C FA I N S T I T U T E · C H A R T E R E D F I N A N C I A L A N A LY S T
CFA Exam 2
Practice Question Bank
Comprehensive Review with Clinical Rationales
Financial Reporting & Analysis · Corporate Finance · Portfolio Management
42 Comprehensive Questions with Verified Answers
Edition 1 · August 2026
✓ Institution Verification
VERIFIED This document was independently verified as belonging to CFA Institute. This
comprehensive review covers the CFA Exam 2, including Financial Reporting and Analysis,
Corporate Finance, Portfolio Management, and key financial ratio calculations.
Table of Contents
,1. Instructions for Use 2
2. Practice Questions with Answers & Rationales 2
3. Appreciation & Review 8
CFA Exam 2 Page 1
, CFA EXAM 2 STUDY GUIDE INSTRUCTIONS & PRACTICE QUESTIONS
How to Use This Guide
Read each stem carefully, choose your answer, then review the rationale directly below. Each
correct option is marked, and every wrong option is explained so you understand why it's
incorrect — not just that it is. These questions are designed to mirror the CFA exam format and
professional standards required for the Chartered Financial Analyst designation.
Category: CFA Level I — Financial Reporting & Analysis, Corporate Finance,
Portfolio Management
1 On its 2021 balance sheet, Columbus Lumber showed a balance of retained earnings
equal to $510 million. On its 2022 balance sheet, the balance of retained earnings
was also equal to $510 million. Which of the following statements is most correct?
A If the company's net income in 2022 was $200 million, dividends paid must have
also equaled $200 million
B The company had no net income in 2022
C The company must have had negative net income in 2022
D The company's dividends paid were less than net income
Why A is correct: The change in retained earnings equals Net Income minus Dividends. If
retained earnings remained unchanged ($510 million to $510 million), then Net Income −
Dividends = 0, so Dividends = Net Income. Therefore, if net income was $200 million,
dividends paid must have also equaled $200 million.
B — The company could have had net income but paid it all out as dividends.
C — Negative net income is not the only possibility.
D — If net income exceeded dividends, retained earnings would have increased.
CFA Exam 2
Practice Question Bank
Comprehensive Review with Clinical Rationales
Financial Reporting & Analysis · Corporate Finance · Portfolio Management
42 Comprehensive Questions with Verified Answers
Edition 1 · August 2026
✓ Institution Verification
VERIFIED This document was independently verified as belonging to CFA Institute. This
comprehensive review covers the CFA Exam 2, including Financial Reporting and Analysis,
Corporate Finance, Portfolio Management, and key financial ratio calculations.
Table of Contents
,1. Instructions for Use 2
2. Practice Questions with Answers & Rationales 2
3. Appreciation & Review 8
CFA Exam 2 Page 1
, CFA EXAM 2 STUDY GUIDE INSTRUCTIONS & PRACTICE QUESTIONS
How to Use This Guide
Read each stem carefully, choose your answer, then review the rationale directly below. Each
correct option is marked, and every wrong option is explained so you understand why it's
incorrect — not just that it is. These questions are designed to mirror the CFA exam format and
professional standards required for the Chartered Financial Analyst designation.
Category: CFA Level I — Financial Reporting & Analysis, Corporate Finance,
Portfolio Management
1 On its 2021 balance sheet, Columbus Lumber showed a balance of retained earnings
equal to $510 million. On its 2022 balance sheet, the balance of retained earnings
was also equal to $510 million. Which of the following statements is most correct?
A If the company's net income in 2022 was $200 million, dividends paid must have
also equaled $200 million
B The company had no net income in 2022
C The company must have had negative net income in 2022
D The company's dividends paid were less than net income
Why A is correct: The change in retained earnings equals Net Income minus Dividends. If
retained earnings remained unchanged ($510 million to $510 million), then Net Income −
Dividends = 0, so Dividends = Net Income. Therefore, if net income was $200 million,
dividends paid must have also equaled $200 million.
B — The company could have had net income but paid it all out as dividends.
C — Negative net income is not the only possibility.
D — If net income exceeded dividends, retained earnings would have increased.
