CFA level 1 Question\Answer
faithful representation, substance over form, prudence, neutrality, completeness - Answer-
According to the IFRS what are the 5 qualities of financial information that improve reliability
Costs can be reliably measured - Answer-According to IFRS what condition must be met for revenue
recognition to occur?
Current ratio will decrease.
Accruing wages increases both current liabilities and expenses, but collecting receivables has no
effect on current assets or sales therefore the current ratio and net income both decrease. - Answer-
A company accrued wages of $2,000 and collected accounts receivable of $10,000. What best
describes the effect of these two transactions on the company?
200,000 for both the stock split and the stock dividend.
Stock dividends and splits are treated in the same way for purposes of determining weighted
average number of shares outstanding the adj in the # of shares is made as if the stock split or
dividend occurred at the beginning of the year. - Answer-A company had 100,000 shares outstanding
on 1 Jan 2009. The company has no plans to issue additional shares or purchase treasury shares
during the year, but is planning either a two-for-one stock split or a 100 percent stock dividend on 1
July. The number of shares used to determine eps at 31 Dec 2009 is
general requirement for financial statements. - Answer-Under IFRS the preparation of a complete
set of financial statements is best described as a:
Amortized Cost
Bonds payable issued by a company are financial liabilities that are measured at amortized cost. -
Answer-A company issued bonds in 2009 that mature in 2019. The measurement basis that will most
likely be used on the 2009 balance sheet for the bonds is:
Noncurrent Assets and noncurrent liabilities are listed before current assets and current liabilities.
Also, minority interest must be shown as a component of equity. - Answer-What features are unique
to financial statements in IFRS
Current assets and current liabilities are listed before noncurrent assets and noncurrent liabilities.
Minority interest is listed separately from equity or liabilities. - Answer-What features are unique to
financial statements in U.S. GAAP
, The debt to equity ratio but not the interest coverage ratio.
The adjustments to convert operating leases would increase the amount of total debt in the debt-
equity ratio thus increasing the ratio; the portion of the lease payments estimated to be lease
interest expense would lower the interest coverage ratio. - Answer-An analyst makes the
appropriate adjustments to the financial statements of retail companies that are lessees using a
substantial number of operating leases. Compared to ratios computed from the unadjusted
statements, the ones computed from the adjusted statements would most likely be higher for: debt
to equity or interest coverage?
the common-size balance sheets.
because it expresses all data as a percentage of total assets.
note: current ratio is a measure of a company's ability to repay its short term debt - Answer-To gain
insight into what portion of a company's assets is liquid, an analyst will most likely use:
Has a higher net profit margin
Dupont Analysis: Sales/Total Assets (asset turnover) =1.71 for A and 2.14 for B
equity(assets -liabilities)=45 for A and 100 for B
financial leverage mult. (assets/equity)=1.56 for A and 1.4 for B
ROE = profit mgn x asset turnover x financial leverage mult.
thus prft mgn A = 5.6% prft mgn B = 5% - Answer-The following info is available
Company A Company B
Sales 120M 300M
Assets 70M 140M
liabilities 25M 40M
If both companies achieve a ROE = 15%, company B compared to company A, regarding profit
margin, total asset turnover, and financial leverage will have:
Yes under IFRS but not under U.S. GAAP - Answer-Is the reversal of an inventory write-down
permitted under U.S. GAAP and IFRS?
$282
interest paid = 50,000x.09 = 4,500
interest expense = mkt rate at issue x bv = .1x47565 = 4757
faithful representation, substance over form, prudence, neutrality, completeness - Answer-
According to the IFRS what are the 5 qualities of financial information that improve reliability
Costs can be reliably measured - Answer-According to IFRS what condition must be met for revenue
recognition to occur?
Current ratio will decrease.
Accruing wages increases both current liabilities and expenses, but collecting receivables has no
effect on current assets or sales therefore the current ratio and net income both decrease. - Answer-
A company accrued wages of $2,000 and collected accounts receivable of $10,000. What best
describes the effect of these two transactions on the company?
200,000 for both the stock split and the stock dividend.
Stock dividends and splits are treated in the same way for purposes of determining weighted
average number of shares outstanding the adj in the # of shares is made as if the stock split or
dividend occurred at the beginning of the year. - Answer-A company had 100,000 shares outstanding
on 1 Jan 2009. The company has no plans to issue additional shares or purchase treasury shares
during the year, but is planning either a two-for-one stock split or a 100 percent stock dividend on 1
July. The number of shares used to determine eps at 31 Dec 2009 is
general requirement for financial statements. - Answer-Under IFRS the preparation of a complete
set of financial statements is best described as a:
Amortized Cost
Bonds payable issued by a company are financial liabilities that are measured at amortized cost. -
Answer-A company issued bonds in 2009 that mature in 2019. The measurement basis that will most
likely be used on the 2009 balance sheet for the bonds is:
Noncurrent Assets and noncurrent liabilities are listed before current assets and current liabilities.
Also, minority interest must be shown as a component of equity. - Answer-What features are unique
to financial statements in IFRS
Current assets and current liabilities are listed before noncurrent assets and noncurrent liabilities.
Minority interest is listed separately from equity or liabilities. - Answer-What features are unique to
financial statements in U.S. GAAP
, The debt to equity ratio but not the interest coverage ratio.
The adjustments to convert operating leases would increase the amount of total debt in the debt-
equity ratio thus increasing the ratio; the portion of the lease payments estimated to be lease
interest expense would lower the interest coverage ratio. - Answer-An analyst makes the
appropriate adjustments to the financial statements of retail companies that are lessees using a
substantial number of operating leases. Compared to ratios computed from the unadjusted
statements, the ones computed from the adjusted statements would most likely be higher for: debt
to equity or interest coverage?
the common-size balance sheets.
because it expresses all data as a percentage of total assets.
note: current ratio is a measure of a company's ability to repay its short term debt - Answer-To gain
insight into what portion of a company's assets is liquid, an analyst will most likely use:
Has a higher net profit margin
Dupont Analysis: Sales/Total Assets (asset turnover) =1.71 for A and 2.14 for B
equity(assets -liabilities)=45 for A and 100 for B
financial leverage mult. (assets/equity)=1.56 for A and 1.4 for B
ROE = profit mgn x asset turnover x financial leverage mult.
thus prft mgn A = 5.6% prft mgn B = 5% - Answer-The following info is available
Company A Company B
Sales 120M 300M
Assets 70M 140M
liabilities 25M 40M
If both companies achieve a ROE = 15%, company B compared to company A, regarding profit
margin, total asset turnover, and financial leverage will have:
Yes under IFRS but not under U.S. GAAP - Answer-Is the reversal of an inventory write-down
permitted under U.S. GAAP and IFRS?
$282
interest paid = 50,000x.09 = 4,500
interest expense = mkt rate at issue x bv = .1x47565 = 4757
