Reading 22 . Financial Statement Analysis: An Introduction 试题整理
PRACTICE PROBLEMS
1. Providing information about the performance and financial position of companies so that users can make economic decisions best describes the role of: A .auditing. B.financial reporting. C.financial statement analysis.
2. A company's current financial position would best be evaluated using the: A. balance sheet. B .income statement. C .statement of cash flows.
3 .A company's profitability for a period would best be evaluated using the: A .balance sheet. B .income statement. C .statement of cash flows.
4 .Accounting policies, methods, and estimates used in preparing financial statements are most likely found in the: A .auditor's report.
B .management commentary. C .notes to the financial statements.
5 .Information about management and director compensation would least likely be found in the: A .auditor's report. B .proxy statement.
C. notes to the financial statements.
6 .Information about a company's objectives, strategies, and significant risks would most likely be found in the:
A .auditor's report.
B .management commentary. C .notes to the financial statements.
7 . What type of audit opinion is preferred when analyzing financial statements? A .Qualified. B .Adverse. C .Unqualified.
8 . Ratios are an input into which step in the financial statement analysis framework? A .Process data. B .Collect input data.
C .Analyze/interpret the processed data.
Reading 22 . Financial Statement Analysis: An Introduction 试题答案整理 Solutions SOLUTIONS
evaluate the financial reports.
1. B is correct. This is the role of financial reporting. The role of financial statement analysis is to
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2. A is correct. The balance sheet portrays the current financial position. The income statement and statement of cash flows present different aspects of performance.
3. B is correct. Profitability is the performance aspect measured by the income statement. The balance sheet portrays the current financial position. The statement of cash flows presents a different aspect of performance.
4. C is correct. The notes disclose choices in accounting policies, methods, and estimates.
5. A is correct. Information about management and director compensation is not found in the auditor's report. Disclosure of management compensation isrequired in the proxy statement, and some aspects of management compensation are disclosed in the notes to the financial statements. 6. B is correct. These are components of management commentary.
7. C is correct. An unqualified opinion is a \present the company's performance and financial position fairly in accordance with a specified set of accounting standards.
8. C is correct. Ratios are an output of the process data step but are an input into the analyze/interpret data step.
Reading 23 . Financial Reporting Mechanics 试题整理 A .Issuance of debt.
B .Acquisition of a competitor.
C. Sale of automobiles by an automobile dealer.
2. Which of the following items would most likely be classified as financing activity? A .Issuance of debt. B .Payment of income taxes.
C .Investments in the stock of' a supplier.
3. Which of the following elements represents an economic resource? A. Asset. B .Liability. C. Owners' equity.
4 .Which of the following elements represents a residual claim? A .Asset. B .Liability. C .Owners' equity.
5. An analyst has projected that a company will have assets of �2,000 at year-end and liabilities of �1,200. The analyst's projection of total owners' equity should be closest to: A . �800.
B . �2,000. C. �3,200.
6. An analyst has collected the following information regarding a company in advance of its year-end earnings announcement (in millions):
Estimated net income $ 200 Beginning retained earnings $ 1,400 Estimated distributions to owners $ 100
The analyst's estimate of ending retained earnings {in millions} should be closest to:
1. Which of the following items would most likely be classified as an operating activity?
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A .$1,300. B. $1,500. C. $1,700.
7. An analyst has compiled the following information regarding Rubsam, Inc. Liabilities at year-end � 1,000 Contributed capital at year-end � 500
Beginning retained earnings � 600Revenue during the year Revenue during the year � 5,000 Expenses during the year � 4,300
There have been no distributions to owners. The analyst's most likely estimate of total assets at year-end should be closest to: A � 2,100.
B � 2.300. C � 2,800.
8. A group of individuals formed a new company with an investment of $500,000. the most likely effect of this transaction on the company's accounting equation at the time of t:he formation is an increase in cash and: A .an increase in revenue. B .an increase in liabilities. C. an increase in Contributed capital.
9. HVG, LLC paid $12,000 of cash to a real estate company upon signing a lease on 31 December 2005. The payment represents a $4,000 security deposit and $4,000 of rent for each of January 2006 and February 2006. Assuming that the correct accounting is to reflect both January and February rent as prepaid. The most likely effect on HVG's accounting equation in December 2005 is: A . no net change in assets. B . a decrease in assets of $8,000. C . a decrease in assets of $12,000.
10 .TRR Enterprises sold products to customers on 30 June 2006 for a total price of � 10,000. The terms of the sale are that payment is due in 30 days. The cost of the products was � 8,000. The most likely net change in TRR's total assets on 30 June 2006 related to this transaction is: A. � O. B. � 2,000. C. � 10,000.
11. On 30 April 2006, Pinto Products received a cash payment of $30,000 as a deposit on production of a custom machine to be delivered in August 2006 this transaction would most likely result in which of the following on 30 April 2006? A . No effect on liabilities. B . A decrease in assets of $30,000. C . An increase in liabilities of $30,000.
12 .Squires & Johnson, Ltd., recorded �250,000 of depreciation expense in December 2005. The most likely effect on the company's accounting equation is: A . no effect on assets.
B . a decrease in assets of �250,000. C . an increase in liabilities of �250,000.
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13. An analyst who is interested in assessing a company's financial position is most likely to focus on which financial statement? A . Balance sheet. B . Income statement.
C . Statement of cash flows.
14 . The statement of cash flows presents the flows into which three groups of business activities? A . Operating, Nonoperating, and Financing. B . Operating, Investing, and Financing. C . Operating. Nonoperating, and Investing.
15 . Which of the following statements about cash received prior to the recognition of revenue in the
financial statements is most accurate? The cash is recorded as; A . deferred revenue, an asset. B . accrued revenue, a liability. C . deferred revenue, a liability.
16 . When, at the end of an accounting period, a revenue has been recognized in the financial
statements but no billing has occurred and no cash has been received, the accrual is to: A . unbilled (accrued) revenue, an asset. B . deferred revenue, an asset.
C . unbilled (accrued) revenue, a liability
17 . When at the end of an accounting period. cash has been paid with respect to an expense, the
business should then record: A . an accrued expense, an asset. B . a prepaid expense, an asset. C . an accrued expense, a liability
18 .When, at the end of an accounting period, cash has not been paid with respect to an expense that has been incurred, the business should then record: A . an accrued expense, an asset. B . a prepaid expense, an asset. C . an accrued expense. a liabilitv.
19 . The collection of all business transactions sorted by account in an accounting system is referred to
as:
A . a trial balance. B . a general ledger. C . a general journal.
20. If a company reported fictitious revenue, it could try to cover up its fraud by: A . decreasing assets. B . increasing liabilities. C . creating a fictitious asset.
Reading 23 . Financial Reporting Mechanics 试题答案整理
1. C is correct. Sales of products, a primary business activity, are classified as an operating activity. Issuance of debt would be a financing activity. Acquisition of a competitor and the sale of surplus equipment would both be classified as investing activities.
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2 . A is correct. Issuance of debt would be classified as a financing activity. B is incorrect because payment of income taxes would be classified as an operating activity. C is incorrect because investments in common stock would be generally classified as investing activities.
3 . A is correct. An asset is an economic resource of an entity that will either be converted into cash or consumed.
4 . C is correct. Owners' equity is a residual claim on the resources of a business.
5 . A is correct. Assets must equal liabilities plus owners' equity and, therefore, �2,000 =�1,200 + Owners' equity. Owners' equity must be �800. 6 . B is correct.
Beginning retained earnings $l，400 + Net income 200 - Distributions to owners (100) = Ending retained earnings $l,500 7 . C is correct.
Assets = Liabilities + Contributed capital + Beginning retained earnings -Distributions to owners + Revenues - Expenses
Liabilities $l,000 + Contributed capital 500 + Beginning retained earnings 600 - Distributions to owners (0) + Revenues 5,000 - Expenses (4,300) = Assets $2,800
8. C is correct. This is a contribution of capital by the owners. Assets would I increase by $500,000 and contributed capital would increase by $500,000, maintaining the balance of the accounting equation. 9. A is correct. The payment of January rent represents prepaid rent (an asset) which will be adjusted at the end of January to record rent expense. Cash (an asset) decreases by $12,000. Deposits (an asset )increase by $4.000. Prepaid rent (an asset) increases by $8,000. There is no net change in assets.
10.B is correct. The sale of products without receipt of cash results in an increase in accounts receivable (an asset) of �10,000. The balance in inventory (an asset) decreases by �8,000. The net increase in assets is �2,000. This would be balanced by an increase in revenue of �10,000 and an increase in expenses (costs of goods sold) of �8,000.
11. C is correct. The receipt of cash in advance of delivering goods or services results in unearned revenue, which is a liability. The company has an obligation to deliver $30,000 in goods in the future. This balances the increase in cash (an asset) of $30,000.
12 . B is correct. Depreciation is an expense and increases accumulated depreciation. Accumulated depreciation is a contra account which reduces property plant. and equipment (an asset) by �250,000. Assets decrease by �250.000 and expenses increase by �250,000.
13 . A is correct. The balance sheet shows the financial position of a company at a particular point in time. The balance sheet is also known as a \
14 . B is correct. The three sections of the statement of cash flows are operating, investing, and financing activities.
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15. C is correct. Cash received prior to revenue recognition increases cash and deferred or unearned revenue. This is a liability until the company provides the promised goods or services.
16 . A is correct. When cash is to be received after revenue has been recognized but no billing has actually occurred, an unbilled (accrued) revenue is recorded. Such accruals would usually occur when an accounting period ends prior to a company billing its customer. This type of accrual can be contrasted with a simple credit sale, which is reflected as an increase in revenue and an increase in accounts receivable. No accrual is necessary.
17 . B is correct. Payment of expenses in advance is called a prepaid expense which is classified as an asset.
18 . C js correct.When an expense is incurred and no cash has been paid, expenses are increased and a
liability ( \
19. B is correct. The general ledger is the collection of all business transactions sorted by account in an accounting system. The general journal is the collection of all business activities sorted by date. 20. C is correct. In order to balance the accounting equation the company would either need to increase assets or decrease liabilities. Creating a fictitious asses would be one way of attempting to cover up the fraud.
Reading 24 . Financial Reporting Standards 试题整理
1 . Which of the following is most likely not an objective of financial statements? A . To provide information about the performance of an entity. B . To provide information about the financial position of an entity. C . To provide information about the users of an entity's financial statements. 2 . International financial reporting standards are currently developed by which entity? A . The IFRS Foundation.
B . The International Accounting Standards Board.
C . The International Organization of Securities Commissions.
3 . U.S. generally accepted accounting principles are currently developed by which entity? A . The Securities and Exchange Commission. B . The Financial Accounting Standards Board. C . The Public Company Accounting Oversight Board.
4 . Which of the following statements about desirable attributes of accounting standards boards is most accurate? Accounting standards boards should: A . concede to political pressures.
B . be guided by a well articulated framework.
C . be adequately funded by companies to which the standards apply.
5 . A core objective of the International Organization of Securities Commissions is to: A . eliminate systematic risk.
B . protect users of financial statements.
C . ensure that markets are fair, efficient and transparent.
6 . According to the Conceptual Framework for Financial Reporting (2010), which of the following is not an enhancing qualitative characteristic of information i financial statements? A . Accuracy. B Timeliness. C. Comparability.
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7 . Which of the following is not a constraint on the financial statements according to the Conceptual Framework (2010)? A . Understandability. B . Benefit versus cost.
C . Balancing of' qualitative characteristics.
8 . The assumption that an entity will continue to operate for the foreseeable future is called: A . accrual basis. B . comparability. C . going concern.
9 . The assumption that the effects of transactions and other events are recognized when they occur, not when the cash flows occur. is called: A . relevance. B . accrual basis. C . going concern.
10 . Neutrality of information in the financial statements most closely contributes to which qualitative characteristic? A . Relevance. B . Understandability. C . Faithful representation.
11 . Valuing assets at the amount of cash or equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition most closely describes which measurement of financial statement elements? A . Current cost. B . Historical cost. C . Realizable value.
12 . The valuation technique under which assets are recorded at the amount that would be received in an orderly disposal is: A . current cost. B . present value. C . realizable value.
13 . Which of the following is not a required financial statement according to IAS No. 1? A . Statement of financial position. B . Statement of changes in income. C . Statement of comprehensive income.
14 . Which of the following elements of financial statements is most closely related to measurement of performance? A . Assets. B . Expenses. C. Liabilities.
15 . Which of the following elements of financial statements is most closely related to measurement of financial position? A . Equity. B . Income. C . Expenses.
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16 . Which of the following is not a characteristic of a coherent financial reporting framework? A . Timeliness. B . Consistency. C . Transparency.
17 . Which of the following is not a recognized approach to standard-setting? A . A rules-based approach. B . An asset/liability approach. C . A principles-based approach.
18 . Which of the following disclosures regarding new accounting standards provides the most meaningful information to an analyst? A . The impact of adoption is discussed. B . The standard will have no material impact. C . Management is still evaluating the impact.
Reading 24 . Financial Reporting Standards 试题答案整理 Solutions
1. C is correct. Financial statements provide information, including information about the entity's financial position, performance, and changes in financial position, to users. They do not typically provide information about users.
2 . B is correct. The IASB is currently charged with developing International Financial Reporting Standards.
3 . B is correct. The FASB is responsible for the Accounting Standards Codification the single source of nongovernmental authoritative U.S. generally accepted accounting principles.
4 . B is correct. Accounting standards boards should be guided by a well articulated framework. They should be independent; and while they consider input from stakeholders, the process should not be compromised by pressure from external forces, including political pressure. Accounting standards boards should have adequate resources.
5. C is correct. A core objective of IOSCO is to ensure that markets are fair, efficient, and transparent. The other core objectives are to reduce, not eliminate,systematic risk and to protect investors, not all users of financial statements.
6 . A is correct. Accuracy is not an enhancing qualitative characteristic. Faithful representation, not accuracy is a fundamental qualitative characteristic.
7. A is correct. Understandability is an enhancing qualitative characteristic of financial information-not a constraint.
8. C is correct. The Conceptual Framework (2010) identifies two important underlying assumptions of financial statements: accrual basis and going concern. Going concern is the assumption that the entity will continue to operate for the foreseeable future. Enterprises with the intent to liquidate or materially curtail operations would require different information for a fair presentation.
9 . B is correct. Accrual basis reflects the effects of transactions and other events being recognized when they occur, not when the cash flows. These effects are recorded and reported in the financial statements of the periods to which they relate.
10. C is correct. The fundamental qualitative characteristic of faithful representation is contributed to by completeness, neutrality, and freedom from error.
11 . B is correct. Historical cost is me consideration paid to acquire an asset.
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12. C is correct. The amount that would be received in an orderly disposal is realizable value.
13 . B is correct. There is no statement of changes in income. Under IAS No. 1, a complete set of financial statements includes a statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows, and notes comprising a summary of significant accounting policies and other explanatory information.
14. B is correct. The elements of financial statements related to the measure of performance are income and expenses.
15. A is correct.The elements of financial statements related to the measurement of financial position are assets, liabilities, and equity.
16 . A is correct. Timeliness is not a characteristic of a coherent financial reporting framework. Consistency. transparency, and comprehensiveness are characteristics of a coherent financial reporting framework.
17 . B is correct. Rules-based, principles-based, and objectives-oriented approaches are recognized approaches to standard-setting.
is correct. A discussion of the impact would be the most meaningful, although B would also be useful.
Study Session 8
Financial Reporting and Analysis
Reading 25 . Understanding Income Statements 试题整理
PRACTICE PROBLEMS
1 . Expenses on the income statement may be grouped by:
A . nature, but not by function. B . function, but not by nature. C . either function or nature.
2 . An example of an expense classification by function is:
A . tax expense. B . interest expense. C . cost of goods sold.
3 . Denali Limited, a manufacturing company, had the following income statement information:
Revenue $4,000, 000 Cost of goods sold $3.000,000 Other operating expenses $500,000 Interest expense $100,000 Tax expense $120,000 Denali's gross profit is equal to
A . $280,000. B . $500,000. C . $l,000,000.
4 . Under IFRS, income includes increases in economic benefits from:
A . increases in liabilities not related to owners' contributions. B . enhancements of assets not related to owners' contributions. C . increases in owners' equity related to owners' contributions.
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5 . Fairplay had the following information related to the sale of its products during 2009, which was its first year of business:
Revenue $1,000,000 Returns of goods sold $100,000 Cash collected $800,000 Cost of goods sold $700,000
Under the accrual basis of accounting, how much net revenue would be reported on Fairplay's 2009 income statement?
A . $200,000. B . $900,000. C . $1,000,000.
6 . If the outcome of a long-term contract can be measured reliably. the preferred accounting method under both IFRS and U.S. GAAP is:
A . the cost recovery method. B . the completed contract method. C . the percentage-of-completion method.
7 . At the beginning of 2009, Florida Road Construction entered into a contract to build a road for the government. Construction will take four years. The following information as of 31 December 2009 is available for the contract:
Total revenue according to contract $10,000,000 Total expected cost $8,000,000 Cost incurred during 2009 $1,200,000
Assume that the company estimates percentage complete based on costs incurred as a percentage of total estimated costs. Under the completed contract method, how much revenue will be reported in 2009?
A . None. B . $300,000. C . $1.500,000.
8 . During 2009, Argo Company sold 10 acres of prime commercial zoned land to a builder for $5,000,000. The builder gave Argo a $l,000,000 down payment and will pay the remaining balance of $4000,000 to Argo in 2010. Argo purchased the land in 2002 for $2,000,000. Using the installment method, how much profit will Argo report for 2009? A . $600,000. B . $l,000,000. C . $3,000,000.
9. Using the same information as in Question 8, how much profit will Argo report for 2009 using the cost recovery method? A . None. B . $600,000. C . $1,000,000.
10 . Under IFRS. revenue from barter transactions should be measured based on the fair value of revenue from:
A . similar barter transactions with unrelated parties.
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B . similar non-barter transactions with related parties. C . similar non-barter transactions with unrelated parties.
11 . Apex Consignment sells items over the internet for individuals on a consignment basis. Apex
receives the items from the owner, lists them for sale on the internet, and receives a 25 percent commission for any items sold. Apex collects the full amount from the buyer and pays the net amount after commission to the owner. Unsold items are returned to the owner after 90 days. During 2009, Apex had the following information;
● Total sales price of items sold during 2009 on consignment was �2,000,000. ● Total commissions retained by Apex during 2009 for these items was �500,000. How much revenue should Apex report on its 2009 income statement?
A . �500,000. B . �2,000,000. C . �1,500,000.
12 . During 2009, Accent Toys Plc., which began business in October of that year, purchased 10,000 units of a toy at a cost of ￡10 per unit in October. The toy sold well in October. In anticipation of heavy December sales, Accent purchased 5,000 additional units in November at a cost of ￡11 per unit. During 2009, Accent sold 12,000 units at a price of ￡15 per unit. Under the first in. First out (FIFO) method, what is Accent's cost of goods sold for 2009? A . ￡120,000. B . ￡122,000. C . ￡l24,000.
13 . Using the same information as in Question 12, what would Accent's cost of goods sold be under the weighted average cost method? A . ￡120,000. B . ￡122,000. C . ￡124,000.
14 . Which inventory method is least likely to be used under IFRS?
A . First in, first out (FIFO). B . Last in, first out (LIFO). C . Weighted average.
15. At the beginning of 2009. Glass Manufacturing purchased a new machine for its assembly line at
a cost of $600,000. The machine has an estimated useful life of 10 years and estimated residual value of $50,000. Under the straight-line method, how much depreciation would Glass take in 2010 for financial reporting purposes? A . $55,000. B . $60,000. C . $65,000.
16 . Using the same information as in Question 15, how much depreciation would Glass take in 2009 for financial reporting purposes under the double-declining balance method? A . $60.000. B .$110,000. C .$120,000.
17 .Which combination of depreciation methods and useful lives is most conservative in the year a depreciable asset is acquired?
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A . Straight-line depreciation with a short useful life. B . Declining balance depreciation with a long useful life. C . Declining balance depreciation with a short useful life.
18. Under IFRS, a loss from the destruction of property in a fire would most likely be classified as:
A . an extraordinary item. B . continuing operations. C . discontinued operations.
19. For 2009. Flamingo Products had net income of $1,000,000. At l January 2009, there were 1,000,000 shares outstanding. On l July 2009, the company issued l00,000 new shares for $20 per share. The company paid $200,000 in dividends to common shareholders. What is Flamingo's basic earnings per share for 2009? A . $0.80. B . $0.91. C . $0.95.
20 . Cell Services Inc. (CSI) had l.000,000 average shares outstanding during all of 2009. During 2009, CSI also had l0,000 options outstanding with exercise prices of $10 each. The average stock price of CSI during 2009 was $15. For purposes of computing diluted earnings per share, how many shares would be used in the denominator? A . 1,003,333. B . 1,006,667. C . l,010,000.
SOLUTIONS
Reading 25 . Understanding Income Statements 试题答案整理
1 . C is correct.IAS No. l states that expenses may be categorized by either nature or function. 2. C is correct. Cost of goods sold is a classification by function. The other two expenses represent classifications by nature.
3 . C is correct. Gross margin is revenue minus cost of goods sold. Answer A represents net income and B represents operating income.
4 . B is correct. Under IFRS, income includes increases in economic benefits from increases in assets. enhancement of assets, and decreases in liabilities.
5 . B is correct. Net revenue is revenue for goods sold during the period less any returns and allowances, or $1,000,000 minus $100,000 = $900,000.
6 . C is correct. The preferred method is the percentage-of-completion method. The completed contract method should be used under U.S. GAAP only when the outcome cannot be measured reliably. A method similar to, but not referred to as, the cost recovery method is used under IFRS when the outcome cannot be measured reliably.
7 . A is correct. Under the completed contract method, no revenue would be reported until the project is completed.
8 . A is correct. The installment method apportions the cash receipt between cost recovered and profit using the ratio of profit to sales value (i.e., $3,000,000 -$5,000,000 = 60 percent). Argo will, therefore, recognize $600.000 in profit for 2009($1,000,000 cash received × 60 percent).
9 . A is correct. Under the cost recovery method, the company would not recognize any profit until the cash amounts paid by the buyer exceeded Argo' s cost of $2,000,000.
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10 . C is correct. Revenue for barter transactions should be measured based on the fair value of revenue from similar non-barter transactions with unrelated parties.
11 . A is correct. Apex is not the owner of the goods and should only report its net commission as revenue.
12 . B is correct. Under the first in, first out (FIFO) method, the first 10,000 units sold came from the October purchases at ￡10 , and the next 2,000 units sold came from the November purchases at ￡11. 13 . C is correct. Under the weighted average cost method:
October purchases 10,000 units $100,000 November purchases 5,000 units $55,000 Total 15,000 units $155,000 $155,000/15,000 units = $10.3333 x 12,000 units =$124,000.
14 . B is correct. The last in, first out (LIFO) method is not permitted under IFRS. The other two methods are permitted.
15 . A is correct. Straight-line depreciation would be ($600,000 - $50,000)/10, or $55,000.
16 . C is correct. Double-declining balance depreciation would be $600,000 ×20 percent (twice the straight-line rate). The residual value is not subtracted from the initial book value to calculate depreciation. However, the book value(carrying amount) of the asset will not be reduced below the estimated residual value.
17 . C is correct. This would result in the highest amount of depreciation in the first year and hence the lowest amount of net income relative to the other choices.
18 . B is correct. A fire may be infrequent, but it would still be part of continuing operations. IFRS do not permit classification of an item as extraordinary. Discontinued operations relate to a decision to dispose of an operating division.
19 . C is correct. The weighted average number of shares outstanding for 2009 is 1,050,000. Basic earnings per share would be $1,000,OOO divided by l,050,000 or $0.95.
20. A is correct. With stock options, the treasury stock method must be used. Under chat method, the company would receive $l00,000 (l0,000×$10) and would repurchase 6,667 shares ($l00,000/S15). The shares For the denominator would be:
Shares outstanding 1,000,000 Options exercises 1,00,000 Treasury shares purchased (6,667)
Denominator 1,003，333
Reading 26 . understanding Balance Sheets 试题整理 PRACTICE PROBLEMS
1 . Resources controlled by a company as a result of past events are:
A . equity. B . assets. C . liabilities. 2 . Equity equals:
A . Assets - Liabilities. B . Liabilities - Assets. C . Assets + Liabilities.
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3 . Distinguishing between current and non-current items on the balance sheet and presenting a subtotal for current assets and liabilities is referred to as: A . a classified balance sheet. B . an unclassified balance sheet.
C . a liquidity-based balance sheet. 4 . All of the following are current assets except:
A . Cash. B . goodwill.
C . Inventories.
5 . Debt due within one year is considered: A . current. B . preferred.
C . convertible.
6 . Money received From customers for products to be delivered in the future is recorded as:
A . revenue and an asset. B . an asset and a liability. C . revenue and a liability.
7 . The carrying value of inventories reflects:
A . their historical cost. B . their current value.
C . the lower of historical cost or net realizable value.
8 . When a company pays its rent in advance, its balance sheet will reflect a reduction in:
A . assets and liabilities.
B . assets and shareholders' equity.
C . one category of assets and an increase in another. 9 . Accrued expenses (accrued liabilities) are:
A . expenses that have been paid.
B . created when another liability is reduced.
C . expenses that have been reported on the income statement hut not yet paid. 10 . The initial measurement of goodwill is most likely affected by:
A . an acquisition's purchase price. B . the acquired company's book value.
C . the fair value of the acquirer's assets and liabilities.
11 . Defining total asset turnover as revenue divided by average total assets, all else equal, impairment write-downs of long-lived assets owned by a company will most likely result in an increase for that company in:
A . the debt-to-equity ratio but not the total asset turnover. B . the total asset turnover but not the debt-to-equity ratio. C . both the debt-to-equity ratio and the total asset turnover.
12. For financial assets classified as trading securities, how are unrealized gains and losses reflected in shareholders' equity? A . They are not recognized.
B . They flow through income into retained earnings.
C . They are a component of accumulated other comprehensive income.
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13 . For financial assets classified as available for sale, how are unrealized gains and losses reflected in shareholders' equity? A . They are not recognized.
B . They flow through retained earnings.
C . They are a component of accumulated other comprehensive income.
14 . For financial assets classified as held to maturity, how are unrealized gains and losses reflected in shareholders' equity? A . They are not recognized.
B . They flow through retained earnings.
C . They are a component of accumulated other comprehensive income.
15 . The non-controlling (minority) interest in consolidated subsidiaries js presented on the balance
sheet:
A . as a long-term liability.
B . separately, but as a part of shareholders' equity.
C . as a mezzanine item between liabilities and shareholders' equity. 16 . The item \
A . assets. B . liabilities.
C . shareholders' equity.
17 . When a company buys shares of its own stock to be held in treasury, it records a reduction in:
A . both assets and liabilities.
B . both assets and shareholders' equity. C . assets and an increase in shareholders' equity.
18 . Which of the following would an analyst most likely be able to determine from a common-size
analysis of a company's balance sheet over several periods? A . An increase or decrease in sales.
B . An increase or decrease in financial leverage. C . A more efficient or less efficient use of assets.
19 . An investor concerned whether a company can meet its near-term obligations is most likely to
calculate the: A . current ratio. B . return on total capital. C . financial leverage ratio.
20 . The most stringent test of a company's liquidity is its:
A . cash ratio. B . quick ratio. C . current ratio.
21 . An investor worried about a company's long-term solvency would most likely examine its:
A . current ratio. B . return on equity. C . debt-to-equity ratio.
22 . Using the information presented in Exhibit 4, the quick ratio for SAP Group at 31 December 2009 is closest to: A . 1.01.
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B . 1.44. C . 1.54.
23 . Using the information presented in Exhibit 12, the financial leverage ratio for SAP Group at 31
December 2009 is closest to: A . 0.08. B . 0.58. C . 1.58
Reading 26 . understanding Balance Sheets 试题答案整理
1 . B is correct. Assets are resources controlled by a company as a result of past events. 2 . A is correct. Assets = Liabilities + Equity and, therefore, Assets - Liabilities =Equity.
3 . A is correct. A classified balance sheet is one that classifies assets and liabilities as current or non-current and provides a subtotal for current assets and current liabilities. A liquidity-based balance sheet broadly presents assets and liabilities in order of liquidity. 4 . B is correct. Goodwill is a long-term asset, and the others are all current assets.
5 . A is correct. Current liabilities are those liabilities, including debt, due within one year. Preferred refers to a class of stock. Convertible refers to a feature of bonds (or preferred stock) allowing the holder to convert the instrument into common stock.
6 . B is correct. The cash received from customers represents an asset.1he obligation to provide a product in the future is a liability called \is delivered, revenue will be recognized and the liability will be reduced.
7 . C is correct. Under IFRS, inventories are carried at historical cost unless net realizable value of the inventory is less. Under U.S. GAAP, inventories are carried at the lower of cost or market. 8 . C is correct. Paying rent in advance will reduce cash and increase prepaid expenses, both of which are assets.
9 . C is correct. Accrued liabilities are expenses that have been reported on a company's income statement but have not yet been paid.
10 . A is correct. Initially, goodwill is measured as the difference between the purchase price paid for an acquisition and the fair value of the acquired, not acquiring, company's net assets (identifiable assets less liabilities).
11 . C is correct. Impairment write-downs reduce equity in the denominator of the debt-to-equity ratio but do not affect debt, so the debt-to-equity ratio is expected to increase. Impairment write-downs reduce total assets but do not affect revenue. Thus, total asset turnover is expected to increase. 12 . B is correct. For financial assets classified as trading securities, unrealized gains and losses are reported on the income statement and flow to shareholders' equity as part of retained earnings. 13 . C is correct. For financial assets classified as available for sale, unrealized gains and losses are not recorded on the income statement and instead are part of other comprehensive income. Accumulated other comprehensive income is a component of Shareholders' equity
14 . A is correct. Financial assets classified as held co maturity are measured at amortised cost. Gains and losses are recognized only when realized.
15 . B is correct. The non-controlling interest in consolidated subsidiaries is shown separately as part of shareholders' equity.
16 . C is correct. The item \
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17 . B is correct. Share repurchases reduce the company's cash (an asset). Shareholders' equity is reduced because there are fewer shares outstanding and treasury stock is an offset to owners' equity. 18 . B is correct. Common-size analysis (as presented in the reading) provides information about composition of the balance sheet and changes over time. As a result, it can provide information about an increase or decrease in a company's financial leverage.
19 . A is correct. The current ratio provides a comparison of assets that can be turned into cash relatively quickly and liabilities that must be paid within one year. The other ratios are more suited to longer-term concerns.
20 . A is correct. The cash ratio determines how much of a company's near-term obligations can be settled with existing amounts of cash and marketable securities.
21 . C is correct. The debt-to-equity ratio, a solvency ratio. is an indicator of financial risk.
22 . B is correct. The quick ratio ([Cash+ Marketable securities + Receivables] ÷Current liabilities) is l.44 ([= 1,884 + 486 + 2,546] ÷ 3,416}. Given the placement of other financial assets between cash and receivables, it is reasonable to assume these are highly liquid and are probably marketable securities.
23 . C is correct. The financial leverage ratio (Total assets ÷ Total equity) is l.58 =(13,374 ÷ 8,491).
Reading 27 understanding Cash Flow Statements 试题整理 PRACTICE PROBLEMS
1 . The three major classifications of activities in a cash flow statement are: A . inflows, outflows ,and net flows. B . operating, investing, and financing. C . revenues, expenses, and net income.
2 .The sale of a building for cash would be classified as what type of activity on the cash flow statement? A . Operating. B . Investing. C . Financing.
3 . Which of the following is an example of a financing activity on the cash flow statement under U.S. GAAP?
A . Payment of interest. B . Receipt of dividends. C . Payment of dividends.
4 . A conversion of a face value $l million convertible bond for $l million of common stock would most likely be:
A . reported as a $1 million investing cash inflow and outflow. B . reported as a $1 million financing cash outflow and inflow. C . reported as supplementary information to the cash flow statement. 5 . Interest paid is classified as an operating cash flow under:
A . U.S. GAAP but may be classified as either operating or investing cash flows under IFRS. B . IFRS but may be classified as either operating or investing cash flows under U.S. GAAP.
C . U.S. GAAP but may be classified as either operating or financing cash flows under IFRS. 6 . Cash flows from taxes on income must be separately disclosed under:
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A . IFRS only. B . U.S. GAAP only. C . both IFRS and U.S GAAP. 7 . Which of the following components of the cash flow statement may be prepared under the indirect method under both LFRS and U.S. GAAP? A . Operating. B . Investing. C . Financing. 8 . Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method? A . Net income. B . Cash paid to suppliers. C . Cash received from customers. 9 . Red Road Company, a consulting company, reported total revenues of $100 million, total expenses of $80 million. and net income of $20 million in the most recent year. If accounts receivable increased by $10 million how much cash did the company receive from customers? A . $90 million. B . $100 million. C . $ll0 million. 10 . Green Glory Corp., a garden supply wholesaler, reported cost of goods sold for the year of $80 million. Total assets increased by $55 million, including an increase of $5 million in inventory. Total liabilities increased by $45 million. including an increase of $2 million in accounts payable. The cash paid by the company to its suppliers is most likely closest to: A . $73 million. B . $77 million. C . $83 million. 11 . Purple Fleur S.A., a retailer of floral products, reported cost of goods sold for the year of $75 million. Total assets increased by S55 million, but inventory declined by $6 million. Total liabilities increased by $45 million. and accounts payable increased by $2 million. The cash paid by the company to its suppliers is most likely closest to: A . $67 million. B . $79 million. C . $83 million. 12 . White Flag, a women's clothing manufacturer, reported salaries expense of $20 million .The beginning balance of salaries payable was $3 million, and the ending balance of salaries payable was $1 million. How much cash did the company pay in salaries? A . $18 million. B . $21 million. C . $22 million. 13 . An analyst gathered the following information from a company's 2010 financial statements (in $ millions)
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Based only on the information above, the company's 2010 statement of cash flows in the direct format would include amounts (in $ millions) for cash received from customers and cash paid to suppliers, respectively, that are closest to: cash received from
14 . Golden Cumulus Corp., a commodities trading company, reported interest expense of $19 million and taxes of $6 million. Interest payable increased by $3 million, and taxes payable decreased by $4 million over the period. How much cash did the company pay for interest and taxes? A . $22 million for interest and $10 million for taxes. B . $16 million for interest and $2 million for taxes. C . $16 million for interest and $10 million for taxes.
15 . An analyst gathered the following information from a company's 2010 financial statements (in $ millions) :
In 2010, the company declared and paid cash dividends of $10 million and recorded depreciation expense in the amount of $25 million. The company considers dividends paid a financing activity. The company's 2010 cash flow from operations (in $ millions) was closest to A . 25. B . 45. C . 75. 16 . Silverago Incorporated, an international metals company, reported a loss on the sale of equipment of $2 million in 2010. In addition, the company's income statement shows depreciation expense of $8 million and the cash flow statement shows capital expenditure of $10 million , all of which was for the purchase of new equipment. Using the following information from the comparative balance sheets. how much cash did the company receive from the equipment sale?
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A . $l million. B . $2 million. C . $3 million.
17 . Jaderong Plinkett Stores reported net income of $25 million. The company has no outstanding debt. Using the following information from the comparative balance sheets (in millions), what should the company report in the financing section of the statement of cash flows in 2010?
A . Issuance of common stock of $42 million; dividends paid of $10 million. B . Issuance of common stock of $38 million; dividends paid of $l0 million. C . Issuance of common stock of $42 million; dividends paid of $40 million.
18 . Based on the following information for Star Inc., what are the total net adjustments that the company would make to net income in order to derive operating cash flow?
A . Add $2 million. B . Add $6 million. C . Subtract $6 million.
19 . The first step in cash flow statement analysis should be to: A . evaluate consistency of cash flows. B . determine operating cash flow drivers. C . identify the major sources and uses of cash.
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20 . Which of the following would be valid conclusions from an analysis of the cash flow statement for Telef?nica Group presented in Exhibit 3?
A . The primary use of cash is financing activities. B . The primary source of cash is operating activities.
C . Telef?nica classifies interest received as an operating activity.
21 . Which is an appropriate method of preparing a common-size cash flow statement? A . Show each item of revenue and expense as a percentage of net revenue. B . Show each line item on the cash flow statement as a percentage of net revenue. C . Show each line item on the cash flow statement as a percentage of total cash outflows. 22 . Which of the following is an appropriate method of computing free cash flow to the firm? A . Add operating cash flows to capital expenditures and deduct after-tax interest payments. B . Add operating cash flows to after-tax interest payments and deduct capital expenditures. C . Deduct both after-tax interest payments and capital expenditures from operating cash flows. 23 . An analyst has calculated a ratio using as the numerator the sum of operating cash flow, interest,
and taxes and as the denominator the amount of interest. What is this ratio, what does it measure, and what does it indicate?
A . This ratio is an interest coverage ratio, measuring a company's ability to meet its interest
obligations and indicating a company's solvency.
B . This ratio is an effective tax ratio, measuring the amount of a company's operating cash flow
used for taxes and indicating a company's efficiency in tax management.
C . This ratio is an operating profitability ratio. measuring the operating cash flow generated
accounting for taxes and interest and indicating a company's liquidity.
Reading 27 understanding Cash Flow Statements 试题答案整理
1 . B is correct. Operating, investing, and financing are the three major classifications of activities in a cash flow statement. Revenues, expenses, and net income are elements of the income statement. Inflows, outflows, and net flows are items of information in the statement of cash flows.
2 . B is. correct. Purchases and sales of long-term assets are considered investing activities. Note that if the transaction had involved the exchange of a building for other than cash (for example, for another building, common stock of another company. or a long-tern note receivable, it would have been considered a significant non-cash activity.
3 . C is correct. Payment of dividends is a financing activity under U.S. GAAP. Payment of interest and receipt of dividends are included in operating cash flows under U.S. GAAP. Note that IFRS allow companies to include receipt of interest and dividends as either operating or investing cash flows and to include payment of interest and dividends as either operating or financing cash flows.
4 . C is correct. Non-cash transactions, if significant, are reported as supplementary information, not in the investing or financing sections of the cash flow statement.
5 . C is correct. Interest expense is always classified as an operating cash flow under U.S. GAAP but may be classified as either an operating or financing cash flow under IFRS.
6 . C is correct. Taxes on income are required to be separately disclosed under IFRS and U.S. GAAP. The disclosure may be in the cash flow statement or elsewhere.
7 . A is correct. The operating section may be prepared under the indirect method. The other sections are always prepared under the direct method.
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8 . A is correct. Under the indirect method. the operating section would begin with net income and adjust it to arrive at operating cash flow. The other two items would appear in the operating section under the direct method.
9 . A is correct. Revenues of $100 million minus the increase in accounts receivable of $l0 million equal $90 million cash received from customers .The increase in accounts receivable means that the company received less in cash than it reported as revenue.
10 . C is correct. Cost of goods sold of $80 million plus the increase in inventory of $5 million equals purchases from suppliers of $85 million. The increase in accounts payable of $2 million means that the company paid $83 million in cash($85 million minus $2 million) to its suppliers.
11 . A is correct. Cost of goods sold of $75 million less the decrease in inventory of $6 million equals purchases from suppliers of $69 million. The increase in accounts payable of $2 million means that the company paid $67 million in cash ($69 million minus $2 million).
12 . C is correct. Beginning salaries payable of $3 million plus salaries expense of $20 million minus ending salaries payable of $l million equals $22 million. Alternatively, the expense of $20 million plus the $2 million decrease in salaries payable equals $22 million.
13 . C is correct. Cash received from customers = Sales+ Decrease in accounts receivable = 254.6 + 4.9 = 259.5. Cash paid to suppliers = Cost of goods sold + Increase in inventory - Increase in accounts payable = 175.9十 8.8 - 2.6 =182.1.
14 . C is correct. Interest expense of $19 million less the increase in interest payable of $3 million equals interest paid of $16 million. Tax expense of $6 million plus the decrease in taxes payable of $4 million equals taxes paid of $l0 million.
15 . B is correct. All dollar amounts are in millions. Net income (NI) for 2010 is $35.This amount is the increase in retained earnings, $25, plus the dividends paid. $l0. Depreciation of $25 is added back to net income, and the increases in accounts receivable, $5, and in inventory, $3, are subtracted from net income because they are uses of cash.The decrease in accounts payable is also a use of cash and, therefore, a subtraction from net income. Thus, cash flow from operations is $25 + $l0 + $25 - $5 - $3 - $7 = $45.
16 . A is correct. Selling price (cash inflow) minus book value equals gain or loss on sale; therefore, gain or loss on sale plus book value equals selling price (cash inflow). The amount of loss is given-$2 million. To calculate the book value of the equipment sold, find the historical cost of the equipment and the accumulated depreciation on the equipment.
● Beginning balance of equipment of $100 million plus equipment purchased of $10 million minus ending balance of equipment of' $105 million equals the historical cost of equipment sold, or $5 million.
●Beginning accumulated depreciation of $40 million plus depreciation expense for the year of $8 million minus ending balance of accumulated depreciation of $46 million equals accumulated depreciation on the equipment sold, or S2 million.
●Therefore, the book value of the equipment sold was $5 million minus $2 million. or $3 million. ●Because the loss on the sale of equipment was $2 million the amount of cash received must have been Si million.
17 . A is correct.The increase of $42 million in common stock and additional paid-in capital indicates that the company issued stock during the year. The increase in retained earnings of $15 million indicates that the company paid $l0 million in cash dividends during the year, determined as beginning
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retained earnings of $l00 million plus net income of $25 million minus ending retained earnings of $115 million, which equals $10 million in cash dividends.
18 . B is correct. To derive operating cash flow. the company would make the following adjustments to net income: Add depreciation (a non-cash expense) of $2 million; add the decrease in account receivable of $3 million; add the increase in accounts payable of $5 million; and subtract the increase in inventory of $4 million. Total additions would be $l0 million, and total subtractions would be $4 million, which gives net additions of $6 million.
19 . C is correct. An overall assessment of the major sources and uses of cash should be the first step in evaluating a cash flow statement.
20 . B is correct. The primary source of cash is operating activities. The primary use of cash is investing activities. Interest received for Telef?nica is classified as an investing activity.
21 . B is correct. An appropriate method to prepare a common-size cash flow statement is to show each line item on the cash flow statement as a percentage of net revenue. An alternative way to prepare a statement of cash flows is to show each item of cash inflow as a percentage of total inflows and each item of cash outflows as a percentage of total outflows.
22 . B is correct. Free cash flow to the firm can be computed as operating cash flows plus after- tax interest expense less capital expenditures.
23 . A is correct. This ratio is an interest coverage ratio, measuring a company's ability to meet its interest obligations and indicating a company's solvency. This coverage ratio is based on cash flow information; another common coverage ratio uses a measure based on the income statement (earnings before interest, taxes, depreciation, and amortization).
Reading 28. Financial Analysis Techniques 试题整理
1 . Comparison of a company's financial results to other peer companies for the same time period is called:
A . technical analysis. B . time-series analysis. C . cross-sectional analysis.
2 . In order to assess a company's ability to fulfill its long-term obligations, an analyst would most likely examine: A . activity ratios. B . liquidity ratios. C . solvency ratios.
3 . Which ratio would a company most likely use to measure its ability to meet short-term obligations? A . Current ratio. B . Payables turnover. C . Gross profit margin.
4 . Which of the following ratios would be most useful in determining a company's ability to cover its lease and interest payments? A . ROA.
B . Total asset turnover. C . Fixed charge coverage.
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5 . An analyst is interested in assessing both the efficiency and liquidity of Spherion PLC. The analyst has collected the following data for Spherion
Based on this data, what is the analyst least likely to conclude? A . Inventory management has contributed to improved liquidity. B . Management of payables has contributed to improved liquidity. C . Management of receivables has contributed to improved liquidity.
6 . An analyst is evaluating the solvency and liquidity of Apex Manufacturing and has collected the following data (in millions of euro):
Which of the following would be the analyst's most likely conclusion?
A . The company is becoming increasingly less solvent, as evidenced by the increase in its 、
debt-to-equity ratio from 0.35 to 0.50 from FY3 to FY5.
B . The company is becoming less liquid, as evidenced by the increase in its debt-to-equity ratio 、
From 0.35 to 0.50 from FY3 to FY5.
C . The company is becoming increasingly more liquid, as evidenced by the increase in its debt-
to-equity ratio from 0.35 to 0.50 from FY3 to FY5.
7 . With regard to the data in Problem 6, what would be the most reasonable explanation of the
financial data?
A . The decline in the company's equity results from a decline in the market value of this
company's common shares.
B . The �250 increase in the company's debt From FY3 to FY5 indicates that lenders are viewing
the company as increasingly creditworthy.
C . The decline in the company's equity indicates that the company may be incurring losses,
paying dividends greater than income, and/or repurchasing shares.
8 . An analyst observes a decrease in a company's inventory turnover. Which of the following would most likely explain this trend?
A . The company installed a new inventory management system, allowing more efficient
inventory management.
B . Due to problems with obsolescent inventory last year, the company wrote off a large amount of
its inventory at the beginning of the period.
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C . The company installed a new inventory management system but experienced some operational
difficulties resulting in duplicate orders being placed with suppliers.
9 . Which of the following would best explain an increase in receivables turnover?
A . The company adopted new credit policies last year and began offering credit to customers with
weak credit histories.
B . Due to problems with an error in its old credit scoring system, the company had accumulated a
substantial amount of uncollectible accounts and wrote off a large amount of its receivables.
C . To match the terms offered by its closest competitor, the company adopted new payment terms
now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.
10 . Brown Corporation had average days of sales outstanding of 19 days in the most recent fiscal year. Brown wants to improve its credit policies and collection practices and decrease its collection period in the next fiscal year to match the industry average of 15 days. Credit sales in the most recent fiscal year were $300 million, and Brown expects credit sales to increase to $390 million in the next fiscal year. To achieve Brown's goal of decreasing the collection period, the change in the average accounts receivable balance that must occur is closest to: A . +$0.41 million. B . -$0.41 million. C . -$1.22 million.
11 . An analyst observes the following data for two companies:
about the two companies' ability to pay their current and long- term obligations?
Which of the following choices best describes reasonable conclusions that the analyst might make A . Company A's current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only l.2, but Company B is more solvent, as indicated by its lower debt-to-equity ratio.
B . Company A's current ratio of 0.25 indicates it is less liquid than Company B, whose current ratio is 0.83, and Company A is also less solvent, as indicated by a debt- to-equity ratio of 200 percent compared with Company B's debt- to-equity ratio of only 30 percent.
C . Company A's current ratio of 4.0 indicates it is more liquid than Company B, whose current ratio is only l.2, and Company A is also more solvent, as indicated by a debt-to-equity ratio of 200 percent compared with Company B's debt- to-equity ratio of only 30 percent.
The following information relates to Questions 12-15
The data in Exhibit 1 appear in the five-year summary of a major international company. A business combination with another major manufacturer took place in FY13.
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12 . The company's total assets at year-end FY9 were GBP 3,500 million. which of the following
choices best describes reasonable conclusions an analyst might make about the company's efficiency?
A . Comparing FY14 with FYl0, the company's efficiency improved, as indicated by a total asset
turnover ratio of 0.86 compared with 0.64.
B . Comparing FYl4 with FY10, the company's efficiency deteriorated, as indicated by its current
ratio.
C . Comparing FY14 with FYl0, the company's efficiency deteriorated due to asset growth faster
than turnover revenue growth.
13 . Which of the following choices best describes reasonable conclusions an analyst might make about
the company's solvency?
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A . Comparing FYl4 with FYI0, the company's solvency improved, as indicated by an increase in
its debt-to-assets ratio from 0.14 to 0.27.
B . Comparing FYl4 with FYl0,the company's solvency deteriorated, as indicated by a decrease in
interest coverage from 10.6 to 8.4.
C . Comparing FY14 with FY10, the company's solvency improved, as indicated by the growth in
its profits to GBP 645 million.
14 . Which of the following choices best describes reasonable conclusions an analyst might make about the company's liquidity?
A . Comparing FYl4 with FYl0, the company's liquidity improved, as indicated by an increase in
its debt-to-assets ratio from 0.14 to 0.27.
B . Comparing FYl4 with FYIO, the company's liquidity deteriorated, as indicated by a decrease
in interest coverage from 10.6 to 8.4.
C . Comparing FYl4 with FYl0, the company's liquidity improved, as indicated by an increase in
its current ratio from 0.71 to 0.75.
15 . Which of the following choices best describes reasonable conclusions an analyst might make about the company's profitability?
A . Comparing FY14 with FY10, the company's profitability improved, as indicated by an
increase in its debt-to-assets ratio from 0.14 to 0.27.
B . Comparing FY14 with FYl0, the company's profitability deteriorated, as indicated by a
decrease in its net profit margin from 11.0 percent to 5.7 percent.
C . Comparing FY14 with FYl0, the company's profitability improved, as indicated by the growth
in its shareholders' equity to GBP 6,165 million.
16 . Assuming no changes in other variables, which of the following would decrease ROA? A . A decrease in the effective tax rate B . A decrease in interest expense. C . An increase in average assets.
17 . An analyst compiles the following data for a company:
FY15, the company's:
A . net profit margin and financial leverage have decreased. B . net profit margin and financial leverage have increased.
C . net profit margin has decreased but its financial leverage has increased 18 . A decomposition of ROE For Integra SA is as follows:
Based only on the information above, the most appropriate conclusion is that, over the period FY13 to
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this ROE decomposition?
A . Profitability and the liquidity position both improved in FY12.
Which of the following choices best describes reasonable conclusions an analyst might make based on
B . 'The higher average tax rate in FY12 offset the improvement in profitability leaving ROE
unchanged.
C . The higher average tax rate in FY12 offset the improvement in efficiency, leaving ROE
unchanged.
19 . A decomposition of ROE for Company A and Company B is as follows:
An analyst is most likely to conclude that:
A . Company A's ROE is higher than Company B's in FY15, and one explanation consistent with
the data is that Company A may have purchased new, more efficient equipment.
B . Company A's ROE is higher than Company B's in FY15, and one explanation consistent with
the data is that Company A has made a strategic shift to a product mix with higher profit margins.
C . The difference between the two companies' ROE in FYl5 is very small and Company A's ROE
remains similar to Company B's ROE mainly due to Company A increasing its financial leverage.
20 . What does the P/E ratio measure?
A . The \ B . 7rhe relationship between dividends and market prices. C . The earnings for one common share of stock.
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21 . A creditor most likely would consider a decrease in which of the following ratios to be positive news?
A . Interest coverage (times interest earned). B . Debt-to-total assets. C . Return on assets.
22 . When developing forecasts, analysts should most likely:
A . develop possibilities relying exclusively on the results of financial analysis. B . use the results of financial analysis, analysis of other information, and judgment.
C . aim to develop extremely precise forecasts using the results of financial analysis.
Reading 28. Financial Analysis Techniques 试题答案整理
1 . C is correct. Cross-sectional analysis involves the comparison of companies with each other for the same time period. Technical analysis uses price arid volume data as the basis for investment decisions. Time-series or trend analysis is the comparison of financial data across different time periods.
2 . C is correct. Solvency ratios are used to evaluate the ability of a company to meet its long-term obligations. An analyst is more likely to use activity ratios to evaluate how efficiently a company uses its assets. An analyst is more likely to use liquidity ratios to evaluate the ability of a company to meet its short-term obligations.
3 . A is correct. The current ratio is a liquidity ratio. It compares the net amount of current assets expected to be converted into cash within the year with liabilities falling due in the same period. A current ratio of l.0 would indicate that the company would have just enough current assets to pay current liabilities.
4 . C is correct. The fixed charge coverage ratio is a coverage ratio that relates known fixed charges or obligations Lo a measure of operating profit or cash flow generated by the company. Coverage ratios, a category of solvency ratios, measure the ability of a company to cover its payments related to debt and leases.
5 . C is correct. The analyst is unlikely to reach the conclusion given in Statement C because days of sales outstanding increased from 23 days in FYI to 25 days in FY2 to 28 days in FY3, indicating that the time required to collect receivables has increased over the period. This is a negative factor for Spherion's liquidity. By contrast, days of inventory on hand dropped over the period FY1 to FY3, a positive for liquidity.The company's increase in days payable, from 35 days to 40 days, shortened its cash conversion cycle, thus also contributing to improved liquidity.
6 . A is correct. The company is becoming increasingly less solvent, as evidenced by its debt-to-equity ratio increasing from 0.35 to 0.50 from FY3 to FY5. The amount of a company's debt and equity do not provide direct information about the company's liquidity position.
Debt to equity:
FY5: 2,000/4,000 = 0.5000 FY4; 1,900/4,500 = 0.4222 FY3: 1,750/5,000 = 0.3500
7 . C is correct. The decline in the company's equity indicates that the company may be incurring losses, paying dividends greater than income, or repurchasing shares. Recall that Beginning equity + New shares issuance - Shares repurchased + Comprehensive income - Dividends = Ending equity. The book value of a company 's equity is not affected by changes in the market value of its common stock. An increased amount of lending does not necessarily indicate that lenders view a company as increasingly
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creditworthy. Creditworthiness is not evaluated based on how much a company has increased its debt but rather on its willingness and ability to pay its obligations.(Its financial strength is indicated by its solvency, liquidity. profitability efficiency, and other aspects of credit analysis.)
8 . C is correct. The company's problems with its inventory management system causing duplicate orders would likely result in a higher amount of inventory and would, therefore, result in a decrease in inventory turnover. A more efficient inventory management system and a write off of inventory at the beginning of the period would both likely decrease the average inventory for the period (the denominator of the inventory turnover ratio), thus increasing the ratio rather than decreasing it. 9 . B is correct. A write off of receivables would decrease the average amount of accounts receivable (the denominator of the receivables turnover ratio), thus increasing this ratio. Customers with weaker credit are more likely to make payments more slowly or to pose collection difficulties. which would likely increase the average amount of accounts receivable and thus decrease receivables turnover. Longer payment terms would likely increase the average amount of accounts receivable and thus decrease receivables turnover.
10 . A is correct:.The average accounts receivable balances (actual and desired) must he calculated to determine the desired change. The average accounts receivable balance can be calculated as an average day's credit sales times the DSO. For the most recent fiscal year, the average accounts receivable balance is $15.62 million [= ($300,000,000/365) x 19]. The desired average accounts receivable balance for the next fiscal year is $16.03 million (=($390,000,000/365) x 15). This is an increase of $0.41 million (= 16.03 million - 15.62 million). An alternative approach is to calculate the turnover and divide sales by turnover to determine the average accounts receivable balance. Turnover equals 365 divided by DSO. Turnover is 19.21(= 365/19) for the most recent fiscal year and is targeted to be 24.33 (= 365/15) for the next fiscal year. The average accounts receivable balances are $15.62 million (= $300,000,000/19.21), and $16.03 million (= $390,000.000/24.33). The change is an increase in receivables of $0.41 million .
11 . A is correct. Company A's current ratio of 4.0(= $40,000/$10,000) indicates it is more liquid than Company B, whose current ratio is only l.2 (= $60,000/$50,000). Company B is more solvent, as indicated by its lower debt-to- equity ratio of 30 percent (= $150,000/$500,000) compared with Company A's debt-to-equity ratio of 200 percent (= $60,000/$30,000).
12 . C js correct. The company's efficiency deteriorated, as indicated by the decline in its total asset turnover ratio from l.1 {= 4,390/[(4,384 + 3,500) /2] } for FYl0 to 0.87 {= 11,366/[(12,250 + 13,799)}2]} for FY14. The decline in the total asset turnover ratio resulted From an increase in average total assets from GBP3,942 [= (4.384+ 3,500)/2] for FY10 to GBP13,024.5 for FY14, an increase of 230 percent, compared with an increase in revenue from GBP4,390 in FY10 to GBP11,366 in FY14, an increase of only 159 percent. The current ratio is not an indicator of efficiency.
13 . B is correct. Comparing FY14 with FYl0, the company's solvency deteriorated, as indicated by a decrease in interest coverage From 10.6(= 844/80) in FYl0 to 8.4 (= 1,579/188) in FY14. The debt-to-asset ratio increased from 0.14 (= 602/4,384) in FYl0 to 0.27 (= 3,707/13,799) in FY14. This is also indicative of deteriorating solvency. In isolation, the amount of' profits does not provide enough information to assess solvency.
14 . C is correct. Comparing FYl4 with FY10, the company's liquidity improved, as indicated by an increase in its current ratio from 0.71 [= (316+ 558)/1,223] in FYl0 to 0.75 [= (682 + 1,634)/3,108] in FY14. Note, however, comparing only current investments with the level of current liabilities shows a
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decline in liquidity from 0.26(= 316/1,223) in FY10 to 0.22 (= 682/3,108) in FY14. Debt- to-assets ratio and interest coverage are measures of solvency not liquidity.
15 . B is correct. Comparing FYl4 with FYl0, the company's profitability deteriorated, as indicated by a decrease in its net profit margin from 11.0 percent (= 484/4,390) to 5.7 percent (= 645/ll,366). Debt-to-assets ratio is a measure of solvency not an indicator of profitability. Growth in shareholders' equity, in isolation. does not provide enough information to assess profitability.
16 . C is correct. Assuming no changes in other variables, an increase in average assets (an increase in the denominator) would decrease ROA. A decrease in either the effective tax rate or interest expense, assuming no changes in other variables, would increase ROA.
17 . C is correct. The company's net profit margin has decreased and its financial leverage has increased. ROA = Net profit margin x Total asset turnover. ROA decreased over the period despite the increase in total asset turnover; therefore, the net profit margin must have decreased.
ROE = Return on assets × Financial leverage. ROE increased over the period despite the drop in ROA; therefore, financial leverage must have increased.
18 . C is correct. The increase in the average tax rate in FY12, as indicated by the decrease in the value of the tax burden (the tax burden equals one minus the average tax rate), offset the improvement in efficiency indicated by higher asset turnover) leaving ROE unchanged. The EBIT margin, measuring profitability, was unchanged in FY12 and no information is given on liquidity.
19 . C is correct. The difference between the two companies' ROE in 2010 is very small and is mainly the result of Company A's increase in its financial leverage, indicated by the increase in its Assets/Equity ratio from 2 to 4. The impact of efficiency on ROE is identical For the two companies. as indicate4cl by both companies' asset turnover ratios of l.5. Furthermore, if Company A had purchased newer equipment to replace older, depreciated equipment, then the company's asset turnover ratio (computed as sales/assets) would have declined, assuming constant sales. Company A has experienced a significant decline in its operating margin, from 10 percent to 7 percent which, all else equal would not suggest that it is selling more products with higher profit margins.
20 . A is correct. The P/E ratio measures the \EPS.
21 . B is correct. In general, a creditor would consider a decrease in debt to total assets as positive news. A higher level of debt in a company's capital structure increases the risk of default and will, in general, result in higher borrowing costs for the company to compensate lenders for assuming greater credit risk. A decrease in either interest coverage or return on assets is likely to be considered negative news. 22 . B is correct. The results of an analyst's financial analysis are integral to the process of developing forecasts, along with the analysis of other information and judgment of the analysts. Forecasts are not limited to a single point estimate but should involve a range of possibilities.
Study Session 9 Financial Reporting and Analysis
Inventories,Long-lived Assets,Income Taxes,and Non-current Liabilities Reading 29 Inventories 试题整理 1 . Inventory cost is least likely to include: A . production-related storage costs.
B . costs incurred as a result of normal waste of materials C . transportation costs of shipping inventory to customers.
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2 . Mustard Seed PLC adheres to IFRS. It recently purchased inventory for �100 million and spent �5 million for storage prior to selling the goods. The amount it charged to inventory expense(� millions) was closest to: A . �95.
B . �100. C . �105.
3 . Carrying inventory at a value above its historical cost would most likely be permitted if: A . the inventory was held by a producer of agricultural products. B . financial statements were prepared using U.S. GAAP C . the change resulted from a reversal of a previous write-down.
4 . Eric's Used Book Store prepares its financial statements in accordance with IFRS. Inventory was purchased for ￡1 million and later marked down to ￡550,000. One of the books, however, was later discovered to be a rare collectible item, and the inventory is now worth an estimated ￡3 million. The inventory is most likely reported on the balance sheet at: A .￡550,000. B .￡l,000,000. C .￡3,000,000.
5 . Fernando's pasta purchased inventory and later wrote it down. The current net realisable value is higher than the value when written down. Fernando's inventory balance will most /ike母 be: A . higher if it complies with IFRS. B . higher if it complies with U.S. GAAP. C . the same under U.S. GAAP and IFRS.
For questions 6-17, assume the companies use a periodic inventory system.
6 . Cinnamon Corp. started business in 2007 and uses the weighted average cost method. During 2007, it purchased 45,000 units of inventory at �l0 each and sold 40,000 units for �20 each. In 2008, it purchased another 50,000 units at �11 each and sold 45,000 units for �22 each. Its 2008 cost of sales(E thousands) was closest to: A . �490.
B . �491. C . �495
7 . Zimt AG started business in 2007 and uses the FIFO method. During 2007, it purchased 45,000 units of inventory at �10 each and sold 40,000 units for �20 each. In 2008, it purchased another 50,000 units at �11 each and sold 45,000 units for �22 each. Its 2008 ending inventory balance(� thousands) was closest to: A . �105. B . �109. C . �110.
8 . Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the cost of replacing the inventory, during periods of rising prices, the cost of sales reported by: A . Zimt is too low. B . Nutmeg is too low. C . Nutmeg is too high.
9 . Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the cost of replacing the inventory, during periods of rising prices the ending inventory balance reported by:
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A . Zimt is too high. B . Nutmeg is too low. C . Nutmeg is too high.
10 . Like many technology companies, TechnoTools operates in an environment of declining prices. Its reported profits will,tend to be highest if it accounts for inventory using the: A . FIFO method. B . LLFO method
C . weighted average cost method.
11 . Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be: A . lower. B . higher.
C . dependent upon the interaction with accounts payable.
12 . Zimt AG wrote down the value of its inventory in 2007 and reversed the write-down in 2008. Compared to the ratios that would have been calculated if the write-down had never occurred, Zimt's reported 2007:
A . current ratio was too high. B . gross margin was too high. C . inventory turnover was too high.
13 . Zimt AG wrote down the value of its inventory in 2007 arid reversed the write-down in 2008. Compared to the results the company would have reported if the write-down had never occurred, Zimt's reported 2008:
A . profit was overstated.
B . cash flow from operations was overstated. C . year-end inventory balance was overstated.
14 . Compared to a company that uses the FIFO method, during periods of rising prices a company that uses the LIFO method will most likely appear more: A . liquid. B . efficient. C . profitable.
15 . Nutmeg, Inc. uses the LIFO method to account for inventory. During years in which inventory unit costs are generally rising and in which the company purchases more inventory than it sells to customers, its reported gross profit margin will most Likely be:
A . lower than it would be if the company used the FIFO method. B . higher than it would be if the company used the FIFO method. C . about the same as it would be if the company used the FIFO method.
16 . Compared to using the FIFO method to account for inventory, during periods of rising prices, a company using the LIFO method is most likely to report higher: A . net income. B . cost of sales. C . income taxes.
17 . Carey Company adheres to U.S. GAAP, whereas Jonathan Company adheres to IFRS. It is least likely that:
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A . Carey has reversed an inventory write-down. B . Jonathan has reversed an inventory write-down.
C . Jonathan and Carey both use the FIFO inventory accounting method. The following information relates to Questions18-25
Hans Annan, CFA, a food and beverage analyst, is reviewing Century Chocolate's inventory policies as part of his evaluation of the company. Century Chocolate, based in Switzerland, manufactures chocolate products and purchases and resells other confectionery products to complement its chocolate line. Annan visited Century Chocolate's manufacturing facility last year. He learned that cacao beans, imported from Brazil, represent the most significant raw material and that the work-in-progress inventory consists primarily of three items: roasted cacao beans, a thick paste produced from the beans (called chocolate liquor), and a sweetened mixture that needs to be \the tour. Annan learned that the conching process ranges from a few hours for lower-quality products to six days for the highest-quality chocolates. While there, Annan saw the facility's climate-controlled area where manufactured finished products (cocoa and chocolate) and purchased finished goods are stored prior to shipment to customers. After touring the facility,Annan had a discussion with Century Chocolate's CFO regarding the types of costs that were included in each inventory category.
Annan has asked his assistant, Joanna Kern to gather some preliminary information regarding Century Chocolate's financial statements and inventories. He also asked Kern to calculate the inventory turnover ratios for Century Chocolate and another chocolate manufacturer for the most recent five years. Annan does not know Century Chocolate's most direct competitor, so he asks Kern to do some research and select the most appropriate company for the ratio comparison.
Kern reports back that Century Chocolate prepares its financial statements in accordance with IFRS. She tells Annan that the policy footnote states that raw materials and purchased finished goods are valued at purchase cost whereas work in progress and manufactured finished goods are valued at production cost. Raw material inventories and purchased finished goods are accounted for using the FIFO (first-in, first-out) method, and the weighted average cost method is used for other inventories. An allowance is established when the net realisable value of any inventory item is lower than the value calculated above.
Kern provides Annan with the selected financial statements and inventory data for Century Chocolate shown in Exhibits l through 5. The ratio exhibit Kern prepared compares Century Chocolate's inventory turnover ratios to those of Gordon's Goodies, a U.S.-based company. Annan returns the exhibit and tells Kern co select a different competitor that reports using IFRS rather than U.S. GAAP. During this initial review, Annan asks Kern why she has not indicated whether Century Chocolate uses a perpetual or a periodic inventory system. Kern replies that she learned that Century Chocolate uses a perpetual system but did not include this information in her report because inventory values would be the same under either a perpetual or periodic inventory system. Annan tells Kern she is wrong and directs her to research the matter.
While Kern is revising her analysis, Annan reviews the most recent month's Cocoa Market Review from the International Cocoa Organization. He is drawn to the statement that \price, averaging prices in both futures markets, reached a 29-year high in US$ terms and a 23- year high in SDRs terms (the SDR unit comprises a basket of major currencies used in international trade: US$, euro, pound sterling and yen),” Annan makes a note that he will need to factor the potential continuation of this trend into his analysis.
Exhibit 1 Century Chocolate Income Statements (CHF Millions)
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Exhibit 2 Century Chocolate Balance Sheets (CHF Millions)
Exhibit 3 Century Chocolate Supplementary Footnote Disclosures: Inventories(CHF Millions)
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Exhibit 4 Century Chocolate Inventory Record for Purchased Lemon Drops
Exhibit 5 Century Chocolate Net Realisable Value Information for Black Licorice Jelly Beans
18 . The costs least likely to be included by the CFO as inventory are; A . storage costs for the chocolate liquor.
B . excise taxes paid to the government of Brazil for the cacao beans.
C . storage costs for chocolate and purchased finished goods awaiting shipment to customers. 19 . What is the most likely justification for Century Chocolate's choice of inventory valuation method for its finished goods?
A . It is the preferred method under IFRS.
B . It allocates the same per unit cost to both cost of sales and inventory. C . Ending inventory reflects the cost of goods purchased most recently.
20 . In Kern's comparative ratio analysis, the 2009 inventory turnover ratio for Century Chocolate is closest to:
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A . 5.07. B . 5.42. C . 5.55.
21 . The most accurate statement regarding Annan's reasoning for requiring Kern to select a competitor that reports under IFRS for comparative purposes is that under U.S. GAAP: A . fair values are used to value inventory.
B . the LIFO method is permitted to value inventory.
C . the specific identification method is permitted to value inventory.
22 . Annan's statement regarding the perpetual and periodic inventory systems is most significant when which of the following costing systems is used? A . LIFO. B . FIFO.
C . Specific identification.
23 . Using the inventory record for purchased lemon drops shown in Exhibit 4, the cost of sales for 2009 will be closest to: A . CHF 3,550. B . CHF 4,550. C . CHF 4,850.
24 . Ignoring any tax effect, the 2009 net realisable value reassessment for the black licorice jelly beans will most likely result in:
A . an increase in gross profit of CHF 7,775. B . an increase in gross profit of CHF 11,670.
C . no impact on cost of sales because under IFRS, write-downs cannot be reversed.
25 . If the trend noted in the ICCO report continues and Century Chocolate plans to maintain constant or increasing inventory quantities, the most likely impact on Century Chocolate's financial statements related to its raw materials inventory will be:
A . a cost of sales that more closely reflects current replacement values. B . a higher allocation of the total cost of goods available for sale to cost of sales. C . a higher allocation of the total cost of goods available for sale to ending inventory.
Reading 29 Inventories 试题答案整理
1 . C is correct. Transportation costs incurred to ship inventory to customers are an expense and may not be capitalized in inventory. (Transportation costs incurred to bring inventory to the business location can be capitalized in inventory.) Storage costs required as part of production, as well as costs incurred as a result of normal waste of materials, can be capitalized in inventory. (Costs incurred as a result of abnormal waste must be expensed.)
2 . B is correct. Inventory expense includes costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition. It does not include storage costs not required as part of production.
3 . A is correct. IFRS allow the inventories of producers and dealers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products to be carried at net realisable value even if above historical cost.(U.S. GAAP treatment is similar.)
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4 . B is correct. Under IFRS, the reversal of write-downs is required if net realisable value increases. The inventory will be reported on the balance sheet at ￡1.000.000. The inventory is reported at the lower of cost or net realisable value. Under U.S. GAAP, inventory is carried at the lower of cost or market value. After a write-down, a new cost basis is determined and additional revisions may only reduce the value further.The reversal of write-downs is not permitted.
5 . A is correct. IFRS require the reversal of inventory write-downs if net realisable values increase; U.S. GAAP do not permit the reversal of write-downs.
6 . B is correct. Cinnamon uses the weighted average cost method, so in 2008, 5,000 units of inventory were 2007 units at �10 each and 50,000 were 2008 purchases at �11. The weighted average cost of inventory during 2008 was thus (5,000 x 10) + (50,000 x II) = 50,000 + 550,000 = �600,000, and the weighted average cost was approximately �10.91 = �600,000/55,000. Cost of sales was �10.91 x 45,000, which is approximately �490,950.
7 . C is correct. Zimt uses the FIFO method, and thus the first 5.000 units sold in 2008 depleted the 2007 inventory. Of the inventory purchased in 2008, 40,000 units were sold and 10,000 remain, valued at �11 each, for a total of �ll0,000.
8 . A is correct. Zimt uses the FIFO method, so its cost of sales represents units purchased at a (no longer available) lower price. Nutmeg uses the LIFO method, so its cost of sales is approximately equal to the current replacement cost of inventory.
9 . B is correct. Nutmeg uses the LIFO method, and thus some of the inventory on the balance sheet was purchased at a (no longer available) lower price. Zimt uses the FIFO method, so the carrying value on the balance sheet represents the most recently purchased units and thus approximates the current replacement cost.
10 . B is correct. In a declining price environment, the newest inventory is the lowest-cost inventory. In such circumstances, using the LIFO method (selling the newer, cheaper inventory first) will result in lower cost of sales and higher profit.
11 . B is correct. In a rising price environment, inventory balances will be higher for the company using the FIFO method. Accounts payable are based on amounts due to suppliers, not the amounts accrued based on inventory accounting.
12 . C is correct. The write-down reduced the value of inventory and increased cost of sales in 2007. The higher numerator and lower denominator mean that the inventory turnover ratio as reported was too high. Gross margin and the current ratio were both too low.
13 . A is correct. The reversal of the write-down shifted cost of sales from 2008 to 2007. The 2007 cost of sales was higher because of the write-down. and the 2008 cost of sales was lower because of the reversal of the write-down. As a result, the reported 2008 profits were overstated. Inventory balance in 2008 is the same because the write-down and reversal cancel each other out. Cash flow from operations is not affected by the non-cash write-down, but the higher profits in 2008 likely resulted in higher taxes and thus lower cash flow from operations.
14 . B is correct. LIFO will result in lower inventory and higher cost of sales. Gross margin (a profitability ratio) will be lower, the current ratio (a liquidity ratio) will be lower and inventory turnover (an efficiency ratio) will be higher.
15 . A is correct. LIFO will result in lower inventory and higher cost of sales in periods of rising costs compared to FIFO. Consequently, LIFO results in a lower gross profit margin than FIFO.
16 . B is correct. The LIFO method increases cost of sales. thus reducing profits and the taxes thereon. 17 . A is correct. U.S. GAAP do not permit inventory write-downs to be reversed.
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18 . C is correct. The storage costs for inventory awaiting shipment to customers are not costs of purchase, costs of conversion, or other costs incurred in bringing the inventories to their present location and condition and are not included in inventory. The storage costs for the chocolate liquor occur during the production process and are thus part of the conversion costs. Excise taxes are part of the purchase cost.
19 . C is correct. The carrying amount of inventories under FIFO will more closely reflect current replacement values because inventories are assumed to consist of the most recently purchased items. FIFO is an acceptable, but not preferred, method under IFRS. Weighted average cost, not FIFO. is the cost formula that allocates the same per unit cost to both cost of sales and inventory.
20 . B is correct. Inventory turnover = Cost of sales/Average inventory = 41,043/7,569.5 = 5.42. Average inventory is (8,100 + 7,039) /2 = 7,569.5.
21 . B is correct. For comparative purposes, the choice of a competitor that reports under IFRS is requested because LIFO is permitted under U.S. GAAP.
22 . A is correct. The carrying amount of the ending inventory may differ because the perpetual system will apply LIFO continuously throughout the year, liquidating layers as sales are made. Under the periodic system, the sales will start from the last layer in the year. Under FIFO, the sales will occur from the same layers regardless of whether a perpetual or periodic system is used. Specific identification identifies the actual products sold and remaining in inventory, and there will be no difference under a perpetual or periodic system.
23 . B is correct. The cost of sales is closest to CHF 4,550. Under FIFO, the inventory acquired first is sold first. Using Exhibit 4, a total of 310 cartons were available for sale (100 + 40 + 70 + l00) and 185 cartons were sold (50 + 100 + 35),Leaving 125 in ending inventory. The FIFO cost would be as follows:
100 (beginning inventory) x 22 = 2,200 40（4 February 2009) x 25 = l,000
45 (23 July 2009) x 30 = 1,350
Cost of sales = 2,200 + 1,000 + 1,350 = CHF 4,550
24 . A is correct. Gross profit will most likely increase by CHF 7,775. The net realisable value has increased and now exceeds the cost. The write-down from 2008 can be reversed. The write-down in 2008 was 9,256 [92,560 x (4.05 - 3.95)]. IFRS require the reversal of any write-downs for a subsequent increase in value of inventory previously written down. The reversal is Limited to the lower of the subsequent increase or the original write-down. Only 77,750 kilograms remain in inventory; the reversal is 77,750 x (4.05 - 3.95) = 7,775. The amount of any reversal of a write-down is recognised as a reduction in cost of sales. This reduction results in an increase in gross profit.
25 . C is correct. Using the FIFO method to value inventories when prices are rising will allocate more of the cost of goods available for sale to ending inventories (the most recent purchases,which are at higher costs, are assumed to remain in inventory )and less to cost of sales(the oldest purchases, which are at lower costs, are assumed to be sold first).
Reading 30 Long-Live Assets 试题整理
1 . JOO'VI Inc. has recently purchased and installed a new machine for its manufacturing plant. The company incurred the following costs:
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Purchase price Freight and insurance Installation Testing Maintenance staff training costs $12,980 $1,200 $700 $100 $500 The total cost of the machine to be shown on JOOVI’s balance sheet is closest to: A . $l4,180. B . $14.980. C . $15,480. 2 . BAURU, S.A., a Brazilian corporation. borrows capital from a local bank to finance the construction of its manufacturing plant. The loan has the following conditions: Borrowing date Amount borrowed Annual interest rate Term of the loan Payment method 1 January 2009 500 million Brazilian real （BRL) 14 percent 3 years Annual payment of interest only. Principal amortization is due at the end of the loan term. The construction of the plant takes two years, during which time BAURU earned BRL l0 million by temporarily investing the loan proceeds. Which of the following is the amount of interest related to the plant construction (in 8RL million) that can be capitalized in BAURU's balance sheet? A . 130. B . 140. C . 210. 3 . After reading the financial statements and footnotes of a company that follows IFRS, an analyst identified the following intangible assets: ● product patent expiring in 40 years; ● copyright with no expiration date; and
● goodwill acquired 2 years ago in a business combination.
Which of these assets is an intangible asset with a finite useful life? Product Patent Copyright Goodwill A Yes Yes No B Yes No No C No Yes Yes
4 . Intangible assets with finite useful lives mostly differ from intangible assets with infinite useful lives with respect to accounting treatment of: A . revaluation. B . impairment. C . amortization.
5 . A financial analyst is studying the income statement effect of two alternative depreciation methods for a recently acquired piece of equipment. She gathers the following information about the equipment's expected production life and use:
Year 1 Year 2 Year 3 40
Year 4 Year 5 Total Units of 2,000 2,000 2,000 2,000 2,500 10,500 production Compared with the units-of-production method of depreciation, if the company uses the straight-line method to depreciate the equipment, its net income in Year 1 will most likely be: A . lower. B . higher. C . the same.
6 . Juan Martinez, CFO of VIRMIN, S.A., is selecting the depreciation method to use for a new machine. The machine has an expected useful life of six years. Production is expected to be relatively low initially but to increase over time. The method chosen for tax reporting must be the same as the method used for financial reporting. If Martinez wants to minimize tax payments in the first year of the machine's life, which of the following depreciation methods is Martinez most likely to use? A . Straight-line method. B . Units-of-production method. C . Double-declining balance method.
The following information relates to Questions 7-8
Miguel Rodriguez of MARIO S.A., an Uruguayan corporation, is computing the depreciation expense of a piece of manufacturing equipment for the fiscal year ended 31 December 2009. The equipment was acquired on 1 January 2009. Rodriguez gathers the following information (currency in Uruguayan pesos, UYP): Cost of the equipment Estimated residual value Expected useful life Total productive capacity Production in FY 2009 Expected production for the next 7 years
7 . IF MARIO uses the straight-line method, the amount of depreciation expense on MARIO's income statement related to the manufacturing equipment is closest to: A . 125,000. B . 150,000. C . 168,750.
8 . If MARIO uses the units-of-production method, the amount of depreciation expense (in UYP) on MARIO's income statement related to the manufacturing equipment is closest to: A . 118,750. B . 168,750. C . 202,500.
9 . Which of the following amortization methods is most likely to evenly distribute the cost of an intangible asset over its useful life? A . Straight-line method. B . Units-of-production method. C . Double-declining balance method.
10 . Which of the following will cause a company to show a lower amount of amortization of intangible assets in the first year after acquisition?
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UYP l,200,000 UYP 200,000 8 years 800,000 units 135,000 units 95,000 units each year A . A higher residual value. B . A higher amortization rate. C . A shorter useful life.
11 . An analyst in the finance department of BOOLDO S.A., a French corporation, is computing the amortization of a customer list, an intangible asset, for the fiscal year ended 31 December 2009. She gathers the following information about the asset: Acquisition cost Acquisition date Expected residual value at time of acquisition �2,300.000 l January 2008 �500,000 The customer list is expected to result in extra sales for three years after acquisition.The present value of these expected extra sales exceeds the cost of the list.
If the analyst uses the straight-line method, the amount of accumulated amortization related to the customer list as of 31 December 2009 is closest to: A . �600,000. B . �1,200,000. C . �1,533,333.
12 . A financial analyst is analyzing the amortization of a product patent acquired by MAKETTI S.p.A., an Italian corporation. He gathers the following information about the patent: Acquisition cost Acquisition date Patent expiration date Total plant capacity of patented product ended 31 December 2009 life of the patent If the analyst uses the units-of-production method, the amortization expense on the patent for fiscal year 2009 is closest to: A . �414,286. B . �662,857. C . �828,571.
13 . MARU S.A. de C.V., a Mexican corporation that follows IFRS, has elected to use the revaluation model for its property plant. and equipment. One of MARU's machines was purchased for 2,500,000 Mexican pesos (MXN) at the beginning of the fiscal year ended 31 March 2010. As of 31 March 2010, the machine has a fair value of MXN 3,000,000. Should MARU show a profit for the revaluation of r:he machine? A . Yes.
B . No, because this revaluation is recorded directly in equity.
C . No, because value increases resulting from revaluation can never be recognized as a profit. 14 . An analyst is studying the impairment of the manufacturing equipment of WLP Corp., a U.K.-based corporation that follows IFRS. He gathers the following information about the equipment: Fair value Costs to sell
�5,800,000 1 January 2009 31 December 2015 40,000 units per year Production of patented product in fiscal year 20,000 units Expected production of patented product during 175,000 units ￡16,800,000 ￡800,000 42
Value in use Net carrying amount equipment is closest to: A . ￡2,300,000. B . ￡13.100,000. C . ￡4,600,000.
￡14,500,000 ￡19,100,000 The amount of the impairment loss on WLP Corp'.s income statement related to its manufacturing
15 . A financial analyst at BETTO S.A. is analyzing the result of the sale of a vehicle for 85,000 Argentine pesos {ARP) on 31 December 2009. The analyst compiles the following information about the vehicle: Acquisition cost of the vehicle Acquisition date Estimated residual value at acquisition date Expected useful life Depreciation method The result of the sale of the vehicle is most likely: A . a loss of ARP 15,000. B . a gain of ARP 15,000. C . a gain of ARP 18,333.
16 . CROCO S.p.A sells an intangible asset with a historical acquisition cost of �12 million and an accumulated depreciation of �2 million and reports a loss on the sale of �32 million. Which of the following amounts is most likely the sale price of the asset? A . �6.8 million B . �8.8 million C . �13.2 million
17 . According to IFRS, all of the following pieces of information about property plant, and equipment must be disclosed in a company's financial statements and footnotes except for: A . useful lives. B . acquisition dates. C . amount of disposals.
18 . According to IFRS, all of the following pieces of information about intangible assets must be disclosed in a company's financial statements and footnotes except for: A . fair value. B . impairment loss. C . amortization rate.
19 . Which of the following characteristics is most likely to differentiate investment property from property, plant, and equipment? A . It is tangible. B . It earns rent. C . It is long-lived.
20 . If a company uses the fair value model to value investment property changes in the fair value of the asset are least likely to affect: B . net operating income. C . other comprehensive income.
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ARP 100,000 1 1anuary 2007 ARP 10,000 9 years Straight-line 21 . Investment property is most likely to: A . earn rent. B . be held for resale.
C . be used in the production of goods and services 22 . A company is most likely to:
A . use a fair value model for some investment property and a cost model for other investment
property.
B . change from the fair value model when transactions on comparable properties become less
frequent.
C . change from the fair value model when the company transfers investment property to property
plant, and equipment.
Reading 30 Long-Live Assets 试题答案整理
1 . B is correct. Only costs necessary for the machine c:o be ready to use can be capitalized. Therefore, Total capitalized costs = 12,980 + 11200 + 700 + 100 = $14,980.
2 . A is correct. Borrowing costs can be capitalized under IFRS until the tangible asset is ready for use. Also, under IFRS, income earned on temporarily investing the borrowed monies decreases the amount of borrowing costs eligible for capitalization. Therefore, Total capitalized interest = (500 million x 14% × 2 years) - 10 million = 130 million.
3 . B is correct. A product patent with a defined expiration date is an intangible asset with a finite useful life. A copyright with no expiration date is an intangible asset with an indefinite useful life. Goodwill is no longer considered an intangible asset under IFRS and is considered to have an indefinite useful life. 4 . C is correct. An intangible asset with a finite useful life is amortized, whereas an intangible asset with an indefinite useful life is not.
5 . A is correct. If the company uses the straight-line method, the depreciation expense will be one-fifth (20 percent) of the depreciable cost in Year l. If it uses the units-of- production method, the depreciation expense will be 19 percent (2,000/10,500) of the depreciable cost in Year l. Therefore, if the company uses the straight-line method, its depreciation expense will be higher and its net income will be lower.
6 . C is correct. If Martinez wants to minimize tax payments in the first year of the machine's life, he should use an accelerated method, such as the double-declining balance method.
7 . A is correct. Using the straight-line method, depreciation expense amounts to Depreciation expense = (1,200,000 - 200,000)/8 years =125,000.
8 . B is correct. Using the units-of-production method, depreciation expense amounts to Depreciation expense = (1,200,000 - 200,000) × (135,000/800,000) =168,750.
9 . A is correct. The straight-line method is the method that evenly distributes the cost of an asset over its useful life because amortization is the same amount every year.
10 . A is correct. A higher residual value results in a lower total depreciable cost and, therefore, a lower amount of amortization in the first year after acquisition(and every year after that). 11 . B is correct. Using the straight-line method, accumulated amortization amounts to
Accumulated amortization = [(2,300,000 - 500,000)/3 years]× 2 years =1,200,000. 12 . B is correct. Using the units-of-production method, depreciation expense amounts to
Depreciation expense = 5,800,000 × {20,000/175,000) = 662,857.
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13 . B is correct. In this case, the value increase brought about by the revaluation should be recorded directly in equity. The reason is that under IFRS, an increase in value brought about by a revaluation can only be recognised as a profit to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement.
14 . B is correct. The impairment loss equals ￡3,100,000.
Impairment = max(Recoverable amount; Value in use) - Net carrying amount = max(16,800,000 - 800,000; 14,500,000) - 19,100.000 =-3,100,000.
15 . B is correct. The result on the sale of the vehicle equals
Gain or loss on the sale = Sale proceeds - Carrying amount = Sale proceeds - ( Acquisition cost - Accumulated depreciation) = 85,000 - {100,000 - [((100,000 - 10,000)/9 years) x 3 years]} = 15,000.
16 . A is correct. Gain or loss on the sale = Sale proceeds - Carrying amount. Rearranging this equation, Sale proceeds = Carrying amount+Gain or loss on sale. Thus, Sale price = (12 million - 2 million) + (-3.2 million) = 6.8 million.
17 . B is correct. IFRS do not require acquisition daces to be disclosed.
18 . A is correct. IFRS do not require fair value of intangible assets to be disclosed.
19 . B is correct. Investment property earns rent. Investment property and property, plant, and equipment are tangible and long-lived.
20 . C is correct. When a company uses the fair value model to value investment property, changes in the fair value of the property are reported in the income statement-not in other comprehensive income. 21 . A is correct. Investment property earns rent. Inventory js held for resale, and property plant, and equipment are used in the production of goods and services.
22 . C is correct. A company will change from the fair value model to either the cost model or revaluation model when the company transfers investment property to property, plant,and equipment.
Reading 31 . Income Taxes 试题整理
1 . Using the straight-line method of depreciation for reporting purposes and accelerated depreciation for tax purposes would most likely result in a:
A . valuation allowance. B . deferred tax asset. C . temporary difference.
2 . In early 2009 Sanborn Company must pay the tax authority �37,000 0n the income it earned in 2008. This amount was recorded on the company's 31 December 2008 financial statements as: A . taxes payable. B . income tax expense. C . a deferred tax liability.
3 . Income tax expense reported on a company's income statement equals taxes payable, plus the net increase in:
A . deferred tax assets and deferred tax liabilities.
B . deferred tax assets, less the net increase in deferred tax liabilities. C . deferred tax liabilities, less the net increase in deferred tax assets.
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4 . Analysts should treat deferred tax liabilities that are expected to reverse as:
A . equity. B . liabilities.
C . neither liabilities nor equity.
5 . Deferred tax liabilities should be treated as equity when:
A . they are not expected to reverse. B . the timing of tax payments is uncertain. C . the amount of tax payments is uncertain.
6 . When both the timing and amount of tax payments are uncertain. analysts should treat deferred tax liabilities as: A . equity. B . liabilities.
C . neither liabilities nor equity.
7 . When accounting standards require recognition of an expense that is not permitted under tax laws, the result is a:
A . deferred tax liability. B . temporary difference. C . permanent difference.
8 . When certain expenditures result in tax credits that directly reduce taxes, the company will most likely record:
A . a deferred tax asset. B . a deferred tax liability. C . no deferred tax asset or liability.
9 . When accounting standards require an asset to be expensed immediately but tax rules require the item to be capitalized and amortized. the company will most likely record: A . a deferred tax asset. B . a deferred tax liability. C . no deferred tax asset or liability.
10 . A company incurs a capital expenditure that may be amortized over five years for accounting
purposes, but over four years for tax purposes. The company will most likely record: A . a deferred tax asset. B . a deferred tax liability. C . no deferred tax asset or liability.
11 . A company receives advance payments from customers that are immediately taxable but will not
be recognized for accounting purposes until the company fulfills its obligation. The company will most likely record: A . a deferred tax asset. B . a deferred tax liability. C . no deferred tax asset or liability.
The following information relates to Questions12-14 Note l Income Taxes
The components of earnings before income taxes are as follows ($ thousands):
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The components of the provision for income taxes are as follows ($ thousands):
12 . In 2007 the company's U.S. GAAP income statement recorded a provision for income taxes closest
to:
A . $30,632. B . $54,144. C . $58,772.
13 . The company's effective tax rate was highest in:
A . 2005. B . 2006. C . 2007.
14 . Compared to the company's effective tax rate on U.S. income, its effective tax rate on foreign income was:
A . lower in each year presented. B . higher in each year presented.
C . higher in some periods and lower in others.
15 . Zimt AG presents its financial statements in accordance with U.S. GAAP. In 2007, Zimt discloses a valuation allowance of $1,101 against total deferred tax assets of $19,201. In 2006, Zimt disclosed a
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valuation allowance of $1,325 against total deferred tax assets of $17.325. The change in the valuation allowance most likely indicates that Zimt's:
A . deferred tax liabilities were reduced in 2007. B . expectations of future earning power has increased. C . expectations of future earning power has decreased.
16 . Cinnamon, Inc. recorded a total deferred tax asset in 2007 0f $12,301, offset by a $12,301
valuation allowance. Cinnamon most likely： A . fully utilized the deferred tax asset in 2007.
B . has an equal amount of deferred tax assets and deferred tax liabilities. C . expects not to earn any taxable income before the deferred tax asset expires. The following information relates to Questions 17-19
The tax effects of temporary differences that give rise CO deferred tax assets and liabilities are as follows ($ thousands):
17 . A reduction in the statutory tax rate would most likely benefit the company's
A . income statement and balance sheet. B . income statement but not the balance sheet. C . balance sheet but not: the income statement.
18 . If the valuation allowance had been the same in 2007 as it was in 2006, the company would have
reported $115 higher: A . net income. B . deferred tax assets. C . income tax expense.
19 . Compared to the provision for income taxes in 2007, the company's cash tax payments were:
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A . lower. B . higher. C . the same.
The following information relates to Questions 20-22
A company's provision for income taxes resulted in effective tax rates attributable to loss from continuing operations before cumulative effect of change in accounting principles that varied from the statutory federal income tax rate of 34 percent, as summarized in the table below.
20 . In 2007 the company’s net income (loss) was closest to:
A . ($217,000). B . ($329,000). C . ($556,000).
21 . The $357,000 adjustment in 2007 most likely resulted in:
A . an increase in deferred tax assets. B . an increase in deferred tax liabilities. C . no change to deferred tax assets and liabilities.
22 . Over the three years presented. changes in the valuation allowance for deferred tax assets were
most likely indicative of:
A . decreased prospect: for future profitability. B . increased prospects for future profitability.
C . assets being carried at a higher value than their tax base.
Reading 31 . Income Taxes 试题答案整理
1 . C is correct. Because the differences between tax and financial accounting will correct over time, the resulting deferred tax liability, for which the expense was charged to the income statement but the tax authority has not yet been paid, will be a temporary difference. A valuation allowance would only arise if there was doubt over the company's ability to earn sufficient income in the future to require paying the tax.
2 . A is correct. The taxes a company must pay in the immediate future are taxes payable.
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3 . C is correct. Higher reported tax expense relative to taxes paid will increase the deferred tax liability, whereas lower reported tax expense relative to taxes paid increases the deferred tax asset.
4 . B is correct. If the liability is expected to reverse (and thus require a cash tax payment) the deferred tax represents a future liability.
5 . A is correct. If the liability will not reverse, there will be no required tax payment in the future and the \
6 . C is correct. The deferred tax liability should be excluded from both debt and equity when both the amounts and timing of tax payments resulting from the reversals of temporary differences are uncertain.
7 . C is correct. Accounting items that are not deductible for tax purposes will not be reversed and thus result in permanent differences.
8 . C is correct. Tax credits that directly reduce taxes are a permanent difference, and permanent differences do not give rise to deferred tax.
9 . A is correct. The capitalization will result in an asset with a positive tax base and zero carrying value. The amortization means the difference is temporary. Because there is a temporary difference on an asset resulting in a higher tax base than carrying value, a deferred tax asset is created.
10 . B is correct. The difference is temporary, and the tax base will be lower (because of more rapid amortization) than the carrying value of the asset. The result win be a deferred tax liability.
11 . A is correct. The advances represent a liability for the company. The carrying value of the liability exceeds the tax base (which is now zero). A deferred tax asset arises when the carrying value of a liability exceeds its tax base.
12 . B is correct.The income tax provision in 2007 was $54,144, consisting of $58,772 in current income taxes, of which $4,628 were deferred.
13 . B is correct. The effective tax rate of 30.1 percent ($56.860/$189,167) was higher than the effective rates in 2005 and 2007.
14 . A is correct. In 2007 the effective tax rate on foreign operations was 24.2 percent [ ($28,140 + $124) /$116,704] and the effective U.S. tax rate was [($30,632- $4,752)/$88,157] = 29.4 percent. In 2006 the effective tax rate on foreign operations was 26.2 percent and the U.S. rate was 35.9 percent. In 2005 the foreign rate was 24.1 percent and the U.S. rate was 35.5 percent.
15 . B is correct. The valuation allowance is taken against deferred tax assets to represent uncertainty that future taxable income will be sufficient to fully utilize the assets. By decreasing the allowance, Zimt is signaling greater likelihood that future earnings will be offset by the deferred tax asset. 16 . C is correct. The valuation allowance is taken when the company will \earn sufficient income to offset the deferred tax asset. Because the valuation allowance equals the asset by extension the company expects no taxable income prior to the expiration of the deferred tax assets. 17 . A is correct. A lower tax rate would increase net income on the income statement, and because the company has a net deferred tax liability, the net liability position on the balance sheet would also improve (be smaller).
18 . C is correct. The reduction in the valuation allowance resulted in a corresponding reduction in the income tax provision.
19 . B is correct. The net deferred tax liability was smaller in 2007 than it was in 2006, indicating that in addition to meeting the tax payments provided for in 2007 the company also paid taxes that had been deferred in prior periods.
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