Dilluted EPS and Accounting
FIFO COGS = 23 LIFO COGS = 47 what is the change in life reserve?
24 because LIFO COGS - FIFo COGS = change in lifo reserve
FIFO INV = 59 LIFO INV = 29 what is lifo reserve ?
30 because life reserve = FIFO INV - LIFO INV
Inventory = { 2009 -- 194, 2010 -- 259) Accounts payable { 2009 -- 139, 2019 -- 189) COGS = 277 What is the purchases form suppliers? What is the cash paid to suppliers?
342 292 Becasue COGS + (increase) in inventory = Purchases to suppliers - (Increase) to A/P = Cash paid to suppliers
Beginning Salary and wages payable --> 167 cash paid for salarys = 83 Ending Salary and wages payable = 131 What is salary and wage expense?
47 Because Beginning Salary and Wage Payable + Salary and wage expense - cash paid to interest = Ending Salary and wages payable
Which of the following scenarios can best be described as offering superior protection of shareholder interests? A.) When common law is practiced B.) When CEO duality is common C.) When stakeholder theory prevails
A A is correct. Unlike civil law systems, common law systems provide judges with the ability to create law by setting precedents that are followed in subsequent cases. Shareholders are viewed as better protected under common law because judges may rule against management actions in situations that are not specifically addressed by statutes.
Risk that can be attributed to factor(s) that affect a company or industry is best described as: A.) non-systematic risk. B.) market risk. C.) systematic risk.
A Market risk is equal to systematic risk
Under International Financial Reporting Standards (IFRS), which of the following is most commonly classified as a non-current liability? A.) Deferred tax liability B.) Warranties C.) Notes payable
A is correct
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 is correct. The market rate of interest is the rate demanded by the bond purchaser given the risks associated with future cash payment obligations of the particular bond issue.
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 is correct. Expenses are generally higher in the early years for a finance lease in comparison to those of an operating lease.
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.
C is correct. Under IFRS, leased items under an operating lease do not appear on the balance sheet as an asset or liability. The lessee reports on the income statement only the related lease expenses
In preparing an investment policy statement, which of the following is most difficult to quantify? A.) Time horizon. B.) Ability to accept risk. C.) Willingness to accept risk.
C is correct. Measuring willingness to take risk (risk tolerance, risk aversion) is an exercise in applied psychology. Instruments attempting to measure risk attitudes exist, but they are clearly less objective than measurements of ability to take risk. Ability to take risk is based on relatively objective traits such as expected income, time horizon, and existing wealth relative to liabilities.
At the time of issuance the the market rate of interest is rate is described as A.) Annual percentage rate B.) Effective interest rate C.) Coupon rate
B
Compared with the occurrence of fundamental developments related to a company, when do technical analysts believe that related security price movements are most likely to arise? A.) After B.) Before C.) Simultaneously
B
If an investor uses derivatives to make a long investment in commodities, the return earned on margin is bestdescribed as: A.) convenience yield. B.) collateral yield. C.) price return.
B
Risk management is most likely the process by which an organization: A.) minimizes its exposure to potential losses. B.) adjusts its risk to a predetermined level. C.) maximizes its risk-adjusted return.
B
Which of the following is least likely to be placed in the appendices to an investment policy statement (IPS)? Rebalancing Policy. Strategic Asset Allocation. Statement of Duties and Responsibilities.
B
Which of the following most likely signals that a manufacturing company expects demand for its product to increase? A.) Finished goods inventory growth rate higher than the sales growth rate B.) Higher unit volumes of work in progress and raw material inventories C.) Substantially higher finished goods, with lower raw materials and work-in-process
B
_________ is calculated from observed, generally historical data, relative frequency A.) Prori Probability B.) Empericial Prob
B
On 1 January, a corporation issues ten-year notes with a face value of €10,000,000 and with annual interest payments made each 31 December. The coupon rate is 2.0 percent, and the effective interest rate is 3.0 percent. Using the effective interest rate method, the amortized discount at the end of year 1 is closest to: A.) €74,409. B.) €274,409. C.) €82,035.
calulacte pv pv * Effective interest rate = interest expense interest expense - interest payment B is correct
Over a period of 16 months, an investor has earned a return of 12%. The investor's annualized return is closest to: A.) 9.38%. B.) 8.87%. C.) 9.00%.
1.12^ (12/16) − 1 = 0.0887 or = 8.87%
If the probability for an event Z is 14% (i.e., P(Z) = 14%), the odds for Z are closest to: 0.163. 0.071. 0.123.
.14/.86 = 0.163
Allowance of doubtful (Jan 1) = 100 Write off = 60 Ending Allow of doubtful = 118 what is the bad debt expense?
78 Beg - Allow of doubtful + bad debt exp - write offs = End allow of doubtful
A defined benefit plan with a large number of retirees is likely to have a high need for A.) income. B.) liquidity. C.) insurance.
A
An increase in which of the following items will most likely result in a wider confidence interval for the population mean? A.) Reliability factor B.) Sample size C.) Degrees of freedom
A
The statement that is most consistent with real business cycle (RBC) models is that: A.) persons are unemployed because their asking wages are too high. B.) governments should intervene when the economy is in contraction. C.) monetary variables have a major impact on GDP growth.
A
The top level of a risk management system most likely is: A.) risk governance. B.) strategic analysis or integration. C.) defined policies or procedures.
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
Which of the following reports is least likely to be filed with the US SEC? A.) Annual report B.) Form 10-K C.) Proxy statement
A
_________ is calculated from deductive reasoning, randomly equally likely process Ex. Rolling a dice A.) Prori Probability B.) Empericial Prob
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.
A B and C are recognized as pension expense profit or loss
Which of the following best describes a reason a company would acquire the use of equipment through an operating lease rather than by purchase? A.) To take advantage of less costly financing B.) To obtain preferential tax treatment for the lease payments compared with ownership C.) To increase cash from operations
A is correct. Leases can provide less costly financing. Because of the tax and economic advantages enjoyed by lessors, they are often able and willing to offer attractive lease terms resulting in less costly financing to the lessees.
An investor whose portfolio lies to the right of the market portfolio on the capital market line (CML) has most likely: A.) borrowed funds at the risk-free rate and invested all available funds in the market portfolio. B.) invested all available funds in the risk-free asset. C.) loaned some funds at the risk-free rate and invested the remaining funds in the market portfolio.
A is correct. A portfolio lying to the right of the market portfolio on the CML is formed by borrowing funds at the risk-free rate and investing all available funds in the market portfolio.
A company acquires a license for $6,500 with the right to use the license for four years. Management expects to derive benefits from the license for three years and uses the straight-line amortization method. Accumulated amortization at the end of Year 2 is closest to: A.) $4,333. B.) $3,250. C.) $2,167.
A is correct. Accumulated amortization for the intangible asset at the end of Year 2 is closest to $4,333. At the end of the second year, amortization taken = 2 years × (6,500/3) = $4,333.
Under IFRS, reversals of impairments of long-lived assets are allowed: A.) for previously recognized impairment losses only. B.) if the recoverable amount exceeds the previous carrying amount. C.) for assets held for sale only.
A is correct. IFRS only permits the reversal of previously recognized impairment losses and does not permit the revaluation to the recoverable amount if the recoverable amount exceeds the previous carrying amount.
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.
A is correct. Rent payments are an operating cash outflow for the lessee and rent payments received are an operating cash inflow for the lessor.
An investment has a 50% probability of returning 12% and a 50% probability of returning 6%. An investor prefers this uncertain investment over a guaranteed return of 10%. This preference most likely indicates that the investor is risk: A.) seeking. B.) averse. C.) neutral.
A is correct. The expected value of the uncertain investment is 9%, which is less than the guaranteed return of 10%. Only a risk-seeking person would be willing to accept this investment.
Two pharmaceutical companies, Company A and Company B, internally develop drugs and drug analytics software. Company A reports in accordance with IFRS, and Company B reports in accordance with US GAAP. Which of the following statements is most accurate regarding the development costs of the drug patents and software development? A.) Company A can capitalize the development costs related to software development if it meets certain criteria. B.) Company B can capitalize the development costs related to drug development if it meets certain criteria. C.) Both companies must expense all development costs related to these intangible assets.
A is correct. IFRS allows development costs to be capitalized if certain criteria are met. Unlike US GAAP, under IFRS capitalization is not restricted to software development. B is incorrect because under US GAAP, capitalization of development costs is restricted to software development only
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.
A is correct. In the case of leased assets that are of such a specialized nature that only the lessee can use them without major modifications, the lease is classified as a finance lease.
Component --Cost -- Useful Life A --> $500,000 -- 10 years B --> $500,000 -- 5 years The depreciation expense for the first year computed under International Financial Reporting Standards (IFRS) compared with US GAAP, will most likely be: A.) $50,000 higher. B.) $50,000 lower. C.) the same.
A is correct. Under IFRS, the company must use the component method of depreciation expense: ($500,000/10 years) + ($500,000/5 years) = $150,000 per year for the first five years. Under US GAAP, the company would not use component depreciation because they would prefer to minimize depreciation expense in order maximize income. $1,000,000/10 years = $100,000 per year Under IFRS, depreciation in the first year is $50,000 higher.
The most appropriate treatment for intangible assets with indefinite useful lives is to: A.) expense. B.) capitalize with no amortization. C.) capitalize and amortize.
B is correct. Intangible assets assumed to have indefinite useful lives (i.e., no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the company) are capitalized and not amortized.
If the domestic currency is trading at a forward premium, then relative to the interest rate of the domestic country, the interest rate in the foreign country is most likely: A.) lower. B.) higher. C.) the same.
B The currency with the higher (lower) interest rate will always trade at a discount (premium) in the forward market. The lower interest rate in the domestic country will be offset by the appreciation of the domestic country's currency over the investment horizon.
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.
B is correct
Which of the following common debt covenants best describes an affirmative covenant? A.) Restricting future borrowings B.) Prohibiting financial ratios from falling below specified levels C.) Limiting dividend payments
B is correct
Unused tax losses and credits that a company expects to use in future periods will most likely give rise to: A.) deferred tax liabilities. B.) deferred tax assets. C.) valuation allowances.
B is correct. Deferred tax assets arise from carrying forward unused tax losses and credits but are only recognized if there is an expectation that the company will be able to use them in the future.
A company that prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) uses the revaluation model to value land. At the end of the current year, the value of land, newly acquired this year, has increased and will be adjusted on the balance sheet. This land is the only asset in its asset class for revaluation purposes. Which of the following statements is most accurate? In the current period, the revaluation of the land will: A.) increase return on sales. B.) decrease the debt-to-equity ratio. C.) increase return on assets.
B is correct. The increase in the value of the land bypasses the income statement and goes directly to a revaluation surplus account in equity
The majority of private equity activity involves: A.) derivative positions. B.) leveraged buyouts. C.) investing in mortgaged-backed securities.
B is correct. The majority of private equity fund activity involves leveraged buyouts of established profitable and cash generative companies.
Which of the following long-term debt information is presented both on the balance sheet and in the notes to the financial statements? A.) Maturity dates B.) Current maturities of long-term debt C.) Effective interest rate
B is correct. The portion of long-term debt due in the next twelve months is shown as a current liability on the balance sheet. The amount of scheduled debt repayments for the next five years, including an adjustment for long term debt currently coming due, is also shown in the notes to the financial statements.
A portfolio with equal parts invested in a risk-free asset and a risky portfolio will most likely lie on: A.) the efficient frontier. B.) a capital allocation line. C.) the security market line.
B is correct. A capital allocation line shows possible combinations of a risky portfolio and the risk-free asset. A is incorrect because a portfolio that is 100% invested in an efficient risky portfolio will lie on the efficient frontier. When combined with a risk-free asset, the resulting portfolio will lie on a capital allocation line. C is incorrect because only a portfolio with 50% in a risk-free asset and 50% in the market portfolio will lie on the capital market line.
Most societies would least likely consider ethical principles to include: A.) justice. B.) duplicity. C.) diligence.
B is correct. Most societies acknowledge the ethical principles of honesty, fairness or justice, diligence, and respect for the rights of others. Duplicity or deception would be in violation of most ethical principles.
A portfolio manager decides to temporarily invest more of a portfolio in equities than the investment policy statement prescribes because he expects equities will generate a higher return than other asset classes. This decision is most likely an example of: A.) rebalancing. B.) tactical asset allocation. C.) strategic asset allocation.
B is correct. Tactical asset allocation is the decision to deliberately deviate from the policy exposures to systematic risk factors with the intent to add value based on forecasts of the near-term returns of those asset classes.
Holding all else constant, a company that acquires a patent through external purchase rather than developing it internally is most likely to report: A.) lower amounts of assets. B.) higher investing cash outflows. C.) higher operating cash outflows.
B is correct. The cost of acquiring intangible assets (including patents) is classified as investing cash outflows, whereas the costs of developing them internally is classified as operating cash outflows
Under IFRS, the costs incurred in the issuance of bonds are most likely: A.) expensed when incurred. B.) included in the measurement of the bond liability. C.) deferred as an asset and amortized on a straight-line basis.
B is correct. Under IFRS, debt issuance costs are included in the measurement of the bond liability.
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.
B is correct. Under US GAAP, a lease would be capitalized if at least one of the four following criteria is valid: For a capital lease --:> 1) the lease term is at least 75% or more of the useful life of the asset. 2) the lease contains an option for the lessee to purchase the leased asset cheaply (bargain purchase option) 3) the present value of the lease payments is 90% or more of the fair value of the leased asset. 4) ownership of the leased asset transfers to the lessee at the end of the lease.
Beginning interest payable --> 90.4 Cash paid for interest --> 103.3 Ending interest payable --> 84.5 Interest expense (in millions) for the year is closest to: A.) £97.4. B.) £109.2. C.) £71.6.
Beg - I/P + Interest Exp - cash paid = ending I/P A is correct
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
Which of the following statements regarding inventory valuation is most accurate? A.) IFRS defines market value as net realizable value less a normal profit margin. B.) Both IFRS and US GAAP allow the reversal of write-downs back to the original cost. C.) Both IFRS and US GAAP allow agricultural inventories to be valued at net realizable value.
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.
C
The slope of the security market line (SML) represents the portion of an asset's expected return attributable to: A.) diversifiable risk. B.) market risk. C.) total risk.
C E(Rm) - Rf
Which of the following statements most accurately describes a valuation allowance for deferred taxes? A valuation allowance is required under: A.) both IFRS and US GAAP on deferred tax assets arising from the translation of foreign operations. B.) IFRS on revaluation of a deferred tax asset. C.) US GAAP if there is doubt about recovering a deferred tax asset.
C is correct. A valuation allowance is required under US GAAP if there is doubt about whether a deferred tax asset will be recovered. Under IFRS, the deferred tax asset is written down directly.
A company has announced that it is going to distribute a group of long-lived assets to its owners in a spin-off. The most appropriate way to account for the assets until the distribution occurs is to classify them as: A.) held for sale with no depreciation taken. B.) held for use until disposal with no deprecation taken. C.) held for use until disposal with depreciation continuing to be taken.
C is correct. Long-lived assets that will be disposed of other than by sale, such as in a spin-off, an exchange for other assets, or abandonment, are classified as held for use until disposal and continue to be depreciated until that time.
A company that prepares its financial statements using IFRS wrote down its inventory value by €20,000 at the end of year 1. In year 2, prices increased and the same inventory at the end of the year was worth €30,000 more than its value at the end of the prior year. Which of the following statements is most accurate? In year 2, the company's cost of sales: A.) was unaffected. B.) decreased by €30,000. C.) decreased by €20,000.
C is correct. Under IFRS, the recovery of a previous write-down is limited to the amount of the original write-down (€20,000) and is reported as a decrease in the cost of sales.
For which of the following assets is it most appropriate to test for impairment at least annually? A.) Land B.) A patent with a legal life of 20 years C.) A trademark with an indefinite expected life
C is correct. Intangible assets with indefinite lives need to be tested for impairment at least annually. Property, plant, and equipment (including land) and intangibles with finite lives are only tested if there has been a significant change or other indication of impairment.
An investment policy statement's risk objective states that over a 12-month period, with a probability of 95%, the client's portfolio must not lose more than 5% of its value. This statement is most likely a(n): A.) total risk objective. B.) relative risk objective. C.) absolute risk objective.
C is correct. The statement is an absolute risk objective because it *expresses a maximum loss* in value with an associated probability of loss.
Carrying amount --> 132 Undiscounted expected future cash flows --> 120 Present value of expected future cash flows --> 100 Fair value if sold --> 105 Costs to sell --> 1 -------------------------------------------------------- Under IFRS, the impairment loss on this production facility (in thousands) will be closest to: A.) £27. B.) £32. C.) £28.
Carry amount is compared to higher of PV of expected future cf's and NRV NRV is higher @ 104 so 132 - 104 = 28 C is correct
Carrying amount --> 132 Un discounted expected future cash flows --> 120 Present value of expected future cash flows --> 100 Fair value if sold --> 105 Costs to sell --> 1 Under IFRS, the impairment loss on this production facility (in thousands) will be closest to: A.) £27. B.) £32. C.) £28.
Carry amount is equal to Carry amount = 132 higher of Fair value - cost to sell = 104 PV of Future Cf's = 100 So impairment loss is equal to 132-104 28 is correct
_____________________ is taxes that have been paid but have not be yet recognized in the IS
Deferred tax asset
what is the interest coverage ratio>?
EBIT / Interest payments
High Plains Capital is a hedge fund with a portfolio valued at $475,000,000 at the beginning of the year. One year later, the value of assets under management is $541,500,000. The hedge fund charges a 1.5% management fee based on the end-of-year portfolio value as well as a 10% incentive fee. If the incentive fee and management fee are calculated independently, the effective return for a hedge fund investor is closest to: A.) 12.29%. B.) 10.89%. C.) 11.06%.
Mang fee = 541,500,000 * 0.015 incentive fee = (541,500,000 - 475,000,000) * .1 total fees = 541,500,000 - 475,000,000 - (Mangt fee + Incentive fee) / 475,000,000 B is correct