Question 61

Selected information from Mendota, Inc.’s financial statements for the year ended December 31 includes the following (in $):

Mendota uses the last in, first out (LIFO) inventory cost flow assumption.  The tax rate is 40%.  If Mendota changed from LIFO to first in, first out (FIFO), its gross profit margin would:

A)    increase to 32.1%.

B)   increase to 30.0%.

C)   increase to 40.1%.

D)   remain unchanged at 28.6%.

Question 62

Can the stage in the life cycle of a firm’s industry and earnings manipulation by management cause differences between the growth rate of a firm’s net income and the growth rate of its operating cash flow over annual reporting periods?

       Life cycle   Earnings manipulation

A)    Yes          Yes

B)   Yes          No

C)   No        Yes

D)   No        No

Question 63

Which of the following statements is correct regarding the financial statement adjustments that an analyst must make regarding firms that choose different accounting methods but are subject to the same standards, and firms with different accounting methods due to differences in applicable accounting standards, respectively?

       Same accounting standards   Different accounting standards

A)    Adjustments required       No adjustments required

B)   Adjustments required       Adjustments required

C)   No adjustments required Adjustments required

D)   No adjustments required No adjustments required

Question 64

Jason Corp. has a permanently impaired asset that must be written down from its carrying value of $5,000,000 to its present value of future cash flows of $3,500,000. The asset’s salvage value is $1,000,000. Before considering the asset write-down, Jason Corp.’s financial data are as follows (in $):

When Jason Corp. takes the write-down, its operating profit margin will be closest to:

A)    18.5%.

B)   22.2%.

C)   16.7%.

D)   14.2%.

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Question 65

Dalrymple, Inc. has operations in a country that taxes ordinary net income at a rate of 40%, has gains on the sale of long-term assets at 20%, and exempts interest income from any taxation. Dalrymple’s net income before taxes is derived from the following sources:

On its income statement, Dalrymple should:

A)    apply an effective tax rate of 25%.

B)   show its income in different categories and apply the appropriate tax rate to each.

C)   apply an effective tax rate of 40% and add $600,000 to its deferred tax liability account.

D)   apply an effective tax rate of 40% and add $600,000 to its deferred tax asset account.

[此贴子已经被作者于2008-11-8 9:48:18编辑过]

答案和详解如下！

Question 61

Selected information from Mendota, Inc.’s financial statements for the year ended December 31 includes the following (in $):

Mendota uses the last in, first out (LIFO) inventory cost flow assumption.  The tax rate is 40%.  If Mendota changed from LIFO to first in, first out (FIFO), its gross profit margin would:

A)    increase to 32.1%.

B)   increase to 30.0%.

C)   increase to 40.1%.

D)   remain unchanged at 28.6%.

The correct answer was A) increase to 32.1%.

Gross profit margin under LIFO ((sales – cost of goods sold) / sales) is (($7,000,000 − $5,000,000) / $7,000,000) = 28.6%. Under FIFO, cost of goods sold is reduced by the increase in the LIFO reserve, and the resulting FIFO gross profit margin is (($7,000,000 – ($5,000,000 – ($600,000 − $850,000)) / $7,000,000) = 32.1%. Note that the tax rate only affects income totals after income tax expense is shown and does not affect the gross profit margin.

This question tested from Session 9, Reading 35, LOS d

Question 62

Can the stage in the life cycle of a firm’s industry and earnings manipulation by management cause differences between the growth rate of a firm’s net income and the growth rate of its operating cash flow over annual reporting periods?

       Life cycle   Earnings manipulation

A)    Yes          Yes

B)   Yes          No

C)   No        Yes

D)   No        No

The correct answer was A) Yes           Yes

The stage in the life cycle of a firm’s industry can cause differences between growth rates in net income and operating cash flow. For example, in the early growth stage, a firm may generate positive growth in net income but increasingly negative operating cash flow as increases in inventories and receivables consume cash (increase working capital). During the decline stage, a firm may report declining earnings but increasing operating cash flow if working capital decreases as inventory and accounts receivable decrease. In addition, earnings manipulation, such as recognizing revenue too soon or delaying the recognition of expense, can increase net income without affecting operating cash flow.

This question tested from Session 8, Reading 34, LOS h

Question 63

Which of the following statements is correct regarding the financial statement adjustments that an analyst must make regarding firms that choose different accounting methods but are subject to the same standards, and firms with different accounting methods due to differences in applicable accounting standards, respectively?

       Same accounting standards   Different accounting standards

A)    Adjustments required       No adjustments required

B)   Adjustments required       Adjustments required

C)   No adjustments required Adjustments required

D)   No adjustments required No adjustments required

The correct answer was B)  Adjustments required       Adjustments required

Financial statement adjustments by the analyst are required in both cases. An example of differences in accounting methods (but subject to the same standards) would be two firms in the same industry that choose different depreciation methods − one chooses straight-line and another chooses accelerated depreciation. Differences between accounting standards (U.S. GAAP and IFRS treatment of extraordinary items, for example) would necessitate adjustments before comparing financial results.

This question tested from Session 10, Reading 42, LOS e

Question 64

Jason Corp. has a permanently impaired asset that must be written down from its carrying value of $5,000,000 to its present value of future cash flows of $3,500,000. The asset’s salvage value is $1,000,000. Before considering the asset write-down, Jason Corp.’s financial data are as follows (in $):

When Jason Corp. takes the write-down, its operating profit margin will be closest to:

A)    18.5%.

B)   22.2%.

C)   16.7%.

D)   14.2%.

The correct answer was C) 16.7%.

The write-down of a permanently impaired asset is considered a loss from continuing operations, and reduces operating profit. After the write-down, the operating profit margin (operating profit / sales) will be reduced from $6,000,000 / $27,000,000 = 22.2% to (($6,000,000 – ($5,000,000 − $3,500,000)) / $27,000,000 = 16.7%. Salvage value is not relevant, except that the eventual sale price of the asset is factored into the computation of future cash flows.

This question tested from Session 9, Reading 37, LOS d

Question 65

Dalrymple, Inc. has operations in a country that taxes ordinary net income at a rate of 40%, has gains on the sale of long-term assets at 20%, and exempts interest income from any taxation. Dalrymple’s net income before taxes is derived from the following sources:

On its income statement, Dalrymple should:

A)    apply an effective tax rate of 25%.

B)   show its income in different categories and apply the appropriate tax rate to each.

C)   apply an effective tax rate of 40% and add $600,000 to its deferred tax liability account.

D)   apply an effective tax rate of 40% and add $600,000 to its deferred tax asset account.

The correct answer was A) apply an effective tax rate of 25%

Permanent tax differences are not deferred, but are considered increases or decreases in the effective tax rate. Dalrymple’s effective tax rate is ((($2,000,000 × 0.40) + ($1,000,000 × 0.20) + ($1,000,000 × 0.00)) / $4,000,000 =) 0.25.

This question tested from Session 9, Reading 38, LOS e

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