FIN 370 Midterm

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In order to evaluate a company's ability to meet its long-term obligations, an analyst will most likely examine its: a. Total debt ratio. b. Net operating cycle. c. Quick ratio.

a. Total debt ratio.

Which of the following statements regarding held-to-maturity securities is most accurate? a. Unrealized gains and losses from changes in market value are ignored and not recognized on the financial statements. b. They are purchased with the intent of holding them for at least 10 years. c. Realized gains and losses are included in other comprehensive income as part of shareholders' equity.

a. Unrealized gains and losses from changes in market value are ignored and not recognized on the financial statements.

Beta Inc. is an exporter of refined sugar. During 2009, it earned net income of $104,000, purchased inventory worth $13,000, and invested in new machinery worth $28,000. The company had previously invested in available-for-sale securities which were sold during the year for $8,000. The company's cash flow from investing activities is closest to: a. −$20,000 b. $28,000 c. −$33,000

a. −$20,000

Solitaire Inc. prepares its financial statements according to U.S. GAAP. During 2009, the company earned net income amounting to $102 million. During the year, it purchased machinery worth $22 million and recognized a total depreciation expense of $2.4 million. The company also paid an annual dividend amounting to $1.5 million. Based on this information, the company's cash flow from operations is closest to: a. $100.5 million. b. $104.4 million. c. $80.9 million.

b. $104.4 million.

A company has a net income of $150, an increase in accounts receivable of $30, depreciation of $55, and a decrease in accounts payable of $25. Its operating cash flow is closest to: a. $200 b. $150 c. $95

b. $150

The following information relates to XYZ Company for 2009: Net income $2,050 Depreciation $345 Interest expense $150 Tax rate 30% Net capital expenditure $1,500 Net debt repayment $20 Working capital investment $325 Net borrowing $1,500 XYZ's free cash flow to equity for 2009 is closest to: a. $5,050 b. $2,050 c. $2,090

b. $2,050

Tiara Corporation reported net income of $8 million for the year 2009. Total revenue and cost of goods sold for the period amounted to $35 million and $20 million respectively. If accounts receivable is increased by $5 million during the period, cash received from customers during the period was closest to: a. $20 million. b. $30 million. c. $40 million.

b. $30 million.

Which of the following is most likely a source of cash flow (outflow) for a company? a. An increase in accounts receivable b. A decrease in accounts payable c. An increase in wages payable

b. A decrease in accounts payable

Which of the following is least likely an investing activity under IFRS? a. A manufacturing company receiving an interest payment on a loan b. A manufacturing firm investing in held-for-trading securities c. A manufacturing firm investing in property, plant, and equipment

b. A manufacturing firm investing in held-for-trading securities

Which of the following is most likely a use of cash for a company? a. An increase in accounts payable b. An increase in inventory c. A decrease in accounts receivable

b. An increase in inventory

Which of the following inventory methods is not allowed under IFRS? a. First in, first out (FIFO) b. Last in, first out (LIFO) c. Weighted average

b. Last in, first out (LIFO)

Consider the following two statements: Statement 1: Companies should ideally have net income that exceeds operating cash flows. Statement 2: The variability of operating cash flow and net income is an important determinant of the overall risk inherent in the company. Which of the following is most likely? a. Only Statement 1 is correct. b. Only Statement 2 is correct. c. Both statements are correct.

b. Only Statement 2 is correct.

Using the following information and assuming that U.S. GAAP applies, the company's CFI is closest to: Proceeds from sale of equipment $32,000 Loss on equipment sale $9,000 Dividends paid $12,500 Purchase of office premises $100,000 Common stock repurchases $45,000 Dividends received $8,500 Interest received $1,200 Supplier accounts paid $3,700 Cash collections from customers $14,200 Ending cash balance $98,000 a. −$145,000 b. −$68,000 c. $12,000

b. −$68,000

Given the following information for a company, its CFO is closest to: Net income $1,000 Decrease in interest payable $85 Gain on sale of equipment $45 Increase in accounts payable $90 Decrease in inventory $35 Increase in prepaid assets $105 Depreciation $85 Increase in taxes payable $125 $1,100 $1,250 $1,050

$1,100

Capital One Bank provided $2.5 million to Pharma One Pvt. Ltd. (a pharmaceutical company) as a loan to be repaid in 5 years. Which of the following is the most accurate classification of this transaction by both the parties? Capital One Pharma One A Financing activity Financing activity B Financing activity Investing activity C Operating activity Financing activity

Row C

Magma Industries Ltd. reported a net profit of $104 million for 2009, with revenues of $500 million and COGS of $270 million. During the period, Magma made purchases worth $40 million. If the company's accounts payable increased by $4 million, cash paid to the company's suppliers was closest to: a. $36 million. b. $44 million. c. $186 million.

a. $36 million.

The following information relates to XYZ Company for 2009: Net income $2,050 Depreciation $345 Interest expense $150 Tax rate 30% Net capital expenditure $1,500 Net debt repayment $20 Working capital investment $325 Net borrowing $1,500 XYZ's free cash flow to the firm for 2009 is closest to: a. $675 b. $615 c. $720

a. $675

Revenue = $85 million Cost of goods sold = $44 million Decrease in inventory = $7 million Increase in accounts payable = $4 million Decrease in accounts receivable = $5 millions Cash received from customers is closest to: a. $90 million. b. $80 million. c. $73 million.

a. $90 million.

Cash = $22,250 Marketable securities = $13,480 Receivables = $4,330 Inventory = $4,240 Noncurrent assets = $79,700 Current liabilities = $31,450 Long-term liabilities = $33,340 Equity = $59,210 The company's financial leverage ratio is closest to: a. 2.09 b. 1.35 c. 0.75

a. 2.09

Mike sold goods worth $4,500, but is yet to receive cash for them. This will most likely lead to an increase in: a. Accrued revenue. b. Deferred expense. c. Deferred revenue.

a. Accrued revenue.

Held-to-maturity investments are most likely measured at: a. Amortized cost. b. Historical cost. c. Fair value.

a. Amortized cost.

Aquamarine Inc. is a manufacturer of perfumes and has several retail outlets throughout Europe. The company uses IFRS to report its financial statements and it recently entered into the following transactions: Transaction 1: Borrowed money from a bank for the purchase of inventory worth $180,000. Transaction 2: Made sales amounting to $990,000, of which $38,000 were made on credit. Transaction 3: Invested excess cash amounting to $12,000 in securities classified as held-for-trading and $8,000 in securities classified as held-to-maturity. Transaction 4: Paid dividends amounting to $130,000. Which of the following is the least likely effect on Aquamarine's financial statements due to Transaction 2? a. An increase in cash flow from operating activities of $990,000. b. An increase in receivables of $38,000. c. An increase in cash flow from operating activities of $952,000.

a. An increase in cash flow from operating activities of $990,000.

Under IFRS, dividends received may be classified as: a. CFO or CFI. b. CFI or CFF. c. CFO or CFF.

a. CFO or CFI.

Assuming U.S. GAAP, which of the following is most likely classified as a financing activity by a trading company? a. Dividends paid b. Dividends received c. Interest received

a. Dividends paid

Gamma Corporation is involved in the manufacture of parts for the aerospace industry. Assuming U.S. GAAP applies, which of the following is least likely classified as an investing activity by the firm? a. Investing in securities classified as held for trading b. Acquisition of a subsidiary c. Cash paid to purchase intangible assets

a. Investing in securities classified as held for trading

Howard Inc. (a manufacturing concern) uses U.S. GAAP to report its financial statements. Which of the following is most likely to be classified as an investing activity by this firm? a. Sale of securities classified as available for sale. b. Receipt of dividends on investments. c. Payment of interest on a loan.

a. Sale of securities classified as available for sale.

Which of the following is least likely to be included in equity? a. Retained earnings b. Bank borrowings c. Noncontrolling interest

b. Bank borrowings

Under U.S. GAAP, interest and dividends received may be classified as: a. CFF only. b. CFO only. c. CFF or CFO.

b. CFO only.

Under IFRS, interest paid may be classified as: a. CFI or CFF. b. CFO or CFF. c. CFO only.

b. CFO or CFF.

Sparta Inc. is a manufacturer of heavy machinery, but frequently invests in securities that it classifies as held-to-maturity. The outflow of cash for these investments is most likely classified as a(n): a. Operating activity. b. Investing activity. c. Financing activity.

b. Investing activity.

Aquamarine Inc. is a manufacturer of perfumes and has several retail outlets throughout Europe. The company uses IFRS to report its financial statements and it recently entered into the following transactions: Transaction 1: Borrowed money from a bank for the purchase of inventory worth $180,000. Transaction 2: Made sales amounting to $990,000, of which $38,000 were made on credit. Transaction 3: Invested excess cash amounting to $12,000 in securities classified as held-for-trading and $8,000 in securities classified as held to-maturity. Transaction 4: Paid dividends amounting to $130,000. Which of the following statements is most accurate regarding Transaction 3? a. It will increase cash flow from investing activities by $8,000. b. It will decrease cash flow from operating activities by $12,000. c. It will decrease cash flow from investing activities by $20,000.

b. It will decrease cash flow from operating activities by $12,000.

Net income = $1,120,000 Depreciation expense for the year = $27,000 Decrease in inventory = $13,800 Increase in taxes payable = $1,500 Issuance of common stock = $60,000 Dividends paid = $32,300 Purchase of land = $28,300 Investment in associate = $58,000 Purchase of held-for-trading securities = $7,200 Sale of available-for-sale securities = $84,700 Assume the company uses U.S. GAAP to prepare its financial statements. The company's cash flow from financing activities is closest to: a. $60,000 b. $92,300 c. $27,700

c. $27,700

Revenue = $85 million Cost of goods sold = $44 million Decrease in inventory = $7 million Increase in accounts payable = $4 million Decrease in accounts receivable = $5 millions Cash paid to suppliers is closest to: a. $37 million. b. $47 million. c. $33 million.

c. $33 million.

A company reported the following information: Cash received from customers = $27,300 Cash paid to suppliers = $11,400 Cash paid for other operating expenses = $7,400 Cash paid for income taxes = $3,250 The company's cash flow from operating activities is closest to? a. $8,500 b. $15,900 c. $5,250

c. $5,250

Cash = $22,250 Marketable securities = $13,480 Receivables = $4,330 Inventory = $4,240 Noncurrent assets = $79,700 Current liabilities = $31,450 Long-term liabilities = $33,340 Equity = $59,210 The company's current ratio is closest to: a. 1.28 b. 0.98 c. 1.41

c. 1.41

During 2009, Royal Superstores saw its accounts receivable and inventory increase by $5,600 and $3,700 respectively. At the same time, its accounts payable increased by $2,500. Based only on this information, the company's cash flow from operations will most likely: a. Increase by $6,800. b. Decrease by $9,300. c. Decrease by $6,800.

c. Decrease by $6,800.

Noncontrolling interests are typically presented under which balance sheet element? a. Assets b. Liabilities c. Equity

c. Equity

Which of the following statements regarding available-for-sale securities is least accurate? a. They are neither expected to be traded in the near term, nor held till maturity. b. They are reported at fair market value on the balance sheet. c. Gains and losses associated with these securities are reported on the income statement.

c. Gains and losses associated with these securities are reported on the income statement.

Which of the following is least likely included in the statement of changes in shareholders' equity? a. Accumulated other comprehensive income b. Treasury stock c. Interest received

c. Interest received

Which of the following statements regarding a vertical common-size balance sheet is least accurate? a. It allows an analyst to perform cross-sectional analysis across firms within the same industry. b. It allows an analyst to perform time-series analysis. c. It expresses each balance sheet item as a percentage of noncurrent assets.

c. It expresses each balance sheet item as a percentage of noncurrent assets.

Barnes, an analyst, will check the financial statements of King Company. Which of the following items is likely to be classified as unusual or infrequent, but not both? a. Gains or losses from debt forgiveness b. Impairments, write-offs, write-downs, and restructuring costs c. Losses from an expropriation of assets

b. Impairments, write-offs, write-downs, and restructuring cost

Details relating to a company's revenue recognition policies are most likely found in: a. Management Discussion & Analysis. b. Supplementary schedules. c. Financial statement footnotes.

c. Financial statement footnotes.

If a user requires information regarding material corporate events, she is most likely to refer to: a. Form 144. b. Form 6-K. c. Form 8-K.

c. Form 8-K.

Charles Baker uses internet social media platforms to communicate with clients. He resides in a country with no securities laws or regulations that address social media, and his clients are located in a country with less strict securities laws and regulations regarding use of social media than the Code and Standards. Baker should adhere to: a. the Code and Standards b. the securities laws and regulations of the location of his client c. the securities laws and regulations of his residence

a. the Code and Standards

Which of the following decisions least likely requires the analysis of financial statements? a. Estimating the useful life of a noncurrent asset b. Assigning a debt rating to a company or bond issue c. Extending credit to a customer

a. Estimating the useful life of a noncurrent asset

Three investment managers have the following arrangements for voting proxies: Manager A votes on all proxy matters that arises on client portfolios Manager B has conducted a cost‐benefit analysis and only votes on proxies where the benefits of doing so outweigh the costs Manager C has a policy of always voting proxies in line with management in order to ensure smooth running of company policy Which of these managers is least likely to be in violation of Standard III(A): Loyalty, Prudence and Care?

Manager B

The following information relates to Alpha One Ltd. for the year ended 2009: Net income = $2,360,000 10% preferred stock = $500,000 Dividends paid to common shareholders = $44,000 Weighted average number of shares outstanding = 500,000 The company also has 500 convertible preferred shares outstanding, which pay a dividend of $75 per share every year. Each convertible preferred share can be converted into 50 common shares. Alpha One's basic and diluted earnings per share are closest to: Basic EPS ($) Diluted EPS ($) A 4.65 4.50 B 4.55 4.40 C 4.62 4.42

Row B

The following information relates to Global Manufacturers for the year ended 2009: Net income = $2,440,000 12% preferred stock = $850,000 Dividends paid to common shareholders = $50,000 Weighted average number of common shares outstanding = 2,000,000 The company also has $100,000 par of 8% convertible bonds outstanding, which are convertible into 20,000 shares of common stock. Given that Global Manufacturers pays taxes at the rate of 35%, its basic and diluted earnings per share are closest to: Basic EPS ($) Diluted EPS ($) A. 1.22 1.21 B. 1.17 1.16 C. 1.14 1.14

Row B

The following information relates to Beta Inc. for the year ended 2018: Shares outstanding on January 1, 2018 = 2,000,000 3-2 stock split on March 1, 2018 Shares issued on July 31, 2018 = 200,000 5% stock dividend on October 31, 2018 Shares repurchased on December 1, 2018 = 100,000 Beta Inc. reported net income of $3.34 million for the year ended 2018. The company's EPS is closest to: a. $1.03 b. $1.19 c. $1.09

a. $1.03

Supernova Inc. is a manufacturer of industrial chemicals. At the beginning of 2009, it purchased a machine for $875,000. The machine has an estimate useful life of 8 years and a residual value of $60,000. Supernova's depreciation expense for 2009 under the straight-line method is closest to: a. $101,875 b. $109,375 c. $81,500

a. $101,875

XYZ Company recently purchased a machine for $75,000. It expects to use the machine for 6 years, after which it will have a residual value of $5,000. How much depreciation should the company charge in the second year using double-declining balance depreciation? a. $16,667 b. $15,556 c. $25,000

a. $16,667

In the year 2009 (its first year of operations), Indigo Computers made the following purchases: Units Purchased Cost per Unit ($) Total Cost ($) First quarter 5,200 28 145,600 Second quarter. 6,700 23 154,100 Third quarter 7,300 19 138,700 Fourth quarter 4,200 25 105,000 Total 23,400 543,400 It sold 15,100 units during the year at a price of $30 per unit. Indigo's cost of goods sold under FIFO for 2009 is closest to: a. $360,500 b. $326,500 c. $350,656

a. $360,500

If a firm delivers a good or a service for which cash will be received in the following month, it is most likely to record the transaction as an: a. Accrued revenue asset. b. Accrued expense liability. c. Accrued revenue liability.

a. Accrued revenue asset.

An accrued expense liability is most likely recognized when: a. An expense is recognized before cash payment. b. Cash is paid prior to expense recognition. c. Revenue is recognized prior to the receipt of cash.

a. An expense is recognized before cash payment.

If a user wants to know about the current position of a company's assets, she is most likely to refer to the: a. Balance sheet. b. Cash flow statement. c. Income statement.

a. Balance sheet.

Which of the following financial assets/liabilities is most likely to be measured at amortized cost? a. Bonds payable b. Derivatives c. Nonderivative instruments with face value exposures hedged by derivatives

a. Bonds payable

Stella Bubsi and Larry Futura are candidates in the CFA Program. Bubsi has asked Futura about the specific details of questions appearing in the exam. Futura has declined to provide specific details, but does give the broad topical areas that were tested. Which of the following statements is most accurate? a. Both Bubsi and Futura have violated the Standards b. Bubsi has violated the Standards but Futura has not c. Neither Bubsi nor Futura have violated the Standards.

a. Both Bubsi and Futura have violated the Standards

According to Standard V(A): Diligence and Reasonable Basis, provided an analyst makes reasonable and diligent efforts to determine the that the research is sound, they are permitted to use a. Both secondary and third party research b. Secondary research but not third party research c. Third party research but not secondary research

a. Both secondary and third party research

Which of the following is least likely to be classified as other comprehensive income under U.S. GAAP? a. Changes in the value of long-lived assets that are measured using the revaluation model b. Unrealized holding gains and losses on available-for-sale securities c. Minimum pension liability adjustments

a. Changes in the value of long-lived assets that are measured using the revaluation model

Which of the following is least likely a characteristic of an effective financial reporting framework? a. Completeness b. Transparency c. Consistency

a. Completeness

Which of the following is least likely a general requirement for the preparation of financial statements? a. Completeness b. Going concern c. Materiality

a. Completeness

Which of the following statements regarding elements of the financial statements is least likely? The IFRS framework describes: a. Equity as being equal to capital contributed by the owner. b. Assets as the resources the entity controls from which it expects to derive future economic benefits. c. Liabilities as obligations that will result in an outflow of economic benefits in the future.

a. Equity as being equal to capital contributed by the owner.

Which of the following is least likely to be an example of transaction‐based manipulation under Standard II(B): Market Manipulation? a. Issuing misleading positive information or overly optimistic projections of a security's worth only to later sell it at an artificially high level. b. Crossing a single share of a security at a price that is significantly different from the last traded price in order to affect a related option expiration price c. Securing a controlling, dominant position in a financial instrument to exploit and manipulate the price of a related derivative and

a. Issuing misleading positive information or overly optimistic projections of a security's worth only to later sell it at an artificially high level.

Information regarding material events and uncertainties is most likely found in: a. Management Discussion & Analysis. b. Supplementary schedules. c. Financial statement footnotes.

a. Management Discussion & Analysis.

When an income statement explicitly shows gross profit as a subtotal, it most likely uses a: a. Multi-step format. b. Common-size format. c. Single-step format.

a. Multi-step format.

Which of the following is least likely an example of a potentially dilutive security? a. Preference shares b. Stock options c. Convertible bonds

a. Preference shares

The converged standards most likely follow which of the following approaches to revenue recognition? a. Principles-based approach b. Rules-based approach c. Objectives-oriented approach

a. Principles-based approach

Which of the following is least likely another name for the income statement? a. Statement of financial position b. Statement of operations c. Statement of earnings

a. Statement of financial position

Which of the following is the most accurate description of the going concern assumption? a. The entity will continue to exist in the foreseeable future. b. Management has no realistic alternative but to cease trading. c. The entity will cease to exist in the foreseeable future.

a. The entity will continue to exist in the foreseeable future.

Which of the following is least likely a condition for recognizing financial statement elements? a. The item is tangible. b. The cost of the item can be measured reliably. c. It is probable that any future economic benefits associated with the item will flow to or from the enterprise.

a. The item is tangible.

Bob Bernard discovers that a junior member of staff has frequently been profiting from advanced knowledge of the firm's recommended "buy" list. He checks to see if the personal dealing of the employee has been recorded but it comes to light that the employee had never signed the personal account dealing agreement of the firm. Which of the following statements is most likely to be correct? a. There has been a violation of both Standard IV(C) Responsibilities of Supervisors and Standard VI(B) Priority of Transactions b. There has been a violation of Standard IV(C) Responsibilities of Supervisors only c. There has been a violation of Standard VI(B) Priority of Transactions only

a. There has been a violation of both Standard IV(C) Responsibilities of Supervisors and Standard VI(B) Priority of Transactions

Which of the following is least likely an objective of the International Organization of Securities Commission (IOSCO)? a. To reduce unsystematic risk b. To protect the investors c. To ensure that markets are fair, efficient, and transparent

a. To reduce unsystematic risk

Which of the following is most likely classified as an identifiable intangible asset? a. Trademarks b. Land and buildings c. Goodwill

a. Trademarks

A company's other comprehensive income most likely includes: a. Unrealized gains and losses from cash flow hedging derivatives. b. Dividends paid. c. Net income.

a. Unrealized gains and losses from cash flow hedging derivatives.

Oscar Moon is an employee at a credit ratings agency, and has created a computer model for valuation of complex asset backed securitized products. The scenarios that Moon uses as the inputs for the model ignore any negative situations of deteriorating credit conditions, increasing rate and falling asset prices. Due to the higher ratings that this model achieves, his valuation model becomes popular with his firm, who are keen to issue positive ratings for structured products in order to win business. Moon has a. Violated Standard II(A) Market Manipulation b. Not violated Standard II(A) Market Manipulation since the scenarios used in the model accurately represent his views c. Not violated Standard II(A) Market Manipulation since the Standard only relates to market transactions and publically disseminated information

a. Violated Standard II(A) Market Manipulation

Tom Cobo is a research analyst covering the biotechnology sector. He employs an 'expert network' of industry contacts to stay abreast of current issues in the industry. Cobo arranges a call with a scientist involved in the preliminary testing of an Alzheimer's disease, during which the scientist discloses that it is very likely that the tests will be successful and the drug will be fast tracked through the government approval system. Cobo returns to his firm and discusses this information with his colleagues, before increasing his holding in the company. Cobo has a. Violated Standard II(A): Material Non‐Public Information b. Not violated Standard II(A): Material Non‐Public Information so long as procedures are in place with the expert network to deter the exchange of material non‐public information c. Not violated Standard II(A): Material Non‐Public Information because the information was being publically disseminated by the scientist in the expert network

a. Violated Standard II(A): Material Non‐Public Information

Clifford Roach is a portfolio manager for Ginger Investments. Historically Roach has been paid a constant percentage of assets under management for his service, however after a recent change in the compensation structure at Ginger, Roach is being compensated based on quarterly performance. Management at Ginger made this internal decision in order to better incentivise their managers to outperform for their clients. Consequently, Roach increases the risk of the portfolios that he manages. No disclosures of the change n compensation structure have been made to clients of Ginger. Roach has most likely: a. Violated both Standard III(C) Suitability and Standard VI(A) Conflicts of Interest b. Standard III(C) Suitability only c. Standard VI(A) Conflicts of Interest only

a. Violated both Standard III(C) Suitability and Standard VI(A) Conflicts of Interest

For 2012 Chyme Enterprises' beginning and ending shareholders' equity was €225 million and €250 million, respectively. In that year, Chyme reported revenue of €130 million and net income of €42 million, the company paid €5.5 million in cash dividends, and there were no other issuances or repurchase of common stock. Calculate the amount of other comprehensive income Chyme reported in 2012. a. −€11.5 million. b. −€17.0 million. c. €22.5 million.

a. −€11.5 million.

The following information relates to Pharma One Ltd. for the year ended 2009: Net income = $2,150,000 Preferred dividends = $210,000 Dividends paid to common shareholders = $170,000 Weighted average number of common shares outstanding = 800,000 Pharma One's basic EPS is closest to: a. $2.21 b. $2.43 c. $2.48

b. $2.43

A construction company, ABC Inc., enters into a contract with XYZ Inc. to construct a commercial building. The construction contract specifies consideration of $4 million. ABC expects to incur costs amounting to $3,400,000 to satisfy the terms of the contract. During Year 1, ABC incurs $2,380,000 in costs. Now assume that at the beginning of Year 2, the two parties to the contract agree to change the building floor plan and modify the contract. As a result, the contract will now be worth $4.4 million, and there will be a $600,000 bonus paid out to ABC if it is able to complete the project in another 1.5 years (2.5 years from initiation). The changes will result in an increase in ABC's costs amounting to $300,000. ABC believes that it does meet the criteria for being able to recognize the bonus as revenue. The amount that ABC will recognize as a cumulative catch-up adjustment on the date of contract modification is closest to: a. $0 b. $416,216 c. $30,270

b. $416,216

Which of the following statements is least accurate? a. A change in an accounting estimate is applied prospectively. b. A change in accounting principle is applied prospectively. c. A correction of prior period errors is made by restating all the financial statements presented in the financial report.

b. A change in accounting principle is applied prospectively.

All of the following are considered acts of plagiarism under Standard I(C): Misrepresentation except: a. Verbally repeating a quote of a leading industry expert in an online webcast without attribution b. A firm using work completed by analysts that subsequently left the firm without attributing the analysts c. An analyst reissuing work solely under their name that was initially completed by analysts that previously worked at the firm

b. A firm using work completed by analysts that subsequently left the firm without attributing the analysts

Which of the following actions is most likely to be considered a violation of Standard I(D): Misconduct? a. A portfolio manager conducting an extra marital relationship with a member of his office b. A portfolio manager not expending the necessary effort to due diligence securities that are added to client portfolios c. A risk manager filing for personal bankruptcy

b. A portfolio manager not expending the necessary effort to due diligence securities that are added to client portfolios

Which of the following is an analyst most likely to examine in order to learn more about a firm's operating activities? a. Dividends declared b. Accounts receivable c. Goodwill

b. Accounts receivable

If an auditor believes that the financial statements materially depart from accounting standards and are not presented fairly, she is most likely to issue a(n): a. Qualified opinion. b. Adverse opinion. c. Unqualified opinion.

b. Adverse opinion.

An audit is most likely described as: a. A review of the financial statements by an internal auditor of the entity to check their accuracy. b. An independent review of an entity's financial statements. c. A review of the financial statements by a senior director of the entity with the purpose of stating an opinion on their fairness and reliability.

b. An independent review of an entity's financial statements.

Which of the following policies most closely adheres to the recommended procedures for compliance under Standard I(B):Independence and Objectivity regarding gifts? a. Analysts should reject all gifts from clients and related parties b. Analysts should disclose gifts from clients to their employer and receive only modest gifts from related parties c. Analysts should disclose gifts from clients to their employer and reject all gifts from related parties

b. Analysts should disclose gifts from clients to their employer and receive only modest gifts from related parties

Ratio analysis is most likely to be performed after which of the following steps in the financial statement analysis framework? a. Processing data b. Collecting data c. Interpreting data

b. Collecting data

Which of the following is least likely an example of grouping an expense by nature? a. Depreciation b. Cost of goods sold c. Interest expense

b. Cost of goods sold

According to Standard III(A): Loyalty, Prudence and Care, soft dollar agreements: a. Violate the duty of loyalty to the client b. Do not violate the duty of loyalty to the client as long as the goods and services purchased with soft dollar commissions are used to benefit the client c. Never violate the duty of loyalty to the client

b. Do not violate the duty of loyalty to the client as long as the goods and services purchased with soft dollar commissions are used to benefit the client

Goodwill based on a company's performance and its future prospects is most likely known as: a. Accounting goodwill. b. Economic goodwill. c. Potential goodwill.

b. Economic goodwill.

If an analyst wants to review a firm's revenue recognition policies, she is most likely to refer to: a. Management discussion and analysis. b. Financial statement footnotes. c. Additional supplementary schedules.

b. Financial statement footnotes.

Which of the following is least likely a step in the financial statement analysis framework? a. Processing data b. Forecasting data c. Interpreting data

b. Forecasting data

Which of the following is the most appropriate classification of profit on sale of discontinued operations by a manufacturing firm? a. Gain reported as a part of continuing operations b. Revenue considered a part of operating activities c. Gain reported after continuing operations

c. Gain reported after continuing operations

ABC Corporation sells electronic goods. It typically offers a 2-year warranty on its products. It calculates annual warranty expense as 2% of total sales. ABC Corporation should recognize a particular year's warranty expense on its income statement: a. When the expense is actually incurred, based on the accrual assumption. b. In the current period, based on the matching principle. c. When cash is actually paid for warranty-related expenses.

b. In the current period, based on the matching principle.

Laurindo Brecker has produced a report on the equity market neutral strategy hedge fund sector. As part of his research, he has modeled a simple quantitative contrarian strategy that selects long and short weights of securities based on their recent price performance. Brecker uses daily returns over the last three months for his model, a period of very low price volatility and positive market returns. Brecker concludes that equity market neutral hedge funds are a good long term investment prospect. Brecker is: a. In violation of Standard V(A): Diligence and Reasonable Basis since he has used simulated performance in his report and not disclosed this fact b. In violation of Standard V(A): Diligence and Reasonable Basis since he has not conducted a thorough enough analysis before making his recommendation c. Not in violation of Standard V(A)

b. In violation of Standard V(A): Diligence and Reasonable Basis since he has not conducted a thorough enough analysis before making his recommendation

Which of the following statements regarding the IASB is least accurate? a. It is a private organization consisting of experienced accountants, auditors, users of financial statements, and academics. b. It has legal authority to enforce financial reporting requirements. c. It is advised by the Standards Advisory Council.

b. It has legal authority to enforce financial reporting requirements.

Which of the following is the most accurate explanation of "realizable value" as a measurement base for liabilities? a. It is the present discounted value of the expected future net cash outflows that are required to settle the liability in the normal course of business. b. It is the undiscounted amount of cash expected to be paid to satisfy the liability in the normal course of business. c. It is the undiscounted amount of cash required to settle the obligation today.

b. It is the undiscounted amount of cash expected to be paid to satisfy the liability in the normal course of business.

Bizcom International uses historical cost as a measurement base for its assets, while Telecard Inc. uses fair value. Given that over the past few years, prices of noncurrent assets have significantly increased, Bizcom is most likely to report: a. Higher assets than Telecard. b. Lower assets than Telecard. c. The same amount of assets as Telecard.

b. Lower assets than Telecard.

Liquidity most likely refers to a company's ability to: a. Meet its long-term debt obligations. b. Meet its short-term obligations. c. Issue bonds in the capital market.

b. Meet its short-term obligations.

Which of the following statements best characterises the requirements of Standard III(D): Performance Presentation? a. Members and Candidates must comply with GIPS standards b. Members and Candidates should encourage their firms to comply with GIPS standards c. Members and Candidates should only seek employment at firms that adhere to GIPS standards

b. Members and Candidates should encourage their firms to comply with GIPS standards

Henry Mullen is a research analyst who bases his research on a wide variety of sources, including digital media such as text messages, blog posts and Twitter posts. There are no local regulations that address the use of digital media sources in research reports. Which of the following statements best describes the duties imposed on Mullen under Standard V(C): Record Retention? a. Mullen is not permitted to use these digital media sources in his research b. Mullen is permitted to use these digital sources in his research providing all relevant information is retained c. Mullen is permitted to use these digital sources providing he adheres to local regulations

b. Mullen is permitted to use these digital sources in his research providing all relevant information is retained

Which of the following is least likely a format for the balance sheet? a. Report format b. Multi-step format c. Account format

b. Multi-step format

Owners' equity is best described as: a. Liabilities in excess of the company's assets. b. Owners' residual interest in the assets of an entity after deducting its liabilities. c. A company's noncurrent assets less its noncurrent liabilities.

b. Owners' residual interest in the assets of an entity after deducting its liabilities.

Which of the following approaches is adopted by the IASB? a. Objectives-oriented b. Principles-based c. Rules-based

b. Principles-based

Tom Gerten is a research analyst who has reasons to believe that ongoing employer activities are in violation of CFA Institute Standards of Professional Conduct. Gerten's initial response should be to: a. Report his suspicions to the relevant regulatory body b. Report his suspicions to his supervisor or compliance department c. Resign his position at the firm in order to dissociate from the activity

b. Report his suspicions to his supervisor or compliance department

Louise Overhill, CFA, makes the following two statements on her professional networking profile page: Statement 1: "I passed each of the CFA examination levels in consecutive years" Statement 2: "Passing the three CFA examination levels in consecutive years puts me among an elite group of analysts from which employers can expect superior performance" How many of the statements made by Overhill are in compliance with the Standards? a. Neither b. Statement 1 is in compliance, but statement 2 is not c. Statement 2 is in compliance, but statement 1 is not

b. Statement 1 is in compliance, but statement 2 is not

Which of the following statements regarding the qualitative characteristics of reporting financial statement elements under the IFRS framework is least accurate? a. Financial statements may omit nonquantifiable information. b. The framework requires the presentation of all financial information irrespective of how long it takes to gather that information. c. Information should be presented in a consistent manner between entities.

b. The framework requires the presentation of all financial information irrespective of how long it takes to gather that information.

Which of the following is the most accurate definition of assets? a. They are tangible resources controlled by the enterprise from which future economic benefits are expected to flow to the enterprise. b. They are resources controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. c. They are resources controlled by the enterprise from which it has earned economic benefits.

b. They are resources controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.

Form DEF-14A is most likely for which of the following purposes? a. To file Management Discussion & Analysis b. To provide information regarding proposals that require a shareholder vote c. To file unaudited financial statements

b. To provide information regarding proposals that require a shareholder vote

In the year 2009 (its first year of operations), Indigo Computers made the following purchases: Units Purchased Cost per Unit($) Total Cost ($) First quarter 5,200 28 145,600 Second quarter 6,700 23 154,100 Third quarter 7,300 19 138,700 Fourth quarter 4,200 25 105,000 Total 23,400 543,400 It sold 15,100 units during the year at a price of $30 per unit. Indigo's ending inventory under the first in, first out (FIFO) method is closest to? a. $216,900 b. $249,000 c. $182,900

c. $182,900

In the year 2009 (its first year of operations), Indigo Computers made the following purchases: Units Purchased. Cost per Unit ($) Total Cost ($) First quarter 5,200 28 145,600 Second quarter 6,700 23 154,100 Third quarter 7,300 19 138,700 Fourth quarter 4,200 25 105,000 Total 23,400 543,400 It sold 15,100 units during the year at a price of $30 per unit. Indigo's cost of goods sold under the weighted average cost method for 2009 is closest to: a. $350,565 b. $360,500 c. $350,656

c. $350,656

In the year 2009 (its first year of operations), Indigo Computers made the following purchases: Units Purchased. Cost per Unit ($). Total Cost ($) First quarter 5,200 28 145,600 Second quarter 6,700 23 154,100 Third quarter 7,300 19 138,700 Fourth quarter 4,200 25 105,000 Total 23,400 543,400 It sold 15,100 units during the year at a price of $30 per unit. Indigo's gross profit for 2009 if it uses FIFO is closest to: a. $126,500 b. $102,344 c. $92,500

c. $92,500

Which of the following statements is most accurate regarding the requirements on a member of candidate under Standard IV(A): Loyalty? a. A member or candidate can not ever engage in independent competition to their current employer b. A member or candidate can only engage in independent competition to their current employer if they provide full disclosure to their employer prior to engaging in the activity c. A member or candidate can only engage in independent competition to their current employer if they gain consent from their employer prior to engaging in the activity

c. A member or candidate can only engage in independent competition to their current employer if they gain consent from their employer prior to engaging in the activity

Which of the following balance sheet presentation formats reports assets on the left-hand side, and liabilities and equity on the right-hand side? a. Report format b. Classified balance sheet c. Account format

c. Account format

Which of the following is most likely a general requirement for the preparation of financial statements? a. Verifiability b. Timeliness c. Accrual basis

c. Accrual basis

If an auditor feels that a company's financial statements are not presented fairly or significantly deviate from accounting standards, she will most likely issue a(n): a. Qualified opinion. b. Unqualified opinion. c. Adverse opinion.

c. Adverse opinion.

An audit can most likely be described as: a. A review of the financial statements by the audit committee consisting of independent directors. b. A review of the financial statements by a qualified director of the company to express an opinion on their fairness and reliability. c. An independent review of the company's financial statements.

c. An independent review of the company's financial statements.

Which of the following elements of financial statements is least likely related to the measurement of performance? a. Income b. Expenses c. Assets

c. Assets

Jim Wonder reads a study in a financial Journal regarding the valuation of global equity markets, and wishes to use information in the study in his own research. In order to avoid violating Standard I(C): Misrepresentation Wonder should attribute the information used in his report to: a. The financial journal b. The original author of the study c. Both the financial journal and the original author of the study

c. Both the financial journal and the original author of the study

Steven Burrell produces a performance presentation which does not adhere to GIPs standards and includes some simulated data. Which of the following statements is most accurate in relation to the requirements of Standard III(D): Performance Presentation? a. Burrell is in violation of the Standards since use of simulated data is not allowed b. Burrell should produce separate reports for actual data and simulated data c. Burrell should disclose the use of simulated data in the presentation to the recipients of the information

c. Burrell should disclose the use of simulated data in the presentation to the recipients of the information

Financial data tables are an output of which of the following steps in the financial statement analysis framework? a. Analyzing data b. Processing data c. Collecting data

c. Collecting data

Which of the following is least likely a desirable qualitative characteristic of financial statements? a. Faithful representation b. Relevance c. Conciseness

c. Conciseness

Emily Coryell is a research analyst who has a small holding of shares in CDE Corp, a information technology services company. Coryell is asked to initiate coverage on CDE Corp. In order to comply with Standard VI(A):Conflicts of Interest, Coryell should: a. Refuse to write the report b. Disclose to her employer her personal holding in CDE Corp in writing c. Disclose her personal holding in CDE Corp both to her employer in writing and in the report

c. Disclose her personal holding in CDE Corp both to her employer in writing and in the report

Which of the following is least likely an example of the measurement bases used to value items listed on the balance sheet? a. Present value b. Current cost c. Economic cost

c. Economic cost

Which of the following most accurately describes "realizable value" as a measurement base for assets? a. It is the amount of cash paid to purchase an asset, including costs of acquisition and installation. b. It is the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm's length transaction, which may involve either market measures or present value measures. c. It is the amount of cash that can currently be obtained by selling the asset in an orderly disposal.

c. It is the amount of cash that can currently be obtained by selling the asset in an orderly disposal.

A company's operating income is most useful in the analysis of: a. Its underlying performance relative to the amount of debt in its capital structure. b. The effects of taxes on its financial results. c. Its underlying performance independent of the use of financial leverage.

c. Its underlying performance independent of the use of financial leverage.

Which of the following statements clearly conflicts with the recommended procedures for compliance with Standard III(B): Fair Dealing when a firm is changing an investment recommendation? a. Maintain a list of clients and their holdings b. Limit the number of people involved c. Lengthen the timeframe between decision and dissemination

c. Lengthen the timeframe between decision and dissemination

Accounting standard boards should least likely: a. Have clear and consistent processes to guide the organization and formation of standards. b. Have clearly defined responsibilities for all parties involved in the standard-setting process. c. Let the decision-setting process be compromised due to pressure from external forces.

c. Let the decision-setting process be compromised due to pressure from external forces.

A company's solvency most likely refers to its ability to: a. Meet its short-term obligations. b. Sell its inventory at market price in a short period of time. c. Meet its long-term obligations.

c. Meet its long-term obligations.

Tim Evans and Ernesto Hodges have both recently been awarded the CFA charter. They update their business cards and resumes as follows: Tim Evans describes himself as "one of only two qualified CFAs at my firm". Ernesto Hodges replaces his name on his business card with "Ernesto Hodges, CFA". Which of the following statements is most accurate? a. Both Evans and Hodges are in compliance with the Standards b. Evans is in compliance with the standards, but Hodges is not c. Neither Evans nor Hodges are in compliance with the Standards

c. Neither Evans nor Hodges are in compliance with the Standards

Sonny Etheridge is making plans to leave his current employer after 13 years of service. He plans to set up a new firm which will engage in very similar business activities as his current firm. Etheridge resigns his post, and before he leaves the employment of his current firm, makes arrangements in his own time to register his new company as a legal entity. He plans to compete aggressively with his current firm and is confident that he can have success based on the experience and knowledge he has in the industry. Whilst he will not take any client lists from his current employer, he intends to use public information about his current clients to contact them once he has established his new firm. Is Etheridge in violation of Standard IV(A): Loyalty? a. Yes, because he plans to compete with his current employer b. Yes, because he plans to contact the clients of his current employer c. No

c. No

Peter Morris is a senior portfolio manager at Robearn Investments. As part of his role he often makes internal presentations at Robearn concerning current market conditions and his view on the various companies in the sector that he covers. Due to his high profile and experience, Morris is approached to make public speeches and presentations on similar matters at industry dinners and conferences in return for financial compensation. According to Standard IV(B) Additional Compensation Arrangements, Morris should: a. Refuse the offer b. Disclose to Robearn the potential additional compensation from public speaking prior to engaging in the activity c. Obtain written consent from all parties involved prior to engaging in any public speaking

c. Obtain written consent from all parties involved prior to engaging in any public speaking

If a company pays cash before it recognizes the associated expense it results in a(n): a. Unearned revenue liability. b. Accounts receivable asset. c. Prepaid expense asset.

c. Prepaid expense asset.

Frank Clotti is an investment analyst working for a credit rating agency. Clotti has been told by his immediate supervisor that structured products issued by a certain client should not receive a rating that is below investment grade, as it might affect the advisory relationship that the credit rating agency has with the client. Clotti has already conducted his analysis and concluded that several of the structured products issued by the client should be rated as below investment grade. According to the Standards, Clotti should: a. Adhere to the instructions of his supervisor b. Assign the structured products the lowest possible investment grade c. Refuse to associate with research that assigns a rating of investment grade to the structured products he has concluded should be rated below investment grade

c. Refuse to associate with research that assigns a rating of investment grade to the structured products he has concluded should be rated below investment grade

Which of the following financial statements is the analyst most likely to review to assess changes in a company's financial position? a. Balance sheet b. Income statement c. Statement of changes in owners' equity

c. Statement of changes in owners' equity

Which of the following statements is most accurate? a. The IASB framework does not discuss the term "probable" in its recognition criteria. b. The IASB framework includes three more elements relating to financial performance, namely, gains, losses, and comprehensive income. c. The IASB framework defines an asset as "a resource controlled by the entity from which future economic benefits are expected to flow to the entity."

c. The IASB framework defines an asset as "a resource controlled by the entity from which future economic benefits are expected to flow to the entity."

Which of the following is most likely a qualitative characteristic that enhances the value of relevant and faithfully represented financial information? a. Neutrality b. Completeness c. Timeliness

c. Timeliness

Which of the following statements regarding a company's internal controls is most accurate? a. Under U.S. GAAP, an independent auditor is responsible for the effectiveness of a company's internal controls system. b. The internal controls system seeks to ensure the reliability of the company's process for analyzing financial statements. c. Under U.S. GAAP, an auditor is also required to express an opinion on the company's internal controls system.

c. Under U.S. GAAP, an auditor is also required to express an opinion on the company's internal controls system.


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