Cfi Fmva – 4 Test With Verified Solutions 2025 #7
Which of the following items are not included when determining income from
operations? - correct answer Taxes
Which ratio would you use to determine the profitability of the goods sold by a
company? - correct answer Gross profit margin
When performing a vertical analysis which income statement item do you use to
determine the cost contribution for each expense category? (What is the denominator?)
- correct answer Sales
Horizontal analysis allows us to analyze performance over: - correct answer Time
When calculating the quick ratio or "acid test" which current asset or liability is omitted?
- correct answer Inventory
For which organization would you expect to see the highest inventory turnover ratio? -
correct answer Grocery retailer
What actions could a company take to reduce its working capital funding gap? - correct
answer Tighten customer credit terms
The debt to equity ratio indicates: - correct answer The proportion of the company
financed by lenders versus owners
Which of the following items are not included in working capital? - correct answer Short
term investments
When calculating turnover of property plant & equipment and receivables, which item
from the income statement do we use? - correct answer Sales
If a company wanted to finance the purchase of equipment without diluting shareholders
equity, which of the following operation could it consider? - correct answer Obtaining a
loan from a bank
Working capital movement is included in which section of the cash flow statement? -
correct answer Operating activities
The debt to tangible net worth ratio is calculated as follows: - correct answer Interest
Bearing Liabilities / (Equity - Intangible Assets)
If the total assets to equity ratio of a company is increasing, it is possible that: - correct
answer The company is increasing the use of debt and getting higher financial leverage
,Which ratio is not one of the three ratios that multiply together to produce the return on
equity ratio? - correct answer Operating profit margin
Which financial leverage ratio is used with two other ratios to mathematically produce
the return on equity ratio? - correct answer Total Assets / Equity
Which of the following is a tertiary ratio that drives profitability? - correct answer SG&A
Expense / Sales
Which ratios indicate how efficiently the company generates sales from its assets? -
correct answer Working capital turnover
The net profit margin ratio can mathematically be broken down as "Tax impact x Capital
structure impact x..." - correct answer EBIT / Sales
Based on the following information from ABC Company's financial analysis, which one
of the following statements is NOT true? - correct answer The company's ability to cover
its short-term obligations is getting higher over the five years.
Which of the following best describes accounting principles in general? - correct answer
They outline the fundamental rules and concepts and establish the framework on which
detailed accounting standards are based.
A sound accounting framework allows for all of the following benefits except: - correct
answer Identical items being reported on the financial statements of different companies
Conservatism Principle - correct answer It provides guidance on how to record
transactions when there is uncertainty.
Historical Cost Principle - correct answer It states that assets and liabilities are recorded
on the financial statements at the cost at which they were acquired or assumed.
Objectivity Principle - correct answer It states that financial statements must be free
from bias and based on verifiable evidence.
Economic Entity Principle - correct answer It states that transactions carried out by a
business are separated from those conducted by its owner.
Matching Principle - correct answer It states that the expenses of a business should be
recorded in the periods in which the corresponding revenues are earned.
On March 1st, Mr. Smithe signed up for a fitness program at Fit Co. And paid $960 for
the entire program upfront. The program includes a total of 12 sessions and two
sessions are delivered each month. How much revenue from Mr. Smithe should Fit Co.
Recognize at the end of March? - correct answer $160
, Which of the following characteristics does not enhance the usefulness of financial
information? - correct answer Relevance
Identify the statement that is most accurate. - correct answer Financial information that
has confirmatory value provides feedback that either confirms or changes previous
evaluations.
Which of the following is not a correct description of how an operating lease is
recognized on the financial statements? - correct answer The amortization expense of
the right-of-use asset is calculated using the straight-line depreciation method over the
lease term.
Company Inc. Enters into a 10-year finance lease at the beginning of 2021 for a total of
$250,000. The annual lease payment is $25,000 (payable at the end of each year) and
the rate implicit in the lease is 5%. No initial direct costs are incurred. How much
interest expense should be recognized in 2021? - correct answer $9,652
Which of the following statements about income taxes is not correct? - correct answer
Deductible temporary differences give rise to deferred tax liabilities, meaning that more
tax is payable in the future.
Generally arise when there are differences that result in current accounting income
being greater than taxable income - correct answer Taxable Temporary Differences
Give rise to deferred tax assets - correct answer Deductible Temporary Differences
Generally arise when the tax base of the assets is greater than the carrying amount -
correct answer Deductible Temporary Differences
Arise when the tax base of the liabilities is greater than the carrying amount - correct
answer Taxable Temporary Differences
Arise when the carrying amount of the liabilities is greater than the tax base - correct
answer Deductible Temporary Differences
Give rise to deferred tax liabilities - correct answer Taxable Temporary Differences
Calculate the deferred tax liability given the following items incurred in 2020 by
Company B. Bonuses are tax deductible only in the year in which they are paid. -
correct answer $372
Company Co. Has 1,000 employees and it decides to grant each of the employees 200
share options as part of its new rewards plan. The options are exercisable over 5 years
and subject only to the condition that the company's stock price must be at least 30%
higher than its original issue price. Company Co.'s share-based payments are subject
to: - correct answer Non-vesting condition
Which of the following items are not included when determining income from
operations? - correct answer Taxes
Which ratio would you use to determine the profitability of the goods sold by a
company? - correct answer Gross profit margin
When performing a vertical analysis which income statement item do you use to
determine the cost contribution for each expense category? (What is the denominator?)
- correct answer Sales
Horizontal analysis allows us to analyze performance over: - correct answer Time
When calculating the quick ratio or "acid test" which current asset or liability is omitted?
- correct answer Inventory
For which organization would you expect to see the highest inventory turnover ratio? -
correct answer Grocery retailer
What actions could a company take to reduce its working capital funding gap? - correct
answer Tighten customer credit terms
The debt to equity ratio indicates: - correct answer The proportion of the company
financed by lenders versus owners
Which of the following items are not included in working capital? - correct answer Short
term investments
When calculating turnover of property plant & equipment and receivables, which item
from the income statement do we use? - correct answer Sales
If a company wanted to finance the purchase of equipment without diluting shareholders
equity, which of the following operation could it consider? - correct answer Obtaining a
loan from a bank
Working capital movement is included in which section of the cash flow statement? -
correct answer Operating activities
The debt to tangible net worth ratio is calculated as follows: - correct answer Interest
Bearing Liabilities / (Equity - Intangible Assets)
If the total assets to equity ratio of a company is increasing, it is possible that: - correct
answer The company is increasing the use of debt and getting higher financial leverage
,Which ratio is not one of the three ratios that multiply together to produce the return on
equity ratio? - correct answer Operating profit margin
Which financial leverage ratio is used with two other ratios to mathematically produce
the return on equity ratio? - correct answer Total Assets / Equity
Which of the following is a tertiary ratio that drives profitability? - correct answer SG&A
Expense / Sales
Which ratios indicate how efficiently the company generates sales from its assets? -
correct answer Working capital turnover
The net profit margin ratio can mathematically be broken down as "Tax impact x Capital
structure impact x..." - correct answer EBIT / Sales
Based on the following information from ABC Company's financial analysis, which one
of the following statements is NOT true? - correct answer The company's ability to cover
its short-term obligations is getting higher over the five years.
Which of the following best describes accounting principles in general? - correct answer
They outline the fundamental rules and concepts and establish the framework on which
detailed accounting standards are based.
A sound accounting framework allows for all of the following benefits except: - correct
answer Identical items being reported on the financial statements of different companies
Conservatism Principle - correct answer It provides guidance on how to record
transactions when there is uncertainty.
Historical Cost Principle - correct answer It states that assets and liabilities are recorded
on the financial statements at the cost at which they were acquired or assumed.
Objectivity Principle - correct answer It states that financial statements must be free
from bias and based on verifiable evidence.
Economic Entity Principle - correct answer It states that transactions carried out by a
business are separated from those conducted by its owner.
Matching Principle - correct answer It states that the expenses of a business should be
recorded in the periods in which the corresponding revenues are earned.
On March 1st, Mr. Smithe signed up for a fitness program at Fit Co. And paid $960 for
the entire program upfront. The program includes a total of 12 sessions and two
sessions are delivered each month. How much revenue from Mr. Smithe should Fit Co.
Recognize at the end of March? - correct answer $160
, Which of the following characteristics does not enhance the usefulness of financial
information? - correct answer Relevance
Identify the statement that is most accurate. - correct answer Financial information that
has confirmatory value provides feedback that either confirms or changes previous
evaluations.
Which of the following is not a correct description of how an operating lease is
recognized on the financial statements? - correct answer The amortization expense of
the right-of-use asset is calculated using the straight-line depreciation method over the
lease term.
Company Inc. Enters into a 10-year finance lease at the beginning of 2021 for a total of
$250,000. The annual lease payment is $25,000 (payable at the end of each year) and
the rate implicit in the lease is 5%. No initial direct costs are incurred. How much
interest expense should be recognized in 2021? - correct answer $9,652
Which of the following statements about income taxes is not correct? - correct answer
Deductible temporary differences give rise to deferred tax liabilities, meaning that more
tax is payable in the future.
Generally arise when there are differences that result in current accounting income
being greater than taxable income - correct answer Taxable Temporary Differences
Give rise to deferred tax assets - correct answer Deductible Temporary Differences
Generally arise when the tax base of the assets is greater than the carrying amount -
correct answer Deductible Temporary Differences
Arise when the tax base of the liabilities is greater than the carrying amount - correct
answer Taxable Temporary Differences
Arise when the carrying amount of the liabilities is greater than the tax base - correct
answer Deductible Temporary Differences
Give rise to deferred tax liabilities - correct answer Taxable Temporary Differences
Calculate the deferred tax liability given the following items incurred in 2020 by
Company B. Bonuses are tax deductible only in the year in which they are paid. -
correct answer $372
Company Co. Has 1,000 employees and it decides to grant each of the employees 200
share options as part of its new rewards plan. The options are exercisable over 5 years
and subject only to the condition that the company's stock price must be at least 30%
higher than its original issue price. Company Co.'s share-based payments are subject
to: - correct answer Non-vesting condition
