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Financial Reporting and Analysis: Conceptual Questions - CFA Prep, Exams of Mathematics

Nashville State Community CollegeMathematics

A series of multiple-choice questions designed to test understanding of fundamental concepts in financial reporting and analysis. It covers topics such as the role of financial statement analysis, accounting standards, financial statement elements, nonrecurring items, revenue recognition, and balance sheet analysis. The questions are suitable for students preparing for the cfa exam or those seeking to deepen their knowledge of financial reporting principles.

Typology: Exams

2024/2025

Available from 03/09/2025

Tutorhaven
Tutorhaven 🇺🇸

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Conceptual Questions Financial Reporting and Analysis - CFA PREP
Study online at https://quizlet.com/_9hl66m
1. Which of the following statements least accurately describes a role of
financial statement analysis?
A)Use the information in financial statements to make economic decisions.
B)Provide reasonable assurance that the financial statements are free of
material errors.
C)Evaluate an entity's financial position and past performance to form opin-
ions about its future ability to earn profits and generate cash flow.: B)Provide
reasonable assurance that the financial statements are free of material errors.
2. A firm's financial position at a specific point in time is reported in the:
A)balance sheet.
B)income statement.
C)cash flow statement.: A)balance sheet.
3. Information about accounting estimates, assumptions, and methods cho-
sen for reporting is most likely found in:
A)the auditor's opinion.
B)financial statement notes.
C)Management's Discussion and Analysis.: B)financial statement notes.
4. If an auditor finds that a company's financial statements have made a
specific exception to applicable accounting principles, she is most likely to
issue a:
A)dissenting opinion.
B)cautionary note.
C) Qualified Opinion: C) Qualified Opinion
5. Information about elections of members to a company's Board of Directors
is most likely found in:
A)a 10-Q filing.
B)a proxy statement.
C)footnotes to the financial statements.: B)a proxy statement.
6. Which of these steps is least likely to be a part of the financial statement
analysis framework?
A)State the purpose and context of the analysis.
B)Determine whether the company's securities are suitable for the client.
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Download Financial Reporting and Analysis: Conceptual Questions - CFA Prep and more Exams Mathematics in PDF only on Docsity!

Study online at https://quizlet.com/_9hl66m

  1. Which of the following statements least accurately describes a role of financial statement analysis? A)Use the information in financial statements to make economic decisions. B)Provide reasonable assurance that the financial statements are free of material errors. C)Evaluate an entity's financial position and past performance to form opin- ions about its future ability to earn profits and generate cash flow.: B)Provide reasonable assurance that the financial statements are free of material errors.
  2. A firm's financial position at a specific point in time is reported in the: A)balance sheet. B)income statement. C)cash flow statement.: A)balance sheet.
  3. Information about accounting estimates, assumptions, and methods cho- sen for reporting is most likely found in: A)the auditor's opinion. B)financial statement notes. C)Management's Discussion and Analysis.: B)financial statement notes.
  4. If an auditor finds that a company's financial statements have made a specific exception to applicable accounting principles, she is most likely to issue a: A)dissenting opinion. B)cautionary note. C) Qualified Opinion: C) Qualified Opinion
  5. Information about elections of members to a company's Board of Directors is most likely found in: A)a 10-Q filing. B)a proxy statement. C)footnotes to the financial statements.: B)a proxy statement.
  6. Which of these steps is least likely to be a part of the financial statement analysis framework? A)State the purpose and context of the analysis. B)Determine whether the company's securities are suitable for the client.

Study online at https://quizlet.com/_9hl66m C)Adjust the financial statement data and compare the company to its industry peers.: B)Determine whether the company's securities are suitable for the client.

  1. The objective of financial reporting, according to the IASB framework, is to: A)provide information about the firm to current and potential investors. B)decide the acceptable standards for presenting financial performance. C)minimize management discretion in presenting the financial results of a firm.: A)provide information about the firm to current and potential investors.
  2. Standard-setting bodies are responsible for: A)establishing financial reporting standards only. B)establishing and enforcing standards for financial reporting. C)enforcing compliance with financial reporting standards only.: A)establish- ing financial reporting standards only.
  3. Which of the following organizations is least likely involved with enforcing compliance with financial reporting standards? A)Financial Conduct Authority. B)Securities and Exchange Commission. C)International Accounting Standards Board.: C)International Accounting Stan- dards Board.
  4. According to the IASB Conceptual Framework, the fundamental qualitative characteristics that make financial statements useful are: A)verifiability and timeliness. B)relevance and faithful representation. C)understandability and relevance.: B)relevance and faithful representation.
  5. Which of the following most accurately lists a required reporting element that is used to measure a company's financial position and one that is used to measure a company's performance? Position Performance A)Assets Liabilities B)Income Expenses C)Liabilities Income: C)Liabilities Income
  6. International Accounting Standard (IAS) No. 1 least likely requires which of the following? A)Neither assets and liabilities, nor income and expenses, may be offset

Study online at https://quizlet.com/_9hl66m financial statements. C)is reported by adjusting the beginning balance of retained earnings for the cumulative effect of the change.: A)is reported prospectively.

  1. Which of the following best describes the impact of depreciating equip- ment with a useful life of 6 years and no salvage value using the declining balance method as compared to the straight-line method? A)Total depreciation expense will be higher over the life of the equipment. B)Depreciation expense will be higher in the first year. C)Scrapping the equipment after five years will result in a larger loss.: B)De- preciation expense will be higher in the first year.
  2. When accounting for inventory, are the first-in, first-out (FIFO) and last-in, first-out (LIFO) cost flow assumptions permitted under U.S. GAAP? FIFO LIFO A)Yes Yes B)Yes No C)No Yes: A)Yes Yes
  3. For a nonfinancial firm, are depreciation expense and interest expense included or excluded from operating expenses in the income statement? Depreciation expense Interest expense A)Included Included B)Included Excluded C)Excluded Included: B)Included Excluded
  4. Which of the following expense items is best described as being classified by function rather than classified by nature? A)Cost of goods sold. B)Depreciation. C)Wage expense.: A)Cost of goods sold.
  5. The first step in the revenue recognition process is to: A)determine the price. B)identify the contract. C)identify the obligations.: B)identify the contract.
  6. A vertical common-size income statement expresses each category of the income statement as a percentage of:

Study online at https://quizlet.com/_9hl66m A)assets. B)gross profit. C)revenue.: C)revenue.

  1. Which of the following would most likely result in higher gross profit margin, assuming no fixed costs? A)A 10% increase in the number of units sold. B)A 5% decrease in production cost per unit. C)A 7% decrease in administrative expenses.: B)A 5% decrease in production cost per unit.
  2. Which of the following transactions affects owners' equity but does not affect net income? A)Foreign currency translation gain. B)Repaying the face amount on a bond issued at par. C)Dividends received from available-for-sale securities.: A)Foreign currency translation gain.
  3. Which of the following is least likely to be included when calculating comprehensive income? A)Unrealized loss from cash flow hedging derivatives. B)Unrealized gain from available-for-sale securities. C)Dividends paid to common shareholders.: C)Dividends paid to common share- holders.
  4. Which of the following is most likely an essential characteristic of an asset? A)An asset is tangible. B)An asset is obtained at a cost. C)An asset provides future benefits.: C)An asset provides future benefits.
  5. Which of the following statements about analyzing the balance sheet is most accurate? A)The value of the firm's reputation is reported on the balance sheet at amortized cost. B)Shareholders' equity is equal to the intrinsic value of the firm. C)The balance sheet can be used to measure the firm's capital structure.: - C)The balance sheet can be used to measure the firm's capital structure.

Study online at https://quizlet.com/_9hl66m

  1. At the beginning of the year, Parent Company purchased all 500,000 shares of Sub Incorporated for $15 per share. Just before the acquisition date, Sub's balance sheet reported net assets of $6 million. Parent determined the fair value of Sub's property and equipment was $1 million higher than reported by Sub. What amount of goodwill should Parent report as a result of its acquisition of Sub? A)$0. B)$500,000. C)$1,500,000.: B)$500,000.
  2. At the beginning of the year, Company P purchased $80,000 face value of Company S corporate bonds for $77,000. Company P intends to hold these bonds for several years but sell them before they mature. At the end of the year, the market value of the bonds was $75,000. What amount should Company P report on its balance sheet at year-end for the investment in Company S bonds? A)$75, B)$77, C)$80,000:
  3. Which of the following ratios are used to measure a firm's liquidity and solvency? Liquidity Solvency A)Current ratio Quick ratio B)Debt-to-equity ratio Financial leverage ratio C)Cash ratio Total debt ratio: C)Cash ratio Total debt ratio
  4. A vertical common-size balance sheet expresses each category of the balance sheet as a percentage of: A)assets. B)equity. C)revenue.: A)assets.
  5. Which of the following items is least likely considered a cash flow from financing activity under U.S. GAAP? A)Receipt of cash from the sale of bonds.

Study online at https://quizlet.com/_9hl66m B)Payment of cash for dividends. C)Payment of interest on debt.: C)Payment of interest on debt.

  1. Which of the following would be least likely to cause a change in investing cash flow? A)The sale of a division of the company. B)The purchase of new machinery. C)An increase in depreciation expense.: C)An increase in depreciation expense.
  2. Which of the following is least likely a change in cash flow from operations under U.S. GAAP? A)A decrease in notes payable. B)An increase in interest expense. C)An increase in accounts payable.: A)A decrease in notes payable.
  3. Sales of inventory would be classified as: A)operating cash flow. B)investing cash flow. C)financing cash flow.: A)operating cash flow.
  4. Issuing bonds would be classified as: A)investing cash flow. B)financing cash flow. C)no cash flow impact.: B)financing cash flow.
  5. Sale of land would be classified as: A)operating cash flow. B)investing cash flow. C)financing cash flow.: B)investing cash flow.
  6. The write-off of obsolete equipment would be classified as: A)operating cash flow. B)investing cash flow. C)no cash flow impact.: C)no cash flow impact.
  7. Under IFRS, interest expense would be classified as: A)either operating cash flow or financing cash flow. B)operating cash flow only. C)financing cash flow only.: A)either operating cash flow or financing cash flow.

Study online at https://quizlet.com/_9hl66m A)total assets. B)total revenues. C)the change in cash.: B) total revenues.

  1. To calculate free cash flow to the firm based on operating cash flow, an analyst should add interest expense net of tax and subtract: A)noncash charges. B)fixed capital investment. C)working capital investment.: B)fixed capital investment.
  2. The reinvestment ratio measures a firm's ability to use its operating cash flow to: A)pay dividends. B)invest in working capital. C)acquire long-lived assets.: C)acquire long-lived assets.
  3. To study trends in a firm's cost of goods sold (COGS), the analyst should standardize the cost of goods sold numbers to a common-sized basis by dividing COGS by: A)assets. B)sales. C)net income.: B)sales.
  4. Which of the following is least likely a limitation of financial ratios? A)Data on comparable firms are difficult to acquire. B)Determining the target or comparison value for a ratio requires judgment. C)Different accounting treatments require the analyst to adjust the data before comparing ratios.: A)Data on comparable firms are difficult to acquire.
  5. All other things held constant, which of the following transactions will increase a firm's current ratio if the ratio is greater than one? A)Accounts receivable are collected and the funds received are deposited in the firm's cash account. B)Fixed assets are purchased from the cash account. C)Accounts payable are paid with funds from the cash account.: C)Accounts payable are paid with funds from the cash account.
  6. An analyst who is interested in a company's long-term solvency would most likely examine the:

Study online at https://quizlet.com/_9hl66m A)return on total capital. B)defensive interval ratio. C)fixed charge coverage ratio.: C)fixed charge coverage ratio.

  1. Which of the following equations least accurately represents return on equity? A)(net profit margin)(equity turnover). B)(net profit margin)(total asset turnover)(assets / equity). C)(ROA)(interest burden)(tax retention rate).: C)(ROA)(interest burden)(tax re- tention rate).
  2. Return on equity using the traditional DuPont formula equals: A)(net profit margin) (interest component) (solvency ratio). B)(net profit margin) (total asset turnover) (tax retention rate). C)(net profit margin) (total asset turnover) (financial leverage multiplier).: - C)(net profit margin) (total asset turnover) (financial leverage multiplier).
  3. Accounting standards require segment reporting for a distinguishable part of a firm that comprises at least: A)10% of assets. B)5% of revenues. C)20% of earnings.: A)10% of assets.
  4. An analyst who needs to model and forecast a company's earnings for the next three years would be least likely to: A)assume that key financial ratios will remain unchanged for the forecast period. B)use common-size financial statements to estimate expenses as a percent- age of net income. C)examine the variability of the predicted outcomes by performing a sensi- tivity or scenario analysis.: B)use common-size financial statements to estimate expenses as a percentage of net income.