Accounting Exam

Kaplan Schweser Printable Quizzes - 2012 CFA Level I

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Question 1 - #138388

To convert an income statement to a vertical common-size income statement, each line item should bestated as a percentage of:

A) net income.B) pretax income.C) revenue.

Question 2 - #95657

Changes in asset lives and salvage value are changes in accounting:

A) estimates and no specific disclosures are required.B) principle and specific disclosures are required.C) estimates and specific disclosures are required.

Question 3 - #97437

Paragon Company's operating profits are $100,000, interest expense is $25,000, and earnings before taxesare $75,000. What is Paragon's interest coverage ratio?

A) 1 time.

B) 4 times.

C) 3 times.

Question 4 - #97389

Selected information from Rockway, Inc.’s U.S. GAAP financial statements for the year ended December31, included the following (in $):

2004 2005Sales 17,000,000 21,000,000Cost of Goods Sold 11,000,000 15,000,000Interest Paid 800,000 1,000,000Current Income Taxes Paid 700,000 1,000,000Accounts Receivable 3,000,000 2,500,000

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Inventory 2,400,000 3,000,000Property, Plant & Equip. 2,000,000 16,000,000Accounts Payable 1,000,000 1,400,000Long-term Debt 8,000,000 9,000,000Common Stock 4,000,000 5,000,000

Using the direct method, cash provided or used by operating activities(CFO) in the year 2005 was:

A) $5,300,000.B) $6,300,000.C) $4,300,000.

Question 5 - #97865

Valuable Corp.’s basic earnings per share (EPS) and diluted EPS for the year are different. Given thisinformation, which of the following statements is least accurate?

A) Diluted EPS is less than basic EPS.B) Valuable Corp.'s capital structure may include both options and warrants.C) All of Valuable's potentially dilutive securities are antidilutive.

Question 6 - #97964

The following information pertains the QRK Company:

One million shares of common stock outstanding at the beginning of 2005.200,000 shares issued on the last day of March.500,000 shares issued on the last day of June.800,000 shares issued on the last day of September.

What is the number of shares that should be used to compute 2005 earnings per share for the QRKCompany?

A) 1.6 million.B) 2.5 million.C) 1.9 million.

Question 7 - #97797

Which of the following statements regarding basic and diluted EPS is least accurate?

A) A simple capital structure contains no potentially dilutive securities.B) Dilutive securities decrease EPS if they are exercised or converted to common stock.C) Antidilutive securities decrease EPS if they are exercised or converted.


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Question 8 - #97861

Kendall Company’s net income for 20X4 is $830,000 with 200,000 shares outstanding. Kendall has 1,0006% convertible bonds (each bond $1,000 face value and convertible into 20 common shares) outstandingfor the entire year. Kendall’s tax rate is 40%. What is Kendall Company’s diluted earnings per share for20X4?

A) $4.15.B) $3.94.C) $3.77.

Question 9 - #97679

Lightfoot Shoe Company reported sales of $100 million for the year ended 20X7. Lightfoot expects sales toincrease 10% in 20X8. Cost of goods sold is expected to remain constant at 40% of sales and Lightfootwould like to have an average of 73 days of inventory on hand in 20X8. Forecast Lightfoot’s averageinventory for 20X8 assuming a 365 day year.

A) $8.0 million.B) $22.0 million.C) $8.8 million.

Question 10 - #122496

Under accrual accounting, revenues are recognized in the same period in which the associated:

A) cash is collected.B) expenses are incurred.C) invoices are billed.


McQueen Corporation prepared the following common-size income statement for the year ended December31, 20X7:

Sales 100%Cost of goods sold 60%Gross profit 40%

For 20X7, McQueen sold 250 million units at a sales price of $1 each. For 20X8, McQueen has decided toreduce its sales price by 10%. McQueen believes the price cut will double unit sales. The cost of each unitsold is expected to remain the same. Calculate the change in McQueen’s expected gross profit for 20X8assuming the price cut doubles sales.

A) $150 million increase.B) $50 million increase.


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C) $80 million increase.


An analyst has gathered the following information about a company:

Cost of goods sold = 65% of sales.Inventory of $450,000.Sales of $1 million.

What is the value of this firm’s average inventory processing period using a 365-day year?

A) 0.7 days.B) 1.4 days.C) 252.7 days.


In calculating the numerator for diluted Earnings Per Share, the interest on convertible debt is:

A) subtracted from earnings available to common shareholders after an adjustment for taxes.

B) added to earnings available to common shareholders after an adjustment for taxes.

C) added to earnings available to common shareholders.


At the beginning of 2004, Osami Corporation had 1.4 million shares of common stock outstanding and nopreferred stock. At the end of August 2004, Osami issued 1.2 million new shares of common stock. If Osamireported net income equal to $7.2 million, what were its earnings per share (EPS) for 2004?

A) $3.33.B) $4.00.C) $2.77.


Which of the following is CORRECT about the consideration of depreciation in the operations section of acash flow statement?

Direct Method Indirect Method

A) Does not consider Does not consider

B) Does not consider Considers

C) Considers Considers


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Question 16 - #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.


A company has convertible preferred stock outstanding. In the computation of diluted earnings per share,common shares issued when convertible preferred stock is converted are added to the denominator of thebasic EPS equation, and the numerator is:

A) not adjusted.B) adjusted by adding back non-convertible preferred stock dividends.C) adjusted by adding back convertible preferred stock dividends.


Do gains and losses, as well as expenses appear on the income statement?

A) Both appear on the income statement.B) Only expenses appear on the income statement.C) Only gains and losses appear on the income statement.


Earlier this year, Slayton Corporation repurchased 5% of its total shares outstanding. At the time, the bookvalue of Slayton shares exceeded their market value. The shares are expected to be reissued in the futurewhen the market price of Slayton’s stock increases. Do Slayton’s repurchased shares continue to havevoting rights and to pay cash dividends?

Voting rights Cash dividends paid

A) No No

B) Yes No

C) No Yes


The JME Jumpers, a professional volleyball team, sells season tickets to all home games. The cost of aseason ticket is $1,000 and the team plays 20 home games, which run from April through August. For theyear ended June 30, 2005, JME sold 1,200 tickets, collected 80 percent of the amount owed, and played 12


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home games. How much revenue should JME recognize?

A) $720,000.B) $960,000.C) $1,200,000.


Determine the cash flow from financing given the following table.

Item AmountCash payment of dividends $30Sale of equipment $10Net income $25Purchase of land $15Increase in accounts payable $20Sale of preferred stock $25Increase in deferred taxes $5Profit on sale of equipment $15

A) -$5.B) $15.C) $20.


Which of the following is NOT a requirement for revenue recognition to occur?

A) Earning activities are substantially completed.B) Transactions giving rise to revenue should be arms-length.C) Cash must have been received.


Which of the following statements regarding the treasury stock method of computing diluted shares is leastaccurate? The treasury stock method:

A) is used when the exercise price of the option is less than the average market price.

B)increases the total number of shares by less than the number that the exercise of the optionswould create.

C)assumes that the hypothetical funds received by the company from the exercise of the optionsare used to sell shares of the company’s common stock in the market at the average marketprice.


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The main difference between the current ratio and the quick ratio is that the quick ratio excludes:

A) inventory.B) cost of goods sold.C) assets.

Question 25 - #119451

To study trends in a company’s cost of goods sold (COGS), an analyst should standardize COGS bydividing it by:

A) net income.B) prior year COGS.C) sales.


When a U.S. company pays dividends to its stockholders, which type of cash flow does this represent?

A) Financing.B) Operating.C) Investing.


Which of the following securities would least likely be found in a simple capital structure?

A) 3%, $100 par value convertible preferred.B) 6%, $5000 par value putable bond.C) 7%, $100 par value non convertible preferred.

Question 28 - #119453

How would the collection of accounts receivable most likely affect the current and cash ratios?

Current ratio Cash ratio

A) No effect Increase

B) Increase Increase

C) No effect No effect


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Given the following income statement and balance sheet for a company:

Balance SheetAssets Year 2003 Year 2004Cash 500 450Accounts Receivable 600 660Inventory 500 550Total CA 1300 1660Plant, prop. equip 1000 1250Total Assets 2600 2910

LiabilitiesAccounts Payable 500 550Long term debt 700 1102Total liabilities 1200 1652

EquityCommon Stock 400 538Retained Earnings 1000 720Total Liabilities & Equity 2600 2910

Income StatementSales 3000Cost of Goods Sold (1000)Gross Profit 2000SG&A 500Interest Expense 151EBT 1349Taxes (30%) 405Net Income 944

What is the quick ratio for 2004?

A) 3.018.B) 2.018.C) 0.331.


An airplane manufacturing company routinely builds fighter jets for the U.S. armed forces. It takes fourteenmonths to build one jet, and the government pays for them in installments over the fourteen-month period.Which revenue recognition method should be used?

A) Percentage-of-completion method.


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B) Installment sales method.C) Completed contract method.


A company issued an annual-pay bond with the following characteristics:

Face value $67,831Maturity 4 yearsCoupon 7%Market interest rates 8%

Part 1)What is the unamortized discount on the date when the bonds are issued?

A) $15,729.B) $1,748.C) $2,249.

Part 2)What is the unamortized discount at the end of the first year?

A) $1,750.B) $538.C) $1,209.


A firm issues a $5 million zero coupon bond with a maturity of four years when market rates are 8%.Assuming semiannual compounding periods, the total interest on this bond is:

A) $1,200,000.B) $1,346,549.C) $1,600,000.

Question 33 - #104038

Diabelli Inc. is a manufacturing company that is operating at normal capacity levels. Which of the followinginventory costs is most likely to be recognized as an expense on Diabelli’s financial statements when theinventory is sold?

A) Allocation of fixed production overhead.B) Administrative overhead.C) Selling cost.


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On December 31, 20X3 Okay Company issued 10,000 $1000 face value 10-year, 9% bonds to yield 7%.The bonds pay interest semi-annually. On its financial statements (prepared under U.S. GAAP) for the yearended December 31, 20X4, the effect of this bond on Okay's cash flow from operations is:

A) -$900,000.B) -$700,000.C) -$755,735.

Question 35 - #127263

An employer offers a defined benefit pension plan and a defined contribution pension plan. The employer’sbalance sheet is most likely to present an asset or liability related to:

A) the defined benefit plan.B) both of these pension plans.C) the defined contribution plan.


For a given par value, which of the following debt issues will have the highest cash flows from financing?

A) Zero-coupon bond.B) Bonds issued at premium.C) Bonds issued at discount.


All of the following factors complicate the comparability of effective tax rates across firms EXCEPT:

A) comparisons over relatively short time horizons.B) changes in the statutory tax rate.C) volatility in the effective tax rate over the comparison period.


Lakeside Co. recently determined that one of its processing machines has become obsolete three yearsearly and, unexpectedly, has no salvage value. Which of the following statements is most consistent withthis discovery?

A) Historically, economic depreciation was understated.B) Historically, economic depreciation was overstated.C) Lakeside Co. will owe back taxes.


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A firm’s financial statements reflect the following:

Net profit margin 15%Sales $10,000,000Interest payments $1,200,000Avg. assets $15,000,000Equity $11,000,000Avg. working capital $800,000Dividend payout rate 35%

Which of the following is the closest estimate of the firm’s sustainable growth rate?

A) 10%.

B) 8%.

C) 9%.


Selected information from Baltimore Corp’s financial activities in the year 2004 is as follows:

Net income was $4,200,000 .

750,000 shares of common stock were outstanding on January 1.

The average market price per share was $50 in 2004.

Dividends were paid in 2004.

10,000 warrants, which allowed the holder to purchase 10 shares of common stock for each warrant held ata price of $40 per common share, were outstanding the entire year.

Baltimore’s diluted earnings per share (Diluted EPS) for 2004 is closest to:

A) $5.60.B) $4.94.C) $5.45.


Are dividends paid to common shareholders and foreign currency translation gains and losses included in afirm’s other comprehensive income?

Dividends paidForeign currency translationgains and losses

A) Yes Yes


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B) No No

C) No Yes


Are the quick ratio and the debt-to-capital ratio used primarily to assess a company’s ability to meetshort-term obligations?

Quick ratio Debt-to-capital ratio

A) Yes Yes

B) Yes No

C) No Yes


Given the following information about a firm what is its return on equity (ROE)?

An asset turnover of 1.2.An after tax profit margin of 10%.A financial leverage multiplier of 1.5.

A) 0.09.

B) 0.12.

C) 0.18.


Jersey, Inc.’s financial information included the following for its year ended December 31:

160,000 shares of common stock were outstanding for the entire year.18,000 shares of 10%, $100 par value cumulative preferred stock were outstanding for the entireyear.Common stock dividends paid during the current year were $240,000.All preferred stock dividends were paid for the current year.Net income was $720,000.

Basic earnings per share for Jersey, Inc. for the year ended December 31 are closest to:

A) $3.38.B) $4.50.C) $2.81.



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CPP Corporation has a contract to build a custom test chamber for a client for $100,000. CPP Corporationuses the percentage-of-completion method for accounting and estimates the total costs for the project to beequal to $80,000. CPP Corporation has promised to complete the project within three years. At year-end thecustomer has paid $60,000, equaling the total amount billed for the year, and total costs incurred to date are$40,000. On the income statement, net income for the year-end will be:

A) $20,000.B) $10,000.C) -$10,000.


Which of the following would NOT be a component of cash flow from investing?

A) Purchase of equipment.B) Sale of land.C) Dividends paid.


Which of the following statements about a classified balance sheet is least likely accurate? A classifiedbalance sheet:

A) groups accounts by subcategories.B) distinguishes between current and noncurrent assets.C) presents the net equity of each asset by subtracting its related liability.


What is a company’s equity if their return on equity (ROE) is 12%, and their net income is $10 million?

A) $120,000,000.B) $1,200,000.C) $83,333,333.


Securities that would decrease earnings per share (EPS) if they were exercised and converted to commonstock are called:

A) dilutive securities.B) synthetic securities.C) antidilutive securities.


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Peterson Painting Company is a commercial painting contractor. At the beginning of 20X7, Peterson’s networking capital was $350,000. The following transactions occurred during 20X7:

Performed services on credit $150,000Purchased office equipment for cash 10,000Recognized salaries expense 54,000Purchased paint supplies on on credit 25,000Consumed paint supplies 20,000Paid salaries 50,000Collected accounts receivable 157,000Recognized straight-line depreciation expense 2,000Paid accounts payable 15,000

Calculate Peterson’s working capital at the end of 20X7 and the change in cash for the year 20X7.

Working capital Change in cash

A) $416,000 $82,000

B) $414,000 $82,000

C) $416,000 $80,000


What is the net income of a firm that has a return on equity of 12%, a leverage ratio of 1.5, an assetturnover of 2, and revenue of $1 million?

A) $360,000.B) $36,000.C) $40,000.


The RR Corporation had cash flow from operations of $20 million. RR purchased $5 million in equipment andsold $3 million of equipment during the period. What is RR's free cash flow to equity for the period?

A) $15 million.

B) $18 million.

C) $22 million.


XYZ, Inc., latest Income Statement, Balance Sheet and Statement of Cash Flows are below. Use this


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information to answer the following questions:

Income Statement

Sales Revenue 19,580

Cost of Goods Sold 7,319

Gross Margin 12,261

Wage Expense 900

SG&A 4,336

Depreciation Expense 662

5,898

Income from Operations 6,363

Other Income/Expenses

Interest Expense (750)

Gain on Sale of Land 119

(631)

Pretax Income 5,732

Income tax 1,605

Net Income 4,127

Balance Sheet

12/31/04 12/31/03

Assets

Current Assets

Cash 2,098 410

Accounts receivable 4,570 4,900

Inventory 4,752 4,500

Prepaid SGA 877 908

Total 12,297 10,718

Land 0 4,000

Property, Plant & Equipment 11,000 11,000

Accumulated Depreciation (5,862) (5,200)

Total Assets 17,435 20,518

Cash Flow from Operations

Net Income 4,127

Increase in Accounts Receivable 330

Increase in Accounts Payable (489)

Increase in Inventory (252)


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Increase in Wages Payable 94

Increase in Prepaid SGA 31

Depreciation 662

Gain on Sale of Land (119)

Net cash from Operations 4,384

Cash Flow from Investments

Sale of Land 4,119

Net Cash from Investments 4,119

Cash Flow from Financing

Retirement of LT Debt (6,042)

Dividends Paid (773)

Net Cash from Financing (6,815)

Net Increase in Cash 1,688

Beginning Cash 410

Ending Cash 2,098

Liabilities and Equity

12/31/04 12/31/03

Current Liabilities

Accounts Payable 4,651 5,140

Wages Payable 2,984 2,890

Dividends Payable 100 100

Total 7,735 8,130

Long term Debt 1,346 7,388

Equity

Common Stock 4,000 4,000

Retained Earnings 4,354 1,000

Total Liabilities and Equity 17,435 20,518

Part 1)At the end of 2004, what were XYZ’s current, quick and cash ratios?

Current Ratio Quick Ratio Cash Ratio

A) 1.59 1.59 0.27

B) 1.59 0.86 0.27

C) 1.48 0.86 0.27

Part 2)


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What was the return on equity (ROE) based on year-end equity?

A) 0.67.B) 0.58.C) 0.49.


At the beginning of the year, Alpha Corporation purchased 10,000 shares of Beta Corporation for $20 pershare. During the year, Beta paid a $2,000 cash dividend to Alpha. At the end of the year, Beta’s stock wasselling for $22 per share. What amount should Alpha recognize in its year-end income statement if theinvestment is treated as an available-for-sale security and what amount should be recognized in the incomestatement if the investment is treated as a trading security?

Available-for-sale Trading security

A) $2,000 $22,000

B) $2,000 $20,000

C) $0 $22,000


Ajax Company's capital structure was as follows:

December 31, 2004 December 31, 2003

Outstanding shares of stock:

Common 200,000 200,000

Convertible preferred 5,000 5,000

6% Convertible Bonds $500,000 $500,000

During 2004, Ajax paid dividends of $2.00 per share on its preferred stock.The preferred shares are convertible into 10,000 shares of common stock.The 6% bonds are convertible into 15,000 shares of common stock.Net income for 2004 was $400,000.Assume that income tax rate is 40%.

Ajax’s basic and diluted earnings per share for 2004 are:

Basic EPS Diluted EPS

A) $1.95 $1.95

B) $1.80 $1.86

C) $1.95 $1.86


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Capital Corp.’s activities in the year 20X5 included the following:

At the beginning of the year, Capital purchased a cargo plane from Aviation Partners for $10 millionin exchange for $2 million cash, $3 million in Capital Corp. bonds and $5 million in Capital Corp.preferred stock.Interest of $150,000 was paid on the bonds, and dividends of $250,000 were paid on the preferredstock.At the end of the year, the cargo plane was sold for $12,000,000 cash to Standard Company.Proceeds from the sale were used to pay off the $3 million in bonds held by Aviation Partners.

On Capital Corp.’s U.S. GAAP statement of cash flows for the year ended December 31, 20X5, cash flowfrom investments (CFI) related to the above activities is:

A) $9,750,000.B) $10,000,000.C) $6,750,000.


For an organization with a simple capital structure, the computation of earnings per share is least likely toconsider:

A) net income.B) the weighted average number of common shares outstanding.C) the weighted average number of preferred shares outstanding.


Given the following income statement and balance sheet for a company:

Balance SheetAssets Year 2006 Year 2007Cash 200 450Accounts Receivable 600 660Inventory 500 550Total CA 1300 1660Plant, prop. equip 1000 1580Total Assets 2600 3240

LiabilitiesAccounts Payable 500 550Long term debt 700 1052Total liabilities 1200 1602

Equity


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Common Stock 400 538Retained Earnings 1000 1100Total Liabilities & Equity 2600 3240

Income StatementSales 3000Cost of Goods Sold (1000)Gross Profit 2000SG&A 500Interest Expense 151EBT 1349Taxes (30%) 405Net Income 944

Which of the following is closest to the company's return on equity (ROE)?

A) 0.62.B) 0.29.C) 1.83.


Which of the following items regarding the corporate income statement is most accurate?

A)Examples of extraordinary items include expropriations of property and equipment by foreigngovernments, losses from earthquakes and tornados, and gains from the sale of investments insubsidiaries.

B)If a corporation disposes of a business segment that is separable from the company's corebusiness activities, the results of the discontinued segment are reported as a separate line itembelow income from continuing operations on a pre-tax basis.

C)Unusual or infrequent items appear in the income statement of a corporation as a component ofnet income from continuing operations.


Walker Company received a letter in November 2003 indicating that Johnson, Inc. would purchase aspecialty machine priced at $4,000,000. In February 2004, a binding contract was executed for themachine’s construction. Materials costing $2,000,000 were ordered in December 2003, arrived with aninvoice in August 2004, and were used in the manufacturing process in the first quarter of 2005. Walkercompleted and delivered the machine in December 2006. Johnson received the first invoice in 2007 andpaid the $4,000,000 purchase price in 2007. Walker Company uses the accrual method of accounting.Walker should record the materials used to construct the machine as expenses in the year:

A) 2007.B) 2006.


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C) 2004.


For the year ended December 31, 2007, Gremlin Corporation reported the following transactions:

Issued 5,000 shares of preferred stock for land with a fair value of $4.8 million.Purchased a patent for $3.3 million cash.Acquired 40% of the common stock of an affiliate for $2.7 million cash which was borrowed from abank.Exchanged equipment with a book value of $1.7 million for equipment valued at $2.1 million. Theexchange was an even trade.Converted bonds payable with a book value of $5 million to 50,000 shares of common stock with afair value of $6 million.

Calculate Gremlin’s cash flow from investing activities and cash flow from financing activities for the yearended December 31, 2007.

Cash flow from investingactivities

Cash flow from financingactivities

A) $1.7 million inflow $1.3 million outflow

B) $6.0 million outflow $2.7 million inflow

C) $2.7 million outflow $6.0 million inflow


Given the following information about a company:

Receivables turnover = 10 times.Payables turnover = 12 times.Inventory turnover = 8 times.

What are the average receivables collection period, the average payables payment period, and the averageinventory processing period respectively?

Average ReceivablesCollection Period

Average PayablesPayment Period

Average InventoryProcessing Period

A) 37 30 52

B) 37 30 46

C) 37 45 46



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Barracuda Corporation, a U.S. corporation, owns a subsidiary located in Germany. The German subsidiary’sfinancial statements are maintained in euros. If the euro recently appreciated relative to the U.S. dollar, howwould the unrealized translation gain affect Barracuda’s retained earnings and total stockholders’ equity?

Retained earnings Total stockholders' equity

A) No effect Increase

B) No effect No effect

C) Increase Increase


According to the Financial Accounting Standards Board, what is the appropriate measurement basis forequipment used in the manufacturing process and inventory that is held for sale?

Equipment Inventory

A) Historical cost Historical cost

B) Fair value Lower of cost or market

C) Historical cost Lower of cost or market


Selected information from Doors, Inc.’s financial activities in the year 2005 included the following:

Net income was $372,000.

100,000 shares of common stock were outstanding on January 1.

The average market price per share was $18 in 2005.

Dividends were paid in 2005.

2,000, 6 percent $1,000 par value convertible bonds, which are convertible at a ratio of 25 shares foreach bond, were outstanding the entire year.

Doors, Inc.’s tax rate is 40%.

Doors, Inc.’s diluted earnings per share (Diluted EPS) for 2005 was closest to:

A) $2.96.B) $3.72.C) $3.28.

Question 66 - #119452


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Comparing a company’s ratios with those of its competitors is best described as:

A) longitudinal analysis.B) common-size analysis.C) cross-sectional analysis.


Quad Associates, Inc.’s net income for 2005 was $892,000 with 400,000 shares outstanding. The tax ratewas 40 percent. Quad had 2,000 six percent $1,000 par value convertible bonds that were issued in 2004.Each bond was convertible into 40 shares of common stock. Quad, Inc.’s diluted earnings per share(Diluted EPS) for 2005 was closest to:

A) $2.23.B) $2.01.C) $2.41.


A firm with a capital structure consisting of only common stock and non-convertible bonds is said to have a:

A) non-diluted capital structure.B) simple capital structure.C) straight capital structure.



Balance SheetAssets

Cash 100Accounts Receivable 750Marketable Securities 300Inventory 850Property, Plant & Equip 900Accumulated Depreciation (150)

Total Assets 2750

Liabilities and EquityAccounts Payable 300Short-Term Debt 130Long-Term Debt 700Common Stock 1000


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Retained Earnings 620Total Liab. and Stockholder's equity 2750

Income StatementSales 1500COGS 1100Gross Profit 400SG&A 150Operating Profit 250Interest Expense 25Taxes 75Net Income 150

What is the receivables turnover ratio?

A) 2.0.B) 0.5.C) 1.0.


Selected information from Caledonia, Inc.’s financial activities in the year 20X6 is as follows:

Net income = $460,000.2,300,000 shares of common stock were outstanding on January 1.The average market price per share was $2 and the year-end stock price was $1.50.1,000 shares of 8%, $1,000 par value preferred shares were outstanding on January 1. Preferreddividends were paid in 20X6.10,000 warrants, each of which allows the holder to purchase 100 shares of common stock at anexercise price of $1.50 per common share, were outstanding the entire year.

Caledonia’s diluted earnings per share for 20X6 are closest to:

A) $0.165.B) $0.180.C) $0.15.


Moulding Company’s net income was $13,820,000 with 2,600,000 shares outstanding. The average shareprice for the year was $58.00. Moulding had 10,000 options to purchase 10 shares each at $40 per shareoutstanding the entire year. Moulding Company’s diluted earnings per share are closest to:

A) $5.25.B) $3.71.


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C) $5.32.


Convenience Travel Corp.’s financial information for the year ended December 31, 20X4 included thefollowing:

Property Plant & Equipment $15,000,000Accumulated Depreciation 9,000,000

The only asset owned by Convenience Travel in 20X5 was a corporate jet airplane. The airplane was beingdepreciated over a 15-year period on a straight-line basis at a rate of $1,000,000 per year. On December31, 20X5 Convenience Travel sold the airplane for $10,000,000 cash. Net income for the year endedDecember 31, 20X5 was $12,000,000. Based on the above information, and ignoring taxes, what is cashflow from operations (CFO) for Convenience Travel for the year ended December 31, 20X5?

A) $13,000,000.B) $8,000,000.C) $11,000,000.


As of December 31, 2007, Manhattan Corporation had a quick ratio of 2.0, current assets of $15 million,trade payables of $2.5 million, and receivables of $3 million, and inventory of $6 million. How much wereManhattan’s current liabilities?

A) $12.0 million.B) $4.5 million.C) $7.5 million.


An analyst has gathered the following information about a company.

The total asset turnover is 1.2.

The after-tax profit margin is 10%.

The financial leverage multiplier is 1.5.

Given this information, the company’s return on equity is:

A) 12%.

B) 9%.

C) 18%.



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All of the following are considered a potentially dilutive securities EXCEPT:

A) preferred stock.B) stock options.C) warrants.


Juniper Corp’s stock transactions during the year 20X4 were as follows:

January 1 540,000 shares issued and outstandingMarch 1 50 percent stock dividendJuly 1 180,000 treasury shares reacquiredOctober 1 60,000 treasury shares reissued

When computing for earnings per share (EPS) computation purposes, what was Juniper’s weighted averagenumber of shares outstanding during 20X4?

A) 930,000.

B) 735,000.

C) 870,000.


Which of the following reasons is least likely a valid limitation of ratio analysis?

A) It is difficult to find comparable industry ratios.B) Calculation of ratios involves a large degree of subjectivity.C) Determining the target or comparison value for a ratio is difficult.


The following data applies to the XTC Company:

Sales = $1,000,000.Receivables = $260,000.Payables = $600,000.Purchases = $800,000.COGS = $800,000.Inventory = $400,000.Net Income = $50,000.Total Assets = $800,000.Debt/Equity = 200%.

What is the average collection period, the average inventory processing period, and the payables paymentperiod for XTC Company?

Average Average Inventory Payables


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Collection Period Processing Period Payments Period

A) 55 days 195 days 231 days

B) 95 days 183 days 274 days

C) 45 days 45 days 132 days


Which of the following statements is CORRECT regarding the reporting of earnings per share (EPS)?

A) Diluted EPS must be less than or equal to basic EPS.

B)The EPS when antidilutive securities are converted into shares of common stock is less thanbasic EPS.

C) Basic EPS can be less than diluted EPS.


If a company has a net profit margin of 15%, an asset turnover ratio of 4.5 and a ROE of 18%, what is theequity multiplier?

A) 2.667.B) 0.523.C) 0.267.


JME Construction always uses the percentage of completion method of recognizing revenue. During 2004JME signs a contract in the amount of $10 million with the following data available:

Costs incurred to date $2,200,000Billings to date $2,000,000Cash collected $1,750,000Total cost of project $8,800,000

How much gross profit should JME recognize for 2004?

A) -$200,000.B) -$450,000.C) $300,000.


How will dilutive securities affect earnings per share (EPS) when determining diluted earnings per share?


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A) Decrease EPS.B) Increase EPS.C) Either decrease or increase EPS depending upon if the security is dilutive or antidilutive.


An analyst contemplates using the indirect methods to create the projected statement of cash flows. Shedecides to research the differences between the direct and indirect methods. Which of the followingstatements is most accurate? Under the:

A) direct method, depreciation must be added to cash collections because it is a non-cash expense.B) indirect method, depreciation must be added to net income, because it is a non-cash expense.C) indirect method, changes in accounts receivable are already included in the net income figure.


Given the following income statement:

Net Sales 200Cost of Goods Sold 55Gross Profit 145Operating Expenses 30Operating Profit (EBIT) 115Interest 15Earnings Before Taxes (EBT) 100Taxes 40Earnings After Taxes (EAT) 60

What are the gross profit margin and operating profit margin?

Gross Profit Margin Operating Profit Margin

A) 2.630 1.226

B) 0.725 0.575

C) 0.379 0.725


A firm’s financial statements reflect the following:

EBIT $2,000,000

Sales $16,000,000

Interest expense $900,000


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Total assets $12,300,000

Equity $7,000,000

Effective tax rate 35%

Dividend payout rate 28%

Based on this information, what is the firm’s sustainable growth rate?

A) 8.82%.

B) 10.63%.

C) 7.35%.


Murray Company reported the following revenues and expenses for the year ended 2007:

Sales revenue $200,000Wage expense 89,000Insurance expense 17,000Interest expense 10,400Depreciation expense 50,000

Following are the related balance sheet accounts:

2007 2006

Unearned revenue $15,600 $13,200Wages payable 5,400 6,600Prepaid insurance 1,200 0Interest payable 500 1,600Accumulated depreciation 95,000 45,000

Calculate cash collections and cash expenses.

Cash collections Cash expenses

A) $202,400 $58,100

B) $202,400 $119,900

C) $197,600 $119,900


Which of the following does NOT represent a cash flow relating to operating activity?

A) Cash received from customers.


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B) Dividends paid to stockholders.

C) Interest paid to bondholders.


Where in the financial statements should a firm recognize the unrealized gains and losses on cash flowhedging derivatives and the unrealized gains and losses on available-for-sale securities?

Cash flow hedging derivatives Available-for-sale securities

A) Other comprehensive income Net income

B) Net income Other comprehensive income

C) Other comprehensive income Other comprehensive income


A firm had the following numbers of shares outstanding during the year:

Beginning of year 8,000,000 shares

Issued on April 1 750,000 shares

Paid stock divided of 20% on July 1

Issued on October 1 100,000 shares

Purchased Treasury stock November 1 1,000,000 shares

Split 2 for 1 on December 31

Based on this information, what is the weighted number of shares outstanding for the year?

A) 20,266,667.B) 20,783,333.C) 42,444,444.


Which of the following items is NOT in the numerator of the quick ratio?

A) Inventory.B) Cash.C) Receivables.


An analyst gathered the following information about a company:


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01/01/04 - 50,000 shares issued and outstanding at the beginning of the year04/01/04 - 5% stock dividend10/01/04 - 10% stock dividend

What is the company’s weighted average number of shares outstanding at the end of 2004?

A) 57,500.B) 55,000.C) 57,750.


In preparing a forecast of future financial performance, which of the following best describes sensitivityanalysis and scenario analysis, respectively?

Description #1 – A computer generated analysis based on developing probability distributions of keyvariables that are used to drive the potential outcomes.

Description #2 – The process of analyzing the impact of future events by considering multiple key variables.

Description #3 – A technique whereby key financial variables are changed one at a time and a range ofpossible outcomes are observed. Also known as “what-if” analysis.

Sensitivity analysis Scenario analysis

A) Description #3 Description #1

B) Description #3 Description #2

C) Description #2 Description #3


Sampson Corp. had 500,000 shares of common stock outstanding at the beginning of the year. Theaverage market price was $20.

On April 1, Sampson issued 100,000 shares of $1000 par value 10 percent preferred stock.On July 1, Sampson issued 200,000 warrants to purchase 10 shares of common stock each at $22per share.On October 1, Sampson repurchased 60,000 of common stock as treasury stock for $15 per share.

The weighted average common shares outstanding Sampson should use to compute basic earnings pershare (EPS) was:

A) 485,000.B) 515,000.C) 600,000.



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Which of the following items would NOT be included in cash flow from investing?

A) Proceeds related to acquisitions.B) Selling stock of the company.C) Buying or selling a building.


When considering convertible preferred stock which of the following components of the earnings per share(EPS) equation needs to be adjusted to calculate diluted earnings per share?

A) The numerator.B) The denominator.C) The numerator and denominator.


The following data pertains to the McGuire Company:

Net income equals $15,000.5,000 shares of common stock issued on January 1.10% stock dividend issued on June 1.1000 shares of common stock were repurchased on July 1.1000 shares of 10%, par $100 preferred stock each convertible into 8 shares of common wereoutstanding the whole year.

What is the company’s basic earnings per share (EPS)?

A) $2.50.B) $1.00.C) $1.20.


Duster Company reported the following financial information at the end of 2007:

in millionsUnearned revenue $240Common stock at par 30Capital in excess of par 440Accounts payable 1,150Treasury stock 2,000Retained earnings 5,160Accrued expenses 830Accumulated other comprehensive loss 210


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Long-term debt 1,570

Calculate Duster’s liabilities and stockholders’ equity as of December 31, 2007.

Liabilities Stockholders' equity

A) $3,790 million $3,420 million

B) $3,790 million $7,420 million

C) $3,550 million $7,840 million


The calculation of the income recognized in the third year of a five-year construction contract accounted forusing the percentage-of-completion method includes the ratio of:

A) total costs incurred to total estimated cost.

B) costs incurred in year 3 to total estimated costs.

C) costs incurred in year 3 to total billings.


When the cost of goods and services used are recognized as an expense in the same period that itsgenerated revenue is recognized, which of the following principle(s) is (are) being described?

A) The matching principle for revenue and expense recognition.B) The matching and accrual principles.C) The accrual and expense recognition principles.

Question 100 - #97827

An analyst has gathered the following information about Artcraft, Inc. for the year:

Net income of $30,000.5,000 shares of common stock and 500 shares of 8%, $90 par convertible preferred stockoutstanding during the whole year.Each share of convertible preferred can be converted into 4 shares of common stock.Last year, Artcraft issued at par, $60,000 total face value of 6.0% convertible bonds, with each of the60 bonds convertible into 110 shares of the Artcraft common stock.

If Artcraft's effective tax rate is 40%, what will Artcraft report as diluted earnings per share (EPS)?

A) $3.12.B) $2.36.C) $3.37.


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Question 101 - #97061

Income Statements for Royal, Inc. for the years ended December 31, 20X0 and December 31, 20X1 were asfollows (in $ millions):

20X0 20X1Sales 78 82 Cost of Goods Sold (47) (48) Gross Profit 31 34 Sales and Administration (13) (14) Operating Profit (EBIT) 18 20 Interest Expense (6) (10) Earnings Before Taxes 12 10 Income Taxes (5) (4) Earnings after Taxes 7 6

Analysis of these statements for trends in operating profitability reveals that, with respect to Royal’s grossprofit margin and net profit margin:

A) gross profit margin decreased but net profit margin increased in 20X1.

B) both gross profit margin and net profit margin increased in 20X1.

C) gross profit margin increased in 20X1 but net profit margin decreased.

Question 102 - #97974

Connecticut, Inc.’s stock transactions during the year 20X5 were as follows:

January 1: 360,000 common shares outstanding.April 1: 1 for 3 reverse stock split.July 1: 60,000 common shares issued.

When computing for earnings per share (EPS) computation purposes, what is Connecticut’s weighted averagenumber of shares outstanding during 20X5?

A) 150,000.

B) 210,000.

C) 140,000.

Question 103 - #97470

Favor, Inc.’s capital and related transactions during 20X5 were as follows:

On January 1, $1,000,000 of 5-year 10% annual interest bonds were issued to Cover Industries inexchange for old equipment owned by Cover.On June 30, Favor paid $50,000 of interest to Cover.On July 1, Cover returned the bonds to Favor in exchange for $1,500,000 par value 6% preferredstock.On December 31, Favor paid preferred stock dividends of $45,000 to Cover.

Favor, Inc.’s cash flow from financing (CFF) for 20X5 (assume U.S. GAAP) is:


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A) −$95,000.B) −$45,000.C) −$1,045,000.

Question 104 - #97803

The primary difference between basic EPS and diluted EPS is that:

A) diluted EPS includes the potential effects of convertible securities while basic EPS does not.

B) proprietors and partners report basic EPS but corporations report diluted EPS.

C)extraordinary items and discontinued operations are omitted from basic EPS but included in dilutedEPS.

Question 105 - #100931

When evaluating the differences between two revenue recognition policies, an analyst should view thepolicy as more conservative which:

A) recognizes revenue later.B) results in less leverage on the balance sheet.C) is more dependent on management estimates.

Question 106 - #97772

Examples of potentially dilutive securities include all of the following EXCEPT:

A) convertible preferred stock.B) options.C) non-convertible bonds.

Question 107 - #97952

The SSP Company had 5 million shares outstanding on January 1. On February 15 the board of directorsapproved a 3:2 stock split, effective April 1. What is the weighted average number of shares outstanding forthe SSP Company for year-end?

A) 6,875,000 shares.B) 5,625,000 shares.C) 7,500,000 shares.

Question 108 - #97302

On January 1, 2008, Tenant Company leased office space from Landlord Inc. for 5 years at $75,000 permonth. On that same date, Tenant made the following payments to Landlord:


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First month’s rent $75,000Last month’s rent 75,000Security deposit 100,000Lease improvements 1,500,000

The leasehold improvements include build-out costs to install office walls, restrooms, and a kitchen. Tenantallocates the cost of the leasehold improvements over the lease term using the straight-line method. Whatamount of total lease expense should Tenant report for the year ended 2008 and what is the balance of allof the lease related assets on December 31, 2008, assuming the lease payments are made on the first dayof each month?

Lease expenseLease relatedassets

A) $1,200,000 $1,200,000

B) $375,000 $1,375,000

C) $1,200,000 $1,375,000

Question 109 - #97954

A firm has had the following numbers of shares outstanding during the year:

Beginning of year 10,000,000 shares

Issued on April 1 500,000 shares

Split 2 for 1 on July 1

Issued on October 1 100,000 shares

Split 2 for 1 on December 31

Based on this information, what is the weighted number of shares outstanding for the year?

A) 41,550,000.B) 42,400,000.C) 20,780,000.

Question 110 - #97755

Lawson, Inc.’s net income for the year was $1,060,000 with 420,000 shares outstanding. Lawson has 2,000shares of 8%, $1,000 par value convertible preferred stock that were outstanding the entire year. Eachshare of preferred is convertible into 50 shares of common stock. Lawson's diluted earnings per share areclosest to:

A) $1.94.B) $2.14.C) $2.04.


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Question 111 - #97403

An analyst compiled the following information for Universe, Inc. for the year ended December 31, 20X4:

Net income was $850,000.Depreciation expense was $200,000.Interest paid was $100,000.Income taxes paid were $50,000.Common stock was sold for $100,000.Preferred stock (eight percent annual dividend) was sold at par value of $125,000.Common stock dividends of $25,000 were paid.Preferred stock dividends of $10,000 were paid.Equipment with a book value of $50,000 was sold for $100,000.

Using the indirect method and assuming U.S. GAAP, what was Universe Inc.’s cash flow from operations(CFO) for the year ended December 31, 20X4?

A) $1,000,000.B) $1,050,000.C) $1,015,000.

Question 112 - #97303

Pacific, Inc.’s financial information includes the following, with “change” referring to the difference from theprior year (in $ millions):

Net Income 27Change in Accounts Receivable +4Change in Accounts Payable +1Change in Inventory +5Loss on sale of equipment -8Gain on sale of real estate +4Change in Retained Earnings +21Dividends declared and paid +4

Pacific, Inc.’s cash flow from operations (CFO) in millions was:

A) $27.B) $23.C) $15.

Question 113 - #97757


Balance Sheet


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AssetsCash 100Accounts Receivable 750Marketable Securities 300Inventory 850Property, Plant & Equip 900Accumulated Depreciation (150)

Total Assets 2750

Liabilities and EquityAccounts Payable 300Short-Term Debt 130Long-Term Debt 700Common Stock 1000Retained Earnings 620

Total Liab. and Stockholder's equity 2750


What is the current ratio?

A) 4.65.B) 2.67.C) 0.22.

Question 114 - #97806


Balance SheetAssets

Cash 100Accounts Receivable 750Marketable Securities 300Inventory 850


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Property, Plant & Equip 900Accumulated Depreciation (150)

Total Assets 2750

Liabilities and EquityAccounts Payable 300Short-Term Debt 130Long-Term Debt 700Common Stock 1000Retained Earnings 620

Total Liab. and Stockholder's equity 2750


What is the receivables collection period?

A) 243.B) 365.C) 183.

Question 115 - #97829

An analyst has gathered the following information about Barnstabur, Inc., for the year:

Reported net income of $30,000.5,000 shares of common stock and 2,000 shares of 8%, $90 par preferred stock outstanding duringthe whole year.During the year, Barnstabur issued at par, $60,000 of 6.0% convertible bonds, with each of the 60bonds convertible into 110 shares of the Barnstabur common stock.

If Barnstabur’s effective tax rate is 40%, what will Barnstabur report for diluted earnings per share (EPS)?

A) $2.36.B) $1.53.C) $1.66.


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Question 116 - #97291

A firm has a cash conversion cycle of 80 days. The firm's payables turnover goes from 11 to 12, whathappens to the firm's cash conversion cycle? It:

A) shortens.B) lengthens.C) may shorten or lengthen.

Question 117 - #97787

Based on the following data, how many shares of common stock should be used to calculate dilutedearnings per share?

Net income of $1,500,000, tax retention rate of 60%1,000,000 shares of common are outstanding at the beginning of the year.10,000, 6% convertible bonds with each bond convertible into 20 shares of common stock wereissued at par ($100) on June 30th of this year.The firm has 100,000 warrants outstanding all year with an exercise price of $25 per share.The average stock price for the period is $20, and the ending stock price is $30.

A) 1,266,667.B) 1,100,000.C) 1,000,000.

Question 118 - #98130

Which of the following items would least likely be included in cash flow from financing?

A) Dividends paid to shareholders.B) Purchase of treasury stock.C) Gain on sale of stock of a subsidiary.

© 2012 Kaplan Schweser


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