CFA study session 7: Financial reporting & analysis || Guaranteed
Pass.
Expenses on the income statement may be grouped by:
A. nature, but not by function.
B. function, but not by nature.
C. either function or nature. correct answers C. either function or nature.
An example of an expense classification by function is:
A. tax expense.
B. interest expense.
C. cost of goods sold. correct answers 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. correct answers 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.
,C. increases in owners' equity related to owners' contributions, correct answers 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 would be reported on Fairplay's
2009 income statement?
A. $200,000.
B. $900,000.
C. $1,000,000. correct answers 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. correct answers 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. Under the completed contract method, how much revenue will be
reported in 2009?
A. None.
B. $300,000.
C. $1,500,000. correct answers 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?
A. $600,000.
B. $1,000,000.
C. $3,000,000. correct answers A. $600,000. (([5m-2m]/5m)*1m)
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. correct answers 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. correct answers 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 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?
A. €500,000.
B. €2,000,000.
C. €1,500,000. correct answers A. €500,000.
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. correct answers 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?
A. ₤120,000.
B. ₤122,000.
C. ₤124,000. correct answers B. ₤122,000.
Pass.
Expenses on the income statement may be grouped by:
A. nature, but not by function.
B. function, but not by nature.
C. either function or nature. correct answers C. either function or nature.
An example of an expense classification by function is:
A. tax expense.
B. interest expense.
C. cost of goods sold. correct answers 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. correct answers 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.
,C. increases in owners' equity related to owners' contributions, correct answers 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 would be reported on Fairplay's
2009 income statement?
A. $200,000.
B. $900,000.
C. $1,000,000. correct answers 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. correct answers 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. Under the completed contract method, how much revenue will be
reported in 2009?
A. None.
B. $300,000.
C. $1,500,000. correct answers 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?
A. $600,000.
B. $1,000,000.
C. $3,000,000. correct answers A. $600,000. (([5m-2m]/5m)*1m)
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. correct answers 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. correct answers 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 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?
A. €500,000.
B. €2,000,000.
C. €1,500,000. correct answers A. €500,000.
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. correct answers 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?
A. ₤120,000.
B. ₤122,000.
C. ₤124,000. correct answers B. ₤122,000.
