CFA LEVEL 1 PRACTICE
QUESTIONS AND
CORRECT ANSWERS
GRADED A+ 2025-2026
faithful representation, substance over form, prudence, neutrality, completeness - ANS-
According to the IFRS what are the 5 qualities of financial information that improve
reliability
Costs can be reliably measured - ANS-According to IFRS what condition must be met
for revenue recognition to occur?
Current ratio will decrease.
Accruing wages increases both current liabilities and expenses, but collecting
receivables has no effect on current assets or sales therefore the current ratio and net
income both decrease. - ANS-A company accrued wages of $2,000 and collected
accounts receivable of $10,000. What best describes the effect of these two
transactions on the company?
200,000 for both the stock split and the stock dividend.
Stock dividends and splits are treated in the same way for purposes of determining
weighted average number of shares outstanding the adj in the # of shares is made as if
the stock split or dividend occurred at the beginning of the year. - ANS-A company had
100,000 shares outstanding on 1 Jan 2009. The company has no plans to issue
additional shares or purchase treasury shares during the year, but is planning either a
two-for-one stock split or a 100 percent stock dividend on 1 July. The number of
shares used to determine eps at 31 Dec 2009 is
general requirement for financial statements. - ANS-Under IFRS the preparation of a
complete set of financial statements is best described as a:
, Amortized Cost
Bonds payable issued by a company are financial liabilities that are measured at
amortized cost. - ANS-A company issued bonds in 2009 that mature in 2019. The
measurement basis that will most likely be used on the 2009 balance sheet for the
bonds is:
Noncurrent Assets and noncurrent liabilities are listed before current assets and
current liabilities. Also, minority interest must be shown as a component of equity. -
ANS-What features are unique to financial statements in IFRS
Current assets and current liabilities are listed before noncurrent assets and
noncurrent liabilities. Minority interest is listed separately from equity or liabilities. -
ANS-What features are unique to financial statements in U.S. GAAP
The debt to equity ratio but not the interest coverage ratio.
The adjustments to convert operating leases would increase the amount of total debt
in the debt-equity ratio thus increasing the ratio; the portion of the lease payments
estimated to be lease interest expense would lower the interest coverage ratio. - ANS-
An analyst makes the appropriate adjustments to the financial statements of retail
companies that are lessees using a substantial number of operating leases. Compared
to ratios computed from the unadjusted statements, the ones computed from the
adjusted statements would most likely be higher for: debt to equity or interest
coverage?
the common-size balance sheets.
because it expresses all data as a percentage of total assets.
note: current ratio is a measure of a company's ability to repay its short term debt -
ANS-To gain insight into what portion of a company's assets is liquid, an analyst will
most likely use:
Has a higher net profit margin
Dupont Analysis: Sales/Total Assets (asset turnover) =1.71 for A and 2.14 for B
equity(assets -liabilities)=45 for A and 100 for B
financial leverage mult. (assets/equity)=1.56 for A and 1.4 for B
QUESTIONS AND
CORRECT ANSWERS
GRADED A+ 2025-2026
faithful representation, substance over form, prudence, neutrality, completeness - ANS-
According to the IFRS what are the 5 qualities of financial information that improve
reliability
Costs can be reliably measured - ANS-According to IFRS what condition must be met
for revenue recognition to occur?
Current ratio will decrease.
Accruing wages increases both current liabilities and expenses, but collecting
receivables has no effect on current assets or sales therefore the current ratio and net
income both decrease. - ANS-A company accrued wages of $2,000 and collected
accounts receivable of $10,000. What best describes the effect of these two
transactions on the company?
200,000 for both the stock split and the stock dividend.
Stock dividends and splits are treated in the same way for purposes of determining
weighted average number of shares outstanding the adj in the # of shares is made as if
the stock split or dividend occurred at the beginning of the year. - ANS-A company had
100,000 shares outstanding on 1 Jan 2009. The company has no plans to issue
additional shares or purchase treasury shares during the year, but is planning either a
two-for-one stock split or a 100 percent stock dividend on 1 July. The number of
shares used to determine eps at 31 Dec 2009 is
general requirement for financial statements. - ANS-Under IFRS the preparation of a
complete set of financial statements is best described as a:
, Amortized Cost
Bonds payable issued by a company are financial liabilities that are measured at
amortized cost. - ANS-A company issued bonds in 2009 that mature in 2019. The
measurement basis that will most likely be used on the 2009 balance sheet for the
bonds is:
Noncurrent Assets and noncurrent liabilities are listed before current assets and
current liabilities. Also, minority interest must be shown as a component of equity. -
ANS-What features are unique to financial statements in IFRS
Current assets and current liabilities are listed before noncurrent assets and
noncurrent liabilities. Minority interest is listed separately from equity or liabilities. -
ANS-What features are unique to financial statements in U.S. GAAP
The debt to equity ratio but not the interest coverage ratio.
The adjustments to convert operating leases would increase the amount of total debt
in the debt-equity ratio thus increasing the ratio; the portion of the lease payments
estimated to be lease interest expense would lower the interest coverage ratio. - ANS-
An analyst makes the appropriate adjustments to the financial statements of retail
companies that are lessees using a substantial number of operating leases. Compared
to ratios computed from the unadjusted statements, the ones computed from the
adjusted statements would most likely be higher for: debt to equity or interest
coverage?
the common-size balance sheets.
because it expresses all data as a percentage of total assets.
note: current ratio is a measure of a company's ability to repay its short term debt -
ANS-To gain insight into what portion of a company's assets is liquid, an analyst will
most likely use:
Has a higher net profit margin
Dupont Analysis: Sales/Total Assets (asset turnover) =1.71 for A and 2.14 for B
equity(assets -liabilities)=45 for A and 100 for B
financial leverage mult. (assets/equity)=1.56 for A and 1.4 for B
