FSA Final

When comparing a firm that uses LIFO inventory accounting to firms that use FIFO, an analyst should

subtract the change in the LIFO reserve from cost of sales

Cobb, Inc., has hired Jude Kasten, CFA, to mange its pension fund. The client(s) to whom Kasten owes a duty of loyalty are

the beneficiaries of the pension fund

Ethics is least likely

the careful following of all laws and regulations

According ot U.S. GAAP, an asset is impaired when

the firm cannot fully recover the carrying amount of the asset through operations

In situations where the laws of a member or candidate's country of residence, the local laws of regions where the member or candidate does business, and the Code of Standards specify different requirements, the member or candidate must abide by

the strictest of local law, his country's laws, or the Code and Standards

In preparing a common-size cash flow statement, each cash flow is expressed as a percentage of

total revenues

Which of the following is least likely considered in deterring the useful life of an intangible asset?

Initial cost

After passing all three levels of the CFA exam on her fist attempts and being awarded her CFA Charter, Paula Osgood is promoting her new money management firm by issuing an advertisement. Which of these statements most likely violates the Standard related to use of the CFA designation?

"Because of her extensive training, Paula will be able to achieve better investment results than mangers who have not been awarded the CFA designation."

Which of the following organizations is least likely involved with enforcing compliance with financial reporting standards?

International Accounting Standards Board (IASB)

A decrease is assets would least likely be consistent with a(n)

increase in contributed capital

The ratio of a firm's property, plant, and equipment, net of accumulated depreciation, to its annual depreciation expenses is best interpreted as an estimate of the

remaining useful life of the firm's assets

Red company immediately expenses its development costs while Black Company capitalizes its development costs. All else equal, Red Company will

report higher asset turnover than Black Company

According to U.S. GAAP, the coupon payment on a bond is

reported as an operating cash outflow

At the beginning of this year, Fairweather Corp. incurred $200,000 of research cost and $100,000 of development costs to create a new patent. The patent is expected to have a useful life of 40 years with no salvage value. Calculate the carrying value of the patent at the end of this year, assuming Fairweather follows U.S. GAAP

$0

In the early years of an asset's life, a firm using the double-declining balance method, as compared to a firm using straight-line depreciation, will report lower

retained earnings

The author of a new textbook received a $100,000 advance from the publisher this year. $40,000 of income taxes were paid on the advance when received. The textbook will not be finished until next year. Determine the tax basis of the advance at the end of this year

$0

Selected data from Alpha Company's balance sheet at the end of the year follows: -Investment in Beta Company, at fair value = $150,000 -Deferred taxes = $86,000 -Commons tock, $1 par value = $550,000 -Preferred stock, $100 par value = $175,000 -Retained earnings = $893,000 -Accumulated other comprehensive income = $46,000 The investment in Beta Company had original cost of $120,000. Assuming the investment in Beta is classified as available-for-sale, Alpha's total owners' equity at year-end is closest to

$1,664,000

Ana analyst gather the following information about a company: -100,000 common shares outstanding from the beginning of the year -Earnings of $125,000 -1,000, 7%, $1,000 par bonds convertible into 25 shares each, outstanding as of the beginning of the year -The tax rate is 40% The company's diluted EPS is closest to

$1.25

-A firm acquires an asset fro $120,000 with a 4-year useful life and no salvage value -The asset will generate $50,000 of cash flow for all four years -The tax rate is 40% each year -The firm will depreciate the asset over three years on straight-line (SL) basis for tax purposes and over four years on SL basis for financial purposes. Suppose tax rates rise during year 2 to 50%. At the end of year 2, the firm's balance sheet will show a deferred tax liability of

$10,000

-A firm acquires an asset fro $120,000 with a 4-year useful life and no salvage value -The asset will generate $50,000 of cash flow for all four years -The tax rate is 40% each year -The firm will depreciate the asset over three years on straight-line (SL) basis for tax purposes and over four years on SL basis for financial purposes. Taxable income in year 1 is

$10,000

Cash flow from operations is: -Net Income = $45 -Depreciation = 75 -Taxes paid = 25 -Interest paid = 5 -Dividends paid = 10 -Cash received from sale of company building = 40 -Issuance of preferred stock = 35 -Repurchase of common stock = 30 -Purchase of machinery = 20 -Issuance of bonds = 50 -Debt retired through issuance of common stock = 45 -Paid off long-term bank borrowings = 15 Profit on sale of building = 20

$100

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. Total of all cash payments to the bondholders is

$12,400,000

During May, a firm's inventory account included the following transactions: -5/1, inventory, 25 units @ $4 -5/12, purchased, 60 units @ $4.20 -5/16, sold, 40 units @ $6 -5/27, purchased, 30 units @ $4.25 -5/29, sold, 40 units @ $6.10 Assuming periodic FIFO inventory costing, gross profit for May was

$153

Continental Corporation reported sales revenue of $150,000 for the current year. If accounts receivable decreased $10,000 during the year and accounts payable increased $4,000 during the year, cash collections were

$160,000

Using the following information, what is the firm's cash flow from operations? -Net Income = $120 -Decrease in AR = 20 -Depreciation = 25 -Increase in inventory = 10 -Increase in AP = 7 -Decrease in wages payable = 5 -Increase in deferred tax liabilities = 15 -Profit from the sale of land = 2

$170

At the beginning of 2016, Cougar Corporation enters a finance league requiring five annual payments of $10,000 each beginning on the fist day of the lease. Assuming the lease interest rate is 8%, the amount of interest expense recognized by Cougar in 2016 is closest to

$2,650

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. The total interest expense reported by the issuer over the life of the bond will be

$2,738,721

Cash flow from investing activities is: -Net Income = $45 -Depreciation = 75 -Taxes paid = 25 -Interest paid = 5 -Dividends paid = 10 -Cash received from sale of company building = 40 -Issuance of preferred stock = 35 -Repurchase of common stock = 30 -Purchase of machinery = 20 -Issuance of bonds = 50 -Debt retired through issuance of common stock = 45 -Paid off long-term bank borrowings = 15 Profit on sale of building = 20

$20

-A firm acquires an asset fro $120,000 with a 4-year useful life and no salvage value -The asset will generate $50,000 of cash flow for all four years -The tax rate is 40% each year -The firm will depreciate the asset over three years on straight-line (SL) basis for tax purposes and over four years on SL basis for financial purposes. Pretax income in year 4 is

$20,000

-A firm acquires an asset fro $120,000 with a 4-year useful life and no salvage value -The asset will generate $50,000 of cash flow for all four years -The tax rate is 40% each year -The firm will depreciate the asset over three years on straight-line (SL) basis for tax purposes and over four years on SL basis for financial purposes. Taxes payable in year 4 are

$20,000

A firm recently recognized a $15,000 loss on the sale of machinery used in its manufacturing operation. The original cost of the machinery was $100,000 and the accumulated depreciation at the date of sale was $60,000. What amount did the firm receive from the sale?

$25,000

Cash flow from operations is: -Sales = $1,500 -Increase in inventory = 100 -Depreciation = 150 -Increase in AR = 50 -Decrease in AP = 70 After-tax profit margin = 25% Gain on sale of machinery = 30

$275

Cash flow from financing activities is: -Net Income = $45 -Depreciation = 75 -Taxes paid = 25 -Interest paid = 5 -Dividends paid = 10 -Cash received from sale of company building = 40 -Issuance of preferred stock = 35 -Repurchase of common stock = 30 -Purchase of machinery = 20 -Issuance of bonds = 50 -Debt retired through issuance of common stock = 45 -Paid off long-term bank borrowings = 15 Profit on sale of building = 20

$30

-A firm acquires an asset fro $120,000 with a 4-year useful life and no salvage value -The asset will generate $50,000 of cash flow for all four years -The tax rate is 40% each year -The firm will depreciate the asset over three years on straight-line (SL) basis for tax purposes and over four years on SL basis for financial purposes. Taxes payable in year 1 are

$4,000

A vertical common-size income statement expresses each category of the income statement as a percentage of

revenue

Kamp, Inc., sells specialized bicycle shoes. At year-end, due to a sudden increase manufacturing costs, the replacement cost per pair of shoes is $55. The original cost is $43, and the current selling price is $50. The normal profit margin is 10% of the selling price, and the selling costs are $3 per pair. According to U.S. GAAP, which of the following amounts should each pair of shoes be reported on Kamp's year-end balance sheet?

$43

A firm that uses LIFO for inventory accounting reported COGS of $300,000 and ending inventory of $200,000 for the current period, and a LIFO reserve that decreased from $40,000 to $35,000 over the period. If the firm had reporting using FIFO, its gross profit would have been

$5,000 lower

At the beginning of the year, Parent Company purchased all 500,000 shares of Sub Incorporated for $15 per share. Just before the acquisition date, Sub's balance sheet reported net assets of $6 million. Parent determined the fair value of Sub's property and equipment was $1 million higher than report by Sub. What amount of goodwill should Parent report as a result of its acquisition of Sub?

$500,000

Net income for Monique, Inc. for the year ended December 31, 2017 was $78,000. Its accounts receivable balance at December 31, 2017 was $121,000, and its balance was $69,000 at December 31, 2016. The accounts payable balance at December 31, 2017 was $72,000 and was $43,000 at December 31, 2016. Depreciation for 2017 was $12,000, and there was an unrealized gain of $15,000 included in 2017 from the change in value of trading securities. Which of the following amounts represents Monique's cash flow from operations for 2017?

$52,000

At the beginning of the year, Triple W Corporation purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment was $25,000. The equipment is expected to be used for 4 years and the sold for $4,000. Depreciation expense to be reported for the second year using the double-declining-balance method is closest to

$6,250

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. The annual coupon payments will each be

$600,000

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. For the first period the interest expense is

$676,290

-A firm acquires an asset fro $120,000 with a 4-year useful life and no salvage value -The asset will generate $50,000 of cash flow for all four years -The tax rate is 40% each year -The firm will depreciate the asset over three years on straight-line (SL) basis for tax purposes and over four years on SL basis for financial purposes. Income tax expense in year 4 is

$8,000

Two years ago, Metcalf Corp. purchased machinery for $800,000. At the end of last year, the machinery had a fair value of $720,000. Assuming Metcalf uses the revaluation model, what amount, if any, is recognized in Metcalf's net income this year if the machinery's fair value is $810,000?

$80,000

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. The initial book value of the bonds is

$9,661,279

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. If the market rate changes to 8% and the bonds are carried at amortized cost, the book value of the bonds at the end of the first year will be

$9,737,568

Which of the following equations least accurately represents return on equity?

(ROA) (interest burden) (tax retention rate)

Return on equity using the traditional DuPont formula equals

(net profit margin) (total asset turnover) (financial leverage multiplier)

At the end of last year, Maui Corporation's assets and liabilities were as follows: -Total assets = $98,500 -Accrued liabilities = $5,000 -Short-term debt = $12,000 -Bonds payable = $39,000 Maui's debt-to-equity ratio is closest to

1.2

Metallurgy, Inc., reported depreciation expenses of $15 million for the most recent year. Beginning-of-year gross PP&E and accumulated depreciation were $287 million and $77 million, respectively. If end-of-year gross PP&E and accumulated depreciation were $300 million and $80 million, the estimated remaining useful life of PP&E is closest to

15 years

RGB, Inc. has a net profit margin of 12%, a total asset turnover 1.2 times, and a financial leverage multiplier of 1.2 times. RGB's return on equity is closest to

17.3%

Use the following information for RGB, Inc.: -EBIT/revenue = 10% -Tax retention rate = 60% -Revenue/assets = 1.8 times -Current ratio = 2 times -EBT/EBIT = 0.9 times -Assets/equity = 1.9 times RBG, Inc.'s return on equity is closest to

18.5%

RGB, Inc.'s income statement shows sales of $1,000, cost of goods sold of $400, pre-interest operating expenses of $300, and interest expenses of $100. RGB's interest coverage ratio is closest to

3 times

Give the following information, how many shares should be used in computing diluted EPS? -300,000 shares outstanding -100,000 warrants exercisable at $50 per share -Average share price is $55 -Year end share price is $60

309,091

RBG, Inc.'s purchases during the year were $100,000. The balance sheet shows an average accounts payable balance of $12,000. RBG's payables payment period is closest to

44 days

An analyst has father the following information about a company: -50,000 common shares outstanding form the beginning of the year -Warrants outstanding all year on 50,000 shares, exercisable at $20 per share -Stock is selling at year end for $25 -The average price of the company's stock for the year was $15 How many shares should be used in calculating the company's diluted EPS?

50,000

A firm has a divided payout ratio of 40%, a net profit margin of 10%, an asset turnover of 0.9 times, and a financial leverage multiplier of 1.2 times. The firm's sustainable growth rate is closest to

6.5%

RGB, Inc.'s receivable turnover is ten times, the inventory turnover is five times, and the payables turnover is nine times. RGB's cash conversion cycle is closest to

69 days

Miller Corporation has 160,000 acres of common stock authorized. There are 92,000 shares issued and 84,000 shares outstanding. How many shares of treasury stock does Miller own?

8,000

Paragon Co. has an operating profit margin (EBIT/revenue) of 11%; an asset turnover ratio of 1.2;a financial leverage multiplier of 1.5 times; an average tax rate of 35%; and an interest burden of 0.7. Paragon's return on equity is closest to

9%

A study trends in firm's cost of goods sold (COGS), the analyst should standardize the cost of goods sold numbers to a common-sized basis by dividing COGS by

sales

An analyst needs to compare the financial statements of Firm X and Firm Y. Which of the following differences in the two firm;s financial reporting is least likely to require the analyst to make an adjustment?

Firm X = direct method cash flows Firm Y = indirect method cash flows

Under which inventory cost flow assumption does inventory on the balance sheet best approximate its current cost?

First-in, first-out

Which of the following would most likely result in higher gross profit margin, assuming no fixed costs?

A 5% decrease in production cost per unit

Which of the following statements about nonrecurring items is least accurate

A change in accounting principle is reported in the income statement net of taxes after extraordinary items and before net income

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. For analytical purposes, what is the impact on the debt-to-equity ratio if the market rate of interest increases after the bond is issued?

A decrease

Which of the following is least likely a change in cash flow from operations under U.S. GAAP?

A decrease in notes payable

All other things held constant, which of the following transactions will increase a firm's current ratio if the ratio is greater than one?

Accounts payable are paid with funds from the cash account

Which the following is least likely considered a non operating transaction from the perspective of a manufacturing firm?

Accruing bad debt expense for goods sold on credit

Which of the following is most likely an essential characteristic of an asset?

An asset provides future benefit

Which of the following would be least likely to cause a change in investing cash flow?

An increase in depreciation expense

Which of the following actions is most likely a violation of the Standard on fair dealing?

An investment firm routinely begins trading for its own account immediately after announcing recommendation changes to clients

International Accounting Standard (IAS) No. 1 least likely requires which of the following?

Audited financial statements and disclosures, along with updated information about the firm and its management, must be filed at least quarterly

Which of the following disclosures would least likely be found in the financial statement footnotes of a firm?

Average age of assets

Which of the following transactions affects owners' equity but does not affect net income?

Foreign currency translation gain

If a firm raises $10 million by issuing new common stock, which of its financial statements will reflect the transaction?

Balance sheet, cash flow statement, and statement of owners' equity

Which of the following stock screens is most likely to identify stocks with high earnings growth rates?

Book value to market value ratio less than 25%

If regulations do not specify how long to retain the documents that support an analyst's conclusions, the Code and Standards recommend a period of at least

seven years

A code of ethics

specifies a minimum level of acceptable conduct

Year, 2016, 2017, 2018, 2019 Sales, $8,614, $9,217, $9,862, $10,553 COGS, $5,304, $5,622, $6,072, $6,679 Purchases, $5,257, $5,572, $6,018, $6,620 Inventory, $2,525, $2,475, $2,421, $2,362 AR, $3,491, $3,728, $3,928, $4,352 AP, $1,913, $2,102, $2,311, $2,539 Based on these results, what was this company's most likely strategy for improving its operating activity during this period?

Improve its inventory management

Martin, Inc had the following transactions during 2017: -Purchased new fixed assets for $75,000 -Converted $70,000 worth of preferred shares to common shares -Received cash dividends of $12,000. Paid cash dividends of $21,000 -Repaid mortgage principal of $17,000 Assuming Martin follows U.S. GAAP, which of the following amounts represents Martin's cash flows from investing and cash flows from financing in 2017, respectively?

CF from investing = -$75,000 CF from financing = -$38,000

Which of the following is least likely a condition necessary for revenue recognition?

Cash has been collected

Which of the following is most likely a recommended procedure for complying with the Standard on performance presentation?

Consider the level of financial knowledge of the audience to whom the performance is presented

East Company purchased a new truck at the beginning of this year for $30,000. The truck has a useful life of eight years or 150,000 miles, and an estimated savage value of $3,000. If the truck is driven 16,500 miles this year, how much depreciation will East report under the double-declining balance (DDB) method and the units-of-production (UOP) method?

DDB = $7,500 UOP = $2,970

Which of the following is least likely a limitation of financial ratios?

Data on comparable firms are difficult to acquire

Which of the following would least likely increase pretax income?

Decreasing the residual value of a depreciable tangible asset

Which of the following best describes the impact of depreciating equipment with a useful life of 6 years using the decline balance method as compared to the straight-line method?

Depreciation expenses will be higher in the first year

Which of these steps is least likely to be a part of the financial statement analysis framework?

Determine whether the company's securities are suitable for the clients

Which of the following is least likely to included when calculating comprehensive income?

Dividends paid to common shareholders

Which of the following would most likely result in a current liability?

Estimated income taxes for the current year

During the year, a firm's inventory purchases were as follows: Quarter, Units Purchased, Cost per Unit, Total 1, 400, $3.30, $1,320 2, 100, $3.60, $360 3, 200, $3.90, $780 4, 50, $4.20, $210 All, 750, XX, $2,670 -The firm uses a periodic inventory system and calculates inventory and COGS at the end of the year -Beginning inventory was 200 units at $3 period unit = $600 -Sales for the year were 600 units Compute COGS for the year under FIFO and LIFO

FIFO = $1,920 LIFO = $2,175

CC Corporation report the following inventory transactions (in chronological order) for the year: Purchase 40 units at $30 20 units at $40 90 units at $50 Sales 13 units at $35 35 units at $45 60 units at $60 Assuming inventory at the beginning of the year was zero, calculate the year-end inventory using FIFO and LIFO.

FIFO = $2,100 LIFO = $1,280

When accounting for inventory, are the first-in, first-out (FIFO) and last-in, first-out (LIFO) cost flow assumptions permitted under U.S. GAAP?

FIFO = yes LIFO = yes

How should an analyst most appropriately adjust the finical statements of a firm that uses operating leases to finance its plant and equipment?

Increase liabilities

An analyst is comparing a firm to its competitors. The firm has a deferred tax liability that results from accelerated depreciation for tax purposes. The firm is expected to continue to grow in the foreseeable future. How should the liability be treated for analysis purposes?

It should be treated as equity at its full value

In period of rising prices and stable inventory quantities, which of the following best describes the effect on gross profit of using LIFO as compared to using FIFO?

Lower

Which of the following inventory valuation methods is required by the accounting standard-setting bodies?

Lower of cost or net realizable value

Which is least likely one of the conclusions about the impact of a change in financial reporting standards that might appear in management's discussion and analysis?

Management has chosen not to implement the new standard

Which principle required that cost of goods sold be recognized in the same period in which the sale of the related inventory is recorded?

Matching

Which of the following statements about the Standard on misconduct is most accurate?

Neglecting to perform due diligence when required is an example of misconduct

While reviewing a company, an analyst identifies a permanent difference between taxable income and pretax income. Which of the following statements most accurately identifies the appropriate financial statement adjustment?

No financial statement adjustment is necessary

Bill Cooper finds a table of historical bond yields on the website of the U.S. Treasury that supports the work he has done in his analysis and includes the table as part of his report without citing the source. Has Cooper violated the Code and Standards?

No, because the table is from a recognized source of financial or statical data

Which of the following items is least likely considered a cash flow from financing activity under U.S. GAAP?

Payment of interest on debt

Which of the following tax definitions is least accurate?

Pretax income is income tax expense divided by one minus the statutory tax rate

Which of the following statements least accurately describes a role of financial statement analysis

Provide reasonable assurance that the financial statements are free of material errors

An analyst is reviewing a company with a large deferred tax asset on its balance sheet. She has determined that the firm has had cumulative losses for the last three years and has a large amount of inventory that can only be sold at sharply reduced prices. Which of the following adjustments should the analyst make to account for the deferred tax assets?

Recognize a valuation allowance to reflect the fact that the deferred tax asset is unlikely to be realized

Which of the following is least likely to be a motivation to overreport earnings?

Reduce tax obligations

How should the proceeds received form the advance sale of tickets to a sporting event be treated by the seller, assuming the tickers are nonrefundable?

Revenue is deferred until the sporting event is held

Which of the following actions is required, rather than recommended, action under the Standard regarding diligence and reasonable basis for a firm's research recommendations?

Review the assumptions used and evaluate the objectivity of third-party research reports

Which of the following statements about the FASB conceptual framework, as compared to the IASB conceptional framework, is more accurate?

The FASB framework lists revenue, expenses, gains, losses, and comprehensive income related to financial performance

The CFA Institute Professional Conduct Program (PCP) has begun an investigation into Chris Jones, a Level II CFA candidate, and a number of his CFA Charterholder colleagues. Jones has access to confidential client records that could be useful in clearing his name and wishes to share this information with the PCP. Which of the following most accurately describes Jones's duties with regard to preservation of confidentiality?

The Standards encourage, but do not require, that Jones support the PCP investigation into his colleagues

Which of the following statements about analyzing the balance sheet is most accurate?

The balance sheet can be used to measure the firm's capital structure

As compared to purchasing an asset, which of the following is least likely an incentive to structure a transaction as a finance lease?

The lease enhances the balance sheet by the lease liability

Which of the following is least likely to be disclosed in the financial statements of a bond issuer?

The market rate of interest on the balance sheet date

Which of the following transactions would most likely be reported below income from continuing operations, net of tax?

The operating income of a physically and operationally distinct division that is currently for sale, but not yet sold

Which of the following inventory disclosures would least likely be found in the footnotes of a film following IFRS?

The separate carrying values of raw materials, work-in-process, and finished goods computed under the LIFO cost flow method

Which of the following statements about indefinite-lived intangible assets is most accurate?

They are reported on the balance sheet indefinitely

Where are dividends paid to shareholders reported in the cash flow statement under U.S. GAAP and IFRS?

U.S. GAAP = financing activities IFRS = operating or financing activities

Which of the following is most likely included in a f firm's ending inventory?

Variable production overhead

Claire Marlin, CFA, manages an investment fund specializing in foreign currency trading. Marlin writes a report to investors that describes the basic characteristics of her strategy, which is based on an expected appreciation of the euro relative to other major currencies. Marlin shows the projected returns from the strategy if the euro appreciates less than 5%, between 5% and 10%, or more than 10%, while clearly stating that these forecasts are her opinion. Has Marlin violated the Standard related to communication with clients?

Yes

Ed Ingus, CFA, visits the headquarters and main plant of Bullitt Company and observes that inventories of unsold goods appear unusually large. From the CFO, he learns that a recent increase in returned items may result in earnings for the current quarter that are below analysts' estimates. Based on his visit, Ingus changes his recommendation on Bullitt to "Sell." has Ingus violated the Standard concerning material nonpublic information?

Yes

Kate Wilson, CFA, is an equity analyst. Wilson enters two transactions for her personal account. Wilson sells 500 shares of Tibon, Inc., a stock on which her firm currently has a "Buy" recommendation. Wilson buys 200 shares of Hayfield Co. and the following day issues a research report on Hayfield with a "Buy" recommendation. Has Wilson violated the Code and Standards?

Yes, but only one of her actions violates the Code and Standards

If the tax base of an asset exceeds the asset's carrying value and a reversal is expected in the future

a deferred tax asset is created

Situational factors that influence ethical behavior are least likely to include

a lack of ethical principles

Information about elections of members to a company's Board of Directors is most likely found in

a proxy statement

Accounts receivable and accounts payable are most likely classified as which financial statement elements?

accounts receivable= assets accounts payable= liabilities

The Standard regarding suitability most likely requires that

an advisor must analyze an investment's suitability for the client prior to recommending or acting on the investment

in its first year of operations, a firm produces taxable income of -$10,000. The prevailing tax rate is 40%. The firm's balance sheet will report a deferred tax

asset of $4,000

RGB, Inc. has a gross profit of $45,000 insoles of $150,000. The balance sheet shows average total assets of $75,000 with an average inventory balance of $15,000. RGB's total asset turnover and inventory turnover are closest to

asset turnover = 2 times inventory turnover = 7 times

A vertical common-size balance sheet expresses each category of the balance sheet as a percentage of

assets

The Hall Corporation had 100,000 shares of common stock outstanding at the beginning of the year. Hall issued 30,000 shares of commons tock on May 1. On July 1, the company issued a 10% stock dividend. On September 1, Hall issued 1,000, 10% bonds each convertible into 21 shares of common stock. What is the weighted average number of shares to be used in computing basic and diluted EPS, assuming the convertible bonds are dilutive?

average shares, basic = 132,000 averages shares, diluted = 139,000

A firm's financial position at a specific point in time is reported in the

balance sheet

Employing a framework for decision making that includes the ethical aspects of the decision is most likely to

balance the interests of various stakeholders

Which of the following statements is most accurate? The difference between taxes payable for the period and the tax expense recognized on the financial statements results from differences

between financial and tax accounting

A professional code of conduct

can increase public trust in the profession

Compared to reporting under FIFO for both tax and financial statements, a firm that chooses to report under LIFO during a period of falling prices would be most likely to report a lower

cash balance

Century's balance sheet presentation is known as a

classified balance sheet

A potential warning sign that a firm is engaging in channel stuffing is an unusual increase in the firm's

days of sales outstanding

KLH Company reported the following: -Gross DTA at the beginning of the year = $10,500 -Gross DTA at the end of the year = $11,250 -Valuation allowance at the beginning of the year = $2,700 -Valuation allowance at the end of the year = $3,900 Which of the following statements best describes the expected earnings of the firm? Earnings are expected to

decrease

Using the effective interest rate method, the reported interest expense of bond issued at a premium will

decrease over the term of the bond

A company's current ratio is 1.9. If some of the accounts payable are paid off from the cash account, the

denominator would decrease by a greater percentage than the numerator, resulting in a higher current ratio

Which of the following financial reports are considered to be of the lowest quality? Financial reports that reflect

departures from accounting principles

For a non financial firm, are depreciation expense and interest expense included or excluded from operating expenses in the income statement?

depreciation expense = included interest expense = excluded

Annual depreciation and accumulated depreciation are most likely classified as which financial statement elements?

depreciation= expenses accumulated depreciation= contra assets

A limitation on the effectiveness of auditing in ensuring financial reporting quality is that

detecting fraud is not the objective of audits

Connie Fletcher, CFA, works for a small money management firm that specializes in pension accounts. Recently, a friend asked her to act as an unpaid volunteer manager for the city's street sweep pension fund. As part of the position, the city would grant Fletcer a free parking space in front of her downtown office. Before Fletcher accepts, she should most appropriately

disclose the details of the volunteer position to her employer and obtain written permission from her employer

Daniel Lyons, CFA, is an analyst who covers several stocks including Horizon Company. Lyon's aunt owns 30,000 shares of Horizon. She informs Lyons that she has created a trust in his name into which she has placed 2,000 shares of Horizon. The trust is structured so that Lyons will not be abel to sell the shares until his aunt dies, but may vote the shares. Lyons is due to update his research coverage of Horizon next week. Lyons should most appropriately

disclose the situation to his employer and, if then asked to prepare a report, also disclose his beneficial ownership of the shares in his report

Sarah Johnson, a portfolio manager, is offered a bonus directly by a client if Johnson meets certain performance goals. To comply with the Standard that governs additional compensation arrangements, Johnson should

disclose this arrangement to her employer in writing and obtain her employer's permission

After writing the Level I CFA exam, Cynthia White goes to internet discussion site CFA Haven to express her frustration. White writes, "CFA Institute is not doing a competent job of evaluating candidates because none of the questions in the June exam touched on Alternative Investments." White most likely violated the Standard related to conduct as a candidate in the CFA program by

disclosing subject matter cover or not covered on a CFA exam

A firm issues a $10 million bond with a 6% coupon rate, 4-year maturity, and annual interest payments when market interest rates are 7%. The bond can be classified as a

discount bond

Under IFRS, interest expenses would be classified as

either operating cash flow or financing cash flow

An electrician repaired the light fixtures in a retail shop on October 24 and sent the bill to shop on November 3. If both the elecrtian and the ship prepare financial statements under the accrual method on October 31, how will they each record this transation?

electrician= accrued revenue retail shop= accrued expenses

Standard-setting bodies are responsible for

establishing financial reporting standards only

A firm reports net income of $40 million. The firm's financial statements disclose in management's discussion and analysis that $30 million of net income is attributable to a gain on the sale of assets. Based only on this information, for this period, the firm is best described as having high quality of

financial reporting only

Information about accounting estimates, assumptions, and methods choose for reporting is most likely found in

financial statement notes

An increase in notes payable would be classified as

financing cash flow

Issuing bonds would be classified as

financing cash flow

An analyst who is interested in a company's long-term solvency would most likely examine the

fixed charge coverage ratio

An auditor needs to review all of a company's transactions that took place between August 15 and August 17 of the current year. To find this information, she would most likely consult the company's

general journal

SF Corporation has created employee goodwill be reorganizing its retirement benefit package. An independent management consultant estimated the value of the goodwill at $2 million. In addition, SF recently purchased a patent that was developed by a competitor. The patent has an estimated useful life of five years. Should SF report the goodwill and patent on its balance sheet?

goodwill = no patent = yes

In period of falling prices, a firm reporting under LIFO, compared to reporting under FIFO, will have a higher

gross profit margin

In the year after an impairment charge on a finite-lived identifiable intangible asset, compared to not taking the charge, net income is most likely to be

higher

During a period of increasing prices, compared to reporting under LIFO, a firm that reports using average cost for inventory will have a

higher current ratio

According to converged accounting standards issued in May 2014, the first step in the revenue recognition process is to

identify the contract

According to IFRS, the deferred tax consequences of revaluing held-for-use equipment upward is reported on the balance sheet

in stockholders' equity

Are income taxes and cost of goods sold examples of expenses classified by nature or classified by function in the income statement?

income taxes = nature cost of goods sold = function

Dawn Czerniak is writing an article about international financial reporting standards. In her article she states, "Despite strong support from business group for universally accepted set of financial reporting standards, disagreements among the standard-setting bodies and regulatory authorities of various countries remain a barrier to developing one." Czerniak's statement is

incorrect, because business groups have not supported a uniform set of financial reporting standards

Paul Schmidt, a representative for Westby Investments, is explaining how security analysts use the results of the accounting process. He states, "Analysts do not have access to all the entries that went into creating a company's financial statements. If the analyst carefully reviews the auditor's report for any instances where the financial statements deviate from the appropriate accounting principles, he can then be confident that management is not manipulating earnings." Schmidt is

incorrect, because management can manipulate earnings even within the confines of generally accepted accounting principles (GAAP)

An increase in the tax rate causes the balance sheet value of a deferred tax asset to

increase

Coulter Products reports under IFRS and wrote its inventory value down from cost of $400,000 to net realizable value of $380,000. The most likely financial statement effect of this change is a(n)

increase in cost of sales

An analyst who is projecting a company's net income and cash flows is least likely to assume a constant relationship between the company's sale and its

interest expenses

Sale of land would be classified as

investing cash flow

Sale of obsolete equipment would be classified as

investing cash flow

Changing an accounting estimate

is reported prospectively

A member or candidate who has supervisory responsibility

is responsible for instructing those to whom he has delegated authority about methods to detect and prevent violations of the law and the Code and Standards

Credit analyst are likely to consider a company's credit quality to be improving if the company reduces its

leverage

-A firm acquires an asset fro $120,000 with a 4-year useful life and no salvage value -The asset will generate $50,000 of cash flow for all four years -The tax rate is 40% each year -The firm will depreciate the asset over three years on straight-line (SL) basis for tax purposes and over four years on SL basis for financial purposes. At the end of year 2, the firm's balance sheet will report a deferred tax

liability of $8,000

Which of the following ratios are used to measure a firm's liquidity and solvency?

liquidity = cash ratio solvency = total debt ratio

According to the Standard on independence and objectivity, members and candidates

may accept gifts or bonuses from clients

Which of the following is most likely for a firm with high inventory turnover and lower sales growth than the industry average? The firm

may be losing sales by not carrying enough inventory

Financial reporting is most likely to be decision useful when management's accounting choices are

neutral

Depreciation expense would be classified as

no cash flow impact

The write-off of obsolete equipment would be classified as

no cash flow impact

Torval, Inc. retires debt securities by issuing equity securities. This is considered a

noncash transaction

A company's quick ratio is 1.2. iF inventory were purchased for cash, the

numerator would decrease more than the denominator, resulting in lower quick ratio

Compared to complying with laws and regulations, complying with a code of ethics

often involves more judgment

Sales of inventory would be classified as

operating cash flow

Under U.S. GAAP, dividends received from investments would be classified as

operating cash flow

Under U.S. GAAP, interest paid would be classified as

operating cash flow

Under U.S. GAAP, taxes paid would be classified as

operating cash flow

In an inflationary environment, a LIFO liquidation will most likely result in an increase in

operating profit margin

The groups into which business activities are classified for financial reporting are

operating, investing, and financing

With respect to conditions that may lead to low-quality financial reporting, ineffective internal controls are best described as a(n)

opportunity

The accounting equation is least accurately stated as

owners' equity = liabilities - assets

AAA has a contract to build a building for $100,000 with an estimated time to completion of three years. A reliable cost estimate for the project is $60,000. In the fist year of the project, AAA incurred costs totaling $24,000. How much profit should AAA report at the end of the fist year under the percentage-of-completion method and the completed-contract method?

percentage-of-completion = $16,000 completed-contract = $0

Which of the following most accurately lists a required reporting element that is used to measure a company's financial position and one that is used to measure a company's performance?

position = liabilities performance = income

Under IFRS, a firm that presents a nonstandard financial measure is least likely required to

provide the same measure for at least two prior periods

If an auditor finds that a company's financial statements have made a specific exceptions to applicable accounting principles, she is most likely to issue a

qualified opinion

If RGB, Inc. has annual sales of $100,000, average accounts payable of $30,000, and average accounts receivable of $25,000, RGB's receivables turnover and average collection period are closest to

receivables turnover = 4 times average collection period = 91 days

Which one of the following statements is most accurate? Under the liability method of accounting for deferred taxes, a decrease in the tax rate at the beginning of the accounting period will

reduce a deferred tax liability

According to the IASB Conceptual Framework, the fundamental qualitative characteristics that make financial statements useful are

relevance and faithful representation

At the beginning of the year, Company P purchased 1,000 shares of Company S for $80 per share. During the year, Company S paid a dividend of $4 per share. At the end of the year, Company S's share price was $75. What amount should Company P report on its balance sheet at year-end if the investment in Company S is considered a trading security, and what amount should be reported if the investment is considered an available-for-sale security?

trading = $75,000 available-for-sale = $75,000

At the beginning of the year, Company P purchased 1,000 shares of Company S for $80 per share. During the year, Company S paid a dividend of $4 per share. At the end of the year, Company S's share price was $75. What amount of investment income should Company P recognize in its income statement if the investment in Company S is consider trading, and what amount should be recognized if the investment is considered available-for-sale?

trading = -$1,000 available-for-sale = $4,000

For the current period, inappropriate capitalization is most likely to

understate expenses

An analyst who needs to model and forecast a company's earnings for the next three years would be least likely to

use common-size financial statements to estimate expenses as a percentage of net income

Hern Investments provides mostly emerging market research to Baker Brokerage in exchange for prospective client referrals and European equity research from Baker. Clients and prospects of Hern are not made aware of the agreement, but clients unanimously rave about the high quality of the research provided by Baker. As a result of the research, many clients with non-discretionary accounts have earned substantial returns on their portfolios. Managers at Hern have also used the research to earn outstanding returns for the firm's discretionary accounts. Hern has most likely

violated the Code and Standards by failing to disclose the referral agreement with Baker

Green Brothers, an emerging market fund manager, has two of its subsidiaries simultaneously buy and sell emerging market stocks. In its marketing literature Green Brothers cites the overall emerging market volume as evidence of the market's liquidity. As a result of its actions, more investors participate in the emerging markets fund. Green Brothers most likely

violated the Standard regarding market manipulation