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标题: CFA Level I:FSA : understanding balance sheet(Reading 26) 习题精选 [打印本页]

作者: cityboy 时间: 2013-9-21 18:59 标题: CFA Level I:FSA : understanding balance sheet(Reading 26) 习题精选

本帖最后由 cityboy 于 2013-9-21 19:01 编辑

1. IF a company’s current ratio is less than 1.0x, which of the following accounting actions will increase its current ratio? A. Accruing direct labor costs. B. Making a cash payment on accounts payable. C. Using a short-term revolving credit facility to pay down long-term debt.

Ans: A

Accruing direct labor costs increases current asset (inventory) and current liabilities by the same amount. Since the initial current ratio is less than 1.0x, adding equal amounts to the numerator and denominator causes a larger percentage in crease to the numerator and the ratio will increase. B. Paying accounts payable results in an equal reduction of current assets and current liabilities. Since the initial current ratio is less than 1.0x, equal decrease of the numerator and the denominator would decrease the ratio. C. Borrowing on a short-term revolving credit facility will increase the current liability which is the denominator, thus reducing the current ratio.

作者: cityboy 时间: 2013-9-21 18:59

2. At the beginning of the year, a firm sold half of its accounts receivable at book value without recourse and used the proceeds to pay down a long-term bank loan. Assuming that the transaction has met all conditions to constitute a sale of the receivables, this transaction will:
A. Increase the current ratio.
B. Reduce the debt-to-equity ratio.
C. Reduce the interest coverage ratio.

Ans. B.
By using the proceeds from the sale of the accounts receivable without recourse to reduce total debt, the debt-to-equity ratio will fall, as the numerator is now lower. Additionally, since the interest expense associated with the total debt is now lower, net income and equity (the denominator) will be higher.
A is incorrect. The current ratio will decrease rather than increase because the current assets were reduced as a result of the sale of the accounts receivable (cash received was used immediately to permanently pay down the long-term loan) while the current liabilities remained unchanged (the debt that was paid down did not represent a short-term liability).
C is incorrect. The reduction of debt from the transaction will result in lower interest expense and an increase in, rather than a reduction of, the interest coverage ratio.

作者: cityboy 时间: 2013-9-21 18:59

3. Cash and marketable securities are included in the numerator of the:
A. Cash ratio.
B. Quick ratio.
C. Both the cash ratio and the quick ratio.

Ans: C.
The cash ratio is the most conservative solvency measure as its numerator includes only cash and marketable securities, the most liquid assets.

The quick ratio also includes accounts receivable in its numerator, making it less conservative than the cash ratio.

作者: cityboy 时间: 2013-9-21 18:59

4. Which of the following best reflects the reporting of unrealized gains and losses for investments in trading and available-for-sale marketable securities under IFRS?
A. For both trading and available-for-sale securities report as income from continuing operations.
B. For trading securities report as income from continuing operations and for available-for-sale report in equity.
C. For trading securities report in equity and for available-for-sale report as income from continuing operations.

Ans. B.

Marketable securities	Held-to-maturity	Available-for-sale	Trading
Definition	Debt securities that management intends and is able to hold to maturity	Debt/equity security that management does not expect to trade on a short-term basis (and for debt securities that are not likely to be held to maturity).	Debt/equity securities that management intends to actively trade on a short-term basis.
Measurement base	Amortized cost	Fair value	Fair value
Nature	Long term asset	Current/long term asset	Current asset
On the income statement	Interest earned±realized gains/losses	Dividends or interest earned ±realized gains/losses.(the unrealized G/L do not affect income statement. They appear as a separate item in the equity portion of balance sheet as other comprehensive income).	Dividends or interest earned± realized G/L± realized G/L

Investment in marketable securities held as trading securities or available-for-sale securities are reported at fair value. Unrealized gains or losses (G/L) on the trading securities are reported on the income statement as a component of income from continuing operations. Unrealized GG/L on available-for-sale securities are reported in equity as a component of accumulated other comprehensive income under U.S.GAAP and as direct-to-equity adjustments under IFRS and do not affect reported earnings.

作者: cityboy 时间: 2013-9-21 19:01

5. During 2010, the following events occurred at a company. The company:
·
purchased a customer list for $100,000, which is expected to provide equal annual benefits for the next 4 years.
·
recorded $200,000 of goodwill in the acquisition of a competitor. It is estimated that the acquisition would provide substantial benefits for the company for at least the next 10 years.
·
spent $300,000 on media placements announcing the company had donated products and services to the community. The CEO believes the firm’s reputation was enhanced substantially and the company will likely benefit from it for the next 5 years.
Based on those events, the amortization expense that the company should report in 2011 is closest to:
A. $25,000.
B. $45,000.
C. $85,000.

Ans: A.
The customer list is the only identifiable intangible asset, and it should be amortized on a straight-line basis over its expected future life: $100,000 ÷ 4 = $25,000/year. Goodwill is an unidentifiable intangible and should be tested for impairment but not amortized. All advertising and promotion costs, such as the media placements, are typically expensed. If the reputation of the company has been enhanced as the CEO suggests, this is an internally generated intangible that is not recorded on the balance sheet and is therefore not amortized.

作者: cityboy 时间: 2013-9-21 19:06

6. During the three months ended 12/31/20x2, Delon Company reported net income of $1,800,000 and paid $360,000 in dividends to common stockholders (the dividends had been declared in the previous quarter). In addition Delon declared a dividend of $0.22 per share to be paid in the next quarter. The company currently has 1.8 million shares outstanding.
What was the increase in stockholders’ equity from 09/30/20x2 to 12/31/20x2?
A.
$1,440,000
B.
$1,404,000
C.
$1,044,000

Ans. B.

	Three months ended 12/31/20x2
Net income	$1,800,000
Dividends declared ($0.22*1,800,000)	(396,000)
Change in stockholders’ equity	$1,404,000

A is incorrect. This is the amount of dividends paid dducted from net income ($1,800,000-360,000), which decreases stockholders’ equity on the books.

C is incorrect. Both dividends declared and paid were incorrectly deducted from net income ($1,800,000-360,000-396,000).

作者: cityboy 时间: 2013-9-21 19:07

7. Lonic Company purchased 10,000 shares of its common stock for the treasury at $30 per shares at the end of 20x2. The par value of the stock is $1 and the shares were originally issed at $10 per share. The effect of the repurchase on common stockholders’ equity and return on equity are a decrease in stockholders’ equity of:
A. $300,000 and a higher return-on equity.
B. $300,000 and a lower return-on equity
C. $200,000 and a lower return-on equity

Ans: A.
The treasury stock was recorded at the purchase price (10,000 shares *$30). Since the balance in the treasury stock is deducted from the total of common stock, additional paid-in capital, and retained earnings to determine stockholders’ equity, the purchase reduces stockholders’ equity by the same amount of the purchase price. Return on equity for 20x2 is higher since the equity is lower.

B is incorrect. Return on equity will be higher, not lower.

C is incorrect. The purchased shares are recorded at the purchased price, not the difference between the purchase price and the original issue price ($30 -10=$20*10,000 shares).

作者: cityboy 时间: 2013-9-21 19:07

8. The following data are available for a company and its industry:

Company Common-Size Balance Sheet As at 31 December 2010
Assets	(%)
Cash & Short-Term Investments	43.2
Accounts Receivable	9.4
Inventory	0.6
Total Current Assets	53.2
Net Property, Plant, and Equipment	3.9
Goodwill	40.0
Other Long-Term Assets	2.9
Total Assets	100.0
Liabilities and Shareholders’ Equity
Short-Term Debt	1.6
Accrued Liabilities and Accounts Payable	17.8
Total Current Liabilities	19.4
Long-Term Debt	20.1
Other Long-Term Liabilities	6.5
Total Liabilities	46.0
Total Stockholders’ Equity	54.0
Total Liabilities & Shareholders’ Equity	100.0

Data for comparison	Industry
Current ratio	3.0
Debt-to-equity	50.0%
Long-term debt-to-equity	40.0%

Which of the following statements about the company is most appropriate? The company:
A. operates in the manufacturing industry.
B. has made significant acquisitions in the past.
C. has higher financial leverage than the industry.

Ans: B.
Goodwill makes up 40% of total assets; therefore, the company has made significant acquisitions at some point because goodwill is only recognized during acquisitions.

A is incorrect. The low PP&E and inventory levels indicate the company is not likely a manufacturer.

C is incorrect. Leverage is below the industry average for both the debt-to-equity ratio of 40% [(20.1 + 1.6) ÷ 54] versus the industry average of 50% and long-term debt-to-equity ratio of 37% [20.1 ÷ 54] versus the industry average of 40%.

作者: cityboy 时间: 2013-9-21 19:07

9. To gain insight into what portion of the company’s assets is liquid, an analyst will most likely use:
A. the cash ratio.
B. the current ratio.
C. common-size balance sheets.

Ans: C.
A common-size balance sheet expresses all balance sheet accounts as a percentage of total assets and provides insight into what portion of a company’s assets is liquid.

A is incorrect.

Cash ratios measure liquidity relative to current liabilities, not relative to total assets.

C is incorrect.

Current ratios measure liquidity relative to current liabilities, not relative to total assets.

作者: cityboy 时间: 2013-9-21 19:08

10. Assume a company has the following portfolio of marketable securities which was acquired at the end of 2009:

Category	Original Cost in € as at the Year End, 2009	Fair Market Value in € as at the Year End, 2010
Held for trading	12,000,000	12,500,000
Available for sale	17,000,000	16,000,000

If the company reports under IFRS instead of U.S. GAAP, its net income will most likely be:
A. the same.
B. €500,000 lower.
C. €500,000 higher.

Ans: A.
Whether securities are classified as held for trading or available for sale, they are measured at their fair value on the balance sheet, but all gains/losses on held for trading securities are reported on the income statements. The unrealized gains/losses on available for sale securities are reported in equity. However, this treatment is the same for both IFRS and U.S. GAAP reporting.

作者: cityboy 时间: 2013-9-21 19:08

11. Which of the following statements is most accurate?
A. Treasury stock is non-voting and receives no dividends.
B. Minority interest on the balance sheet represents a position the company owns in other companies.
C. A classified balance sheet arises when in an auditor’s opinion the financial statements materially depart from accounting standards and are not presented fairly.

Ans: A.
Treasury stock is stock that has been reacquired by the issuing firm but not yet retired. Treasury stock reduces stockholders’ equity. It does not represent an investment in the firm. Treasury stock has no voting rights and does not receive dividends.

B is incorrect. Minority interest (noncontrolling interest) is the minority shareholders’ pro-rata share of the net assets (equity) of a subsidiary that is not wholly owned by the parent.

C is incorrect. The balance sheet reports the firm’s financial position at a point of time. Most entities should present a classified balance sheet showing current and noncurrent assets and liabilities.
When in an auditor’s opinion the financial statements materially depart from accounting standards and are not presented fairly, an auditor will issue an adverse opinion.

作者: cityboy 时间: 2013-9-21 19:08

12. A company’s balance sheet shows the following:

	December 31, 2010
Current Assets
Cash and cash equivalents		$ 2,950
Marketable securities		730
Notes and accounts receivable, trade		5,740
Allowance for doubtful accounts		(650)
Inventories		1,320
Deferred income taxes		1,160
Other current assets		690
Total current assets		$ 11,940
Current Liabilities
Accounts payable and other accrued liabilities		$ 5,100
Current portion of borrowings		1,820
Other current liabilities		2,560
Total current liabilities		$ 9,480

The company’s quick ratio is closest to:
A. 0.4.
B. 0.9.
C. 1.3.

Ans: B.
Quick ratio =

=0.93

作者: cityboy 时间: 2013-9-21 19:08

13. The following information is from a company’s investment portfolio:

Investment

Classification	Held-to-maturity
Market value, 31 Dec 2009	$ 17,000
Cost/Amortized cost 31 Dec 2009	22,000
Market value, 31 Dec 2010	10,000
Cost/Amortized cost 31 Dec 2010	20,000

If the investment is reclassified as Available-for-sale as of 31 December 2010, the balance sheet carrying value of the company’s investment portfolio would most likely:
A. remain the same.
B. decrease by $10,000.
C. decrease by $12,000.

Ans: B.
Held-for-trading and available-for-sale securities are carried at market value, whereas held-to-maturity securities are carried at amortized cost. If the investment is reclassified as available-for-sale in 2010, the carrying amount should be adjusted to its market value, which is $10,000. Compared with the amortized cost of $20,000, it’s a decrease of $10,000.

作者: cityboy 时间: 2013-9-21 19:08

14. Which of the following is the least appropriate accounting treatment for marketable securities under IAS No. 39?

	Category	Measurement Method	Realized Gains & Losses Reported In
A.	Trading	Fair Value	Income Statement
B.	Held to maturity	Amortized Cost	Income Statement
C.	Available for sale	Fair Value	Equity

Ans: C.
All categories treat realized gains or losses in the same way - they are reported on the income statement. It is the unrealized gains and losses that are included in other comprehensive income (in equity) for available for sale securities carried at market value.
Reference: question 4.

作者: cityboy 时间: 2013-9-21 19:09

15. Under International Financial Reporting Standards (IFRS) a bank, or other financial institution, would normally use which type of balance sheet format?
A. Classified
B. Liquidity-based
C. Market-value based

Ans: B.
Liquidity-based format presents assets and liabilities in the order of liquidity. Under IAS No. 1 liquidity-based presentation is recommended when it provides information that is more relevant and reliable than the current/noncurrent format, such as in the case of banks and financial institutions.

A is incorrect. Both IFRS and U.S.GAAP require firms to separately report their current assets and noncurrent assets and current and noncurrent liabilities. The current/noncurrent format is known as a classified balance sheet and is useful in evaluating liquidity. But banking industry often uses liquidity-based format.

C is incorrect. There is no market-value based format balance sheet.

作者: cityboy 时间: 2013-9-21 19:09

16. A company presents its financial statements according to U.S. GAAP (generally accepted accounting principles) and has just issued $5 million of mandatory redeemable preferred shares with a par value of $100 per share and a 7% dividend. The issue matures in 5 years. Which of the following statements is least likely correct? At the time of the issue, the company’s:
A. debt-to-total capital ratio will improve
B. interest coverage ratio will deteriorate.
C. preferred shareholders will rank below debt holders should the company file for bankruptcy.

Ans: A.
SFAS 150 require that issuers report as liabilities any financial instruments that will require repayment of principal in the future. Mandatory redeemable preferred shares must be reported as debt; dividends on such stock must be reported as interest expense (consistent with the view that the preferred stock is debt) which will lower the interest coverage ratio.
In the Debt/(Debt + Equity) ratio, the Debt will increase making the debt/total capital increase, (the numerator will increase more than the denominator), thus the ratio will increase (deteriorate), not decrease (improve).

B is incorrect. Mandatory redeemable preferred shares must be reported as debt; dividends on such stock must be reported as interest expense (consistent with the view that the preferred stock is debt) which will lower the interest coverage ratio.

C is incorrect. It is true that preferred shareholders will rank below debt holders should the company file for bankruptcy.

作者: cityboy 时间: 2013-9-21 19:09

17. 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:
A. market value.
B. historical cost.
C. amortized cost.

Ans: C.
Bonds payable issued by a company are financial liabilities that are measured at amortized cost.

作者: cityboy 时间: 2013-9-21 19:11

18. Presented below are abbreviated balance sheets for two merchandising companies following the format found in each of their annual reports.

Company A (in $ U.S. Millions)
Assets
Noncurrent assets	9,640
Current Assets	2,096
Total Assets	11,736
Shareholders’ Equity
Issued Capital	2,490
Retained Earnings	1,333
Other Reserves	2,926
Minority Interests	506
Total Equity	7,255

Non-Current Liabilities	3,313
Current liabilities	1,168
Total Liabilities	4,481
Total Equity & Liabilities	11,736

Company B (in ￥ Millions)
Assets
Current Assets	4,333
Noncurrent assets	19,923
Total Assets	24,256
Liabilities & Shareholders’ Equity
Current liabilities	2,413
Non-Current Liabilities	6,847
Minority Interests	1,045
Shareholders’ Equity
Issued Capital	5,149
Retained Earnings	2,755
Other Reserves	6,047
Total Equity	13,951
Total Equity & Liabilities	24,256

Which of the companies most likely prepares their financial statements in accordance with U.S. GAAP (generally accepted accounting principles)?
A. Both
B. Company A only
C. Company B only

Ans: C.
Company A prepares its financial statements under IFRS while company B uses U.S. GAAP. The common practice under IFRS presentation is to present noncurrent assets before current assets and long term liabilities before current ones. Minority interest must be shown as a component of equity under IFRS. Under U.S. GAAP, current assets are presented before long term assets and current liabilities before long term ones; under U.S. GAAP, minority interest is often shown “in-between” liabilities and equity (although it could also be shown as an equity component).

作者: cityboy 时间: 2013-9-21 19:11

19. The following information is available from the accounting records of a company as at 31 December 2012 (all figures in $ thousands):

Account:	$
Accounts payable	20
Accounts receivable	82
Bank loan, due on demand	44
Cash	12
Income taxes payable	5
Inventory	47
Investments accounted for by the equity method	112
Loan payable, due 30 June 30 2010	50
Deposits from customers for deliveries in 2009	8

The working capital for the company (in $ thousands) is closest to:
A. 64.
B. 72.
C. C. 176.

Ans: A.

Current Assets:
Cash	12
Accounts receivable	82
Inventory	47
141
Current Liabilities
Bank loan, due on demand	44
Accounts payable	20
Income taxes payable	5
Deposits from customers for deliveries in 2009	8
77
Working capital (CA – CL)	64.0

The Investments accounted for by the equity method and the
Loan payable due June 2010 are non-current assets and liabilities respectively.

作者: cityboy 时间: 2013-9-21 19:11

20. During late December 2008 Company A acquires a small competitor, Company B. During the evaluation of the acquisition it is determined that the customer lists of Company B have a fair value of $50,000. Company A has spent $15,000 during the year updating and maintaining its own customer lists. What will be the value of the customer list intangible asset on Company A’s 31 December 2008 consolidated financial statements?
A. $15,000.
B. $50,000.
C. $65,000.

Ans: B.
The purchased customer list is an identifiable intangible because it can be sold separately from the company and it would be recorded at its fair market value, the amount paid for it in the acquisition, $50,000. The amount spent by Company A on its own lists, $15,000, would have to be expensed because internally generated intangibles are not capitalized.

作者: cityboy 时间: 2013-9-21 19:11

21.

￡millions	2012	2011
Accounts receivables, gross	6,620	4,840
Allowance for doubtful accounts	92	56
Write-offs during the year	84	42

Based on the above information about a company, the bad debt expense (in millions) for 2012 is closest to:
A.￡36
B.￡84
C.￡120

Ans: C.
The allowance for doubtful accounts increases by the bad debt recognized for the year and decreases by the amount written off during the year.

Beginning balance allowance	56
Plus bad debt expense	?
Less write-offs	(84)
Ending balance allowance	92
Therefore bad debt expense = 120

作者: cityboy 时间: 2013-9-21 19:11

22. During late Dec. 2012 Popular Publishing Inc. acquired a small competitor, Max’s Magazines. In the evaluation of the acquisition it was determined that the customers lists of Max’s Magazines had a fair value of $50,000. Popular had spent $15,000 during the year updating and maintaining its own customer lists. What is the correct amount and asset account that will be recorded by Popular for the year ended Dec. 2012, related to customer lists?
A. $50,000 identifiable intangible asset.
B. $65,000 identifiable intangible asset.
C. $50,000 unidentifiable intangible asset.

Ans: A.
The purchased customer list is an identifiable intangible because it can be sold separately form the company and it would be recorded at its fair market value, the amount paid for it in the acquisition, $50,000.
The amount spent by Popular on its own lists, $15,000, would have to be expensed because internally generated intangibles are not capitalized.