year-end. Under GAAP accounting, the auditors would MOST LIKELY render a(n):

Options :

A : adverse opinion because the product not received before the fiscal year-end.

B : qualified opinion because the product was not received before the fiscal year-end.

C : unqualified opinion because the product was shipped before the fiscal year-end.

D : disclaimed opinion because the product was shipped before the fiscal year-end.

Answer: C

Question 2

Which of the following could be considered a weakness of a forecast derived by regression analysis?

Options :

A : More than one factor may affect the event being measured.

B : Seasonality cannot be incorporated into the forecast.

C : A large amount of data is required.

D : It is only valid for long-term forecasting.

Answer: C

Question 3

A nationwide retailer has been making EFT payments to its suppliers for several years. It will expand its processes to include consumer payments in its EFT initiative. Which of the following will support this initiative at the point-of-sale?

Options :

A : Check truncation

B : Consumer-to-business

C : Paid-on-production

D : Prearranged payment

Answer: A

Question 4

ABC Company offers trade terms of 2/10 NET 30. For several reasons, ABC has decided to eliminate the requirement for a letter of credit from one of its customers. If ABC puts the customer on open book credit, what is the MOST LIKELY outcome?

Options :

A : ABC’s credit rating will suffer.

B : The customer’s working capital has deteriorated.

C : ABC’s working capital is unchanged.

D : The customer’s cost of borrowing will increase.

Answer: C

Question 5

Which of the following situations is the best example of transaction exposure?

Options :

A : A U.S. headquartered firm consolidates their foreign subsidiary’s financial statements into their home currency

B : A company that purchases raw materials locally and sells its products in local markets recently encountered foreign competition.

C : A U.S. exporter sells merchandise to a French buyer and records a balance receivable with payment terms in euros due in three months

D : A multinational corporation uses balance sheet hedging to reduce net exposure of the parent company.

Answer: C

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