SS 06 - Cfa Level 1
SS 06 - Cfa Level 1
SS 06 - Cfa Level 1
An analyst is least likely to use disclosures of accounting policies and estimates to evaluate:
A company's operating revenues for a reporting period are most likely to be shown on its:
C) income statement.
An analyst who wants to examine a firm's financing transactions during the most recent period is most likely to evaluate the firm's
statement of:
A) financial position.
B) comprehensive income.
C) cash flows.
Which of the following is an analyst least likely to rely on as objective information to include in a company analysis?
Which of the following is least likely one of the general requirements for financial statements under IFRS?
Which of the following is the best description of the flow of information in an accounting system?
Which of the following is a company least likely required to present according to International Accounting Standard (IAS) No. 1?
Assets $70,000
Liabilities 45,000
Assets 82,000
Liabilities 55,000
During 2007:
Stockholder investments 3,000
Net income ?
Dividends 6,000
Calculate Alpha's net income for the year ended December 31, 2007 and the change in stockholders' equity for the year ended
December 31, 2007.
A) $2,000
$5,000
decrease
Which of the following statements about financial reporting standards is least accurate? Reporting standards:
A firm buys a machine that it will use in its factory for five years. This purchase is most appropriately classified as a(n):
A) operating activity.
B) financing activity.
C) investing activity.
Which of the following financial reporting choices is permitted under IFRS but not under U.S. GAAP?
A) Excluding actuarial gains and losses from balance sheet pension items.
B) Netting deferred tax assets with deferred tax liabilities.
C) Revaluing plant and equipment upward.
Reading the footnotes to a company's financial statements and the Management Discussion & Analysis is least likely to help an
analyst determine:
A) how well the financial statements reflect the company's true performance.
B) the various accruals, adjustments and assumptions that went into the financial statements.
Assets $58,000
Liabilities 28,000
Assets ?
Liabilities 38,000
During 2007:
Dividends 7,750
Calculate Beta's total assets and stockholders' equity as of December 31, 2007.
Stockholders'
Total assets
equity
A) $93,750 $55,750
B) $93,750 $30,000
C) $79,250 $55,750
The step in the financial statement analysis framework that includes making any appropriate adjustments to the financial
statements and calculating ratios is best described as:
In the expanded form of the accounting equation, assets equal liabilities plus contributed capital plus:
The Management Discussion and Analysis (MD&A) portion of the financial disclosure is least likely required to discuss:
C) results of operations.
A furniture store acquires a set of chairs for $750 cash and sells them for $1000 cash. These transactions are most likely to affect
which accounts?
Purchase Sale
According to the IASB Conceptual Framework for Financial Reporting, one of the qualitative characteristics of financial
statements is:
A) timeliness.
B) going concern.
C) faithful representation.
Which of the following is least likely a qualitative characteristic accounting information must possess in order to provide useful
information to an analyst, according to the IASB Conceptual Framework?
A) Conservatism.
B) Faithful representation.
C) Relevance.
Management disclosure of the likely impact of implementing recently issued accounting standards is least likely to:
B) conclude that the standard will not affect the financial statements materially.
Question #22 of 82
Question ID: 414032
Sergey Martinenko is an investment analyst with Profis, Martinenko and Verona. He is explaining to his new assistant, John
Stevenson, why it is crucial for an investment analyst to read the footnotes to a firm's financial statement and the Management
Discussion and Analysis (MD&A) before making an investment decision. Which rationale is Martinenko least likely to provide to
Stevenson regarding the importance of analyzing the footnotes and MD&A?
A) Accruals, adjustments and assumptions are often explained in the footnotes and MD&A.
B) Evaluating the footnotes helps the analyst assess whether management is manipulating earnings.
C) The footnotes disclose whether or not the company is adhering to GAAP.
Significant accounting choices are most likely to be disclosed in the management commentary under:
A company collects cash from a customer to settle an account receivable. What effect does this transaction have on the
company's total assets and total shareholders' equity?
Assets Equity
A) No effect No effect
B) Increase Increase
C) No effect Increase
Which of the following least accurately describes a correct use of double-entry accounting?
The Management Discussion and Analysis (MD&A) portion of the financial statements:
A) includes audited disclosures that help explain the information summarized in the financial
statements.
B) is not required by the SEC.
C) includes such items as discontinued operations and other unusual or infrequent events.
Which of the following financial reporting choices is permitted under IFRS but not under U.S. GAAP?
C) Excluding actuarial gains and losses from balance sheet pension items.
Which of the following is least likely to be considered a characteristic of a coherent financial reporting framework?
A) Transparency.
B) Stability.
C) Comprehensiveness.
When a publicly traded U.S. company prepares a proxy statement for its shareholders prior to the annual meeting or other
shareholder vote, it also files the statement with the SEC as Form:
A) 144.
B) DEF-14A.
C) 8-K.
Question #30 of 82 Question ID: 414026
A) groups accounts into the categories that are presented in the financial statements.
The purchase of equipment for $25,000 cash is most likely to be recorded as:
Which description of the objective of financial statements is most accurate? The objective of financial statements is:
A) to provide a wide range of users with information about a firm's financial prospects.
B) to provide securities analysts with objective data about a firm's financial prospects.
C) to provide economic decision makers with useful information about a firm's financial performance
and changes in financial position.
Which of the following is least likely to be considered a stated goal of the International Accounting Standards Board (IASB)?
A) Develop global accounting standards requiring transparency, comparability, and high quality in
financial statements.
B) Remain neutral in the debate on the use of global accounting standards to avoid appearance of a
conflict of interest.
C) Account for the needs of emerging markets and small firms when implementing global accounting
standards.
Washburn Motors signs a contract to sell a $100,000 luxury sedan to be delivered next month, and receives a $20,000 cash
down payment from the buyer. How will the transaction most likely affect Washburn's assets and liabilities?
Assets Liabilities
A) Unchanged Unchanged
B) Increase Increase
C) Increase Unchanged
Which of the following statements about financial statements and reporting standards is least accurate?
A) Financial statements could potentially take any form if reporting standards didn't exist.
B) The objective of financial statements is to provide economic decision makers with useful information.
C) Reporting standards focus mostly on format and presentation and allow management wide latitude in
assumptions.
Under which framework for financial reporting systems are the financial statement elements related to performance defined as
revenues, expenses, gains, losses, and comprehensive income?
A) FASB framework.
B) Both IASB and FASB frameworks.
C) IASB framework.
Question #38 of 82 Question ID: 414003
Which of the following statements about proxy statements is least accurate? Proxy statements are:
B) a good source of information about the qualifications of board members and management.
C) available on the EDGAR web site.
Required financial statements, according to International Accounting Standard (IAS) No. 1, include a(n):
According to the IASB, which of the following least accurately describes financial reporting? Financial reporting:
An equipment manufacturer builds a machine and sells it to a firm that will use it for five years. For the manufacturer, this sale is
classified as a(n):
A) operating activity.
B) financing activity.
C) investing activity.
Question #42 of 82 Question ID: 414055
Disagreements that inhibit development of a coherent financial reporting framework are least likely to involve which of the
following?
A) Transparency.
B) Standard setting.
C) Valuation.
Jack Rivers is an investment analyst for the equity fund of a family office. The head of the family, Charlotte Blackmon, is
concerned that management may be manipulating the earnings of some of the companies that the fund invests in. Rivers
explains to Blackmon, "Even though we don't have access to the detailed transactions that underlie the financial statements, we
can be sure that management is not manipulating earnings because I read the footnotes to the financial statements of every
company we invest in. The footnotes would disclose any deviation from appropriate accounting parameters." Rivers is:
A) incorrect because deviation from appropriate accounting parameters is addressed in the auditor's
report, so a qualified opinion in the auditor's report ensures that management is not manipulating
earnings.
B) incorrect because even within appropriate accounting parameters, management can manipulate
earnings through the assumptions that rely on their discretion.
C) correct.
Which of the following is an independent auditor least likely to do with respect to a company's financial statements?
In the financial statement analysis framework, using the data to address the objectives of the analysis and deciding what
conclusions or recommendations the information supports is best described as:
C) general journal.
Which of the following would NOT require an explanatory paragraph added to the auditors' report?
Accumulated depreciation and treasury stock are most likely to be shown as what types of accounts?
Accumulated
Treasury stock
depreciation
A) Contra-asset Contra-equity
B) Contra-asset Equity
C) Liability Equity
Allowance for bad debts and investment in affiliates are most likely to be shown as what types of accounts?
A) Contra-asset Asset
B) Liabilities Asset
C) Contra-asset Liabilities
Professional organizations of accountants and auditors that establish financial reporting standards are called:
A) Regulatory authorities.
B) International organizations of securities commissions.
An analyst can find a company's accounting policies that require significant judgement or estimates in:
A) both the footnotes to the financial statements and Management's Discussion and Analysis.
In addition to the audited financial statements included in a firm's annual report, which of the following sources of information is
most likely to contain audited data?
Regarding the use of financial statements in security analysis and selection, it would be most accurate to say that:
A) analysts can use footnotes and Management's Discussion and Analysis to better understand
assumptions used in the financial statements.
B) analysts can verify the accuracy of financial statements by using a firm's detailed accounting system
information.
C) further analysis of a firm's financial statements is typically not necessary if the firm has conformed to
applicable accounting principles.
Which of the following is least likely to be available on EDGAR (Electronic Data Gathering, Analysis, and Retrieval System)?
A) Form 10Q.
B) Corporate press releases.
C) SEC filings.
The process of developing one universally accepted set of accounting standards is best described as:
A) unification.
B) convergence.
C) IASB.
Which of the following statements about financial statement analysis and reporting is least accurate?
A) Providing information about changes in a company's financial position is a role of financial reporting.
B) Financial statement analysis focuses on the way companies show their financial performance to
investors by preparing and presenting financial statements.
C) Deciding whether to recommend a company's securities to investors is a role of financial statement
analysis.
A) relevance.
B) both relevance and faithful representation.
C) faithful representation.
Question #58 of 82 Question ID: 414052
Which of the following statements about the elements of financial statements under the FASB and IASB frameworks is least
accurate?
A) The IASB framework lists income and expenses as the elements related to performance.
B) The IASB framework does not allow the values of assets to be adjusted upward.
C) The word "probable" is used by the FASB to define assets and liabilities.
Prema Singh is the bookkeeper for Octabius Industries. Singh has been asked by the CFO of Octabius to review all purchases
that occurred between February 1 and February 8 to investigate an error on the receiving dock. Singh will most likely look at the:
A) general ledger.
B) initial trial balance.
C) general journal.
Which of the following is most likely to be considered a barrier to developing one universally recognized set of reporting
standards?
Cash $?
Accounts payable 16,000
Accounts receivable 58,000
Additional paid-in capital 42,000
Common stock 19,600
Inventory 12,000
Plant and equipment 26,800
Notes payable 20,000
Retained earnings 32,000
Calculate Wichita's cash and total assets as of December 31, 2007 based only on these entries.
A) $32,800 $113,600
B) $16,000 $129,600
C) $32,800 $129,600
Which of the following best describes financial reporting and financial statement analysis?
A) The objective of financial analysis is to provide information about the financial position of an entity
that is useful to a wide range of users.
B) Financial reporting refers to how companies show their financial performance and financial analysis
refers to using the information to make economic decisions.
C) Financial reports assess a company's past performance in order to draw conclusions about the
company's ability to generate cash and profits in the future.
According to the IASB conceptual framework, characteristics that enhance relevance and faithful representation include:
A) timeliness and verifiability.
Which of the following statements regarding footnotes to the financial statements is least accurate? Financial statement
footnotes:
A) typically include a discussion of the firm's past performance and future outlook.
B) provide information about assumptions and estimates used by management.
An accounting entry that updates the historical cost of an asset to current market levels is best described as:
A) accumulated depreciation.
B) a contra account.
C) a valuation adjustment.
Which of the following statements concerning the notes to the audited financial statements of a company is least accurate?
Financial statement notes:
B) include management's assessment of the company's operating performance and financial results.
C) are audited.
Two underlying assumptions of financial statements, according to the IASB conceptual framework, are:
A) provide reasonable assurance that the financial statements contain no material errors.
The following amounts were drawn from the records of JME Company: total assets = $1,200; total liabilities = $750; contributed
capital = $600. Based on this information alone, retained earnings must be equal to:
A) $450.
B) $150.
C) −$150.
Question #73 of 82 Question ID: 460643
Information about a company's financial position at a point in time is most likely found in the:
A) income statement.
Which of the following is the best description of the financial statement analysis framework?
A) State the objective and context, gather data, process the data, analyze and interpret the data, report
the conclusions or recommendations, update the analysis.
B) Gather data, analyze and interpret the data, process the conclusions, assess the context, report the
recommendations, update the analysis.
C) Gather data, analyze and interpret the data, determine the context, report the conclusions, update
the analysis.
Which of the following is least likely to be considered a role of financial statement analysis?
A) Accumulated depreciation.
B) Unearned revenue.
C) Wages payable.
B) the set of journal entries that makes up the components of owners' equity.
C) a detailed list of the accounts that make up the five financial statement elements.
A firm engages in a new type of financial transaction that has a material effect on its earnings. An analyst should most likely be
suspicious of the new transaction if:
The step in the financial statement analysis framework of "processing the data" is least likely to include which activity?
Making a profitable sale on credit is most likely to have which of the following effects?