CFA level 1 Questions And Answers
faithful representation, substance over form, prudence, neutrality, completeness -
Answer- According to the IFRS what are the 5 qualities of financial information that
improve reliability
Costs can be reliably measured - Answer- 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. - Answer- 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. - Answer- 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. - Answer- 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. - Answer- 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. - Answer-
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. - Answer- 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. -
Answer- 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 -
Answer- 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
ROE = profit mgn x asset turnover x financial leverage mult.
thus prft mgn A = 5.6% prft mgn B = 5% - Answer- The following info is available
Company A Company B
Sales 120M 300M
Assets 70M 140M
liabilities 25M 40M
If both companies achieve a ROE = 15%, company B compared to company A,
regarding profit margin, total asset turnover, and financial leverage will have:
Yes under IFRS but not under U.S. GAAP - Answer- Is the reversal of an inventory
write-down permitted under U.S. GAAP and IFRS?
$282
interest paid = 50,000x.09 = 4,500
interest expense = mkt rate at issue x bv = .1x47565 = 4757
amortization of discount expense = interest expense-interest paid: 4757-4500 = 257 for
yr 1
using cf keys, with n = 6, bv = 47,822.4x.1=4782-4500=282 - Answer- A company
issued a $50,000 7-year bond for $47565. The bonds pay 9 percent per annum and the
ytm at issue was 10%. The company uses the effective interest rate method to amortize
any discounts or premiums on bonds. After the 1st yr, the ytm on bonds is 9%. The
amount of the bond discount amortization recorded in the second year is closest to:
Inventory turnover=COGS/avg inventory=1969/(248+285/2) = 7.39
DOH = 365/inventory turnover = 365/7.39 = 49.4
Receivable turnover= sales/avg receivable=2801/(318+286/2) = 9.27
DSO (days sales outstanding)=365/receivable turn = 39.4
Payables turnover = COGS/avg payables = 1969/(361+346)/2 = 5.57
Days in payables = 365/payables turnover = 65.6
faithful representation, substance over form, prudence, neutrality, completeness -
Answer- According to the IFRS what are the 5 qualities of financial information that
improve reliability
Costs can be reliably measured - Answer- 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. - Answer- 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. - Answer- 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. - Answer- 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. - Answer- 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. - Answer-
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. - Answer- 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. -
Answer- 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 -
Answer- 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
ROE = profit mgn x asset turnover x financial leverage mult.
thus prft mgn A = 5.6% prft mgn B = 5% - Answer- The following info is available
Company A Company B
Sales 120M 300M
Assets 70M 140M
liabilities 25M 40M
If both companies achieve a ROE = 15%, company B compared to company A,
regarding profit margin, total asset turnover, and financial leverage will have:
Yes under IFRS but not under U.S. GAAP - Answer- Is the reversal of an inventory
write-down permitted under U.S. GAAP and IFRS?
$282
interest paid = 50,000x.09 = 4,500
interest expense = mkt rate at issue x bv = .1x47565 = 4757
amortization of discount expense = interest expense-interest paid: 4757-4500 = 257 for
yr 1
using cf keys, with n = 6, bv = 47,822.4x.1=4782-4500=282 - Answer- A company
issued a $50,000 7-year bond for $47565. The bonds pay 9 percent per annum and the
ytm at issue was 10%. The company uses the effective interest rate method to amortize
any discounts or premiums on bonds. After the 1st yr, the ytm on bonds is 9%. The
amount of the bond discount amortization recorded in the second year is closest to:
Inventory turnover=COGS/avg inventory=1969/(248+285/2) = 7.39
DOH = 365/inventory turnover = 365/7.39 = 49.4
Receivable turnover= sales/avg receivable=2801/(318+286/2) = 9.27
DSO (days sales outstanding)=365/receivable turn = 39.4
Payables turnover = COGS/avg payables = 1969/(361+346)/2 = 5.57
Days in payables = 365/payables turnover = 65.6
