FINANCIAL MODELING PRACTICE EXAM 2025/2026
QUESTIONS WITH ANSWERS GRADED A+
✔✔Common stock - ✔✔Voting rights, dividends fluctuate based on organizations NI,
most volatile investment
✔✔Preferred stock - ✔✔no voting rights, but guaranteed dividends
✔✔Treasury stock - ✔✔A corporation's own stock that has been reacquired by the
corporation and is being held for future use.
✔✔Operating activities - ✔✔show CF that is generated through sale of products and
services
✔✔Investing activities - ✔✔PPE (capex), acquisitions of subsidiaries and securities
✔✔Financing activities - ✔✔CF from debt and equity financing, dividend pmts
✔✔Accrual-basis vs. cash-basis - ✔✔when interpreting CFS switch from accrual-based
accounting (Income Statement) to cash-basis accounting
✔✔Sources of cash (+) - ✔✔Increase in CL
Decrease in CA
Cash received from the sale of assets
issuance of debt and equity
✔✔Use of cash (-) - ✔✔Decrease in CL
Increase in CA
Cash spent on the purchase of assets
repurchase of equity
✔✔Profit (EBIT) - ✔✔Based on accrual accounting
✔✔Ex. Annual Subscription sold in January for $120 - ✔✔Revenue 10
Cash 120
✔✔Direct Method of Cash Flows - ✔✔Tabulates all cash received by the organization
and subtracts all cash spent
, ✔✔Indirect method - ✔✔begins with the accrual metric of NI and then works through the
BS to identify cash inflows and outflows
✔✔Depreciable assets - ✔✔1. owned by the organization
2. used in income-producing activities
3. Have a determinable useful life
4. expected to last longer than 1 year
✔✔Assets that are not depreciable - ✔✔- Land: held in perpetuity
- Leased property: not owned, no legal title
- art paintings in office, wires on wall: not used in business activities
✔✔Straight-line depreciation - ✔✔(Purchase-salvage value)/ useful life
✔✔Declining balance - ✔✔Assigning an accelerated multiplier to the asset
✔✔Sum of year's digits - ✔✔10 year life = (1+2+3...+10) = 55 (denominator)
Yr 1 depreciation = (1/55) x purchased asset value
✔✔MACRS - ✔✔Modified Accelerated Cost Recovery System
Used to depr. most property
✔✔Deferred tax assets - ✔✔occur when NOL are carried forward to future years to
REDUCE tax liability
✔✔Deferred Tax Liability - ✔✔Occurs when tax is due on the books but not under tax
accounting - will be PAYABLE in a future period
✔✔Cost as basis - ✔✔The basis of the property you buy is its cost plus the amounts
you paid for each item (sales tax, freight charges, installation and testing fees). Cost
includes amt paid in cash, debt obligations, other property, and transactions/ settlement
costs
✔✔Other basis - ✔✔Basis that is determined by the way you received the property
(exchange for another property, as PMT for services you performed, as a gift, as
inheritance)
✔✔Repair costs - ✔✔Costs to repair damaged property are expensed as regular
business costs (not depreciable)
✔✔Improvement costs - ✔✔Costs to restore a property or adapt for different use
✔✔Amortization - ✔✔- Applies to intangible assets (patents, copyrights, content rights,
trademarks)
QUESTIONS WITH ANSWERS GRADED A+
✔✔Common stock - ✔✔Voting rights, dividends fluctuate based on organizations NI,
most volatile investment
✔✔Preferred stock - ✔✔no voting rights, but guaranteed dividends
✔✔Treasury stock - ✔✔A corporation's own stock that has been reacquired by the
corporation and is being held for future use.
✔✔Operating activities - ✔✔show CF that is generated through sale of products and
services
✔✔Investing activities - ✔✔PPE (capex), acquisitions of subsidiaries and securities
✔✔Financing activities - ✔✔CF from debt and equity financing, dividend pmts
✔✔Accrual-basis vs. cash-basis - ✔✔when interpreting CFS switch from accrual-based
accounting (Income Statement) to cash-basis accounting
✔✔Sources of cash (+) - ✔✔Increase in CL
Decrease in CA
Cash received from the sale of assets
issuance of debt and equity
✔✔Use of cash (-) - ✔✔Decrease in CL
Increase in CA
Cash spent on the purchase of assets
repurchase of equity
✔✔Profit (EBIT) - ✔✔Based on accrual accounting
✔✔Ex. Annual Subscription sold in January for $120 - ✔✔Revenue 10
Cash 120
✔✔Direct Method of Cash Flows - ✔✔Tabulates all cash received by the organization
and subtracts all cash spent
, ✔✔Indirect method - ✔✔begins with the accrual metric of NI and then works through the
BS to identify cash inflows and outflows
✔✔Depreciable assets - ✔✔1. owned by the organization
2. used in income-producing activities
3. Have a determinable useful life
4. expected to last longer than 1 year
✔✔Assets that are not depreciable - ✔✔- Land: held in perpetuity
- Leased property: not owned, no legal title
- art paintings in office, wires on wall: not used in business activities
✔✔Straight-line depreciation - ✔✔(Purchase-salvage value)/ useful life
✔✔Declining balance - ✔✔Assigning an accelerated multiplier to the asset
✔✔Sum of year's digits - ✔✔10 year life = (1+2+3...+10) = 55 (denominator)
Yr 1 depreciation = (1/55) x purchased asset value
✔✔MACRS - ✔✔Modified Accelerated Cost Recovery System
Used to depr. most property
✔✔Deferred tax assets - ✔✔occur when NOL are carried forward to future years to
REDUCE tax liability
✔✔Deferred Tax Liability - ✔✔Occurs when tax is due on the books but not under tax
accounting - will be PAYABLE in a future period
✔✔Cost as basis - ✔✔The basis of the property you buy is its cost plus the amounts
you paid for each item (sales tax, freight charges, installation and testing fees). Cost
includes amt paid in cash, debt obligations, other property, and transactions/ settlement
costs
✔✔Other basis - ✔✔Basis that is determined by the way you received the property
(exchange for another property, as PMT for services you performed, as a gift, as
inheritance)
✔✔Repair costs - ✔✔Costs to repair damaged property are expensed as regular
business costs (not depreciable)
✔✔Improvement costs - ✔✔Costs to restore a property or adapt for different use
✔✔Amortization - ✔✔- Applies to intangible assets (patents, copyrights, content rights,
trademarks)
