1.

Lemons problems arise in capital markets when 1. Managers are better informed about the value of their business ideas than investors 2. Managers have an incentive to understate the value of their business ideas 3. Managers and investors have conflicting interests 4. A, , and ! 5. A and C 2. !onsider the following statement" #$n countries with a model of strong legal protection of investors% rights, information intermediaries pla& a bigger role in preventing lemons problems than in countries with a model of weak legal protection of investors% rights.' (his statement is 1. True 2. )alse 3. Mandator& publication of audited financial statements is an imperfect solution to incentive and information problems between managers and investors because 1. Accounting profits are t&picall& less informative about firms% economic performance than cash flows 2. (he accounting standards governing the preparation of such financial statements are t&picall& too loosel& defined 3. Managers unintendedly as well as strategically introduce noise into reported accounting performance through their accounting decisions 4. *one of the above 4. !onsider the following statement" #(he e+tent to which financial statements accuratel& reflect the conse,uences of managers% operating, investment and financing decisions is a function of characteristics of the accounting environment and managers% accounting strateg&.' (his statement is 1. True 2. )alse -. !onsider the following statement" #Accounting conventions and regulations that leave management no accounting discretion lead to more useful financial statements than accounting conventions and regulations that do grant accounting discretion.' (his statement is 1. (rue 2. False .. !onsider the following statement" #)inancial reports of publicl& listed firms are prepared using accrual accounting rather than cash accounting.' (his statement is 1. True 2. )alse /. !onsider the following statement" #(he outcomes of business strateg& anal&sis affect the financial and prospective anal&ses but have no relevance for the accounting anal&sis.' (his statement is 1. (rue 2. False 0. 1hich of the following statements is correct2 1. (he accounting anal&sis follows the financial anal&sis 2. (he prospective anal&sis precedes the strateg& anal&sis 3. The prospective analysis follows the financial analysis 4. (he financial anal&sis precedes the strateg& anal&sis 3. (he outcomes of the strateg& anal&sis affect the accounting anal&sis because 1. (he strateg& anal&sis also includes an anal&sis of the firm%s accounting strateg& 2. )irms with poor strategies are more likel& to have low4,ualit& financial statements than firms with successful strategies 3. A firm s industry and competitive strategy affect which accounting choices are appropriate. 4. *one of the above. 15. (wo reasons for wh& financial statements tend to be less useful in the anal&sis of privatel& held businesses than in the anal&sis of publicl& held businesses 6within the 789 is that 1. !i" #rivate firm s financial statements are strongly influenced $y ta% rules and !ii" managers of private firms have less incentive to prepare informative financial statements than managers of pu$lic firms. 2. :rivate firm%s financial statements 6i9 do not compl& with ta+ rules and 6ii9 are not publicl& available. 3. :rivate firm%s 6i9 financial reporting is unregulated and 6ii9 financial statements are not publicl& available. 4. *one of the above.