IFRS 6
C
A classified balance sheet shows assets separately classified as either: A. liquid or non-liquid. B. tangible or intangible. C. current or non-current.
C
A firm with convertible securities initially calculates that its diluted EPS is greater than its basic EPS. The firm will: A. not be required to report diluted EPS. B. report basic EPS that is not equal to reported diluted EPS. C. report basic EPS that is equal to reported diluted EPS.
B
An analyst gathers the following information from a company's current financial statements: Cash Flow Statement for Year Ended 31 December ($ millions) Net income 2,520 Depreciation 1,178 Change in accounts receivable (62) Change in accounts payable 295 Change in inventory (792) Operating cash flow 3,139 Income Statement for Year Ended 31 December ($ millions) Revenue 26,430 Cost of goods sold 12,831 Operating expenses 9,802 Income tax expense 1,277 Net income 2,520 Q. If the company uses the direct method to prepare its cash flow statement, the cash paid to suppliers (in $ millions) will be closest to: A. 12,334. B. 13,328. C. 12,536.
A
An analyst gathers the following information from a company's current financial statements: Year Ended 31 December ($ millions) 2016 Revenue 26,430 Cost of goods sold 12,831 Operating expenses 9,802 Income tax expense 1,277 Net Income 2,250 Year Ended 31 December ($ millions) 2016 2015 Accounts receivable 1,134 1,072 Accounts payable 4,858 3,724 Inventory 4,462 3,670 Q. If the company uses the direct method to prepare its cash flow statement, the cash received from customers (in $ millions) will be closest to: A. 26,368. B. 25,296. C. 26,492.
A
An analyst notes that a company's most recent financial statements show £65 million in net income, £7 million in dividends paid to common shareholders, and £5 million of other net expense items excluded from the net income calculation. The company's comprehensive income is: A. £60 million. B. £65 million. C. £53 million.
C
An increase in assets and a decrease in liabilities that occur simultaneously and in equivalent magnitude are consistent with which of the following changes in equity? A. A decrease B. No change C. An increase
A
At the time of issue, for a corporate bond that sells at par, the liability on the issuer's balance sheet would be: A. equal to face value. B. greater than face value. C. less than face value.
B
At year end, a company has non-convertible debt, ordinary shares, and employee stock options outstanding. The company's capital structure is considered to be: A. complex, because the company has both debt and equity. B. complex, because the options are convertible into ordinary shares. C. simple, if the options are antidilutive.
B
For a company paying preferred dividends, the components needed to compute basic EPS are net income: A. and the weighted average number of common shares outstanding. B. preferred dividends, and the weighted average number of common shares outstanding. C. preferred dividends, additional shares issued if preferred is converted, and the weighted average number of common shares outstanding.
B
For a company without a clearly identifiable operating cycle, current liabilities are expected to be settled within: A. six months. B. one year. C. two years.
A
From a lessee's perspective, relative to operating leases, finance leases result in: A. higher total expenses in the early years of the lease. B. higher operating cash outflows relating to the lease payments. C. better reported profitability ratios.
A
If a company issues shares in exchange for a capital asset, the transaction is most likely reported as: A. supplementary information to the cash flow statement. B. a financing inflow and an investing outflow in the cash flow statement. C. an investing inflow and outflow in the cash flow statement.
B
Relative to purchasing an asset, leases generally: A. have more restrictive provisions than other forms of borrowing. B. provide less costly financing in the form of lower fixed interest rates. C.require a larger down payment.
B
Which of the following statements regarding balance sheets is correct? A. Equity stated on the balance sheet fairly represents a company's intrinsic value as of the reporting date. B. Important aspects of a company's ability to generate future cash flows are absent from its balance sheet. C. On the reporting date, shareholders' equity is adjusted to account for changes in expectations about future market conditions.
C
Which of the following statements relating to the financial reporting of defined contribution pension plans is correct? A. The only balance sheet impact from contributions to defined-contribution plans is on an asset account. B. Defined-contribution plans require companies to make several assumptions in order to estimate their pension obligations. C. Under a defined-contribution plan, company contributions to the plan are treated as an operating cash flow.
A
Working capital equals the excess of: A. cash over current liabilities. B. current assets over current liabilities. C. shareholders' equity over non-current assets.
C
In an issuer's financial statements, reported interest expense for a bond is computed using the: A. bond's coupon rate. B. market rate of interest. C. effective interest rate.
C
"Other current assets" typically include: A. trade receivables. B. customer prepayments. C. items deemed too small to be individually listed on the balance sheet.
B
Accounting goodwill is created when an acquisition's purchase price: A. results in a "bargain purchase." B. exceeds the value of acquired net identifiable assets. C. is attributed solely to separately identifiable assets and liabilities.
C
Balance sheet items presented on a current value basis are measured at the: A. start of the reporting period. B. midpoint of the reporting period. C. end of the reporting period.
B
Common-size balance sheets are most useful for: A. comparing companies in different industries. B. highlighting differences in peer companies' strategies. C. evaluating a company's balance sheet composition at a specific point in time.
B
Inventory values under IFRS are recorded at the lower of cost or: A. market. B. net realizable value. C. estimated selling price.
A
Resources controlled by a company from which future economic benefits are expected to flow to the entity are best described as: A. assets. B. equity. C. liabilities.
A
When preparing a common-sized income statement, the appropriate denominator for converting the reported cost of sales is: A. revenues. B. net income. C. pretax income.
B
A liquid asset can be easily converted into cash in a short amount of time at: A. any price. B. a price close to fair market value. C. a price above the original purchase value.
A
Accounts payable are: A. amounts a company owes its vendors for purchase of goods and services. B. financial liabilities owed by a company through a formal loan agreement. C. reported in a different section of the balance sheet from notes payable due in one year.
A
After issuance, the rate demanded by the purchaser of a bond is best described as the: A. market rate of interest. B. effective interest rate. C. coupon rate.
A
An analyst gathers the following annual information on three companies: Company A Company B Company C Sales $40,000 $200,000 $450,000 Cost of sales 21,000 110,000 240,000 Selling, general and administrative 6,000 24,000 48,000 All other operating expenses 1,000 2,000 5,000 Operating income 12,000 64,000 157,000 Interest and other expense 2,000 0 14,000 Taxes 4,000 26,000 58,000 Net income $6,000 $38,000 $85,000 Q. The company with the highest gross profit margin is: A. Company A. B. Company C. C. Company B.
C
Which of the following statements regarding balance sheets is correct? A. Equity equals the market value of assets minus the market value of liabilities. B. Liabilities are measured over a specific period of time rather than at a specific point in time. C. Some assets are presented on a historical cost basis, while others are presented on a current value basis.
C
Based on each company's debt-to-capital and financial leverage ratios, which company is the most solvent? EBIT Average Total Assets Total Debt Average Shareholders' Equity Total Shareholders' Equity Interest Payments Company A $4,761 $42,979 $12,796 $30,295 $32,000 $882 Company B $24,636 $201,536 $44,030 $80,970 $82,000 $3,423 Company C $1,553 $13,970 $8,115 $5,741 $6,000 $327 A. Company C B. Company B C. Company A
A
Based on each company's interest coverage ratio, which company is the most solvent? EBIT Average Total Assets Total Debt Average Shareholders' Equity Total Shareholders' Equity Interest Payments Company A $4,761 $42,979 $12,796 $30,295 $32,000 $882 Company B $24,636 $201,536 $44,030 $80,970 $82,000 $3,423 Company C $1,553 $13,970 $8,115 $5,741 $6,000 $327 A. Company B B. Company C C. Company A
A
Company X Company Y Company Z Assets Cash and cash equivalents 15.6% 12.0% 2.0% Marketable securities 3.4% 5.1% 12.0% Trade and other receivables 10.9% 12.7% 4.8% Other non-financial assets 14.3% 11.7% 7.4% Total current assets 44.2% 41.5% 26.2% Goodwill 1.6% 2.2% 28.8% Intangible assets 17.6% 7.0% 24.0% Property, plant, and equipment 17.7% 25.3% 8.2% Other financial assets 12.4% 24.0% 9.6% Other non-financial assets 0.3% 0.0% 2.1% Deferred tax assets 6.2% 0.0% 1.1% Total non-current assets 55.8% 58.5% 73.8% Total assets 100.0% 100.0% 100.0% Liabilities and shareholders' equity Trade and other payables 3.4% 3.5% 2.1% Bank loans and other financial liabilities 8.4% 3.2% 6.0% Other non-financial liabilities 5.0% 11.7% 9.0% Deferred income 11.8% 9.8% 0.0% Total current liabilities 28.6% 28.2% 17.1% Financial liabilities 18.4% 18.3% 17.4% Other non-financial liabilities 12.8% 5.7% 7.9% Deferred tax liabilities 2.5% 4.2% 18.6% Total non-current liabilities 33.7% 27.5% 43.9% Total liabilities 62.3% 55.7% 61.0% Total shareholders' equity 37.7% 44.3% 39.0% Total liabilities and shareholders' equity 100.0% 100.0% 100.0% Q. Based solely on the debt-to-equity ratio, which company exhibits the most financial risk? A. Company X B. Company Y C. Company Z
C
Company X Company Y Company Z Assets Cash and cash equivalents 15.6% 12.0% 2.0% Marketable securities 3.4% 5.1% 12.0% Trade and other receivables 10.9% 12.7% 4.8% Other non-financial assets 14.3% 11.7% 7.4% Total current assets 44.2% 41.5% 26.2% Goodwill 1.6% 2.2% 28.8% Intangible assets 17.6% 7.0% 24.0% Property, plant, and equipment 17.7% 25.3% 8.2% Other financial assets 12.4% 24.0% 9.6% Other non-financial assets 0.3% 0.0% 2.1% Deferred tax assets 6.2% 0.0% 1.1% Total non-current assets 55.8% 58.5% 73.8% Total assets 100.0% 100.0% 100.0% Liabilities and shareholders' equity Trade and other payables 3.4% 3.5% 2.1% Bank loans and other financial liabilities 8.4% 3.2% 6.0% Other non-financial liabilities 5.0% 11.7% 9.0% Deferred income 11.8% 9.8% 0.0% Total current liabilities 28.6% 28.2% 17.1% Financial liabilities 18.4% 18.3% 17.4% Other non-financial liabilities 12.8% 5.7% 7.9% Deferred tax liabilities 2.5% 4.2% 18.6% Total non-current liabilities 33.7% 27.5% 43.9% Total liabilities 62.3% 55.7% 61.0% Total shareholders' equity 37.7% 44.3% 39.0% Total liabilities and shareholders' equity 100.0% 100.0% 100.0% Q. Based solely on the quick ratio, which company is most liquid? A. Company X B. Company Y C. Company Z
C
Company X Company Y Company Z Assets Cash and cash equivalents 15.6% 12.0% 2.0% Marketable securities 3.4% 5.1% 12.0% Trade and other receivables 10.9% 12.7% 4.8% Other non-financial assets 14.3% 11.7% 7.4% Total current assets 44.2% 41.5% 26.2% Goodwill 1.6% 2.2% 28.8% Intangible assets 17.6% 7.0% 24.0% Property, plant, and equipment 17.7% 25.3% 8.2% Other financial assets 12.4% 24.0% 9.6% Other non-financial assets 0.3% 0.0% 2.1% Deferred tax assets 6.2% 0.0% 1.1% Total non-current assets 55.8% 58.5% 73.8% Total assets 100.0% 100.0% 100.0% Liabilities and shareholders' equity Trade and other payables 3.4% 3.5% 2.1% Bank loans and other financial liabilities 8.4% 3.2% 6.0% Other non-financial liabilities 5.0% 11.7% 9.0% Deferred income 11.8% 9.8% 0.0% Total current liabilities 28.6% 28.2% 17.1% Financial liabilities 18.4% 18.3% 17.4% Other non-financial liabilities 12.8% 5.7% 7.9% Deferred tax liabilities 2.5% 4.2% 18.6% Total non-current liabilities 33.7% 27.5% 43.9% Total liabilities 62.3% 55.7% 61.0% Total shareholders' equity 37.7% 44.3% 39.0% Total liabilities and shareholders' equity 100.0% 100.0% 100.0% Q. Which company is most likely to have grown through acquisitions? A. Company X B. Company Y C. Company Z
C
Debt with a maturity date beyond a company's next operating cycle is most likely classified as a component of: A. trade payables. B. accrued liabilities. C. non-current liabilities.
A
Deferred tax liabilities result when: A. taxable income in a period is less than reported financial statement income before taxes. B. items of expense are included in financial statement income in earlier periods than those for which taxable income is reported. C. straight-line depreciation methods are used for tax purposes and accelerated methods are employed for financial statement purposes.
A
Obligations of a company arising from past events are best described as: A. liabilities. B. prepaid expenses. C. shareholders' equity.
B
Selected financial data follows for Companies A, B, C: All values in millions except price per share Company A Company B Company C Price per share for common shares $27 $88 $53 Net income $150 $500 $800 Other comprehensive income (loss) ($17) $65 $50 Common stock dividends paid $45 $100 $300 Shares outstanding 100 125 300 Q. Which company has the lowest price/earnings (P/E) ratio calculated using comprehensive income? A. Company A B. Company C C. Company B
B
Selected year-end financial data for Mega Industries follows: Net income $100 million Tax rate 25 percent Weighted average number of common shares outstanding 25 million Convertible preferred shares* 10 million Preferred dividend per share $1.00 * Each share is convertible into 0.5 shares of common stock. Q. The net difference between Mega's reported basic EPS and its diluted EPS is closest to: A. $0.74. B. $0.27. C. $0.37.
B
Selected year-end financial data for Smalley Enterprises follows: Net income $200,000 Tax rate 15 percent Weighted average number of common shares outstanding 125,000 12% bond convertible into 3,000 common shares (potentially dilutive) $60,000 Q. Given this information, Smalley's diluted EPS is closest to: A. $1.61. B. $1.60. C. $1.51.
B
Shares which have been repurchased by a company and not canceled are best described as: A. other reserves. B. treasury shares. C. minority interest.
C
The difference between what a company owns and what it owes is best described as: A. market value. B. working capital. C. shareholders' equity.
C
The following common-size cash flow statement is available for a company: Cash Flow Statement for the Years Ended 31 December Inflows Percentage of Total Inflows 2016 2015 Cash received from customers 88.1 97.4 Proceeds from disposal of property, plant, and equipment 0.3 0.3 Proceeds from issuance of bonds 11.6 2.3 Total 100.0 100.0 Outflows Percentage of Total Outflows 2016 2015 Cash paid to suppliers and employees 71.0 70.7 Payments for investments in property, plant, and equipment 10.5 10.6 Payments made for financial instruments not included under cash equivalents 2.0 0.2 Payments for investments in companies, net of cash and cash equivalents 0.1 2.9 Transactions with equity holders 8.8 9.0 Repayments of loans, borrowings, and promissory notes 7.6 6.6 Total 100.0 100.0 Q. Compared with 2015, which of the following statements about 2016 is most accurate? The company: A. had a positive net operating cash flow. B. directed a larger portion of cash outflows to investing activities. C. relied more heavily on financing activities to generate cash inflows.
C
The following information (in $ thousands) is available for a company: 2016 2015 Revenue 54,400 Total expenses 36,600 Net income 17,800 Accounts receivable 20,500 28,600 Q. The total cash the company collected from customers (in thousands) is closest to: A. $25,900. B. $46,300. C. $62,500.
A
The following partial common-size cash flow statement and coverage ratio information is available for a company: Cash Flow Statement for the Year Ended 31 December Percentage of Net Revenues 2016 Cash flows from operating activities Cash received from customers 118.7% Cash paid to suppliers and employees (81.4) Dividends received 0.2 Net interest and other financial expenses paid (3.8) Taxes paid (5.2) Net cash from operating activities 28.5 Cash paid for long-term assets (13.4) Other investing activities (3.1) Net cash used in investing activities (16.5) Dividends paid (8.5) Other financing activities 3.8 Net cash flow used in financing activities (4.7) Net change in cash 7.3% Cash Flow Coverage Ratios 2015 Dividend payment 3.69 Investing and financing 0.82 Reinvestment 2.18 Q. Compared with 2015, the most appropriate conclusion an analyst can make about 2016 is that the company's ability to use operating cash flows to: A. pay dividends decreased. B. acquire assets, pay debts, and make distributions to owners decreased. C. acquire assets improved.
A
Which of the following statements about the cash flow statement prepared under the direct method is most accurate? A. For users, it is easier to interpret information necessary to assess a company's financial needs and ability to repay obligations. B. For preparers, it is the easier and less costly format to prepare. C. It mirrors the forecasting approach for future income that adjusts for the timing differences between accrual and cash accounting.
B
Which of the following statements best describes the accounting treatment of finance leases for lessors? A. Lease revenue is recorded at different times under IFRS and US GAAP. B. Direct financing and sales-type leases have similar balance sheet effects but different income statement effects under US GAAP. C. Receivable and income are reduced by initial direct costs incurred over the term of the lease under IFRS.
B
Which of the following statements best describes the effect of finance leases on financial statements? A. A lessee reports the interest portion of the lease payment as operating cash flow under IFRS and financing cash flow under US GAAP. B. The lessor reports a profit on the sale of the leased asset on the income statement in the case of a sales-type lease. C. Balance sheet effects differ based on whether the lease is a direct financing lease or a sales-type lease.
C
Trade receivables are: A. typically reported at gross value. B. owed by customers for products and services to be delivered. C. based on the company's estimate of amounts that ultimately will be collectible.
A
Under IFRS, a lease is classified as a finance lease if the: A. leased assets are specialized in nature. B. lease covers at least a minor portion of the economic life of the asset. C. lessee has the option to purchase asset at fair market value.
C
Under IFRS, in accounting for an operating lease, the leased item: A. appears as an asset on the balance sheet. B. appears as debt on the balance sheet. C. does not appear on the balance sheet.
B
Under IFRS, the statement of shareholders' equity presents information about the: A. carrying amounts of each component of equity as of the end of the year only. B. effects of any accounting changes retrospectively applied to previous periods. C. contracts that give rise to a financial asset for one entity and a financial liability or equity instrument for another entity.
B
Under IFRS, when a lease is classified as an operating lease, the lessee: A. acquires ownership of the asset by the end of the lease term. B. reports lease expense. C. reports a liability.
A
Under IFRS, which component of the change in the net pension asset or liability each period is recognized in other comprehensive income? A. Actuarial gains and losses and other remeasurements B. Employees' service costs C. The net interest expense or income accrued on the beginning net pension plan asset or liability.
B
Under US GAAP, a company's comprehensive income is reported as: A. net income less common stock dividends. the change in equity during a period from B. transactions and other events and circumstances from non-owner sources. C. revenue less expense items that are excluded from the net income calculation
B
Under US GAAP, a lease would be capitalized if the: A. lease term is at least 70% of the useful life of the leased asset. B. present value of the lease payments is 90% or more of the fair value of the leased asset. C. lease contains an option to purchase the leased asset for its fair market value.
C
Under US GAAP, a lessor classifies a lease as an operating lease if the revenue recognition requirement has been met and the lease: A. term is 75 percent of the useful life of the leased asset. B. contains a bargain purchase option. C. payments have a present value of 75 percent of the fair value of the leased asset.
A
Under US GAAP, for defined-benefit plans, which of the following items is reported as profit and loss? A. Interest expense accrued on the beginning pension obligation in the period incurred. B. Actuarial gains and losses in the current period. C. Past service costs in the period they arise.
A
Under US GAAP, internally created identifiable intangible assets most likely: A. are expensed and not reported on the balance sheet. B. have their amortization method and useful life reviewed at least annually. C. can be revalued only when there is an active market for the specific intangible asset.
A
Under US GAAP, property, plant, and equipment is reported on the balance sheet based on: A. a cost model only. B. a revaluation model only. C. either a cost model or a revaluation model.
C
Unrealized gains and losses on securities categorized as available-for-sale: A. do not affect shareholders' equity. B. affect the profit and loss statement as unrealized holding gains or losses. C. affect shareholders' equity through other comprehensive income.
A
Using a common-size income statement to compare a company to its peers, an analyst can determine the company's: A. relative performance. B. size. C. revenue recognition policies.
B
When a bond is priced to sell at a discount, the coupon rate is: A. greater than the market rate of interest. B. less than the market rate of interest. C. equal to the market rate of interest.
C
When a firm can choose where in the cash flow statement to classify interest received, which of the following choices is the most appropriate? A. As an financing activity under IFRS B. As an investing activity under US GAAP C. As a operating activity under IFRS
A
When a lease is classified as an operating lease, the: A. rents paid by the lessee and received by the lessor are classified as operating cash flows. B. lessee retains the asset on its balance sheet and there is no effect on the lessor's balance sheet. C. lessee and the lessor both report some depreciation expense on the leased asset.
B
When preparing the cash flow statement, which of the following purchases is the best example of an investing activity? A. Equity securities held for trading purposes B. Equity securities to be held for more than one year C. Liquid securities held for 30 days
B
Which of the following best describes the link between the cash flow statement and the balance sheet? A. The statement's investing activities section reconciles the changes in current assets on the balance sheet. B. The cash flow statement reconciles the beginning and ending balances of cash reported on the balance sheet. C. The cash flow statement reconciles changes in all accounts on the balance sheet.
B
Which of the following items is an example of deferred income? A. Normal operating expenses that have been paid in advance B. A payment received for contracted goods and services prior to their delivery C. An expense recognized on a company's income statement but not paid for as of the balance sheet date
C
Which of the following items is most likely to appear near the top of the asset section in a liquidity-based presentation of a balance sheet? A. Land use rights B. Deferred revenue C. Marketable securities
B
Which of the following items is most likely to be classified as a current asset? A. A trade payable due to be settled within one year B. A receivable expected to be collected within one operating cycle C. Goodwill attributable to an acquisition made in the most recent reporting period
C
Which of the following items is most likely to be classified as a non-current asset? A. Inventories B. Prepaid insurance C. Machinery acquired within the past year
B
Which of the following items is treated as other comprehensive income under both IFRS and US GAAP? A. Costs of a company's defined benefit post-retirement plans that are recognized in the current period B. Foreign currency translation adjustment from consolidating financials of foreign subsidiaries C. Certain changes in the value of long-lived assets measured using the cost model
