CFA Financial Reporting and Analysis

Question 1

Under IFRS, which of the following is NOT a required component of a complete set of financial statements?

Accepted Answer

Statement of retained earnings

Answer

Statement of financial position

Answer

Statement of cash flows

Answer

Statement of changes in equity

Question 2

A company uses the LIFO inventory method. During a period of rising prices, compared to FIFO, LIFO will result in:

Accepted Answer

Lower net income and lower inventory on the balance sheet

Answer

Higher net income and higher inventory on the balance sheet

Answer

Higher net income and lower inventory on the balance sheet

Answer

Lower net income and higher inventory on the balance sheet

Question 3

Which depreciation method results in the highest depreciation expense in the early years of an asset's life?

Accepted Answer

Double-declining balance

Answer

Straight-line

Answer

Units-of-production

Answer

Sum-of-the-years'-digits (when equal to straight-line)

Question 4

Under the accrual basis of accounting, revenue is recognized when:

Accepted Answer

The performance obligation is satisfied

Answer

Cash is received from the customer

Answer

A purchase order is received

Answer

The invoice is issued to the customer

Question 5

An analyst notices that a company's receivables turnover ratio has declined significantly over the past year. This most likely indicates:

Accepted Answer

Customers are taking longer to pay their invoices

Answer

Improved efficiency in collecting receivables

Answer

The company has reduced its credit sales

Answer

The company has become more conservative in recognizing revenue

Question 6

Which of the following is classified as a financing activity in the statement of cash flows under U.S. GAAP?

Accepted Answer

Payment of dividends to shareholders

Answer

Purchase of equipment

Answer

Collection of interest on loans made

Answer

Payment of income taxes

Question 7

A company reports a lower effective tax rate than its statutory tax rate. This difference is most likely caused by:

Accepted Answer

Tax credits or tax-exempt income reducing the tax burden

Answer

Permanent differences that increase taxable income

Answer

Temporary differences that increase deferred tax liabilities

Answer

Higher depreciation for financial reporting than for tax purposes