CFA level 1 questions and answers 2026\2027 A+ Grade
According to the IFRS what are the 5 qualities of financial information that improve reliability
- correct answer faithful representation, substance over form, prudence, neutrality, completeness
According to IFRS what condition must be met for revenue recognition to occur?
- correct answer Costs can be reliably measured
A company accrued wages of $2,000 and collected accounts receivable of $10,000. What best describes
the effect of these two transactions on the company?
- correct answer Current ratio will decrease.
Accruing wages increases both current liabilities and expenses, but collecting receivables has no effect
on current assets or sales therefore the current ratio and net income both decrease.
A company had 100,000 shares outstanding on 1 Jan 2009. The company has no plans to issue additional
shares or purchase treasury shares during the year, but is planning either a two-for-one stock split or a
100 percent stock dividend on 1 July. The number of shares used to determine eps at 31 Dec 2009 is
- correct answer 200,000 for both the stock split and the stock dividend.
Stock dividends and splits are treated in the same way for purposes of determining weighted average
number of shares outstanding the adj in the # of shares is made as if the stock split or dividend occurred
at the beginning of the year.
Under IFRS the preparation of a complete set of financial statements is best described as a:
- correct answer general requirement for financial statements.
A company issued bonds in 2009 that mature in 2019. The measurement basis that will most likely be
used on the 2009 balance sheet for the bonds is:
- correct answer Amortized Cost
Bonds payable issued by a company are financial liabilities that are measured at amortized cost.
What features are unique to financial statements in IFRS
- correct answer Noncurrent Assets and noncurrent liabilities are listed before current assets and
current liabilities. Also, minority interest must be shown as a component of equity.
, What features are unique to financial statements in U.S. GAAP
- correct answer Current assets and current liabilities are listed before noncurrent assets and noncurrent
liabilities. Minority interest is listed separately from equity or liabilities.
An analyst makes the appropriate adjustments to the financial statements of retail companies that are
lessees using a substantial number of operating leases. Compared to ratios computed from the
unadjusted statements, the ones computed from the adjusted statements would most likely be higher
for: debt to equity or interest coverage?
- correct answer The debt to equity ratio but not the interest coverage ratio.
The adjustments to convert operating leases would increase the amount of total debt in the debt-equity
ratio thus increasing the ratio; the portion of the lease payments estimated to be lease interest expense
would lower the interest coverage ratio.
To gain insight into what portion of a company's assets is liquid, an analyst will most likely use:
- correct answer the common-size balance sheets.
because it expresses all data as a percentage of total assets.
note: current ratio is a measure of a company's ability to repay its short term debt
The following info is available
Company A Company B
Sales 120M 300M
Assets 70M 140M
liabilities 25M 40M
If both companies achieve a ROE = 15%, company B compared to company A, regarding profit margin,
total asset turnover, and financial leverage will have:
- correct answer Has a higher net profit margin
Dupont Analysis: Sales/Total Assets (asset turnover) =1.71 for A and 2.14 for B
equity(assets -liabilities)=45 for A and 100 for B
financial leverage mult. (assets/equity)=1.56 for A and 1.4 for B
ROE = profit mgn x asset turnover x financial leverage mult.
thus prft mgn A = 5.6% prft mgn B = 5%
According to the IFRS what are the 5 qualities of financial information that improve reliability
- correct answer faithful representation, substance over form, prudence, neutrality, completeness
According to IFRS what condition must be met for revenue recognition to occur?
- correct answer Costs can be reliably measured
A company accrued wages of $2,000 and collected accounts receivable of $10,000. What best describes
the effect of these two transactions on the company?
- correct answer Current ratio will decrease.
Accruing wages increases both current liabilities and expenses, but collecting receivables has no effect
on current assets or sales therefore the current ratio and net income both decrease.
A company had 100,000 shares outstanding on 1 Jan 2009. The company has no plans to issue additional
shares or purchase treasury shares during the year, but is planning either a two-for-one stock split or a
100 percent stock dividend on 1 July. The number of shares used to determine eps at 31 Dec 2009 is
- correct answer 200,000 for both the stock split and the stock dividend.
Stock dividends and splits are treated in the same way for purposes of determining weighted average
number of shares outstanding the adj in the # of shares is made as if the stock split or dividend occurred
at the beginning of the year.
Under IFRS the preparation of a complete set of financial statements is best described as a:
- correct answer general requirement for financial statements.
A company issued bonds in 2009 that mature in 2019. The measurement basis that will most likely be
used on the 2009 balance sheet for the bonds is:
- correct answer Amortized Cost
Bonds payable issued by a company are financial liabilities that are measured at amortized cost.
What features are unique to financial statements in IFRS
- correct answer Noncurrent Assets and noncurrent liabilities are listed before current assets and
current liabilities. Also, minority interest must be shown as a component of equity.
, What features are unique to financial statements in U.S. GAAP
- correct answer Current assets and current liabilities are listed before noncurrent assets and noncurrent
liabilities. Minority interest is listed separately from equity or liabilities.
An analyst makes the appropriate adjustments to the financial statements of retail companies that are
lessees using a substantial number of operating leases. Compared to ratios computed from the
unadjusted statements, the ones computed from the adjusted statements would most likely be higher
for: debt to equity or interest coverage?
- correct answer The debt to equity ratio but not the interest coverage ratio.
The adjustments to convert operating leases would increase the amount of total debt in the debt-equity
ratio thus increasing the ratio; the portion of the lease payments estimated to be lease interest expense
would lower the interest coverage ratio.
To gain insight into what portion of a company's assets is liquid, an analyst will most likely use:
- correct answer the common-size balance sheets.
because it expresses all data as a percentage of total assets.
note: current ratio is a measure of a company's ability to repay its short term debt
The following info is available
Company A Company B
Sales 120M 300M
Assets 70M 140M
liabilities 25M 40M
If both companies achieve a ROE = 15%, company B compared to company A, regarding profit margin,
total asset turnover, and financial leverage will have:
- correct answer Has a higher net profit margin
Dupont Analysis: Sales/Total Assets (asset turnover) =1.71 for A and 2.14 for B
equity(assets -liabilities)=45 for A and 100 for B
financial leverage mult. (assets/equity)=1.56 for A and 1.4 for B
ROE = profit mgn x asset turnover x financial leverage mult.
thus prft mgn A = 5.6% prft mgn B = 5%
