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CFA study session 7: Financial reporting &
analysis Questions and Answers (100%
Correct Answers) Already Graded A+
Expenses on the income statement may be grouped by:
A. nature, but not by function.
B. function, but not by nature.
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C. either function or nature.—Ans: C. either function or nature.
An example of an expense classification by function is:
A. tax expense.
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B. interest expense.
C. cost of goods sold.—Ans: C. cost of goods sold.
Denali Limited, a manufacturing company, had the following
income statement information:
Revenue $4,000,000
Cost of goods sold $3,000,000
Other operating expenses $500,000
Interest expense $100,000
Tax expense $120,000
Denali's gross profit is equal to
A. $280,000.
B. $500,000.
C. $1,000,000.—Ans: C. $1,000,000.
Under IFRS, income includes increases in economic benefits from:
A. increases in liabilities not related to owners' contributions.
B. enhancements of assets not related to owners' contributions.
, 2
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C. increases in owners' equity related to owners' contributions,—
Ans: B. enhancements of assets not related to owners'
contributions.
Fairplay had the following information related to the sale of its
products during 2009, which was its first year of business:
Revenue $1,000,000
Returns of goods sold $100,000
Cash collected $800,000
Cost of goods sold $700,000
Under the accrual basis of accounting, how much net revenue
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would be reported on Fairplay's 2009 income statement?
A. $200,000.
B. $900,000.
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C. $1,000,000.—Ans: B. $900,000. (1m - 100k)
If the outcome of a long-term contract can be measured reliably,
the preferred accounting method under both IFRS and US GAAP
is:
A. the cost recovery method.
B. the completed contract method.
C. the percentage-of-completion method.—Ans: C. the
percentage-of-completion method.
At the beginning of 2009, Florida Road Construction entered into a
contract to build a road for the government. Construction will
take four years. The following information as of 31 December 2009
is available for the contract:
Total revenue according to contract $10,000,000
Total expected cost $8,000,000
Cost incurred during 2009 $1,200,000
Assume that the company estimates percentage complete
based on costs incurred as a percentage of total estimated costs.
, 3
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Under the completed contract method, how much revenue will
be reported in 2009?
A. None.
B. $300,000.
C. $1,500,000.—Ans: A. None.
During 2009, Argo Company sold 10 acres of prime commercial
zoned land to a builder for $5,000,000. The builder gave Argo a
$1,000,000 down payment and will pay the remaining balance of
$4,000,000 to Argo in 2010. Argo purchased the land in 2002 for
$2,000,000. Using the installment method, how much profit will
Argo report for 2009?
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A. $600,000.
B. $1,000,000.
C. $3,000,000.—Ans: A. $600,000. (([5m-2m]/5m)*1m)
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During 2009, Argo Company sold 10 acres of prime commercial
zoned land to a builder for $5,000,000. The builder gave Argo a
$1,000,000 down payment and will pay the remaining balance of
$4,000,000 to Argo in 2010. Argo purchased the land in 2002 for
$2,000,000. How much profit will Argo report for 2009 using the cost
recovery method?
A. None.
B. $600,000.
C. $1,000,000.—Ans: A. None. (1m < 2m)
Under IFRS, revenue from barter transactions should be measured
based on the fair value of revenue from:
A. similar barter transactions with unrelated parties.
B. similar non-barter transactions with related parties.
C. similar non-barter transactions with unrelated parties.—Ans: C.
similar non-barter transactions with unrelated parties.
Apex Consignment sells items over the internet for individuals on a
consignment basis. Apex receives the items from the owner, lists
, 4
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them for sale on the internet, and receives a 25 percent
commission for any items sold. Apex collects the full amount from
the buyer and pays the net amount after commission to the
owner. Unsold items are returned to the owner after 90 days.
During 2009, Apex had the following information:
Total sales price of items sold during 2009 on consignment was
€2,000,000.
Total commissions retained by Apex during 2009 for these items
was €500,000.
How much revenue should Apex report on its 2009 income
statement?
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A. €500,000.
B. €2,000,000.
C. €1,500,000.—Ans: A. €500,000.
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A company previously expensed the incremental costs of
obtaining a contract. All else being equal, adopting the May 2014
IASB and FASB converged accounting standards on revenue
recognition makes the company's profitability initially appear:
A. lower.
B. unchanged.
C. higher.—Ans: C. higher. (Under the converged accounting
standards, the incremental costs of obtaining a contract and
certain costs incurred to fulfill a contract must be capitalized. If a
company expensed these incremental costs in the years prior to
adopting the converged standards, all else being equal, its
profitability will appear higher under the converged standards.)
During 2009, Accent Toys Plc., which began business in October of
that year, purchased 10,000 units of a toy at a cost of ₤10 per unit
in October. The toy sold well in October. In anticipation of heavy
December sales, Accent purchased 5,000 additional units in
November at a cost of ₤11 per unit. During 2009, Accent sold
12,000 units at a price of ₤15 per unit. Under the first in, first out
(FIFO) method, what is Accent's cost of goods sold for 2009?
For Expert help and assignment solutions, +254707240657
CFA study session 7: Financial reporting &
analysis Questions and Answers (100%
Correct Answers) Already Graded A+
Expenses on the income statement may be grouped by:
A. nature, but not by function.
B. function, but not by nature.
© 2025 Assignment Expert
C. either function or nature.—Ans: C. either function or nature.
An example of an expense classification by function is:
A. tax expense.
Guru01 - Stuvia
B. interest expense.
C. cost of goods sold.—Ans: C. cost of goods sold.
Denali Limited, a manufacturing company, had the following
income statement information:
Revenue $4,000,000
Cost of goods sold $3,000,000
Other operating expenses $500,000
Interest expense $100,000
Tax expense $120,000
Denali's gross profit is equal to
A. $280,000.
B. $500,000.
C. $1,000,000.—Ans: C. $1,000,000.
Under IFRS, income includes increases in economic benefits from:
A. increases in liabilities not related to owners' contributions.
B. enhancements of assets not related to owners' contributions.
, 2
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C. increases in owners' equity related to owners' contributions,—
Ans: B. enhancements of assets not related to owners'
contributions.
Fairplay had the following information related to the sale of its
products during 2009, which was its first year of business:
Revenue $1,000,000
Returns of goods sold $100,000
Cash collected $800,000
Cost of goods sold $700,000
Under the accrual basis of accounting, how much net revenue
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would be reported on Fairplay's 2009 income statement?
A. $200,000.
B. $900,000.
Guru01 - Stuvia
C. $1,000,000.—Ans: B. $900,000. (1m - 100k)
If the outcome of a long-term contract can be measured reliably,
the preferred accounting method under both IFRS and US GAAP
is:
A. the cost recovery method.
B. the completed contract method.
C. the percentage-of-completion method.—Ans: C. the
percentage-of-completion method.
At the beginning of 2009, Florida Road Construction entered into a
contract to build a road for the government. Construction will
take four years. The following information as of 31 December 2009
is available for the contract:
Total revenue according to contract $10,000,000
Total expected cost $8,000,000
Cost incurred during 2009 $1,200,000
Assume that the company estimates percentage complete
based on costs incurred as a percentage of total estimated costs.
, 3
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Under the completed contract method, how much revenue will
be reported in 2009?
A. None.
B. $300,000.
C. $1,500,000.—Ans: A. None.
During 2009, Argo Company sold 10 acres of prime commercial
zoned land to a builder for $5,000,000. The builder gave Argo a
$1,000,000 down payment and will pay the remaining balance of
$4,000,000 to Argo in 2010. Argo purchased the land in 2002 for
$2,000,000. Using the installment method, how much profit will
Argo report for 2009?
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A. $600,000.
B. $1,000,000.
C. $3,000,000.—Ans: A. $600,000. (([5m-2m]/5m)*1m)
Guru01 - Stuvia
During 2009, Argo Company sold 10 acres of prime commercial
zoned land to a builder for $5,000,000. The builder gave Argo a
$1,000,000 down payment and will pay the remaining balance of
$4,000,000 to Argo in 2010. Argo purchased the land in 2002 for
$2,000,000. How much profit will Argo report for 2009 using the cost
recovery method?
A. None.
B. $600,000.
C. $1,000,000.—Ans: A. None. (1m < 2m)
Under IFRS, revenue from barter transactions should be measured
based on the fair value of revenue from:
A. similar barter transactions with unrelated parties.
B. similar non-barter transactions with related parties.
C. similar non-barter transactions with unrelated parties.—Ans: C.
similar non-barter transactions with unrelated parties.
Apex Consignment sells items over the internet for individuals on a
consignment basis. Apex receives the items from the owner, lists
, 4
For Expert help and assignment solutions, +254707240657
them for sale on the internet, and receives a 25 percent
commission for any items sold. Apex collects the full amount from
the buyer and pays the net amount after commission to the
owner. Unsold items are returned to the owner after 90 days.
During 2009, Apex had the following information:
Total sales price of items sold during 2009 on consignment was
€2,000,000.
Total commissions retained by Apex during 2009 for these items
was €500,000.
How much revenue should Apex report on its 2009 income
statement?
© 2025 Assignment Expert
A. €500,000.
B. €2,000,000.
C. €1,500,000.—Ans: A. €500,000.
Guru01 - Stuvia
A company previously expensed the incremental costs of
obtaining a contract. All else being equal, adopting the May 2014
IASB and FASB converged accounting standards on revenue
recognition makes the company's profitability initially appear:
A. lower.
B. unchanged.
C. higher.—Ans: C. higher. (Under the converged accounting
standards, the incremental costs of obtaining a contract and
certain costs incurred to fulfill a contract must be capitalized. If a
company expensed these incremental costs in the years prior to
adopting the converged standards, all else being equal, its
profitability will appear higher under the converged standards.)
During 2009, Accent Toys Plc., which began business in October of
that year, purchased 10,000 units of a toy at a cost of ₤10 per unit
in October. The toy sold well in October. In anticipation of heavy
December sales, Accent purchased 5,000 additional units in
November at a cost of ₤11 per unit. During 2009, Accent sold
12,000 units at a price of ₤15 per unit. Under the first in, first out
(FIFO) method, what is Accent's cost of goods sold for 2009?
