Scribd Logo
Upload

Welcome to Scribd!

  • Financial Statement Analysis Sample Questions File 10001-2

    Uploaded by

    ThomasMadrange
    14 views16 pages
    -

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    -

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    14 views16 pages

    Financial Statement Analysis Sample Questions File 10001-2

    Uploaded by

    ThomasMadrange
    -

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 16
    Stella Review for the CFA® Exams Level 4, Study Session 7 inancial Statement Analysis INTRODUCTION TO FINANCIAL STATEMENT ANALYSIS PRACTICE QUESTIONS (Explanations to the Practice Questions are located at the back of the Study Session.) 1. L1-00962 LOS7.29.b Which of the following financial statements provides a snapshot of the financial condition of a firm ona particular date? 2. Income statement. . Balance sheet. ._ Statement of cash flows. 1. Statement of changes in shareholders’ equity. L1-00963 LOS7.29.b Vhich of the following financial statements is a summary of the operating performance of a firm over a etiod of time? Income statement. Balance sheet. Statement of cash flows. Statement of changes in shareholders’ equity. L1-01170 LOS7.29.b he financial statement which summarizes operating, investing, and financing activities of an entity for a sriod of time is the: Income statement. Balance sheet. Statement of shareholders’ equity. Statement of cash flows. L1-00836 LOS7.29.c formation regarding which of the following items is usually included in the footnotes to financial atements?: Off-balance sheet financing arrangements. Quarterly sales and income data. Capital resources available to the firm and its liquidity. Useful information about stock options and major shareholders. L1-03982 LOS7.29.c hich of the following is most correct with regard to financial statement footnotes and other disclosures? Management Discussion and Analysis (MD8A) generally includes a discussion of accounting choices used in preparing financial statements. Credit agreements and other contracts may be discussed and are frequently reproduced verbati the Management Discussion and Analysis (MD&A) section. The Management Discussion and Analysis (MDA) area of SEC filings interpret performance, execution of strategy, and liquidity needs. Smaller contingent claims (¢.g., product liability, shareholder and environmental lawsuits) that are not sufficiently estimable or certain as to require accounting recognition frequently appear in the Management Discussion and Analysis (MD&A) section. in 8 Dery/Backer Educationst Development Corp. All igh reserved 7417 Stalla Review for the CFA® Exams 6. L1-00784 LOS7.29.4 When an auditor issues an unqualified opinion of a company's financial statements, this means that: a. The auditor provides a favorable opinion on the accuracy of the financial statements of the firm, except for certain material items noted. b. The financial statements are presented fairly and are free from error. cc. The auditor's opinion is that the financial statements are fairly presented. 4. The auditor does not provide an opinion on the financial statements prepared by company management. 7. L1-00821 LOS7.29.d When an auditor issues a qualified opinion of a company's financial statement, this means that: a. The financial statements are presented fairly in conformity with GAAP and management's choice of permitted accounting alternatives is appropriate. b. The financial statements are not presented fairly. . The scope of the audit is not sufficient to enable an opinion to be rendered. 4. The financial statements are presented in accordance with applicable accounting standards, except | for certain stated items. 8. L1-00838 LOS7.29.d Which of the following best describes the role of an auditor of financial statements? a. Ensures that financial statements are free of material misstatement. b, Issues the auditor's opinion about the financial statements. cc, Responsible for the preparation of the financial statements. d. Ensures that the company has effective internal controls. 9. 11-02927 LOS7.29.e Which of the following statements is feast accurate? a. Information about the number of options granted to corporate executives can be found in proxy statements. b. Financial statements contained in the 100 filings with the Securities and Exchange Commission (SEC) and quarterly financial statements issued to corporate shareholders and other interested parties are reliable because they must be audited by certified public accountants. . The Management Discussion and Analysis section of an annual report is where management's analysis of a company's liquidity and planned capital expenditures can be found. . SEC filings usually contain more detalled financial information regarding the period covered by the financial statements than does a company’s annual report. 7-18 © 2006 DeVry/Secker Educational Development Corp. AB ights reserved Stalla Review for the CFA® Exams Level 1, Study Session 7 - Financial Statement Analysis 1 FINANCIAL REPORTING MECHANICS PRACTICE QUESTIONS (Explanations to the Practice Questions are located at the back of the Study Session.) 1. L1-04167 LOS 7.30.a Which of the following transactions would be classified as an operating activity? a. Payment of a dividend to shareholders. . Purchase of factory equipment. b. ¢. Purchase of materials used in production. d._ Issuance of bonds. 2 L1-04168 LOS 7.30.b An analyst projects that a company will have total liabilities of $3,000 and total equity of $5,700 on December 31, 20X9. Based on this information, total assets would be: a. $2,700 b. $3,000 c, $5,700 d. $8,700 3. L1-04169 LOS 7.30.b An analyst has compiled the following information for a company as of and for the year ended December ‘31, 20x8: Assets $8,200 Contributed capital 4,700 Beginning retained earnings 600 Revenues 6,500 Expenses 5,200 Dividends 500 What is the company's liability balance on December 31, 20X8? a. $1,400 b. $2,100 ©. $3,500 d. $6,100 4. L1-04170 LOS 7.30.4 NewBiz Company formed on January 1, 20X8 with a capital contribution of $100,000. On January 10, the company borrowed $50,000 for a local bank. The total effect of these transactions on the accounting equation is a: a. $50,000 increase in assets. b. $50,000 increase in liabilities. c. $100,000 increase in assets. d. $150,000 increase in equity. (© 2008 Devry/Backer Educational Davalopmant Corp. All rights reserved. 731 + Study Session 7 + Financial Statement Analysis 1 _ Stale Review for the CTA® Exams 5. L1-04171 LOS 7.30.4 On May 31, 20X8, Grow Right, Inc. collected $25,000 from customers for services to be provided in June 20X8. The company also billed customers $60,000 for services Provided in May. These transactions will result in a total increase in: a. Liabilities of $25,000. b. Assets of $60,000. c. Equity of $85,000. d. Revenue of $85,000. 6. L1-00795 LOS7.30.e ‘The primary disadvantage of the use of accrual accounting for the income statement is that: a. It shows only the actual cash flow position of the firm. b. Itdoes not appropriately measure accounting income. ©. It does not match revenues and expenses in the period in which they are incurred, d._ It does not recognize revenue and expenses based on the actual exchange of cash for that period. 7. L1-00834 LOS7.30.e The main reason that the accounts in the financial statements need to be adjusted at the end of each period is to: a. Provide financial information to determine the fair market value of the firm. b. Reflect off-balance sheet activity and contingencies in the financial statements. c. Maintain consistency in measurement for the accounting periods reported. 4. Properly refiect the effects of cash inflows and outflows occurring near year-end. 8. L1-04172 LOS 7.30.f Depreciation of a fixed asset will not affect which of the following financial statements? a. Balance Sheet. b. Income Statement. ¢. Statement of Cash Flows. d. Statement of Owners’ Equity. 9. L1-04173 LOS 7.30.g A list of account balances prepared after the period end adjusting entries are made that shows that the accounting equation is in balance is referred to as the: a. Trial balance. b. Journal. c. General ledger. d. Adjusted trial balance. 7-32 (© 2008 Deviy/Becker Educational Devalopenent Corp. All ats reserve. la Review for the CFA® Exams Level 1, Study Session 7 + F FINANCIAL REPORTING STANDARDS PRACTICE QUESTIONS (Explanations to the Practice Questions are located at the back of the Study Session.) L1-00808 LOST7.31.a {Which of the following statements best describes the primary purpose of financial reporting? la, Provide information that is useful in assessing the amount, timing, and uncerlainly of a firm's future cash flows. b. Provide information useful in making rational investment, credit, and related economic decisions. . Provide information about a firm's resources, claims to those resources, and changes to them. d, Provide information on the long-term ability of the firm to cover interest payments and the retirement of its debt obligations. 2. L1-03851 LOS7.31.b Which of the following statements regarding the International Accounting Standards Board (IASB) is most \accuraie? la, The IASB is an independent standard setting body with the responsibility to advance the process of global harmonization of accounting standards. . The IASB requires member countries to adopt IAS GAAP. . The standards issued by the IASB are called "Statements on Standards for International Financial Reporting." |. The member nations of the European Union, Australia and New Zealand, have adopted IFRS “equivalent” standards. 3, L1-04174 LOS 7.31.b ich of the following statements regarding the U.S. Financial Accounting Standards Board (FASB) is (most accurate? fa. The FASB is a government entity with the authority to set and enforce accounting standards. b. The FASB and the IASB are working together to develop one universally accepted set of financial reporting standards. ic. The standards issued by the FASB are only one possible source of U.S. GAAP, id. The IASB and the FASB use the same conceptual framework. 4, L1-04175 LOS 7.31.b ‘To report the acquisition or disposal of corporate assets, a U.S. company must file SEC Form: a. 8K ib. 10-K ic. 10-0 id. 11-K 5. L1-00791 LOS7.31.d ‘Accounting information is considered to be relevant when it is: fa. Verifiable and neutral lb. Can be relied on to represent the economic conditions and events that it is intended to represent. lc. Understandable by informed users. id. Capable of making a difference in a decision. lo 0 bev Becker Cducatona Development Corp. Al hs reserved. 741 ncial Statement Analysis 1 . Stalla Review for the CFA” Exams 6. L1-04176 LOS 7.31.4 Under the IASB framework, the qualitative characteristics of financial information include all of the following, except: a. Understandability b. Relevance c. Comparability d. Usefulness 7. L1-04177 LOS 7.31.4 Which of the following statements regarding the IASB financial reporting framework is least accurate? a. The framework states that the objective of financial statements is the fair presentation of a company's financial position, financial performance and cash flows. b. The framework describes gains and losses as capital maintenance adjustments. . The fundamental assumptions upon which the framework is based are accrual accounting, going concem, and historical cost. d. The trade-off between relevance and relial the implementation of the framework. and the cost-benefit constraint are two constraints on 8. 11-04178 LOS 7.31.9 An effective financial accounting framework should have all of the following characteristics, except: a. Transparency b. Comprehensiveness c. Reliability d. Consistency 742 © 2008 Devry/Bocker Educational Development Corp. All rights reserved. Stalla Review for the CFA® Exams Level 1, Study Session 7 - Financial Statement Analysis 1 IMPORTANT EQUATIONS The Balance Sheet Assets = Liabilities + Equity Capital The Income Statement Net Income Balance Sheet increases in Liabilities and Equity or Decreases in Assets + Increases in Assets Net Cash Flow Retained Eamingsengng _ Retained EamingSpenning , Netincome Dividends Declared (Balance Sheet) (Balance Sheet) Income Statement) (Stmt. of Owners’ Equity ) (© 2006 DeViryfBecker Educational Development Corp. All rights reserved. 77 Stalla Review for the CFA® Exams Level 1, Study Session 7 + Fil jancial Statement Analysis 1 PRACTICE QUESTION EXPLANATIONS TOPIC 1: Introduction to Financial Statement Analysis 1. L1-00962 LOS7.29.b Choice "b" is correct. The balance sheet is a snapshot of the firm's financial condition on a particular date. Choices "a", "c", and "d" are incorrect. Each of these statements reflect activity over a period of time and do not pertain to the financial condition of a firm on a particular date. 2 L1-00963 LOS7.29.b Choice "a" is correct. The income statement provides a summary of the firm's operating performance (profitability) over a period of time. Choice "b" is incorrect. The balance sheet reflects the financial condition of a firm at a point in time. Choice "c" is incorrect. The statement of cash flows reflects the cash inflows and outflows of a firm over a period of time. Choice "d" is incorrect. The statement of changes in shareholders equity indicates the changes (balances) of the individual components of shareholders’ equity over a period of time. 3. L1-01170 LOS7.29.b Choice “d" is correct. The statement of cash flows reflects the operating, investing and financial cash inflows/outflows of a firm over a period of time. Choice "a" is incorrect. The income statement summarizes the operating performance (profitability) of an entity for @ period of time. Choice "b" is incorrect. The balance sheet does not summarize the operating cash flows for a period of time, but the financial position of a company at a point in time. Choice “c" is incorrect. The statement of shareholders’ equity indicates changes in the individual components that comprise total shareholders’ equity over a period of time. 4 L1-00836 LOS7.29.¢ Choice "a’ is correct. Off-balance sheet financing arrangements are disclosed as part of the footnotes to financial statements. The footnotes are an integral part of audited financial statements prepared in conformity with generally accepted accounting principles. Choice "b" is incorrect. Quarterly sales and income data are included in the supplementary schedules, which are not part of the footnotes. Choice "c" is incorrect. Capital resources available to the firm and its liquidity are included as part of the management discussion and analysis (MD&A) section, which is not part of the footnotes. Choice "dis incorrect. Useful information about stock options and major shareholders is included in the proxy statements, which are issued by publicly held companies in conjunction with upcoming shareholder meetings. © 2008 Devry/Becker Eeueational Development Corp. Al rants raseeve. 751 vel 1, Study Session 7 « Financial Statement Analysis 1 «osaew. «.Stalla Review for the CFA? Exams 5. L1-03982 LOS7.29.c Choice “c" is correct. The MD&A section gives a top-level view of company performance in the context of ‘economic and industry conditions, defines how this performance dovetails with the execution of the firm's strategy, and defines how operating, investing, and financing liquidity needs were met within the reporting period. This section of SEC filings may also describe the future of each of these areas, as well as reporting the past. Choice "a" is incorrect. While analysis of accounting choices leads to better understanding of the quality of reported data, especially earnings, this is not a discussion usually reserved for the MD&A. MD&A. generally precedes presentation of financial statements, while accounting choices usually appear in footnotes and disclosures following the financial statements Choice "b" is incorrect. Credit agreements and other contracts would not be included verbatim in the MD8

    You might also like