Schweser Printable ExamsSchweserPro 2011 CFA Level 1

Question 1 - 98155 A furniture store acquires a set of chairs for $750 cash and sells them for $1000 cash. These transactions are most likely to affect which accounts? Purchase A) Assets only B) Assets only C) Assets and expenses Sale Assets and revenues only Assets, revenue, expenses, owners' equity Assets, revenue, expenses, owners' equity

Question 2 - 98175 Which of the following is most likely to be considered a barrier to developing one universally recognized set of reporting standards? A) Reluctance of firms to adhere to a single set of reporting standards. B) GATT already requires sufficient agreement. Different standard-setting bodies of different countries disagree on the best treatment of a C) particular issue.

Question 3 - 98092 Management disclosure of the likely impact of implementing recently issued accounting standards is least likely to: A) conclude that the standard does not apply. B) state that the impact of the standard is impossible to determine. C) conclude that the standard will not affect the financial statements materially.

Question 4 - 98198 Which of the following statements about proxy statements is least accurate? Proxy statements are: A) available on the EDGAR web site. B) a good source of information about the qualifications of board members and management. C) not filed with the SEC.

Question 5 - 98153

Washburn Motors signs a contract to sell a $100,000 luxury sedan to be delivered next month, and receives a $20,000 cash down payment from the buyer. How will the transaction most likely affect Washburns assets and liabilities? Assets A) Increase B) Unchanged C) Increase Liabilities Increase Unchanged Unchanged

Question 6 - 98219 Which of the following statements concerning the notes to the audited financial statements of a company is least accurate? Financial statement notes: A) are audited. include management's assessment of the company's operating performance and financial B) results. C) contain information about contingent losses that may occur.

Question 7 - 119448 Regarding the use of financial statements in security analysis and selection, it would be most accurate to say that: analysts can verify the accuracy of financial statements by using a firms detailed accounting system information. further analysis of a firms financial statements is typically not necessary if the firm has B) conformed to applicable accounting principles. analysts can use footnotes and Managements Discussion and Analysis to better C) understand assumptions used in the financial statements. A)

Question 8 - 98208 The standard auditor's report is most likely required to: A) provide reasonable assurance that the financial statements contain no material errors. B) provide an "unqualified" opinion if material uncertainties exist. C) provide reasonable assurance that management is reliable.

Question 9 - 98087 Which description of the objective of financial statements is most accurate? The objective of financial statements is: to provide economic decision makers with useful information about a firms financial performance and changes in financial position. B) to provide securities analysts with objective data about a firms financial prospects. A)

C) to provide a wide range of users with information about a firms financial prospects.

Question 10 - 98183 Accumulated depreciation and treasury stock are most likely to be shown as what types of accounts? Accumulated depreciation A) Contra-asset B) Liability C) Contra-asset Treasury stock Equity Equity Contra-equity

Question 11 - 98094 Which of the following statements about financial reporting standards is least accurate? Reporting standards: A) are disclosed on Form 8K by publicly traded firms in the United States. B) narrow the range within which management estimates can be seen as reasonable. C) ensure that the information is useful to a wide range of users.

Question 12 - 98085 When a publicly traded U.S. company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote, it also files the statement with the SEC as Form: A) 8-K. B) 144. C) DEF-14A.

Question 13 - 98151 Prema Singh is the bookkeeper for Octabius Industries. Singh has been asked by the CFO of Octabius to review all purchases that occurred between February 1 and February 8 to investigate an error on the receiving dock. Singh will most likely look at the: A) initial trial balance. B) general journal. C) general ledger.

Question 14 - 98258 Professional organizations of accountants and auditors that establish financial reporting standards are called: A) Regulatory authorities.

B) International organizations of securities commissions. C) Standard setting bodies.

Question 15 - 98196 Which of the following is the best description of the financial statement analysis framework? State the objective and context, gather data, process the data, analyze and interpret the data, report the conclusions or recommendations, update the analysis. Gather data, analyze and interpret the data, process the conclusions, assess the context, B) report the recommendations, update the analysis. Gather data, analyze and interpret the data, determine the context, report the conclusions, C) update the analysis. A)

Question 16 - 98093 Alpha Company reported the following financial statement information: December 31, 2006: Assets Liabilities December 31, 2007: Assets Liabilities During 2007: Stockholder investments Net income Dividends

$70,000 45,000 82,000 55,000 3,000 ? 6,000

Calculate Alphas net income for the year ended December 31, 2007 and the change in stockholders equity for the year ended December 31, 2007. Net income A) $5,000 B) ($3,000) C) $5,000 Change in stockholders' equity $2,000 increase $2,000 increase $2,000 decrease

Question 17 - 98097 Jack Rivers is an investment analyst for the equity fund of a family office. The head of the family, Charlotte Blackmon, is concerned that management may be manipulating the earnings of some of the companies that the fund invests in. Rivers explains to Blackmon, Even though we dont have access to the detailed transactions that underlie the financial statements, we can be sure that management is not manipulating earnings because I read the footnotes to the financial statements of every company we invest in. The footnotes would disclose any deviation from appropriate accounting parameters. Rivers is:

A) correct. incorrect because even within appropriate accounting parameters, management can B) manipulate earnings through the assumptions that rely on their discretion. incorrect because deviation from appropriate accounting parameters is addressed in the C) auditors report, so a qualified opinion in the auditors report ensures that management is not manipulating earnings.

Question 18 - 98159 Which of the following is least likely to be considered a characteristic of a coherent financial reporting framework? A) Stability. B) Transparency. C) Comprehensiveness.

Question 19 - 98154 Which of the following is NOT a qualitative characteristic accounting information must possess in order to provide useful information to an analyst? A) Comparability. B) Relevance. C) Believability.

Question 20 - 98121 Which of the following is a company least likely required to present according to International Accounting Standard (IAS) No. 1? A) Disclosures of material events. B) A summary of accounting policies. C) Statement of changes in owners equity.

Question 21 - 98179 The term convergence is most accurately used to describe: A) the process of developing one universally accepted set of accounting standards. B) the reduction of the premium on a bond as it nears maturity. C) when expected return and required return are equal.

Question 22 - 96770 The Management Discussion and Analysis (MD&A) portion of the financial disclosure is required to discuss all of the following EXCEPT:

A) capital resources and liquidity. B) expected effects of marketplace events. C) results of operations.

Question 23 - 98169 The process of developing one universally accepted set of accounting standards is best described as: A) unification. B) IASB. C) convergence.

Question 24 - 98111 Which of the following is the least likely to be considered an accrual for accounting purposes? A) Accumulated depreciation. B) Wages payable. C) Unearned revenue.

Question 25 - 98197 Which of the following best describes financial reporting and financial statement analysis? Financial reports assess a companys past performance in order to draw conclusions about the companys ability to generate cash and profits in the future. The objective of financial analysis is to provide information about the financial position of B) an entity that is useful to a wide range of users. Financial reporting refers to how companies show their financial performance and financial C) analysis refers to using the information to make economic decisions. A)

Question 26 - 122495 Required financial statements, according to International Accounting Standard (IAS) No. 1, include a(n): A) balance sheet and explanatory notes. B) income statement and working capital summary. C) cash flow statement and auditors report.

Question 27 - 98205 Which of the following is an independent auditor least likely to do with respect to a companys financial statements? A) Prepare and accept responsibility for them. B) Provide an opinion concerning their fairness and reliability.

C) Confirm assets and liabilities contained in them.

Question 28 - 98098 Sergey Martinenko is an investment analyst with Profis, Martinenko and Verona. He is explaining to his new assistant, John Stevenson, why it is crucial for an investment analyst to read the footnotes to a firms financial statement and the Management Discussion and Analysis (MD&A) before making an investment decision. Which rationale is Martinenkoleast likely to provide to Stevenson regarding the importance of analyzing the footnotes and MD&A? A) Accruals, adjustments and assumptions are often explained in the footnotes and MD&A. Evaluating the footnotes helps the analyst assess whether management is manipulating B) earnings. C) The footnotes disclose whether or not the company is adhering to GAAP.

Question 29 - 98157 The best description of the general ledger is that it: A) groups accounts into the categories that are presented in the financial statements. B) sorts the entries in the general journal by account. C) is where journal entries are first recorded.

Question 30 - 98190 Which of the following statements represents information at a specific point in time? A) The income statement and the balance sheet. B) The balance sheet. C) The income statement.

Question 31 - 98172 Beta Company reported the following financial statement information: December 31, 2006: Assets Liabilities December 31, 2007: Assets Liabilities During 2007: Stockholder investments Net income Dividends

$58,000 28,000 ? 38,000 15,500 18,000 7,750

Calculate Betas total assets and stockholders equity as of December 31, 2007.

Total assets A) $93,750 B) $93,750 C) $79,250

Stockholders' equity $55,750 $30,000 $55,750

Question 32 - 98170 A companys chart of accounts is: A) used for entries that offset other accounts. B) a detailed list of the accounts that make up the five financial statement elements. C) the set of journal entries that makes up the components of owners equity.

Question 33 - 119449 Disclosures regarding accounting policies and estimates are found in: both the footnotes to the financial statements and the Managements Discussion and Analysis. B) only the footnotes to the financial statements. C) only the Managements Discussion and Analysis. A)

Question 34 - 98126 Disagreements that inhibit development of a coherent financial reporting framework are least likely to involve which of the following? A) Valuation. B) Transparency. C) Standard setting.

Question 35 - 98116 Which of the following statements about the differences between the IASB framework and the FASB framework for preparing financial statements is least accurate? The FASB framework states different objectives for business and non-business financial statement reporting, while the IASB framework has one objective for both. In the FASB framework, relevance and reliability are the two primary characteristics, while B) the IASB framework also lists comparability and understandability as primary characteristics. The FASB requires that management consider the framework if no explicit standard exists C) on an issue, but the IASB does not. A)

Question 36 - 98141

Which of the following least accurately describes a correct use of double-entry accounting? A) A transaction may be recorded in more than two accounts. A decrease in a liability account may be balanced by a decrease in another liability B) account. An increase in an asset account may be balanced by an increase in an owners equity C) account.

Question 37 - 98163 Wichita Corporation reported the following balances as of December 31, 2007: Cash Accounts payable Accounts receivable Additional paid-in capital Common stock Inventory Plant and equipment Notes payable Retained earnings $? 16,000 58,000 42,000 19,600 12,000 26,800 20,000 32,000

Calculate Wichitas cash and total assets as of December 31, 2007 based only on these entries. Cash A) $16,000 B) $32,800 C) $32,800 Total assets $129,600 $113,600 $129,600

Question 38 - 98129 Accruals are best described as requiring an accounting entry: A) when the earliest event in a transaction occurs. B) when an expense has been incurred. C) only when a good or service has been provided.

Question 39 - 98167 What is the fundamental balance sheet equation? A) Assets = Stockholders' Equity - Liabilities (A = E - L). B) Assets = Liabilities + Stockholders' Equity (A = L + E). C) Liabilities = Assets + Stockholders' Equity (L = A + E).

Question 40 - 98193

The step in the financial statement analysis framework that includes making any appropriate adjustments to the financial statements and calculating ratios is best described as: A) analyzing and interpreting the data. B) gathering the data. C) processing the data.

Question 41 - 98271 Which of the following statements about financial statement analysis and reporting is least accurate? Deciding whether to recommend a companys securities to investors is a role of financial statement analysis. Financial statement analysis focuses on the way companies show their financial B) performance to investors by preparing and presenting financial statements. Providing information about changes in a companys financial position is a role of financial C) reporting. A)

Question 42 - 96971 Which of the following statements regarding footnotes to the financial statements is least accurate? A) Some supplementary schedules are audited whereas footnotes are not audited. B) Footnotes may contain information regarding contingent losses. C) Footnotes provide information about assumptions and estimates used by management.

Question 43 - 98195 Which of the following is least likely to be considered a role of financial statement analysis? A) Assessing the management skill of the companys executives. B) To make economic decisions. C) Determining whether to invest in the companys securities.

Question 44 - 98079 Which of the following is least likely to be considered a stated goal of the International Accounting Standards Board (IASB)? Develop global accounting standards requiring transparency, comparability, and high quality in financial statements. Account for the needs of emerging markets and small firms when implementing global B) accounting standards. Remain neutral in the debate on the use of global accounting standards to avoid C) appearance of a conflict of interest. A)

Question 45 - 98104

Which of the following statements is the most accurate? The SEC requires foreign firms that issue securities in the U.S. to reconcile their financial statements to U.S. GAAP. The IASB requires companies that report to US GAAP to issue a reconciliation statement B) showing what its financial results would have been under IASB reporting requirements. The going concern assumption is less relevant in the IASB framework than in the FASB C) framework. A)

Question 46 - 98235 The Management Discussion and Analysis (MD&A) portion of the financial statements: includes such items as discontinued operations, extraordinary items, and other unusual or infrequent events. B) is not required by the SEC. includes audited disclosures that help explain the information summarized in the financial C) statements. A)

Question 47 - 98166 The following amounts were drawn from the records of JME Company: total assets = $1,200; total liabilities = $750; contributed capital = $600. Based on this information alone, retained earnings must be equal to: A) $150. B) $150. C) $450.

Question 48 - 98165 According to the IFRS framework, timeliness is a characteristic of: A) reliability. B) relevance. C) both relevance and reliability.

Question 49 - 98156 A listing of all the firms journal entries by date is called the: A) general journal. B) general ledger. C) adjusted trial balance.

Question 50 - 98086

Which of the following statements about financial statements and reporting standards is least accurate? Reporting standards focus mostly on format and presentation and allow management wide latitude in assumptions. B) Financial statements could potentially take any form if reporting standards didnt exist. The objective of financial statements is to provide economic decision makers with useful C) information. A)

Question 51 - 122494 A companys operating revenues for a reporting period are most likely to be shown on its: A) income statement. B) cash flow statement. C) balance sheet.

Question 52 - 98135 An accounting entry that updates the historical cost of an asset to current market levels is best described as: A) a contra account. B) a valuation adjustment. C) accumulated depreciation.

Question 53 - 98112 Which of the following statements about the elements of financial statements under the FASB and IASB frameworks is least accurate? A) The word probable is used by the FASB to define assets and liabilities. B) The IASB framework does not allow the values of assets to be adjusted upward. C) The IASB framework lists income and expenses as the elements related to performance.

Question 54 - 98203 Which of the following is an analyst least likely to rely on as objective information to include in a company analysis? A) Proxy statements. B) Government agency statistical data on the economy and the companys industry. C) Corporate press releases.

Question 55 - 98145 The purchase of equipment for $25,000 cash is most likely to be recorded as:

A) an increase in one asset account and a decrease in another asset account. B) an increase in an asset account and an increase in a liability account. C) an increase in two asset accounts.

Question 56 - 98207 Which of the following would NOT require an explanatory paragraph added to the auditors report? A) Statements that the financial information was prepared according to GAAP. B) Doubt regarding the "going concern" assumption. C) Uncertainty due to litigation.

Question 57 - 98184 Allowance for bad debts and investment in affiliates are most likely to be shown as what types of accounts? Allowance for bad debts A) Contra-asset B) Contra-asset C) Liabilities Investment in affiliates Asset Liabilities Asset

Question 58 - 98090 An analyst can find a companys significant accounting methods and estimates in: A) only the footnotes. B) both the footnotes and in the auditors opinion. C) both the footnotes to the financial statements and Managements Discussion and Analysis.

Question 59 - 98180 In the financial statement analysis framework, using the data to address the objectives of the analysis and deciding what conclusions or recommendations the information supports is best described as: A) processing the data. B) reporting the conclusions. C) analyzing and interpreting the data.

Question 60 - 97725 Cody Scott would like to screen potential equity investments to identify value stocks and selects firms that have low price-to-sales ratios. Unfortunately, screening stocks based only on this criterion may result in stocks that have poor profitability or high financial leverage, which are undesirable to Scott. Which of the following filters could be added to the stock screen to best control for poor profitability and high financial leverage?

Filter #1 Include only stocks with a debt-to-equity ratio that is above a certain benchmark value. Filter #2 Include only dividend paying stocks. Filter #3 Include only stocks with an assets-to-equity ratio that is below a certain benchmark value. Filter #4 Include only stocks with a positive return-on-equity. Poor profitability A) Filter #2 B) Filter #4 C) Filter #4 High financial leverage Filter #3 Filter #1 Filter #3

Question 61 - 87627 Karl Decker, CFA, is analyzing Keystone Semiconductor to determine if the stock would be a good investment. He has determined the following: y y y y Management owns 15 percent of the outstanding shares. Internal growth targets are aggressive. In recent quarters, profit growth has been exceptionally high. The companys debt covenants are quite lax.

All of these characteristics are positives from the perspective of an investor looking for profit growth. But Decker is concerned about pressure on management to manipulate results. Which of the following should least concern Decker? A) Debt covenants. B) Recent operating results. C) Managements share holdings.

Question 62 - 97798 What would be the impact on a firms return on assets ratio (ROA) of the following independent transactions, assuming ROA is less than one? Transaction #1 A firm owned investment securities that were classified as available-for-sale and there was a recent decrease in the fair value of these securities. Transaction #2 A firm owned investment securities that were classified as available-for-trading and there was recent increase in the fair value of the securities. Transaction #1 Transaction #2 A) Higher B) Higher C) Lower Higher Lower Higher

Question 63 - 87599

Earlier this year, Barracuda Company issued 5,000 employee stock options. Recently, 2,000 options were exercised at a price of $10 per share. To avoid dilution, Barracuda purchased 2,000 shares at an average price of $12 per share. Barracuda reported both transactions as financing activities in its cash flow statement. For analytical purposes, what adjustment is necessary to better reflect the substance of the stock repurchase? Operating cash flow Financing cash flow A) Decrease $4,000 B) No adjustment C) Decrease $4,000 No adjustment Increase $4,000 Increase $4,000

Question 64 - 97708 Would projecting future financial performance based on past trends provide a reliable basis for valuation of the following firms? Firm #1 A rapidly growing company that has made numerous acquisitions and divestitures. Firm #2 A large, well-diversified, company operating in a number of mature industries. Firm #1 A) Yes B) No C) No Firm #2 No Yes No

Question 65 - 87621 Jane Kilgore, a stock analyst, is concerned about Maxwell Researchs organizational structure. To investigate the stability of that structure, Kilgore would be best served by looking at: A) the amount of judgment calls used in company accounting. B) management turnover. C) accounting-department turnover.

Question 66 - 87610 Samson Therapeutics records all leases as operating leases. The company most likely wanted to reduce: A) leverage. B) expenses. C) inventory.

Question 67 - 97843

During 2007, Big 4 Companys warehouse was totally destroyed by a tornado. Tornados are very rare in the region where Big 4 is located. The book value of the warehouse at the time of the tornado was 10 million and Big 4 is self-insured. In addition, on June 30, 2007, Big 4 acquired one of its major suppliers. The fair value of the net assets acquired by Big 4 was greater than the purchase price. According to International Financial Reporting Standards, should Big 4 recognize an extraordinary item for tornado damage and should Big 4 recognize negative goodwill on its balance sheet due to the acquisition? Extraordinary loss A) Yes B) No C) No Negative goodwill No Yes No

Question 68 - 97709 Baetica Company reported the following selected financial statement data for the year ended December 31, 20X7: in millions % of Sales

For the year ended December 31, 20X7: $500 100% Sales Cost of goods sold (300) 60% Selling and administration expenses (125) 25% Depreciation (50) 10% Net income $25 5% > As of December 31, 20X7: a Non-cash operating working capital $100 20% Cash balance $35 N/A a Non-cash operating working capital = Receivables + Inventory Payables Baetica expects that sales will increase 20% in 20X8. In addition, Baetica expects to make fixed capital expenditures of $75 million in 20X8. Ignoring taxes, calculate Baeticas expected cash balance, as of December 31, 2008, assuming all of the common-size percentages remain constant. A) $40 million. B) $30 million. C) $80 million.

Question 69 - 87616 The Statement on Auditing Standards No. 99, Consideration of Fraud in a Financial Statement Audit, identified four risk factors that provide incentives for management to manipulate financial statements. The risk factors include: threats to financial stability, excessive third-party pressures, and threats to managements personal wealth. pressure to meet internal goals, weak internal controls, and threats to managements B) personal wealth. C) threats to profitability, weak internal controls, and pressure to meet internal goals. A)

Question 70 - 87623 Based on her analysis of Maxwell Researchs internal operations and business climate, analyst Jane Kilgore is concerned about managements opportunities to commit fraud. Which of the following characteristics should worry Kilgore least? A) More than a third of Maxwells total sales go to its own consolidated subsidiaries. B) More than half of Maxwells revenue is generated in emerging markets. C) Maxwells market penetration gives it the ability to dictate terms to vendors.

Question 71 - 97800 Three years ago, Ranchero Corporation purchased a patent for a process used in production, for 3 million. At the end of last year, Ranchero determined the fair value of the patent was greater than its book value. No impairment losses have been recognized on the patent. Assuming Ranchero follows International Financial Reporting Standards, what is the impact on its total asset turnover ratio and return on equity of reporting the value of the patent on the balance sheet at fair value? A) Both will decrease. B) Only one will increase. C) Both will increase.

Question 72 - 97429 Falcon Financial Group is considering the purchase of Company A or Company B based on a low price-to-book investment strategy that also considers differences in solvency. Selected financial data for both firms, as of December 31, 20X7, follows: in millions, except per-share data Current assets Fixed assets Total debt Common equity Outstanding shares Market price per share Company A $3,000 $5,700 $2,700 $6,000 500 $26.00 Company B $5,500 $5,500 $3,500 $7,500 750 $22.50

The firms financial statement footnotes contain the following: y y y Company A values its inventory using the first in, first out (FIFO) method. Company Bs inventory is based on the last in, first out (LIFO) method. Had Company B used FIFO, its inventory would have been $700 million higher. Company A leases its manufacturing plant. The remaining operating lease payments total $1,600 million. Discounted at 10%, the present value of the remaining payments is $1,000 million. Company B owns its manufacturing plant.

y

To make the firms financials ratios comparable, calculate the adjusted price-to-book ratios for Company A and Company B.

Company A A) $2.17 B) $2.17 C) $1.63

Company B $2.81 $2.06 $2.06

Question 73 - 97705 Sterling Company is a start-up technology firm that has been experiencing super-normal growth over the past two years. Selected common-size financial information follows: 2007 Actual % of Sales Sales Cost of goods sold Selling and administration expenses Depreciation expense Net income Non-cash operating working capitala a

2008 Forecast % of Sales 100% 55% 20% 10% 15% 25%

100% 60% 25% 10% 5% 20%

Non-cash operating working capital = Receivables + Inventory Payables

For the year ended 2007, Sterling reported sales of $20 million. Sterling expects that sales will increase 50% in 2008. Ignoring income taxes, what is Sterlings forecast operating cash flow for the year ended 2008, and is this forecast likely to be as reliable as a forecast for a large, well diversified, firm operating in mature industries? Operating cash flow A) $4.0 million B) $4.5 million C) $4.0 million Reliable forecast No No Yes

Question 74 - 87557 Junior analyst Xander Marshall sends an e-mail to his boss, Janet Jacobs, CFA, suggesting that Peterson Novelties is manipulating its results to artificially inflate profits. He cites four reasons for his conclusion: y y y y The LIFO reserve is declining. Earnings are much higher in the September quarter than in other quarters. Many nonoperating and nonrecurring gains are being recorded as revenue. Much of Petersons earnings come from equity investments not reflected on the cash-flow statement.

Jacobs is less concerned about Petersons earnings than Marshall is, though she does resolve to check out one of his concerns. Which of Marshalls observations best supports his conclusion? A) Nonoperating and nonrecurring gains recorded as revenue. B) Equity investment earnings not reflected on the cash-flow statement.

C) The declining LIFO reserve.

Question 75 - 97703 According to the Management Discussion and Analysis section of Frankfurt Supply Companys annual report, Frankfurt recently decreased the sales prices of its products in order to increase market share. In addition, Frankfurt recently lowered its requirements for credit customers and increased the credit limits of some customers. What is the most likely impact on Frankfurts accounts receivable turnover and inventory turnover as a result of these changes? A) Only one will decrease. B) Both will decrease. C) Both will increase.

Question 76 - 87576 Joan Zeller, CFA, suspects Cornwall Carpets is overstating its profits. Which of the following is least likely to motivate Cornwall to overreport? A) Cornwall is attempting to get lawmakers to institute a tariff. B) Cornwall depends heavily on stock options to compensate its employees. C) Cornwalls debt covenants are strict.

Question 77 - 97841 On January 1, 2004, Cayman Corporation bought manufacturing equipment for $30 million. On December 31, 2006, Cayman determined the equipment was impaired and recognized a $5 million impairment loss in its income statement. As of December 31, 2007, the fair value of the equipment exceeded the book value by $7 million. What amount of the recovery in value can Cayman recognize in its 2007 income statement under U.S.Generally Accepted Accounting Principles (U.S. GAAP) and under International Financial Reporting Standards (IFRS)? U.S. GAAP A) $0 B) $0 C) $5 million IFRS $7 million $5 million $7 million

Question 78 - 127275 Patch Grove Nursery uses the LIFO inventory accounting method. Maria Huff, president, wants to determine the financial statement impact of changing to the FIFO accounting method. Selected company information follows: y y y y y Year-end inventory: $22,000 Change in LIFO reserve: $1,000 LIFO cost of goods sold: $18,000 After-tax income: $2,000 Tax rate: 40%

Under FIFO, the nurserys ending inventory and after-tax profit for the year would have been: FIFO ending inventory A) $18,000 B) $26,000 C) $26,000 FIFO after-tax profit $2,600 $2,600 $1,400

Question 79 - 122501 Independence, Inc. reports interest received and dividends paid as part of its cash flow from operations. This treatment is acceptable under: A) IFRS but not under U.S. GAAP. B) U.S. GAAP but not under IFRS. C) either IFRS or U.S. GAAP.

Question 80 - 87631 The fraud triangle consists of three: A) conditions usually present when fraud occurs. B) strategies for unearthing financial fraud. C) of the of the most common types of fraud.

Question 81 - 97859 Are changes in accounting principles and extraordinary items treated similarly in accordance with U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards? Accounting principles A) No B) Yes C) Yes Extraordinary items No Yes No

Question 82 - 97695 National Scooter Company and Continental Chopper Company are motorcycle manufacturing companies. Nationals target market includes consumers that are switching to motorcycles because of the high cost of operating automobiles and they compete on price with other manufacturers. The average age of Nationals customers is 24 years. Continental manufactures premium motorcycles and aftermarket accessories and competes on the basis of quality and innovative design. Continental is in the third year of a five-year project to develop a customized hybrid motorcycle. Which of the two firms would most likely report higher gross profit margin, and which firm would most likely report higher operating expense stated as a percentage of total cost?

Higher gross profit margin A) Continental B) Continental C) National

Higher percentage operating expense National Continental Continental

Question 83 - 97761 The CORRECT set of cash flow treatments as they relate to interest and dividends received according to U.S. generally accepted accounting principles (GAAP) and International Accounting Standards (IAS) GAAP is: U.S. GAAP A) CFI or CFO B) CFO C) CFI IAS GAAP CFI CFI or CFO CFO

Question 84 - 97877 At the beginning of 2007, Thunderbird Company started a 3-year construction project. The following data relates to the project: Contract price Costs incurred in 2007 Progress billings Collection of progress billings $100 million $50 million $40 million $37 million

Because of cost overruns, Thunderbird cannot reliably estimate the total cost of the project. However, Thunderbird expects that its costs incurred so far are recoverable. What amount of revenue should Thunderbird recognize for the year ended 2007 under U.S. Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS)? U.S. GAAP A) $0 B) $37 million C) $0 IFRS $0 $40 million $50 million

Question 85 - 87615 Which of the following sets of conditions make up the fraud triangle? A) Pressure, greed, weakness in internal controls. B) Incentive, opportunity, rationalization. C) Opportunity, attitude, greed.

Question 86 - 97844 Par-Mac Corporation is a joint venture equally controlled by Parker Company and Macintosh Company. Which method should Macintosh use to account for its ownership interest in Par-Mac according to U.S. Generally Accepted Accounting Principles (U.S. GAAP), and which method recommended for Parker under International Financial Reporting Standards (IFRS)? U.S. GAAP A) Equity method B) Consolidation method C) Equity method IFRS Proportionate consolidation method Proportionate consolidation method Consolidation method

Question 87 - 87614 Samantha Cameron, CFA, is part of a team reviewing the finances of Redd Networks, a computerservices company known for its complex accounting. Her task is to analyze the companys operational results, including a recent decline in profits and cash flows. She must also determine how the company is responding to strict debt covenants. Lastly, Cameron is to investigate executives holdings of stock and options in the firm, which are believed to be quite high. Which portion of the fraud triangle is Cameron investigating? A) Opportunity. B) Incentives. C) Policies.

Question 88 - 87609 Glenmark Blades and Propellers has set up special purpose entities to handle its manufacturing. The company does not consolidate those entities. Glenmark is most likely obeying: A) the letter of the law but not the spirit of the law. B) neither the spirit of the law nor the letter of the law. C) the spirit of the law but not the letter of the law.

Question 89 - 97683 Statement #1 From a lenders perspective, higher volatility of a borrower's profit margins is undesirable for floating-rate debt but not for fixed-rate debt. Statement #2 Product and geographic diversification should lower a borrower's credit risk. With respect to these statements: A) both are incorrect. B) only one is correct. C) both are correct.

Question 90 - 87562 Frank Brill, CFA, is concerned that Moses Aviation is overstating its profits. The best indicator of such action would be Moses Aviations: A) sales-growth rate of nearly twice the industry average. B) recognition of revenue from barter transactions. C) rising inventory.

Question 91 - 87600 Charger Corporation offers extended payment terms to its customers. In order to finance its accounts receivable, Charger is considering two alternatives. The first alternative is to borrow against the receivables. The second alternative is to securitize the receivables through a special purpose entity. Which alternative would result in lower operating cash flow and lower financing cash flow? Lower operating cash flow A) Securitize B) Securitize C) Borrow Lower financing cash flow Securitize Borrow Securitize

Question 92 - 87612 Joe Carter, CFA, believes Triangle Equipment, a maker of large, specialized industrial equipment, has overstated the salvage value of its equipment. This would: A) overstate earnings. B) overstate liabilities. C) understate earnings.

Question 93 - 97842 According to International Financial Reporting Standards, how do cash dividends received from trading securities and available-for-sale securities affect net income? Trading securities A) Increase B) No effect C) Increase Available-for-sale securities Increase Increase No effect

Question 94 - 87434 Charles Nicholls, chief investment officer of Gertmann Money Management, is reviewing the year-end financial statements of Zartner Canneries. In those statements he sees a sharp increase in inventories well above the sales-growth rate, and an increase in the discount rate for its pension

assets. To determine whether or not Zartner Canneries is cooking the books, what should Nicholls do? A) Check Zartners cash-flow statement and review its footnotes. B) Calculate Zartners turnover ratios and review the footnotes of its competitors. Analyze trends in Zartners receivables and consider the changing characteristics of its C) work force.

Question 95 - 98117 Craig Loomis, a credit analyst with Shawnee Financial Group, has been asked to assess the operational efficiency of Lenexa Company. Loomis calculates the following ratios from data gathered from Lenexas annual report: Total debt Revenues Earnings before interest and taxes Depreciation and amortization Interest expense $14,500,000 $35,200,000 $6,125,000 $1,675,000 $2,200,000

According to the financial footnotes, Lenexa is a lessee in an operating lease arrangement for manufacturing equipment. The discounted present value of the lease payments is $6,000,000 using an interest rate of 10%. The annual payment is $1,000,000. Only considering the above data, determine which ratio best measures operational efficiency and calculate the adjusted measure for the appropriate analytical treatment of the lease. Operational efficiency A) EBITDA margin B) EBITDA / Interest expense Adjusted measure 17.4% 3.1 times 25.0%

C) EBITDA margin

Question 96 - 87601 Which of the following statements about cash flow is (are) CORRECT? Statement #1: Statement #2: The cash effects of decreasing accounts payable turnover are unlimited. The tax benefits from employee stock options can result in a significant source of investing cash flow. Statement #2 Incorrect Correct Incorrect

Statement #1 A) Correct B) Incorrect C) Incorrect

Question 97 - 87622

Analyst Jane Kilgore is worried that some of Maxwell Researchs accrual accounting practices will lead to excessive operating earnings recognition in the near-term. Examples of Kilgore's concerns include the following: y y y Accelerated revenue recognition of service agreements. Classification of recurring revenue as nonrecurring revenue. Understated inventory obsolescence.

Which of Kilgores concerns is least likely to overstate current operating earnings? A) Accelerated revenue recognition of service agreements. B) Understated inventory obsolescence. C) Classification of recurring revenue as nonrecurring revenue.

Question 98 - 97881 According to International Financial Reporting Standards (IFRS), the assets and liabilities of an investee are most likely required to be consolidated when the parent company has: A) a significant influence over the operating and financial decisions of the investee. B) control of more than 50% of the investee. C) joint control of the investee.

Question 99 - 97880 Lincoln Corporation and Continental Incorporated are identical companies except that Lincoln complies with U.S. Generally Accepted Accounting Principles and Continental complies with International Financial Reporting Standards. Assuming an inflationary environment and stable inventory quantities, which permissible cost flow assumption will minimize each firms pre-tax financial income? Lincoln Corporation Continental Incorporated A) Last-in, first-out B) Last-in, first-out C) First-in, first-out Last-in, first-out Average cost First-in, first-out

Question 100 - 97685 When assessing credit risk, which of the following ratios would best measure a firms tolerance for additional debt and a firms operational efficiency? Ratio #1 Retained cash flow (CFO dividends) divided by total debt. Ratio #2 Current assets divided by current liabilities. Ratio #3 Earnings before interest, taxes, depreciation, and amortization divided by revenues. Tolerance for leverage Operational efficiency

A) Ratio #2 B) Ratio #3 C) Ratio #1

Ratio #3 Ratio #1 Ratio #3

Question 101 - 97308 Comet Corporation is a capital intensive, growing firm. Comet operates in an inflationary environment and its inventory quantities are stable. Which of the following accounting methods will cause Comet to report a lower price-to-book ratio, all else equal? Inventory method A) First-in, First-out B) First-in, First-out C) Last-in, First-out Depreciation method Accelerated Straight-line Accelerated

Question 102 - 87604 Stinson Motors is attempting to make itself look more profitable. To accomplish this, the company is most likely to: A) understate assets. B) overstate equity. C) overstate sales.

Question 103 - 97774 United Corporation and Intrepid Company are similar firms operating in the same industry. United follows U.S. Generally Accepted Accounting Principles and Intrepid follows International Financial Reporting Standards. At the end of last year, Intrepid had a higher inventory turnover ratio than United. Are the following plausible explanations for the difference? Explanation #1 United accounts for its inventory using the first-in, first-out method and Intrepid uses the last-in, first-out method. Explanation #2 United recognized an upward valuation of inventory that had been previously written down. Intrepid does not revalue its inventory upward. Explanation #1 Explanation #2 A) No B) No C) Yes Yes No No

Question 104 - 97887

Which of the following statements about accounting treatments under IFRS and U.S. GAAP are most accurate regarding the periodic valuation of identifiable intangible assets and marketable securities classified as available for sale, respectively? Identifiable intangible assets A) U.S. GAAP permits upward revaluation Available-for-sale securities Carried at market value

B) IFRS permits upward revaluation Carried at market value C) U.S. GAAP permits upward revaluation Carried at amortized cost

Question 105 - 87620 Professor Paula King teaches accounting at South Central Coastal Idaho Polytechnic. In her lecture this morning, she passes out sheets containing facts about Consolidated Industries. From those fact sheets, she identifies four signs that could indicate financial fraud: y y y y Executives have personally guaranteed some of the firms debt. The companys organizational chart is complex. The companys monopoly status allows it to charge any price it desires. Turnover is high in the information-technology department.

After presenting those observations, King concludes that because of the four characteristics, executives at Consolidated have a greater opportunity than most to commit fraud. Student MukeshGhari believes one of Kings examples does not help her argument. Which of the four facts is least compelling in support of Kings argument? A) The companys monopoly status allows it to charge any price it desires. B) Turnover is high in the information-technology department. C) Executives have personally guaranteed some of the firms debt.

Question 106 - 87618 MarnieColston, CFA, suspects one of the companies she covers is committing accounting fraud. She has uncovered evidence of pressure to increase earnings and weak internal controls. To satisfy the third point of the fraud triangle, Colston should try to find a sign of: A) motivation. B) temptation. C) rationalization.

Question 107 - 87591 Which of the follow characteristics is the least compelling evidence that a company has a conservative financial-reporting strategy? A) Earnings growth has been steady and dependable over the last few years. B) Fixed assets are carried at book value. C) The LIFO method is used.

Question 108 - 97719 For 2007, Morris Company had 73 days of inventory on hand. Morris would like to decrease its days of inventory on hand to 50. Morris cost of goods sold for 2007 was $100 million. Morris expects cost of goods sold to be $124.1 million in 2008. Assuming a 365 day year, compute the impact on Morris operating cash flow of the change in average inventory for 2008. A) $6.3 million source of cash. B) $3.0 million use of cash. C) $3.0 million source of cash.

Question 109 - 97686 Selected financial information gathered from Alpha Company and Omega Corporation follows: Alpha Revenue Earnings before interest, taxes, depreciation, and amortization Quick assets Average fixed assets Current liabilities Interest expense $1,650,000 69,400 216,700 300,000 361,000 44,000 Omega $1,452,000 79,300 211,300 323,000 404,400 58,100

Which of the following statements is most accurate? A) Omega uses its fixed assets more efficiently than Alpha. B) Omega has less tolerance for leverage than Alpha. C) Alpha is more operationally efficient than Omega.

Question 110 - 87573 Katharine Walls, CFA, works as an auditor for Pindale Accounting. She is concerned about Smith Fabrics, a company she audits. During her last visit to Smith Fabrics, the accounting director, Bob Fox, rudely ushered her into a tiny conference room with no telephone or computer, and gave her no key to the main accounting office. She was given only three days to finish what is normally a five-day job. Before he left Walls, Fox gave her a 150-page manual of Smiths accounting policies for its various overseas divisions. After she finished her audit, Walls prepared a report for Pindales executive director, recommending that the firm drop Smith Fabrics as a client because she saw evidence of attitudes that could lead to fraudulent accounting. Walls cited three of Foxs actions in her report, most likely leaving out: A) her rude welcome. B) her isolation from the accounting department. C) the policy manual.

Question 111 - 97680

At the end of 2007, Decatur Corporation reported last-in, first-out (LIFO) inventory of $20 million, cost of goods sold (COGS) of $64 million, and inventory purchases of $58 million. If the LIFO reserve was $6 million at the end of 2006 and $16 million at the end of 2007, compute first-in, first-out (FIFO) inventory at the end of 2007 and FIFO COGS for the year ended 2007. FIFO Inventory FIFO COGS A) $36 million B) $26 million C) $36 million $54 million $54 million $74 million

Question 112 - 98191 According to the IASB, which of the following least accurately describes financial reporting? Financial reporting: A) provides information about changes in financial position of an entity. B) is useful to a wide range of users. C) uses the information in a companys financial statements to make economic decisions.

Question 113 - 98182 The step in the financial statement analysis framework of processing the data is least likely to include which activity? A) Acquiring the companys financial statements. B) Making appropriate adjustments to the financial statements. C) Preparing exhibits such as graphs.

Question 114 - 98152 Which of the following is the best description of the flow of information in an accounting system? A) Journal entries, general ledger, trial balance, financial statements. B) General ledger, trial balance, general journal, financial statements. C) Trial balance, general ledger, general journal, financial statements.

Question 115 - 98146 According to the Financial Accounting Standards Board (FASB) conceptual framework, which of the following situations violates the concept of reliability? Financial statements included property with a carrying amount increased to management's estimate of market value. B) Management issued the company's financial statements nine months late. Management released segment data in advance of the financial statements to analysts C) estimating future profits. A)

Question 116 - 98101 Reading the footnotes to a companys financial statements and the Management Discussion & Analysis is least likely to help an analyst determine: A) the various accruals, adjustments and assumptions that went into the financial statements. B) the detailed information that underlies the companys accounting system. C) how well the financial statements reflect the companys true performance.

Question 117 - 98202 Which of the following is least likely to be available on EDGAR (Electronic Data Gathering, Analysis, and Retrieval System)? A) SEC filings. B) Form 10Q. C) Corporate press releases.

Question 118 - 98106 An analyst is least likely to use disclosures of accounting policies and estimates to evaluate: A) whether the disclosures have changed since the prior period. B) what policies are likely to be modified in future periods. C) what policies are discussed.