Company 1	Company 2
Current ratio	2.0	2.0
Cash ratio	0.3	0.3
Quick ratio	0.5	0.8

The most reasonable conclusion is that, compared with Company 2, Company 1had a:

A. higher percentage of assets associated with inventory.
B. higher percentage of assets associated with accounts receivable.
C. lower percentage of assets associated with marketable securities.

[此贴子已经被作者于2009-6-27 17:20:55编辑过]

	Company 1	Company 2
Current ratio	2.0	2.0
Cash ratio	0.3	0.3
Quick ratio	0.5	0.8

The most reasonable conclusion is that, compared with Company 2, Company 1had a:

A. higher percentage of assets associated with inventory.
B. higher percentage of assets associated with accounts receivable.
C. lower percentage of assets associated with marketable securities.

Answer: A
“Financial Analysis Techniques,” Thomas R. Robinson, CFA, Hennie van
Greuning, CFA, Elaine Henry, CFA, and Michael A. Broihahn CFA 2009 Modular Level I, Volume 3, pp.490-491, 506-509
“Working Capital Management,” Edgar A. Norton, Jr., CFA, Kenneth L.
Parkinson, and Pamela P. Peterson, CFA 2009 Modular Level I, Volume 4, pp. 87-88
Study Session 10-39-a, c, 11-46-a Evaluate and compare companies using ratio analysis, common-size financial statements, and charts in financial analysis.
Calculate, classify, and interpret activity, liquidity, solvency, profitability, and valuation ratios.
Calculate and interpret liquidity measures using selected financial ratios for a company and compare it with peer companies.
The current ratio includes inventory but the quick ratio does not. (Current ratio is higher than quick ratio and quick ratio is higher than cash ratio.) The quick ratio includes accounts receivable but the cash ratio does not. The denominator for all three ratios is current liabilities, which are the same proportion for both companies. The difference in ratios is therefore created by inventory and accounts receivable. Company 1 has the higher percentage of inventory because the difference between the current ratio and quick ratio is greater for that company. Company 2 had the higher percentage of accounts receivable because the difference between the quick ratio and the cash ratio is greater for Company 2.

Net income	$800,000
Add back book depreciation	70,000
Deduct tax allowed depreciation	(90,000)
Deduct Dividend income	(120,000)
Add back Fine	100,000
Add back book R&D	50,000
Deduct tax allowed R&D	(20,000)
Taxable income	790,000
Current taxes payable	35% x $790,000=276,500

51. An analyst gathers the following annual information ($ millions) about a company that pays no dividends and has no debt:

Net income	45.8
Depreciation	18.2
Loss on sale of equipment	1.6
Decrease in accounts receivable	4.2
Increase in inventories	3.4
Increase in accounts payable	2.5
Capital expenditures	7.3
roceeds from sale of stock	8.5

The company’s annual free cash flow to equity ($ millions) is closest to:

A. 53.1.
B. 58.4.
C. 61.6.

52. Which of the following statements best describes the level of accuracy provided by a standard audit report with respect to errors? The audited financial statements are:

A. fully assured to be free of material errors.
B. reasonable assured to be free of all errors.
C. reasonable assured to be free of material errors.

53. Making any necessary adjustments to the financial statements to facilitate comparison with respect to accounting choices is done in which step of the financial statement analysis framework?

A. Collect data.
B. Process data.
C. Analyze/interpret the processed data.

51. An analyst gathers the following annual information ($ millions) about a company that pays no dividends and has no debt:

Net income	45.8
Depreciation	18.2
Loss on sale of equipment	1.6
Decrease in accounts receivable	4.2
Increase in inventories	3.4
Increase in accounts payable	2.5
Capital expenditures	7.3
roceeds from sale of stock	8.5

The company’s annual free cash flow to equity ($ millions) is closest to:

A. 53.1.
B. 58.4.
C. 61.6.

Answer: C
“Understanding The Cash Flow Statement”, Thomas R. Robinson, CFA, Hennie van Greuning, CFA, Elaine Henry, CFA, and Michael A. Broihahn CFA 2009 Modular Level I, Volume 3, pp.267 - 270, 279-280
Study Session 8-34-i Explain and calculate free cash flow to the firm, free cash flow to equity, and other cash flow ratios.
Free cash flow to equity in a company without any debt is equal to cash flow from operations (CFO) less capital expenditures. CFO = net income + depreciation + loss on sale of equipment + decrease in accounts receivable – increase in inventories + increase in accounts payable. (The loss on sale of equipment is added back when calculating CFO. It would have been deducted in the calculation of net income but the loss is not the cash impact of the transaction (the proceeds received, if any, would be the cash effect) and cash flows related to equipment transactions are investing activities, not operating activities.
CFO = 45.8 + 18.2 +1.6 + 4.2 – 3.4 +2.5 = $68.9 million $68.9 – $7.3 = $61.6 million free cash flow to equity.

52. Which of the following statements best describes the level of accuracy provided by a standard audit report with respect to errors? The audited financial statements are:

A. fully assured to be free of material errors.
B. reasonable assured to be free of all errors.
C. reasonable assured to be free of material errors.

Answer: C
“Financial Statement Analysis: An Introduction,” Thomas R. Robinson, CFA, Jan
Hendrik van Greuning, CFA, R. Elaine Henry, CFA, and Michael A. Broihahn, CFA
2009 Modular Level I, Volume 3, p.19
Study Session 7-29-d Discuss the objective of audits of financial statements, the types of audit reports, and the importance of effective internal controls.
Audits provide reasonable assurance that the financial statements are fairly presented, meaning that there is a high degree of probability that they are free of material error, fraud or illegal acts.

53. Making any necessary adjustments to the financial statements to facilitate comparison with respect to accounting choices is done in which step of the financial statement analysis framework?

A. Collect data.
B. Process data.
C. Analyze/interpret the processed data.

Answer: B
“Financial Statement Analysis: An Introduction,” Thomas R. Robinson, CFA, Jan Hendrik van Greuning, CFA, R. Elaine Henry, CFA, and Michael A. Broihahn., CFA 2009 Modular Level I, Volume 3, pp.24-27
Study Session 7-29-f Describe the steps in the financial statement analysis framework.
Making any adjustments is part of the processing data step. Commonly used data bases (part of the collection phase) do not make adjustments for differences in accounting choices.

56. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. 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.

Loan payable due June 2010 are non-current assets and liabilities respectively.

56. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. 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.

Answer: B
“Understanding the Balance Sheet,” Thomas R. Robinson, CFA, Jan Hendrik van Greuning, CFA, R. Elaine Henry, CFA and Michael A. Broihahn, CFA 2009 Modular Level 1, Vol.3, pp.212-214
“Long-Lived Assets,” R. Elaine Henry, CFA and Elizabeth Gordon 2009 Modular Level I, Volume 3, pp.340-341
Study Session 8-33-e, 9-36-a Explain the measurement bases (e.g., historical cost and fair value) of assets and liabilities, including current assets, current liabilities, tangible assets, and intangible assets.
Explain the accounting standards related to the capitalization of expenditures as part of long-lived assets, including interest costs.
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.
Loan payable due June 2010 are non-current assets and liabilities respectively.

Which of the following best describes the classification of the lease on the company’s financial statements for 2008?

A. Operating lease.
B. Sales type lease.
C. Direct financing lease.

59. Which of the following is the most useful to an analyst assessing the credit worthiness of a company? Information related to:

A. operating cash flow.
B. the scale and diversity of a company’s operations.
C. operational efficiency of the company’s operations.

Which of the following best describes the classification of the lease on the company’s financial statements for 2008?

A. Operating lease.
B. Sales type lease.
C. Direct financing lease.

Answer: B
“Long-term Liabilities and Leases,” Elizabeth Gordon and R. Elaine Henry, CFA 2009 Modular Level I, Volume 3, pp. 458-464
Study Session 9-38-h Distinguish between sales-type leases and a direct financing lease and determine the effects on the financial statements and ratios of the lessors.
It is a sales type lease: the lease period covers more than 75% of its useful life (5/6=83.3%) and the asset is on its books at less than the present value of the lease payments ($199,635) (PMT = $50,000, N=5, i=8%). The firm must have acquired or manufactured the asset if it is recorded at less than the present value of the lease payments.

59. Which of the following is the most useful to an analyst assessing the credit worthiness of a company? Information related to:

A. operating cash flow.
B. the scale and diversity of a company’s operations.
C. operational efficiency of the company’s operations.

Answer: A
“Financial Statement Analysis: Applications,” Thomas R. Robinson, CFA, Jan Hendrik van Greuning, CFA, R. Elaine Henry, CFA and Michael A. Broihahn, CFA
2009 Modular Level I, Volume 3, pp.591-593
Study Session 10-42-c Describe the role of financial statement analysis in assessing the credit quality of a potential debt investment.
Credit analysis is concerned with a company’s debt-paying ability. Returns to creditors are normally paid in cash, so the company’s ability to generate cash internally is the most important factor in credit analysis.

60. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. A company acquires some new depreciable assets. Which of the following combinations of estimated salvage value and useful life will most likely produce the highest net profit margin?

A. low salvage value estimates and long average lives.
B. high salvage value estimates and long average lives.
C. high salvage value estimates and short average lives.

61. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. An analyst gathers the following information about a company ($ millions):

	2008	2007
Sales	283.5	234.9
Year-end inventory (LIFO inventory method)	81.4	53.7
LIFO reserve	36.4	21.8
Cost of goods sold (LIFO)	203.9	167.3

If the company uses the FIFO inventory method instead of LIFO, the company’s 2008 gross profit margin is closest to:

A. 22.9%.
B. 29.8%.
C. 33.2%.

62. Which of the following will most likely be an incentive for management to underreport earnings?

A. Meeting analysts’ expectations.
B. Contract negotiations with unions.
C. Meeting restrictive debt covenants.

[此贴子已经被作者于2009-6-29 13:46:25编辑过]

2009 Modular Level I, Volume 3, pp. 599-601
Study Session 9-35-e, f, 10-42-e Analyze the financial statements of companies using different inventory accounting methods to compare and describe the effect of the different methods on cost of goods sold, inventory balances, and other financial statement items; and compute and describe the effects of the choice of inventory method on profitability, liquidity, activity and solvency ratios.
Calculate adjustments to reported financial statements related to inventory assumptions in order to aid in comparing and evaluating companies. Determine and justify appropriate analyst adjustments to a company’s financial statements to facilitate comparison with another company.

Change in LIFO Reserve	36.4 - 21.8 = 14.6
COGS (FIFO) =	COGS (LIFO) – Change in LIFO Reserve
	203.9 – 14.6 = 189.3.
Gross profit (FIFO)	Sales – COGS (FIFO)
	283.5 – 189.3 = 94.2
Gross Profit Margin (FIFO)	Gross Profit / Sales
	94.2 / 283.5 = 33.23%.

62. Which of the following will most likely be an incentive for management to underreport earnings?

A. Meeting analysts’ expectations.
B. Contract negotiations with unions.
C. Meeting restrictive debt covenants.

Answer: B
“Financial Reporting Quality: Red Flags and Accounting Warning Signs,” Thomas R. Robinson, CFA and Paul Munter 2009 Modular Level I, Volume 3, pp.550-551
Study Session 10-40-a Describe incentives that might induce a company management to overreport or underreport earnings. Management is most likely to try and report lower earnings when negotiating concessions from a union.

63. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. A company uses the LIFO inventory method, but most of the other companies in the same industry use FIFO. Which of the following best describes one of the adjustments that would be made to the company’s financial statements to comparem it with other companies in the industry? The amount reported for the company’s ending inventory should be:

A. increased by the ending balance in its LIFO reserve.
B. decreased by the ending balance in its LIFO reserve.
C. increased by the change in its LIFO reserve for that period.

64. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. An analyst gathers the following information about a company:

Average market price per share of common stock during the year	$40
Exercise price per share for options on 50,000 common shares	$50
Exercise price per share for warrants on 20,000 common shares	$30

Using the treasury stock method, the number of incremental shares used to compute diluted earnings per share is closest to:

A. 5,000.
B. 15,000.
C. 20,000.

65. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. At the beginning of the year, a lessee company enters into a new lease agreement that is correctly classified as a finance lease, with the following terms:

Annual lease payments due at the end of the year	$100,000
Lease term	5 years
Appropriate discount rate	12%
Depreciation method	straight-line basis
Estimated salvage value	$0

With respect to the effect of the lease on the company’s financial statements in the first year of the lease, which of the following is most accurate? The reduction in the company’s:

A. pretax income is $72,096.
B. cash flow from financing is $56,742.
C. cash flow from operations is $72,096.

63. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. A company uses the LIFO inventory method, but most of the other companies in the same industry use FIFO. Which of the following best describes one of the adjustments that would be made to the company’s financial statements to comparem it with other companies in the industry? The amount reported for the company’s ending inventory should be:

A. increased by the ending balance in its LIFO reserve.
B. decreased by the ending balance in its LIFO reserve.
C. increased by the change in its LIFO reserve for that period.

Answer: A
“Inventories,” Elbie Antonites, CFA, and Michael Broihahn, CFA 2009 Modular Level I, Volume 3, p. 312
“Financial Statement Analysis: Applications,” Thomas R. Robinson, CFA, Jan Hendrik van Greuning, CFA, R. Elaine Henry, CFA and Michael A. Broihahn CFA
2009 Modular Level I, Volume 3, p. 599
Study Session 9-35-e, f, 10-42-e Analyze the financial statements of companies using different inventory accounting methods to compare and describe the effect of the different methods on cost of goods sold, inventory balances, and other financial statement items; and compute and describe the effects of the choice of inventory method on profitability, liquidity, activity and solvency ratios.
Calculate adjustments to reported financial statements related to inventory assumptions in order to aid in comparing and evaluating companies. Determine and justify appropriate analyst adjustments to a company’s financial statements to facilitate comparison with another company. LIFO Reserve = FIFO Inventory – LIFO Inventory
Adding the ending balance in the LIFO reserve to the LIFO inventory would equal the ending balance for inventory on a FIFO basis.

64. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. An analyst gathers the following information about a company:

Average market price per share of common stock during the year	$40
Exercise price per share for options on 50,000 common shares	$50
Exercise price per share for warrants on 20,000 common shares	$30

Using the treasury stock method, the number of incremental shares used to compute diluted earnings per share is closest to:

A. 5,000.
B. 15,000.
C. 20,000.

Answer: A
“Understanding The Income Statement,” Thomas R. Robinson, CFA, Hennie van Greuning, CFA, Elaine Henry, CFA, and Michael A. Broihahn, CFA 2009 Modular Level I, Volume 3, pp. 171-173
Study Session 8-32-h Describe the components of earnings per share and calculate a company’s earnings per share (both basic and diluted earnings per share) for both a simple and complex capital structure.
Diluted EPS is calculated using the treasury stock method that considers what would be the effect if the options or warrants had been exercised. Only options or warrants that are in-the-money are included, as out-of-the-money options would not be exercised. Therefore only the warrants are dilutive: their exercise price is below the average market price of the stock. Using the treasury stock method, the number of new shares issued on exercise is reduced by the number of shares that could be purchased with the cash received upon exercise of the warrants: 20,000($30) = $600,000 in proceeds. $600,000 / $40 = 15,000 shares treasury stock. Incremental shares using the treasury stock method = 20,000 – 15,000 = 5,000.

65. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. At the beginning of the year, a lessee company enters into a new lease agreement that is correctly classified as a finance lease, with the following terms:

Annual lease payments due at the end of the year	$100,000
Lease term	5 years
Appropriate discount rate	12%
Depreciation method	straight-line basis
Estimated salvage value	$0

With respect to the effect of the lease on the company’s financial statements in the first year of the lease, which of the following is most accurate? The reduction in the company’s:

A. pretax income is $72,096.
B. cash flow from financing is $56,742.
C. cash flow from operations is $72,096.

Answer: B
“Long-term Liabilities and Leases,” Elizabeth Gordon and R. Elaine Henry, CFA 2009 Modular Level I, Volume 3, pp. 447-453
Study Session 9-38-g
Determine the effects of finance and operating leases on the financial statements and ratios of the lessees and lessors.
The present value of the lease is $360,477.62. (n = 5, I = 12%, PMT = $100,000) 12% of the original PV is $43,257.31 and represents the interest component of the payment in the first year. The difference between the annual payment and the interest is the amortization of the lease obligation included in cash flow from financing. $100,000 – 43,257.31 = $56,742.69.
Depreciation is $360,477.62 / 5 or $72,095.52 so the total reduction in pretax income would be interest plus depreciation or $115,352.83. Cash flow from operations would be reduced by the amount of the interest only because the depreciation would be added back to determine cash flow from operations.

66. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. The following information relates to a profitable company that offers a warranty on a new product introduced in 2008:

Accrued warranty expenses for the warranty in 2008	$300,000
Actual expenditures for repairs under the warranty in 2008	$200,000

If the company’s tax rate is 35 percent, which of the following most accurately describes the deferred tax recorded in 2008 with respect to the new product warranty?

A. Deferred tax asset of $35,000.
B. Deferred tax asset of $65,000.
C. Deferred tax liability of $35,000.

67. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. At the beginning of the year, a company issues a $1,000 face value, semiannual coupon, bond with an 8 percent coupon rate maturing in 10 years. The annual market rate of interest at issuance was 12 percent. The initial liability recorded for this bond is closest to:

A. $771.
B. $774.
C. $1,000.

68. Financial reporting standards are most likely enforced by:

A. both standard-setting bodies and regulatory bodies.
B. regulatory authorities, such as the SEC and IOSC, only.
C. standard-setting bodies, such as the FASB and IASB, only.

For financial statement purposes, the warranty expense recorded in 2008 is greater than the cash expense they incurred (and that is allowed as a deduction for income tax purposes), resulting in a warranty liability for financial statement purposes, but not for tax purposes. As the carrying amount of the liability is greater than the tax base, the $100,000 temporary difference will give rise to a $35,000 (100,000 x 0.35) deferred tax asset.

67. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted. At the beginning of the year, a company issues a $1,000 face value, semiannual coupon, bond with an 8 percent coupon rate maturing in 10 years. The annual market rate of interest at issuance was 12 percent. The initial liability recorded for this bond is closest to:

A. $771.
B. $774.
C. $1,000.

Answer: A
“Long-term Liabilities and Leases,” Elizabeth Gordon and R. Elaine Henry, CFA 2009 Modular Level I, Volume 3, pp. 425-429
Study Session 9-38-a Compute the effects of debt issuance and amortization of bond discounts and premiums on the financial statements and ratios.
The liability recorded is based on market rates of interest when the bond is issued and not the coupon rate on the bond. The market value of the bond at issuance was $770.60. (FV=1,000, PMT=40, N=20, I=6.0).

68. Financial reporting standards are most likely enforced by:

A. both standard-setting bodies and regulatory bodies.
B. regulatory authorities, such as the SEC and IOSC, only.
C. standard-setting bodies, such as the FASB and IASB, only.

Answer: B
“Financial Reporting Standards,” Thomas R. Robinson, CFA, Hendrik van Greuning, CFA, Karen O’Connor Rubsam, CFA, R. Elaine Henry, CFA, and Michael A. Broihahn, CFA 2009 Modular Level I, Volume 3, pp.96-97
Study Session 7-31 –b Explain the role of standard-setting bodies, such as the International Accounting Standards Board and the U.S. Financial Accounting Standards Board, and regulatory authorities such as the International Organization of Securities Commissions, the U.K. Financial Services Authority, and the U. S. Securities and Exchange Commission in establishing and enforcing financial reporting standards.
Generally, standard setting bodies make the rules and regulatory authorities enforce the rules.