CFA level 1 Comprehensive Questions (Frequently
Tested) with Verified Answers Graded A+
George Hutchins, CFA, would like to perform a paired comparisons test on
returns for the stocks of two real estate investment trusts. The test statistic
that Hutchins should select for the paired comparisons test is the: -
ANSWERt-Stat
Effective annual yield
Money Market Yield - ANSWEREAY = [(1 + HPY)^(365 / t)] − 1
rMM = HPY × (360/t);
In the short run, a perfectly competitive firm's supply curve is: -
ANSWERupward sloping and its demand curve is perfectly elastic.
Which of the following most accurately describes cash flow classification
under U.S. GAAP and IFRS? - ANSWERDividends paid are a financing activity
under U.S. GAAP and dividends received may be shown as an operating or
investing activity under IFRS.
U.S. GAAP requires unrealized gains and losses on available-for-sale securities
to be reported: - ANSWERas other comprehensive income on the statement
of changes in owners' equity. Unrealized gains and losses on actively traded
securities would be reported in the income statement.
,A financial analyst should treat deferred tax liabilities (DTLs) as equity if the
DTLs are: - ANSWERexpected to increase each period.
The major benefit of financial reporting standards is that they: -
ANSWERensure that financial reports are usable by a wide range of
audiences.
Other things equal, what impact will increasing days sales in payables have on
operating cash flow? - ANSWERHigher operating cash flow.
Service costs for a defined benefit pension plan are recognized on the income
statement under: - ANSWERBoth IFRS and U.S. GAAP.;
Service costs, which are the additional benefits that employees have earned
during the period, are recognized as an expense on the current period
income statement under both IFRS and U.S. GAAP.
JME Construction always uses the percentage of completion method of
recognizing revenue. During 2004 JME signs a contract in the amount of $10
million with the following data available:
Costs incurred to date $2,200,000
Billings to date $2,000,000
Cash collected $1,750,000
Total cost of project $8,800,000
How much gross profit should JME recognize for 2004? - ANSWERstage of
completion = 25%(2..8)
, revenue to be recognized = 0.25 × 10 million = 2.5 million
gross profit = 2.5 million - 2.2 million = 300,000
(Study Session 7, Module 23.3, LOS 23.b)
A U.S. company uses the LIFO method to value its inventory for their income
tax return. For its financial statements prepared for shareholders, the
company may: - ANSWERonly use the LIFO method.
Which of the following items for a financial services company is least likely to
be considered an operating item on the income statement? - ANSWERIncome
tax expense.
For a financial services company, interest income, interest expense, and
financing expenses are likely considered operating activities. For both
financial and nonfinancial companies, income tax expense is a non-operating
item that is reported within "income from continuing operations" as opposed
to "operating profit" as with the other ANSWER choices. Therefore, of the
three choices, income tax expense is least likely to be considered an
operating item.
Which of the following statements regarding inflation is most accurate? -
ANSWERInflation is a persistent increase in the general price level of goods
and services.
Over the last five years, in the country of Midlothian, both the labor supply
and the real stock of physical capital have increased by 20% and real GDP
increased 22%. The reason that real GDP growth was greater than input
growth over the period is most likely that: - ANSWERtotal factor productivity
increased.
Tested) with Verified Answers Graded A+
George Hutchins, CFA, would like to perform a paired comparisons test on
returns for the stocks of two real estate investment trusts. The test statistic
that Hutchins should select for the paired comparisons test is the: -
ANSWERt-Stat
Effective annual yield
Money Market Yield - ANSWEREAY = [(1 + HPY)^(365 / t)] − 1
rMM = HPY × (360/t);
In the short run, a perfectly competitive firm's supply curve is: -
ANSWERupward sloping and its demand curve is perfectly elastic.
Which of the following most accurately describes cash flow classification
under U.S. GAAP and IFRS? - ANSWERDividends paid are a financing activity
under U.S. GAAP and dividends received may be shown as an operating or
investing activity under IFRS.
U.S. GAAP requires unrealized gains and losses on available-for-sale securities
to be reported: - ANSWERas other comprehensive income on the statement
of changes in owners' equity. Unrealized gains and losses on actively traded
securities would be reported in the income statement.
,A financial analyst should treat deferred tax liabilities (DTLs) as equity if the
DTLs are: - ANSWERexpected to increase each period.
The major benefit of financial reporting standards is that they: -
ANSWERensure that financial reports are usable by a wide range of
audiences.
Other things equal, what impact will increasing days sales in payables have on
operating cash flow? - ANSWERHigher operating cash flow.
Service costs for a defined benefit pension plan are recognized on the income
statement under: - ANSWERBoth IFRS and U.S. GAAP.;
Service costs, which are the additional benefits that employees have earned
during the period, are recognized as an expense on the current period
income statement under both IFRS and U.S. GAAP.
JME Construction always uses the percentage of completion method of
recognizing revenue. During 2004 JME signs a contract in the amount of $10
million with the following data available:
Costs incurred to date $2,200,000
Billings to date $2,000,000
Cash collected $1,750,000
Total cost of project $8,800,000
How much gross profit should JME recognize for 2004? - ANSWERstage of
completion = 25%(2..8)
, revenue to be recognized = 0.25 × 10 million = 2.5 million
gross profit = 2.5 million - 2.2 million = 300,000
(Study Session 7, Module 23.3, LOS 23.b)
A U.S. company uses the LIFO method to value its inventory for their income
tax return. For its financial statements prepared for shareholders, the
company may: - ANSWERonly use the LIFO method.
Which of the following items for a financial services company is least likely to
be considered an operating item on the income statement? - ANSWERIncome
tax expense.
For a financial services company, interest income, interest expense, and
financing expenses are likely considered operating activities. For both
financial and nonfinancial companies, income tax expense is a non-operating
item that is reported within "income from continuing operations" as opposed
to "operating profit" as with the other ANSWER choices. Therefore, of the
three choices, income tax expense is least likely to be considered an
operating item.
Which of the following statements regarding inflation is most accurate? -
ANSWERInflation is a persistent increase in the general price level of goods
and services.
Over the last five years, in the country of Midlothian, both the labor supply
and the real stock of physical capital have increased by 20% and real GDP
increased 22%. The reason that real GDP growth was greater than input
growth over the period is most likely that: - ANSWERtotal factor productivity
increased.
