CFA Level I:FSA : understanding balance sheet(Reading 26) 习题精选 balance

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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.

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34. If a company presents its balance sheet in a format that includes subtotals for current assets, current liabilities, noncurrent assets, and noncurrent liabilities, the balance sheet is most likely presented: A. in a report format. B. in an account format. C. as a classified balance sheet.

Ans: C. A classified balance sheet has accounts grouped by type and presents subtotals for these groups of assets.

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33. For which of the following investments in securities is a firm most likely to report unrealized gains or losses on its income statement? A. Preferred stock, which the firm classifies as available-for-sale. B. Five-year bonds, which the firm purchased in a private placement. C. Listed call options, which the firm intends to exercise at expiration.

Ans: C. Options are derivatives, which are reported at fair value on the balance sheet with unrealized gains and losses recognized on the income statement. Available-for-sale securities are marked on the balance sheet, but unrealized gains and losses are reported in owners’ equity as other comprehensive income. Bonds purchased in a private placement cannot be resold to the public and therefore are likely to be classified as held-to-maturity, in which case the firm does not recognize unrealized gains or losses.

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32. Time-series analysis of a firm’s common-size balance sheets reveals the following data: 2010 2011 2012 Current assets 20% 22% 25% Inventory 8% 9% 11% Short-term debt 10% 11% 12% Long-term debt 24% 21% 18% Based only on the data provided, an analyst can conclude that the firm’s: A. debt ratio is decreasing. B. quick ratio is decreasing. C. inventory/ sales ratio is increasing.

Ans: A. The debt ratio is total debt to total assets. Because common-size balance sheet data are stated as percentages of total assets, the debt ratio can be determined from the data given. 2010: 10%+24%=34% 2011: 11%+21%=32% 2012: 12%+18%=30%. B and C are incorrect. The debt ratio is decreasing over the period shown. Neither the inventory/ sales ratio nor the quick ratio can be determined from the data given because the data do not include sales or current liabilities.

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31. Bao CORP. sells 1-year memberships to its Wine Club for $180. Wine Club members each received a bottle of white wine and a bottle of red wine, selected by the club director, four times each year at the beginning or each quarter. To properly account for sales of Wine Club memberships, Bao will record: A. an asset for prepaid sales. B. a liability for accrued expenses. C. a liability for unearned revenue.

Ans: C. Sales revenue for which the product or service has yet to be delivered gives rise to a liability account, unearned revenue. This liability will be reduced as the product or service is actually delivered.

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30. The category of items on the balance sheet that typically offers an analyst the best information on a non-financial firm’s investing activities is: A. current assets. B. current liabilities. C. noncurrent assets.

Ans: C. Noncurrent assets are those that will not be used up during the next year or during the firm’s operating cycle. Firm investment is typically in assets that are longer term in nature. A is incorrect.  Current assets include cash and other assets that will likely be converted into cash or used up within one year or one operating cycle, whichever is greater. B is incorrect. Current liabilities are obligations that will be satisfied within one year or one operating cycle, whichever is greater.

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29.  A company’s investments in marketable securities include a 3-year tax-exempt bond classified as held-to-maturity and a 5-year Treasury not classified as available-for-sale. On its income statement, the company should report the coupon interest received from: A. both of these securities. B. neither of these securities. C. only one of these securities.

Ans: A. Interest and dividends received are reported as income, regardless of the balance sheet classification of marketable securities.

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28. Under U.S.GAAP, land owned by the firm is most likely to be reported on the balance sheet at: A. historical cost. B. fair market value minus selling costs. C. historical cost less accumulated depreciation.

Ans: A. Unless impairment has been recognized, land is reported at historical cost and is not subject to depreciation. Increases in value are not reflected in balance sheet values under U.S.GAAP.

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27. The item “noncontrolling interest” included as a component of equity represents the: A. firm’s ownership of less than 50% of a subsidiary. B. portion of a subsidiary the firm does not own. C. firm’s ownership of less than 30% of a subsidiary.

Ans: B. When a firm has a controlling interest (>50%) in a subsidiary, but less than 100% ownership, it includes (consolidates) the assets and liabilities of that firm on its own balance sheet. Noncontrolling (or minority) interest in the equity section of the balance sheet represents the portion of the subsidiary that is not owned by the reporting firm.

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26. At the start of the year, a company’s capital contributed by owners and retained earnings accounts had balances of $10,000 and $6,000, respectively. During the year, the following events took place: Net income earned $4,000 Interest paid on debt $500 Repayment of long-term debt $1,000 Proceeds from shares issued $1,000 Dividends paid $600 The end-of-year owners’ equity is closest to: A. $19,400 B. $19,900 C. $20,400

Ans: C. Shareholders’ Equity (￥) Start-of-year share capital $10,000 Additional shares issued 1,000 Beginning retained earnings 6,000 Plus net income 4,000 Less dividends paid (600) Ending retained earnings 9,400 9,400 End-of-year shareholders’ equity $20,400