CFA FINANCIAL STATEMENTS
QUESTIONS AND CORRECT
ANSWERS
BeforeA2aA2company'sA2financialA2statementsA2canA2beA2published,A2anA2opinionA2onA2the
A2fairnessA2ofA2theA2presentationA2ofA2theA2statementsA2mustA2beA2providedA2bA2-A2Ans--
auditors
WhichA2ofA2theA2followingA2groupsA2issuesA2anA2opinionA2onA2theA2correctnessA2andA2pres
entationA2ofA2aA2company'sA2financialA2statementsA2-A2Ans--Auditors
InternationalA2financialA2reportingA2standardA2settingA2isA2movingA2inA2theA2directionA2ofA2
havingA2-A2Ans--aA2compatibleA2setA2ofA2high-qualityA2standardsA2acrossA2countries
WithA2respectA2toA2issuanceA2ofA2aA2company'sA2financialA2statements,A2theA2roleA2ofA2ma
rketA2regulators,A2suchA2asA2theA2SEC,A2isA2toA2-A2Ans--
supportA2andA2enforceA2theA2adoptionA2andA2useA2ofA2financialA2reportingA2standards
OneA2ofA2theA2currentA2trendsA2inA2accountingA2standardA2settingA2isA2toA2-A2Ans--
haveA2countries'A2standardsA2convergeA2toA2aA2compatibleA2setA2ofA2standards
AnA2exampleA2ofA2aA2currentA2liabilityA2isA2-A2Ans--wagesA2earnedA2butA2unpaid
WhenA2aA2companyA2earnsA2aA2profitA2andA2doesA2notA2distributeA2anyA2portionA2ofA2thatA2
profitA2toA2itsA2owners,A2theA2resultA2isA2anA2increaseA2inA2-A2Ans--retainedA2earnings
TheA2processA2ofA2allocatingA2theA2costA2ofA2aA2long-
termA2assetA2overA2itsA2usefulA2lifeA2asA2anA2expenseA2onA2theA2incomeA2statementA2isA2c
alledA2-A2Ans--depreciation
OnA2aA2company'sA2balanceA2sheet,A2inA2orderA2forA2theA2equityA2sectionA2toA2moreA2clos
elyA2reflectA2theA2currentA2marketA2valueA2ofA2theA2company'sA2shares,A2theA2companyA2w
ouldA2haveA2toA2-A2Ans--reportA2itsA2assetsA2andA2liabilitiesA2atA2fairA2value
IfA2aA2companyA2sellsA2goodsA2onA2credit,A2atA2theA2timeA2ofA2theA2saleA2thereA2willA2alsoA2
beA2anA2increaseA2inA2-A2Ans--accountsA2receivable
WhichA2ofA2theA2followingA2describesA2theA2netA2bookA2valueA2ofA2aA2long-termA2assetA2-
A2Ans--TheA2grossA2valueA2ofA2anA2assetA2minusA2itsA2accumulatedA2depreciation
WhichA2ofA2theA2followingA2isA2classifiedA2asA2aA2currentA2assetA2onA2aA2company'sA2balan
ceA2sheetA2-A2Ans--Inventory
, WhichA2ofA2theA2followingA2termsA2describesA2creditA2extendedA2toA2aA2companyA2byA2itsA
2suppliersA2-A2Ans--AccountsA2payable
TheA2financialA2statementA2thatA2providesA2informationA2aboutA2theA2resourcesA2thatA2aA2
companyA2controlsA2isA2calledA2theA2statementA2ofA2-A2Ans--financialA2position
TheA2financialA2statementA2usedA2toA2findA2informationA2aboutA2theA2shareholders'A2invest
mentA2inA2theA2companyA2isA2calledA2theA2-A2Ans--balanceA2sheet
WhichA2ofA2theA2followingA2assetsA2isA2reportedA2atA2itsA2originalA2costA2minusA2anyA2accu
mulatedA2depreciationA2-A2Ans--Machinery
InformationA2aboutA2theA2expensesA2incurredA2toA2earnA2revenueA2isA2foundA2onA2theA2-
A2Ans--statementA2ofA2operations
WhichA2ofA2theA2followingA2financialA2statementsA2identifiesA2theA2profitA2orA2lossA2generat
edA2byA2aA2companyA2overA2aA2givenA2periodA2ofA2timeA2-A2Ans--
StatementA2ofA2operations
TheA2calculationA2ofA2aA2company'sA2operatingA2incomeA2wouldA2includeA2theA2deduction
A2ofA2whichA2ofA2theA2followingA2expensesA2-A2Ans--DepreciationA2expense
OperatingA2incomeA2isA2calculatedA2asA2-A2Ans--
grossA2profitA2minusA2otherA2operatingA2expenses
AA2company'sA2reportedA2profitsA2willA2beA2lowerA2thanA2itsA2cashA2flowA2forA2theA2sameA2
periodA2ifA2theA2companyA2-A2Ans--
owesA2employeesA2wagesA2atA2theA2endA2ofA2theA2period
IfA2aA2companyA2makesA2aA2saleA2ofA2aA2productA2inA2DecemberA2onA2creditA2andA2collect
sA2theA2paymentA2forA2theA2saleA2inA2January,A2whichA2ofA2theA2followingA2statementsA2rel
atedA2toA2thisA2saleA2isA2true?A2InA2DecemberA2-A2Ans--
profitA2willA2beA2higherA2thanA2cashA2flow
ToA2understandA2theA2changesA2inA2aA2company'sA2long-
termA2assetsA2overA2theA2year,A2anA2investorA2wouldA2reviewA2theA2company'sA2-A2Ans--
cashA2flowA2statement
TheA2collectionA2ofA2amountsA2inA2accountsA2receivableA2wouldA2resultA2inA2anA2increaseA
2inA2-A2Ans--cashA2fromA2operationsA2onA2theA2cashA2flowA2statement
WhenA2theA2cashA2flowA2statementA2isA2preparedA2usingA2theA2indirectA2method,A2depreci
ationA2expenseA2isA2aA2non-cashA2expenseA2thatA2-A2Ans--
increasesA2theA2cashA2fromA2operations
QUESTIONS AND CORRECT
ANSWERS
BeforeA2aA2company'sA2financialA2statementsA2canA2beA2published,A2anA2opinionA2onA2the
A2fairnessA2ofA2theA2presentationA2ofA2theA2statementsA2mustA2beA2providedA2bA2-A2Ans--
auditors
WhichA2ofA2theA2followingA2groupsA2issuesA2anA2opinionA2onA2theA2correctnessA2andA2pres
entationA2ofA2aA2company'sA2financialA2statementsA2-A2Ans--Auditors
InternationalA2financialA2reportingA2standardA2settingA2isA2movingA2inA2theA2directionA2ofA2
havingA2-A2Ans--aA2compatibleA2setA2ofA2high-qualityA2standardsA2acrossA2countries
WithA2respectA2toA2issuanceA2ofA2aA2company'sA2financialA2statements,A2theA2roleA2ofA2ma
rketA2regulators,A2suchA2asA2theA2SEC,A2isA2toA2-A2Ans--
supportA2andA2enforceA2theA2adoptionA2andA2useA2ofA2financialA2reportingA2standards
OneA2ofA2theA2currentA2trendsA2inA2accountingA2standardA2settingA2isA2toA2-A2Ans--
haveA2countries'A2standardsA2convergeA2toA2aA2compatibleA2setA2ofA2standards
AnA2exampleA2ofA2aA2currentA2liabilityA2isA2-A2Ans--wagesA2earnedA2butA2unpaid
WhenA2aA2companyA2earnsA2aA2profitA2andA2doesA2notA2distributeA2anyA2portionA2ofA2thatA2
profitA2toA2itsA2owners,A2theA2resultA2isA2anA2increaseA2inA2-A2Ans--retainedA2earnings
TheA2processA2ofA2allocatingA2theA2costA2ofA2aA2long-
termA2assetA2overA2itsA2usefulA2lifeA2asA2anA2expenseA2onA2theA2incomeA2statementA2isA2c
alledA2-A2Ans--depreciation
OnA2aA2company'sA2balanceA2sheet,A2inA2orderA2forA2theA2equityA2sectionA2toA2moreA2clos
elyA2reflectA2theA2currentA2marketA2valueA2ofA2theA2company'sA2shares,A2theA2companyA2w
ouldA2haveA2toA2-A2Ans--reportA2itsA2assetsA2andA2liabilitiesA2atA2fairA2value
IfA2aA2companyA2sellsA2goodsA2onA2credit,A2atA2theA2timeA2ofA2theA2saleA2thereA2willA2alsoA2
beA2anA2increaseA2inA2-A2Ans--accountsA2receivable
WhichA2ofA2theA2followingA2describesA2theA2netA2bookA2valueA2ofA2aA2long-termA2assetA2-
A2Ans--TheA2grossA2valueA2ofA2anA2assetA2minusA2itsA2accumulatedA2depreciation
WhichA2ofA2theA2followingA2isA2classifiedA2asA2aA2currentA2assetA2onA2aA2company'sA2balan
ceA2sheetA2-A2Ans--Inventory
, WhichA2ofA2theA2followingA2termsA2describesA2creditA2extendedA2toA2aA2companyA2byA2itsA
2suppliersA2-A2Ans--AccountsA2payable
TheA2financialA2statementA2thatA2providesA2informationA2aboutA2theA2resourcesA2thatA2aA2
companyA2controlsA2isA2calledA2theA2statementA2ofA2-A2Ans--financialA2position
TheA2financialA2statementA2usedA2toA2findA2informationA2aboutA2theA2shareholders'A2invest
mentA2inA2theA2companyA2isA2calledA2theA2-A2Ans--balanceA2sheet
WhichA2ofA2theA2followingA2assetsA2isA2reportedA2atA2itsA2originalA2costA2minusA2anyA2accu
mulatedA2depreciationA2-A2Ans--Machinery
InformationA2aboutA2theA2expensesA2incurredA2toA2earnA2revenueA2isA2foundA2onA2theA2-
A2Ans--statementA2ofA2operations
WhichA2ofA2theA2followingA2financialA2statementsA2identifiesA2theA2profitA2orA2lossA2generat
edA2byA2aA2companyA2overA2aA2givenA2periodA2ofA2timeA2-A2Ans--
StatementA2ofA2operations
TheA2calculationA2ofA2aA2company'sA2operatingA2incomeA2wouldA2includeA2theA2deduction
A2ofA2whichA2ofA2theA2followingA2expensesA2-A2Ans--DepreciationA2expense
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grossA2profitA2minusA2otherA2operatingA2expenses
AA2company'sA2reportedA2profitsA2willA2beA2lowerA2thanA2itsA2cashA2flowA2forA2theA2sameA2
periodA2ifA2theA2companyA2-A2Ans--
owesA2employeesA2wagesA2atA2theA2endA2ofA2theA2period
IfA2aA2companyA2makesA2aA2saleA2ofA2aA2productA2inA2DecemberA2onA2creditA2andA2collect
sA2theA2paymentA2forA2theA2saleA2inA2January,A2whichA2ofA2theA2followingA2statementsA2rel
atedA2toA2thisA2saleA2isA2true?A2InA2DecemberA2-A2Ans--
profitA2willA2beA2higherA2thanA2cashA2flow
ToA2understandA2theA2changesA2inA2aA2company'sA2long-
termA2assetsA2overA2theA2year,A2anA2investorA2wouldA2reviewA2theA2company'sA2-A2Ans--
cashA2flowA2statement
TheA2collectionA2ofA2amountsA2inA2accountsA2receivableA2wouldA2resultA2inA2anA2increaseA
2inA2-A2Ans--cashA2fromA2operationsA2onA2theA2cashA2flowA2statement
WhenA2theA2cashA2flowA2statementA2isA2preparedA2usingA2theA2indirectA2method,A2depreci
ationA2expenseA2isA2aA2non-cashA2expenseA2thatA2-A2Ans--
increasesA2theA2cashA2fromA2operations