4.

Financial Reporting and Analysis

Q-1. Before adjusting accounting entries, a liability and a cash has been occured in the
balance sheet. This process is most likely to be:
A. an unearned revenue.
B. a prepaid expense.
C. an accrued expense.

Q-2. Assume U.S. GAAP applies unless otherwise noted. An analyst gathered the following
information from a company’s accounting records：
Assets, December 31, 2020 $5,450,000
Liabilities, December 31, 2020 $2,300,000
Contributed capital, December 31, 2020 $1,500,000
Retained earnings, January 1, 2020 $900,000
Dividends declared during 2020 $200,000
The analyst’s estimate of net income for 2020 would be closest to:
A. $650,000.
B. $950,000.
C. $1,050,000.

Q-3. According to the International Accounting Standards Board’s Conceptual Framework for
Financial Reporting, the two fundamental qualitative characteristics that make financial
information useful are best described as:
A. timeliness and accrual accounting.
B. understandability and verifiability.
C. relevance and faithful representation.

Q-4. The following information is available on a company for the current year.
Net income $1,000,000
Average number of common shares outstanding 100,000
Details of convertible securities outstanding:
Convertible preferred shares outstanding 2,000
Dividend/share $10
Each preferred share is convertible into 5 shares of common stock
Convertible bonds, $100 face value per bond $80,000
8% coupon
Each bond is convertible into 25 shares of common stock

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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
 Corporate tax rate 40%
The company's diluted EPS is closest to:
A. $7.72.
B. $7.57.
C. $7.69.

Q-5. At the beginning of the year, a company had total shareholders' equity consisting of
¥200 million in common share capital and ¥50 million in retained earnings.
During the year, the following events occurred:
¥ Millions
Net income reported 42
Dividends paid 7
Unrealized loss on available-for-sale investments 3
Unrealized gain on trading securities 5
Repurchase of company stock, to be held as Treasury stock 6
The total shareholders' equity (in ¥ millions) at the end of the year is closest to:
A. 276.
B. 279.
C. 282.

Q-6. A company using IFRS reports its interest payments on long-term debt as a financing
activity. If the company reported under US GAAP, the most likely effect would be a:
A. higher cash flow from operations.
B. lower cash flow from investing activities.
C. higher cash flow from financing activities.

Q-7. An analyst gathered the following information from a company's 2020 financial
statements (in $ millions):
Year Ended 31 December 2019 2020
Net sales 245.8 254.6
Cost of goods sold (D&A excluded) 168.3 175.9
Accounts receivable 73.2 69.3
Inventory 39.0 47.8
Accounts payable 20.3 22.7
Based only on the information above, the company's 2010 statement of cash flows in
the direct format would include amounts (in $ millions) for cash received from
customers and cash paid to suppliers, respectively, that are closest to:
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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
 cash received from customers cash paid to suppliers
A. 249.7 169.7
B. 258.5 174.5
C. 258.5 182.3

Q-8. The following selected data are available for a firm:

$ millions
EBIT 178.0
Non-cash charges 15.2
Interest expense 28.0
Capital expenditures 34.3
Net borrowing 19.8
Working capital expenditures 13.0
If the firm’s tax rate is 40%, the free cash flow to the firm (FCFE) is closest to:
A. 57.9.
B. 77.7.
C. 94.5.

Q-9. The following data is available on two companies that operate in the same industry:
Metric ($ millions) Company X Company Y
Sales 11.2 14.5
Cost of goods sold 5.7 7.7
Administration costs 1.9 2.2
Interest expense 0.3 0.7
Research & development expenses 1.5 1.7

Which of the following statements is most appropriate? Better margin performance will be

reported by:

A. Y at both the gross margin and operating margin levels.

B. Y at the gross margin level and X at the operating margin level.
C. X at the gross margin level and Y at the operating margin level.

Q-10. For a manufacturing company, when it experiences higher inventory turnover and
longer payables period, its cash conversion cycle is most likely to:
A. increase.
B. decrease.
C. remain unchanged.

Q-11. The following information about June are collected in the following table:
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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
 Cdn $ millions
CFO (interest paid included) 112.5
CFI (34.2)
CFF 55.8
Net cash flow for June 134.1
Interest paid 18.9
Taxes paid@ 30% 22.5
Total debt, end of year 485.8
The cash flow debt coverage ratio for the year is closest to:
A. 19.27%.
B. 23.16%.
C. 27.05%.

Q-12. The following data are available on a company and industry:

Metric ($ thousands) Company Industry
Interest expense & payments 1,000 1,200
Income tax expense 1,100 800
Net income 3,400 4,300
Lease payments 500 600
The company’s interest coverage ratio compared to that of the industry is most likely：
A. inferior
B. same
C. superior

Q-13. The following financial data is available for a company:

Return on assets (ROA) 4.8%
Total asset turnover 1.82
Financial leverage 1.75
Dividend payout ratio 46.1%

The company’s sustainable growth rate is closest to:（()协会模拟考试题

A. 3.87%.
B. 4.53%.
C. 4.71%.

Q-14. During the period when inventory’s price is rising, compared to companies using FIFO
method, firms using weighted average cost for inventory would be most likely to

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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
 report lower value for its:
A. return on sales.
B. inventory turnover.
C. debt-to-equity ratio.

Q-15. For a manufacturing company, its information is shown in the table below:
$ million
Ending inventory (under FIFO) 5.8
NRV 5.5
Normal Profit margin 0.8
Replacement cost 5.0
Compared to US GAAP, under IFRS, the COGS for this company is most likely:
A. The same
B. 0.5 higher
C. 0.5 lower

Q-16. Ezy is a mineral manufacture company and prepares its financial statements in
accordance with U.S. GAAP. Several month ago, inventory was purchased to produce
mineral products for $1 million and later marked down to $650,000. However, the
inventory is now worth an estimated $1.5 million due to the storage of minerals in the
market. The inventory is most likely reported on the balance sheet at:
A. $650,000.
B. $1,000,000.
C. $1,500,000.

Q-17. A company selected LIFO method for its financial reports, and some information about
its financial report is given below (in million):
20X3 20X2
Net revenue 125 100
COGS 80 65
Fixed cost 20 22
LIFO reserve 30 15
Tax rate 30% 25%
The company’s net profit margin under FIFO method in 20X3 is closest to:
A. 22.4%.
B. 26.0%.
C. 30.8%.
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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
Q-18. A company that prepares its financial statements in accordance with International
Financial Reporting Standards (IFRS) is attempting to produce lighter and longer-lasting
batteries for portable electronic devices. The most appropriate accounting treatment
for the related costs incurred in this project is to:
A. capitalize costs directly related to the development.
B. expense costs until technical feasibility has been established.
C. expense them as incurred.

Q-19. On 1 January, a company, which prepares its financial statements according to IFRS,
arranged financing for the construction of a new plant. The company:
• borrowed $5,000,000 at an interest rate of 8%,
• issued $5,000,000 of preferred shares with a cumulative dividend rate of 6%, and
• temporarily invested $2,000,000 of the loan proceeds for the first six months of
construction and earned 7% on that amount.
The amount of financing costs to be capitalized ($) to the cost of the plant in the first
year is closest to:
A. 330,000.
B. 400,000.
C. 630,000.

Q-20. All else being equal and ignoring tax effects, compared with using the straight-line
method of depreciation, the use of an accelerated method of depreciation in the early
years of an asset's life would most likely result in a decrease in the firm's:
A. cash flow from operations.
B. asset turnover ratio.
C. shareholders' equity.

Q-21. Sergeo is a company owns some intangible assets, including a patant for $420,000 and
a copyright valued for $2,100,000. The patent owned by Sergeo expects to use for 5
years, and the copyright can be updated every seven years with a significant low cost,
otherwise the copyrights expires. The straight line depreciation method is used for all
intangible assets, and the annual amortization cost for intangible assets owned by
Sergeo is closest to:
A. $84,000
B. $384,000
C. $0

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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
Q-22. The following information is relating to the equipment owned by Az company:
Item description $ (thousands)
Carrying value amount 300,000
Undiscounted expected future cash flows 320,000
Present value of expected future cash flows 285,000
Fair value if sold 260,000
Costs to sell 5,000
Which of the following statements is most accurate? The equipment is impaired under:
A. IFRS only.
B. U.S. GAAP only.
C. both IFRS and U.S. GAAP.

Q-23. A company, which prepares its financial statements according to IFRS, owns several
investment properties on which it earns rental income. It values the properties using
the fair value model based on prevailing rental markets. After two years of increases
the market softened in 2012 and values decreased. A summary of the properties’
valuations is as follows:
• Original cost (acquired in 2010) €50.0 million
• Fair value valuation as at December 31, 2010 €50.5 million
• Fair value valuation as at December 31, 2011 €54.5 million
• Fair value valuation as at December 31, 2012 €48.0 million
Which of the following best describes the impact of the revaluation on the 2012 financial
statements?
A. €6.5 million charge to net income
B. €6.5 million charge to revaluation surplus
C. €4.5 million charge to revaluation surplus and €2.0 million charge to net income

Q-24. Using the straight-line method of depreciation for accounting purposes and
accelerated depreciation for tax purposes would most likely result in a:
A. deferred tax liability.
B. deferred tax asset.
C. permanent difference.

Q-25. Assume U.S. GAAP applies unless otherwise noted. Austal Company has a deferred tax
liability balance of $1,200,000 at the end of 20X1. Tax rates decreased from 30 percent
to 20 percent in 20X1. Austal Company should :

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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
A. decrease its tax liability account and also decrease 2015 income tax expense by $120,000.
B. decrease its tax liability account and also decrease 2015 income tax expense by $400,000.
C. increase its tax liability account and also increase 2015 taxes payable by $400,000.

Q-26. On 1 January 20X0 ZK company issues $6,000,000 worth of 5 year annual coupon bond
with $1000 face value and 8% counpon rate. The market interest rate at issurance is 7%.
If the company uses IFRS, its interest expense (in millions) in the first year is closest to:
A. €0.354.
B. €0.437.
C. €0.732.

Q-27. Under US GAAP, which of the following criteria would least likely to require the lessee
to classify a lease as a capital lease?
A. The term is 75% of the useful life of the asset.
B. The lease contains an option to purchase the asset at fair value.
C. The present value of the lease payments is 95% of the fair value.

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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
 4. Financial Reporting and Analysis
Q-1. Solution: A.
The process has recognized as a liability, with cash has been received, but the transaction haven’t
occurred. So this should be recognized as an unearned revenue.

Financial Reporting Analysis, Introduction to Financial Statement Analysis, Basic concepts:

Accounting Equation & Accrual Accounting

Q-2. Solution: B.
Owner’s equity = $5,450,000 - $2,300,000 = $3,150,000.
Owner's equity = contributed capital + ending retained earnings.
Ending retained earnings = 3,150,000 - 1,500,000 = 1,650,000.
Ending retained earnings = beginning retained earnings + net income - dividends.
1,650,000 = 900,000 + NI - 200,000; so Net income = $950,000.

Financial Reporting Analysis, Introduction to Financial Statement Analysis, Basic concepts:

Accounting Equation & Accrual Accounting

Q-3. Solution: C.
C is correct. Relevance and faithful representation are the two fundamental qualitative
characteristics that make financial information useful according to the IASB Conceptual
Framework.

Financial Reporting Analysis, Financial Reporting standards, IASB&FASB: Conceptual Framework &
General Requirement

Q-4. Solution: A.
Because both the preferred shares and the bonds are dilutive, they should both be converted to
calculate the diluted EPS. Diluted EPS is the lowest possible value.
Diluted EPS: Diluted EPS: Diluted EPS:
Basic EPS Bond Preferred Both
Converted Converted Converted
Net income $1,000,000 $1,000,000 $1,000,000 $1,000,000
Preferred dividends –$20,000 –$20,000 0 0
After-tax cost of
interest $4,480 $4,480
8% × $80,000 × (1-30%)

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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
 Numerator $980,000 $984,480 $1,000,000 $1,004,480
Average common
100,000 100,000 100,000 100,000
shares outstanding
Preferred converted 10,000 10,000
Bond converted 20,000(80,00
20,000
0/100*25)
Denominator 100,000 120,000 110,000 130,000

EPS $9.80 $8.20 $9.09 $7.72

Financial Reporting Analysis, Understanding Income Statement, Diluted EPS

Q-5. Solution: A.
Shareholders’ Equity (¥ millions)
Start-of-year share capital 200
Less Treasury stock (6)
Beginning retained earnings 50
Plus net income 42
Less dividends paid (7)
Ending retained earnings 85 85
Accumulated other comprehensive income
(3)
Unrealized loss on available-for-sale investments
End-of-year shareholders’ equity 276

Financial Reporting Analysis, Understanding Balance Sheets, B/S format and components

Q-6. Solution: C.
Interest payments can be reported either as operating or financing cash flow under IFRS, but
they can be reported only as operating cash flow under US GAAP. The interest payment was
originally reported as financing activity under IFRS, but under US GAAP it would be an operating
activity. Therefore, under US GAAP, cash flow from financing activities would be higher and
operating cash flows lower by the same amount.

Financial Reporting Analysis, Understanding Cash Flow Statements, Classification of Cash Flow

Q-7. Solution: C.
Cash received from customers = Sales + Decrease in accounts receivable = 254.6 + 3.9 = 258.5.
10-16
此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
-Cash paid to suppliers = Cost of goods sold -Increase in inventory + Increase in accounts payable
= -175.9 -8.8 +2.4 = -182.3.

Financial Reporting Analysis, Understanding Cash Flow Statements, CFO Calculation-Direct

Method

Q-8. Solution: B.
Calculate FCFE:
$ millions
EBIT 178.0
- Interest expense (28)
EBT 150
(60)
-tax expense(EBT×t)
NI 90
+ Non-cash charges 15.2
- Capital expenditures (34.3)
+ Net borrowing 19.8
- Working capital expenditures (13)
FCFE 77.7

Financial Reporting Analysis, Understanding Cash Flow Statements, Free Cash Flow

Q-9. Solution: C.
Common size statements offer a convenient way to compare companies of different magnitudes.

Company X reports better (higher) gross margin performance. Company Y reports better (higher)

operating margin performance.

Metric (common size) Company X Company Y Comparison

Sales 100% 100%
Cost of goods sold 51 53
Gross margin (GM) 49 47 X’s GM is higher
Administrative costs 17 15
Research&development expenses 13 12
Operating margin (OM) 19 20 Y’s OM is higher

Financial Reporting Analysis, Financial Analysis Techniques, Common-Size Analysis

Q-10. Solution: B.
Cash conversion cycle = collection period + inventory period - payables period.
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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
An increase in inventory turnover will decrease the inventory period and shorten the cash
conversion cycle. An increase in the payables period will also shorten the cash conversion cycle.

Financial Reporting Analysis, Financial Analysis Techniques, Profitability, Activity, Liquidity,

Solvency and Valuation ratios

Q-11. Solution: B.
Cash flow debt coverage ratio = CFO ÷ Total debt.
112.5 ÷485.8 =23.16%.

Financial Reporting Analysis, Financial Analysis Techniques, Profitability, Activity, Liquidity,

Solvency and Valuation ratios

Q-12. Solution: C.
Company Industry
EBIT = Net income + Interest 3,400 + 1,000 + 1,100 = 1,200 + 8,00 + 4,300 =
expense + Income tax expense. 5,500 6,300
Interest coverage ratio 5500 6300
= 5.5 = 5.25
EBIT 1000 1200
=Interest payments

Thus, the company’s interest coverage ratio is superior than that of the
industry.(5.5>5.25)

Financial Reporting Analysis, Financial Analysis Techniques, Profitability, Activity, Liquidity,

Solvency and Valuation ratios

Q-13. Solution: B.
Sustainable growth rate = retention ratio (b) × ROE.
b = 1- Dividend payout ratio 1 - 0.461 = 0.539
ROE = ROA x Financial leverage 0.048 x 1.75 = 0.084
Sustainable growth rate = b x ROE 0.084 x 0.539 = 4.53%

Financial Reporting Analysis, Financial Analysis Techniques, Dupont Analysis & Equity and Credit
Analysis

Q-14. Solution: A.
During the periods of rising prices, compared to FIFO method, weighted average cost method

12-16
此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
results in a lower inventory value and a higher COGS, so that the net income udner weighted
average cost method would have a lower net income. The lower net income lead to a lower
return on sales, as well as a lower retained earnings, so the debt-to-equity ratio under weighted
average mothod would be higher. The combination of lower inventory and higher COGS would
show a higher inventory turnover (COGS/inventory).

Financial Reporting Analysis, Inventories, Different Inventory Valuation Methods

Q-15. Solution: C.
Under both IFRS and US GAAP, the impairment has occurred for the inventory in the market.
Under IFRS, the inventory would be written down to 5.5 (its NRV), and the COGS will increase 0.3.
Under US GAAP, the inventory would be written down to 5.0 (its replacement cost), because of
NRV -Normal Profit margin <replacement cost < NRV, and the COGS will increase 0.8. So the
COGS under under IFRS will be 0.5 lower than COGS under US GAAP.

Financial Reporting Analysis, Inventories, Inventory valuation (U.S. GAAP vs IFRS)

Q-16. Solution: C.
Under U.S.GAAP no write-up allowed and no reversal after devaluation. One exception is the
inventories of producers of agricultural and forest products, producers of miners and mineral
products can be measured at net realizable value. Ezy is a mineral manufacture company, so the
inventory can be measured at net realizable value and reported on the balance sheet at
$1,500,000.

Financial Reporting Analysis, Inventories, Inventory valuation (U.S. GAAP vs IFRS)

Q-17. Solution: A.
△LIFO reserve=LIFO reserve20𝑋3 − LIFO reserve20𝑋2 =30-15=15
△NI = △LIFO reserve (1-t) = 15 × (1 – 30%) = 10.5.
NILIFO = (125 – 80 -20) × (1- 30%) = 17.5.
NIFIFO = NILIFO +△NI =10.5 + 17.5 = 28.
Net profit margin = 28 / 125 = 22.4%.

Financial Reporting Analysis, Inventories, LIFO Reserve and LIFO Liquidation & Converting from
LIFO to FIFO

Q-18. Solution: B.
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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
Under IFRS, research and development costs are expensed until certain criteria are met, including
that technical feasibility has been established and the company intends to use the developed
product.

Financial Reporting Analysis, Long-Lived Assets, Capitalizing or Expensing

Q-19. Solution: A.
The interest costs can be capitalized.
Under IFRS, any amounts earned by temporarily investing the funds are
deducted from the capitalized amount.
The costs related to the preferred shares cannot be capitalized.

Capitalized costs
Interest costs 0.08 × 5,000,000 = 400,000
Less interest income 0.07 × 2,000,000 × ½ = (70,000)
Total capitalized costs 330,000

Financial Reporting Analysis, Long-Lived Assets, Capitalizing or Expensing

Q-20. Solution: C.
An accelerated method of deprecation produces greater expenses in the early years and lowers
net income, which in turn lowers the retained earnings resulting in a decrease in shareholders'
equity.

Financial Reporting Analysis, Long-Lived Assets, Depreciation methods & Amortization methods

Q-21. Solution: A.
The copyright can be renewed at a significant low cost, so the copyright is considered to be an
intangible asset with indefinite live, and amortization is not needed.
Annual amortization expense on the patent = $420,000 / 5 = $84,000.

Financial Reporting Analysis, Long-Lived Assets, Depreciation methods & Amortization methods

Q-22. Solution: A.
Under IFRS, the recoverable amount for equipment is the higher of:
Value in use, which is the present value of the future cash flows: $285,000.
Fair value less costs to sell: $260,000 -5,000 = $255,000.
The recoverable amount ($285,000) is lower than the carrying value ($300,000).
14-16
此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
Therefore, the asset is impaired and should be written down to that amount.
Under U.S. GAAP, the carrying value of the equipment ($300,000) is lower than undiscounted
future cash flow ($320,000), so the equipment is not impaired under US GAAP.

Financial Reporting Analysis, Long-Lived Assets, Impairment of long-lived assets

Q-23. Solution: A.
For investment properties, when using the fair value model of revaluing assets, all increases and
decreases affect net income.

Financial Reporting Analysis, Long-Lived Assets, Investment Property

Q-24. Solution: A.
Because the differences between tax and financial accounting will correct over time, the resulting
deferred tax liability, for which the expense was charged to the income statement but the tax
authority has not yet been paid, will be a temporary difference.

Financial Reporting Analysis, Income Taxes, DTA & DTL

Q-25. Solution: B.
The change in tax rates causes its deferred tax liability account to decrease (new DTL-old
0.2
DTL=1,200,000 × 0.3 − 1,200,000 = −400,000 ). The corresponding decrease is to current

income tax expense.

Financial Reporting Analysis, Income Taxes, DTA & DTL, Tax Rate Changes & Effective Tax Rate

Q-26. Solution: B.
IFRS recommends the effective interest method for the amortization of bond
discounts/premiums. Firstly, calculate the bond carry value at issue
(PMT=480,000,N=5,FV=6,000,000 I/Y=7; CPT PV=6,246,011)

Interest expense = market rate×carrying value at issuance =6,246,011 × 7% = 0.437million

Financial Reporting Analysis, Non-Current (Long-Term) Liabilities,Bond Introduction & bond

issued at par,premium and discount

Q-27. Solution: B.
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此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任
If the present value of the lease payments is greater than 90% of the fair value of the asset, the
lease is considered a capital lease. A lease with a term that is 75% or more of the useful life of the
asset is deemed to be a capital lease. The option to purchase the asset must be deemed to be
cheap (bargain purchase option), not just include the option to purchase the asset.

Financial Reporting Analysis, Non-Current (Long-Term) Liabilities,Classification of Leases under

U.S. GAAP & IFRS

16-16
此预测为考点预测，考题仅为复习参考
内部使用资料，严禁传播，否则追究法律责任