DECA FINANCIAL ANALYSIS PI'S TIER 3 UPDATED
ACTUAL EXAM QUESTIONS AND CORRECT ANSWERS
Question 1.
Discuss the nature of depreciation
ANSWER
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life.
Businesses depreciate long-term assets for both tax and accounting purposes.
Question 2.
Describe the nature of cash flow
ANSWER
Incomings and outgoings of cash, representing the operating activities of an organization. In
accounting, cash flow is the difference in the amount of cash available at the beginning of a period
(opening balance) and the amount at the end of that period (closing balance). It is called positive if
the closing balance is higher than the opening balance, otherwise called negative. Cash flow is
increased by (1) selling more goods or services, (2) selling an asset, (3) reducing costs, (4) increasing
the selling price, (5) collecting faster, (6) paying slower, (7) bringing in more equity, or (8) taking a
loan. The level of cash flow is not necessarily a good measure of performance, and vice versa: high
levels of cash flow do not necessarily mean high or even any profit and high levels of profit do not
automatically translate into high or even positive cash flow.
Question 3.
Discuss the nature of corporate bonds
ANSWER
The corporate bond is a debt instrument, and the company's payment ability is its backing, typically
in the form of profits from future operations. The physical assets of a business entity may also serve
as collateral for corporate bonds.
Question 4.
Discuss the cost of corporate bonds
ANSWER
Bond prices are quoted as a percentage of the face value of the bond, based on $100. For example, if
a bond is selling at 95, it means that the bond may be purchased for 95% of its face value; a $10,000
bond, therefore, would cost the investor $9,500. Interest on bonds is usually paid every six months.
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, Question 5.
Discuss the issuance of stock from a corporation
ANSWER
Preferred stock, common stock, additional paid‐in‐capital, retained earnings, and treasury stock are
all reported on the balance sheet in the stockholders' equity section. Information regarding the par
value, authorized shares, issued shares, and outstanding shares must be disclosed for each type of
stock.
Question 6.
Discuss the cost of common stock
ANSWER
expand his business and make more profit, and the lender gets a portion of profit every time the
company makes some.
Question 7.
Discuss the nature of stock options
ANSWER
An initial public offering (IPO) is the first time that the stock of a private company is offered to the
public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can
also be done by large privately owned companies looking to become publicly traded.
Question 8.
Discuss the nature of Initial Public Offerings
ANSWER
An initial public offering (IPO) is the first time that the stock of a private company is offered to the
public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can
also be done by large privately owned companies looking to become publicly traded.
Question 9.
Describe the components of a payment system
ANSWER
A payment system is any system used to settle financial transactions through the transfer of
monetary value, and includes the institutions, instruments, people, rules, procedures, standards, and
technologies that make such an exchange possible.
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ACTUAL EXAM QUESTIONS AND CORRECT ANSWERS
Question 1.
Discuss the nature of depreciation
ANSWER
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life.
Businesses depreciate long-term assets for both tax and accounting purposes.
Question 2.
Describe the nature of cash flow
ANSWER
Incomings and outgoings of cash, representing the operating activities of an organization. In
accounting, cash flow is the difference in the amount of cash available at the beginning of a period
(opening balance) and the amount at the end of that period (closing balance). It is called positive if
the closing balance is higher than the opening balance, otherwise called negative. Cash flow is
increased by (1) selling more goods or services, (2) selling an asset, (3) reducing costs, (4) increasing
the selling price, (5) collecting faster, (6) paying slower, (7) bringing in more equity, or (8) taking a
loan. The level of cash flow is not necessarily a good measure of performance, and vice versa: high
levels of cash flow do not necessarily mean high or even any profit and high levels of profit do not
automatically translate into high or even positive cash flow.
Question 3.
Discuss the nature of corporate bonds
ANSWER
The corporate bond is a debt instrument, and the company's payment ability is its backing, typically
in the form of profits from future operations. The physical assets of a business entity may also serve
as collateral for corporate bonds.
Question 4.
Discuss the cost of corporate bonds
ANSWER
Bond prices are quoted as a percentage of the face value of the bond, based on $100. For example, if
a bond is selling at 95, it means that the bond may be purchased for 95% of its face value; a $10,000
bond, therefore, would cost the investor $9,500. Interest on bonds is usually paid every six months.
1
, Question 5.
Discuss the issuance of stock from a corporation
ANSWER
Preferred stock, common stock, additional paid‐in‐capital, retained earnings, and treasury stock are
all reported on the balance sheet in the stockholders' equity section. Information regarding the par
value, authorized shares, issued shares, and outstanding shares must be disclosed for each type of
stock.
Question 6.
Discuss the cost of common stock
ANSWER
expand his business and make more profit, and the lender gets a portion of profit every time the
company makes some.
Question 7.
Discuss the nature of stock options
ANSWER
An initial public offering (IPO) is the first time that the stock of a private company is offered to the
public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can
also be done by large privately owned companies looking to become publicly traded.
Question 8.
Discuss the nature of Initial Public Offerings
ANSWER
An initial public offering (IPO) is the first time that the stock of a private company is offered to the
public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can
also be done by large privately owned companies looking to become publicly traded.
Question 9.
Describe the components of a payment system
ANSWER
A payment system is any system used to settle financial transactions through the transfer of
monetary value, and includes the institutions, instruments, people, rules, procedures, standards, and
technologies that make such an exchange possible.
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