Financial Analysis & Reporting Flashcards
7 cards from real CPA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Analysis & Reporting flashcards as text
Which inventory costing method results in the highest net income during a period of rising prices?
Answer: FIFO
FIFO assigns the oldest (lowest) costs to cost of goods sold during rising prices, leaving the most recent (higher) costs in ending inventory, which produces the highest gross profit.
A firm's debt-to-equity ratio is 1.5 and total equity is $400,000. What is total debt?
Answer: $600,000
Total debt = Debt-to-equity ratio × Total equity = 1.5 × $400,000 = $600,000.
Under US GAAP, which method is permitted for measuring inventory at the lower of cost or net realizable value?
Answer: FIFO, LIFO, and weighted-average
US GAAP permits FIFO, LIFO, and weighted-average cost methods, all subject to the lower of cost or net realizable value (or market for LIFO/retail).
An analyst notices that a company's days sales outstanding (DSO) increased from 35 to 52 days year-over-year. This most likely indicates:
Answer: Slower collection of receivables or relaxed credit terms
A rising DSO signals that receivables are taking longer to collect, which may reflect relaxed credit policies, customer financial stress, or billing issues.
Which of the following is a non-cash item that must be added back to net income when using the indirect method to prepare the cash flow from operations?
Answer: Amortization of intangible assets
Amortization is a non-cash charge that reduced net income but did not use cash, so it is added back under the indirect method.
The price-to-earnings (P/E) ratio is most useful for comparing companies that:
Answer: Are in the same industry with similar growth profiles
P/E comparisons are most meaningful between companies in the same industry because industry-specific growth rates and risk profiles affect what constitutes a 'reasonable' multiple.
Which financial statement reconciles the beginning and ending balances of shareholders' equity?
Answer: Statement of changes in equity
The statement of changes in equity (or statement of stockholders' equity) details all transactions affecting equity accounts during the period, bridging beginning and ending balances.