Portfolio Management Corporate Issuers Financial Statement Analysis Volume 2 CFA Institute - Solutions

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contrast costs included in inventories and costs recognised as expenses in the period in which they are incurred
8. Which of the following components of the cash flow statement may be prepared under the indirect method under both IFRS and US GAAP?A. Operating B. Investing C. Financing
7. Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method?A. Net income B. Cash paid to suppliers C. Cash received from customers
6. A benefit of using the direct method rather than the indirect method when reporting operating cash flows is that the direct method:A. mirrors a forecasting approach.B. is easier and less costly.C. provides specific information on the sources of operating cash flows.
5. A company recently engaged in a non-cash transaction that significantly affected its property, plant, and equipment. The transaction is:A. reported under the investing section of the cash flow statement.B. reported differently in cash flow from operations under the direct and indirect methods.C.
4. A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be:A. reported as a $1 million investing cash inflow and outflow.B. reported as a $1 million financing cash outflow and inflow.C. reported as supplementary information to the cash flow
3. Under which section of a manufacturing company’s cash flow statement are the following activities reported?Item 1: Purchases of securities held for trading Item 2: Purchases of securities held for investment A. Both items are investing activities.B. Only Item 1 is an operating activity.C. Only
2. The sale of a building for cash would be classified as what type of activity on the cash flow statement?A. Operating B. Investing C. Financing
1. The three major classifications of activities in a cash flow statement are:A. inflows, outflows, and net flows.B. operating, investing, and financing.C. revenues, expenses, and net income.
contrast cash flow statements prepared under International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (US GAAP)
compare and contrast the direct and indirect methods of presenting cash from operating activities and describe arguments in favor of each method
describe how non-cash investing and financing activities are reported
compare cash flows from operating, investing, and financing activities and classify cash flow items as relating to one of those three categories given a description of the items
13. When a company buys shares of its own stock to be held in treasury, it records a reduction in:A. both assets and liabilities.B. both assets and shareholders’ equity.C. assets and an increase in shareholders’ equity.
12. The item “retained earnings” is a component of:A. assets.B. liabilities.C. shareholders’ equity.
11. The non-controlling (minority) interest in consolidated subsidiaries is presented on the balance sheet:A. as a long-term liability.B. separately, but as a part of shareholders’ equity.C. as a mezzanine item between liabilities and shareholders’ equity.
10. Debt due within one year is considered:A. current.B. preferred.C. convertible.
9. Accrued expenses (accrued liabilities) are:A. expenses that have been paid.B. created when another liability is reduced.C. expenses that have been reported on the income statement but not yet paid.
8. Money received from customers for products to be delivered in the future is recorded as:A. revenue and an asset.B. an asset and a liability.C. revenue and a liability.
7. Which of the following is most likely classified as a current liability?A. Payment received for a product due to be delivered at least one year after the balance sheet date B. Payments for merchandise due at least one year after the balance sheet date but still within a normal operating cycle C.
6. An example of a contra asset account is:A. depreciation expense.B. sales returns and allowances.C. allowance for doubtful accounts.
5. The most likely company to use a liquidity-based balance sheet presentation is a:A. bank.B. computer manufacturer holding inventories.C. software company with trade receivables and payables.
4. Distinguishing between current and non-current items on the balance sheet and presenting a subtotal for current assets and liabilities is referred to as:A. a classified balance sheet.B. an unclassified balance sheet.C. a liquidity-based balance sheet.
3. Shareholders’ equity reported on the balance sheet is most likely to differ from the market value of shareholders’ equity because:A. historical cost basis is used for all assets and liabilities.B. some factors that affect the generation of future cash flows are excluded.C. shareholders’
2. Equity equals:A. Assets – Liabilities.B. Liabilities – Assets.C. Assets + Liabilities.
1. Resources controlled by a company as a result of past events are:A. equity.B. assets.C. liabilities.
describe the components of shareholders’ equity
describe different types of assets and liabilities and the measurement bases of each
contrast current and non-current assets and current and non-current liabilities
describe alternative formats of balance sheet presentation
describe uses and limitations of the balance sheet in financial analysis
describe the elements of the balance sheet: assets, liabilities, and equity
6. When preparing an income statement, which of the following items would most likely be classified as other comprehensive income?A. A foreign currency translation adjustment B. An unrealized gain on a security held for trading purposes C. A realized gain on a derivative contract not accounted for
5. Selected year-end financial statement data for Workhard are shown below.$ millions Beginning shareholders’ equity 475 Ending shareholders’ equity 493 Unrealized gain on available-for-sale securities 5 Unrealized loss on derivatives accounted for as hedges –3 Foreign currency translation
4. Which statement is most accurate? A common size income statement:A. restates each line item of the income statement as a percentage of net income.B. allows an analyst to conduct cross-sectional analysis by removing the effect of company size.C. standardizes each line item of the income statement
3. Denali Limited, a manufacturing company, had the following income statement information:Revenue $4,000,000 Cost of goods sold $3,000,000 Other operating expenses $500,000 Interest expense $100,000 Tax expense $120,000 Denali’s gross profit is equal to:A. $280,000.B. $500,000.C. $1,000,000.
2. An example of an expense classification by function is:A. tax expense.B. interest expense.C. cost of goods sold.
1. Expenses on the income statement may be grouped by:A. nature, but not by function.B. function, but not by nature.C. either function or nature.
describe other comprehensive income and identify major types of items included in it
describe, calculate, and interpret comprehensive income
evaluate a company’s financial performance using common-size income statements and financial ratios based on the income statement
formulate income statements into common-size income statements
contrast operating and non-operating components of the income statement
recognition applications, and implications of expense recognition choices for financial analysis
describe general principles of expense recognition, specific expense
calculate revenue given information that might influence the choice of revenue recognition method
describe general principles of revenue recognition and accounting standards for revenue recognition
describe the components of the income statement and alternative presentation formats of that statement
16. The income statement is best used to evaluate a company’s:A. financial position.B. sources of cash flow.C. financial results from business activities.
15. A company’s profitability over a period of time is best evaluated using the:A. balance sheet.B. income statement.C. cash flow statement.
14. The financial statement that presents a shareholder’s residual claim on assets is the:A. balance sheet.B. income statement.C. cash flow statement.
13. A company’s profitability for a period would best be evaluated using the:A. balance sheet.B. income statement.C. statement of cash flows.
12. A company’s financial position would best be evaluated using the:A. balance sheet.B. income statement.C. statement of cash flows.
11. Providing information about the performance and financial position of companies so that users can make economic decisions best describes the role of:A. auditing.B. financial reporting.C. financial statement analysis.
10. Which of the following elements of financial statements is most closely related to measurement of financial position?A. Equity.B. Income.C. Expenses.
9. Which of the following elements of financial statements is most closely related to measurement of performance?A. Assets.B. Expenses.C. Liabilities.
8. The valuation technique under which assets are recorded at the amount that would be received in an orderly disposal is:A. current cost.B. present value.C. realizable value.
7. Valuing assets at the amount of cash or equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition most closely de-scribes which measurement of financial statement elements?A. Current cost.B. Historical cost.C. Realizable value.
6. Neutrality of information in the financial statements most closely contributes to which qualitative characteristic?A. Relevance.B. Understandability.C. Faithful representation.
5. The assumption that the effects of transactions and other events are recognized when they occur, not when the cash flows occur, is called:A. relevance.B. accrual basis.C. going concern.
4. The assumption that an entity will continue to operate for the foreseeable future is called:A. accrual basis.B. comparability.C. going concern.
3. Which of the following is not a constraint on the financial statements according to the Conceptual Framework?A. Understandability.B. Benefit versus cost.C. Balancing of qualitative characteristics.
2. According to the Conceptual Framework for Financial Reporting, which of the following is not an enhancing qualitative characteristic of information in financial statements?A. Accuracy.B. Timeliness.C. Comparability.
1. Which of the following is most likely not an objective of financial statements?A. To provide information about the performance of an entity B. To provide information about the financial position of an entity C. To provide information about the users of an entity’s financial statements
describe the roles of the statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows in evaluating a company’s performance and financial position
describe general requirements for financial statements under International Financial Reporting Standards (IFRS)
describe the International Accounting Standards Board’s conceptual framework, including qualitative characteristics of financial reports, constraints on financial reports, and required reporting elements
describe the roles of financial reporting standard-setting bodies and regulatory authorities in establishing and enforcing reporting standards
describe the objective of financial reporting and the importance of financial reporting standards in security analysis and valuation
15. The information below is associated with a company that offers its employees a defined benefit plan:Fair value of fund’s assets USD1,500,000,000 Estimated pension obligations USD2,600,000,000 Present value of estimated pension obligations USD1,200,000,000 Based on this information, the
14. Penben Corporation has a defined benefit pension plan. At 31 December, its pension obligation is EUR10 million and pension assets are EUR9 million. Under either IFRS or US GAAP, the reporting on the balance sheet would be closest to which of the following?A. EUR10 million is shown as a
13. A company enters into a finance lease agreement to acquire the use of an asset for three years with lease payments of EUR19,000,000 starting next year. The leased asset has a fair market value of EUR49,000,000 and the present value of the lease payments is EUR47,250,188. Based on this
12. Under US GAAP, a lessee’s accounting for a long-term finance lease after incep-tion will include:A. recognizing a single lease expense.B. recording depreciation expense on the right-of-use asset.C. increasing the balance of the lease liability by a portion of the lease payment.
11. Compared with a finance lease, an operating lease:A. is similar to renting an asset.B. is equivalent to the purchase of an asset.C. has a term for the majority of the economic life of the leased asset.
10. Under both IFRS and US GAAP, a lessor in an operating lease recognizes:A. selling profit at lease inception.B. a lease asset comprising the lease receivable and relevant residual value at lease inception.C. lease receipts as income and related costs, including depreciation, as expenses over the
9. Under US GAAP, a lessor’s reported revenues at lease inception will be highest if the lease is classified as:A. a sales-type lease.B. an operating lease.C. a direct financing lease.
8. For a lessor, the leased asset appears on the balance sheet and continues to be depreciated when the lease is classified as:A. a finance lease.B. a sales-type lease.C. an operating lease.
7. Beginning with fiscal year 2019, for leases with a term longer than one year, lessees report a right-to-use asset and a lease liability on the balance sheet:A. only for finance leases.B. only for operating leases.C. for both finance and operating leases.
6. Assume XYZ Company discloses the following information in its Stock Compensation note: As of 31 December 2021, we had USD630 million of unrecognized compensation cost related to nonvested stock-based compensation awards granted under our plan. We expect to recognize this cost over a weighted
5. Assume ABC Company, a fictional company provides the following disclosure about its stock compensation plans:“The average fair value of shares granted was USD20.86, USD16.42, and USD17.80 in 2021, 2020, and 2019 respectively.” If the company granted 18,000 shares, with a three-year vesting
4. Which of the following is a difference between a stock grant and a stock option grant?A. Whereas the fair value of stock grants is usually based on the market value at the date of the grant, the fair value of option grants must be estimated.B. Companies account for stock grants by allocating
3. Which of the following statements is true?A. Share-based compensation does not have to be treated as an expense, when no cash is exchanged.B. Share-based compensation programs can take a variety of forms, including those that are equity-settled and those that are cash settled.C. Employees will
2. Which of the following is typically an objective of a share-based compensation plan?A. Attracting new employees B. Maximizing executive compensation C. Alignment of employees’ interest with those of management
1. Which of the following is a potential drawback of compensating employees with stock options?A. The grant may make employees adverse to risk.B. The grant may make employees seek more risk.C. Both of the above are potential drawbacks.:
describe the financial statement presentation of and disclosures relating to long-term liabilities and share-based compensation
explain the financial reporting of defined contribution, defined benefit, and stock-based compensation plans
explain the financial reporting of leases from the perspectives of lessors and lessees
23. Under US GAAP, when assets are acquired in a business combination, goodwill most likely arises from:A. contractual or legal rights.B. assets that can be separated from the acquired company.C. assets that are neither tangible nor identifiable intangible assets.
22. Costs incurred for intangible assets are generally expensed when they are:A. internally developed.B. individually acquired.C. acquired in a business combination.
21. Intangible assets with finite useful lives mostly differ from intangible assets with infinite useful lives with respect to accounting treatment of:A. revaluation.B. impairment.C. amortization.
20. Which of the three assets is an intangible asset with a finite useful life?A. Patent B. Goodwill C. Copyright
19. Which of the following is a required financial statement disclosure for long-lived intangible assets under US GAAP?A. The useful lives of assets B. The reversal of impairment losses C. Estimated amortization expense for the next five fiscal years
18. According to IFRS, all of the following pieces of information about intangible assets must be disclosed in a company’s financial statements and footnotes except for:A. fair value.B. impairment loss.C. amortization rate.
17. According to IFRS, all of the following pieces of information about property, plant, and equipment must be disclosed in a company’s financial statements and footnotes except for:A. useful lives.B. acquisition dates.C. amount of disposals.
16. The gain or loss on a sale of a long-lived asset to which the revaluation model has been applied is most likely calculated using sales proceeds less:A. carrying amount.B. carrying amount adjusted for impairment.C. historical cost net of accumulated depreciation.
15. CROCO S.p.A sells an intangible asset with a historical acquisition cost of EUR12 million and an accumulated amortization of EUR2 million and reports a loss on the sale of EUR3.2 million. Which of the following amounts is most likely the sale price of the asset?A. EUR6.8 million B. EUR8.8
14. The result of the sale of the vehicle is most likely:A. a loss of ARP 15,000.B. a gain of ARP 15,000.C. a gain of ARP 18,333.
13. Jordan’s response about the effect of Alpha’s revaluation is most likely correct with respect to the impact on its:A. return on equity.B. return on assets.C. debt to capital ratio.
12. Jordan’s response about the effect of Beta’s impairment loss is incorrect with respect to the impact on its:A. debt to total assets.B. fixed asset turnover.C. cash flow from operating activities.
11. Jordan’s response about his approach to estimating a company’s need to reinvest in its productive capacity is most likely correct regarding estimating the:A. average age of the asset base.B. total useful life of the asset base.C. average remaining useful life of the asset base.

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Portfolio Management Corporate Issuers Financial Statement Analysis Volume 2 CFA Institute - Solutions

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