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FSA 2024 CFA Question
FSA – Question bank 2024 in CFA

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Contents
LM1: Intro to FSA.........................................................................................................................2
LM2: Analyzing the Income Statement.......................................................................................6
LM3: Analyzing the Balance Sheet............................................................................................15
LM4+5: Analyzing the CF Statement........................................................................................21
LM6: Analysis of Inventories.....................................................................................................34
LM7: Analysis of Long-term Assets...........................................................................................46
LM8: Analysis of Long-Term Liabilities and Equity...............................................................57
LM9: Analysis of Income Taxes.................................................................................................62
LM 10: Financial Reporting Quality.........................................................................................66
LM11: Financial Analysis Techniques.......................................................................................74
LM12: Introduction to Financial Statement Modeling............................................................86
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LM1: Intro to FSA

1. Ratios are an input into which step in the financial statement analysis framework?
A. Process data
B. Collect input data
C. Analyze/interpret the processed data
2. Which phase in the financial statement analysis framework is most likely to involve producing
updated reports and recommendations?
A. Follow-up
B. Analyze/interpret the processed data
C. Develop and communicate conclusions and recommendations
3. Which of the following best describes the role of financial statement analysis?
A. To provide information about a company’s performance
B. To provide information about a company’s changes in financial position
C. To form expectations about a company’s future performance and financial position
4. The primary role of financial statement analysis is best described as:

A. providing information useful for making investment decisions.
B. evaluating a company for the purpose of making economic decisions.
C. using financial reports prepared by analysts to make economic decisions.
5. International Financial Reporting Standards are currently developed by which entity?

A. IFRS Foundation
B. International Accounting Standards Board
C. International Organization of Securities Commissions
6. US GAAP are currently developed by which entity?

A. Securities and Exchange Commission
B. Financial Accounting Standards Board
C. Company Accounting Oversight Board
7. A core objective of the International Organization of Securities Commissions is to:

A. eliminate systemic risk.
B. protect users of financial statements.
C. ensure that markets are fair, efficient, and transparent.
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8. Which of the following best describes why the notes that accompany the financial statements
are required? The notes:
A. permit flexibility in statement preparation.
B. standardize financial reporting across companies.
C. provide information necessary to understand the financial statements.
9. Accounting policies, methods, and estimates used in preparing financial statements are most
likely to be found in the:
A. auditor’s report.
B. management commentary.
C. notes to the financial statements.
10. Information about management and director compensation is most likely to be found in the:
B. proxy statement.
C. earnings release.
11. Information about a company’s objectives, strategies, and significant risks are most likely to
be found in the:
B. management commentary.
C. notes to the financial statements.
12. What type of audit opinion is preferred when analyzing financial statements?
A. Adverse
B. Qualified
C. Unqualified
13. An auditor determines that a company’s financial statements are prepared in accordance with
applicable accounting standards except with respect to inventory reporting. This exception
is most likely to result in an audit opinion that is:
A. adverse.
B. qualified.
C. unqualified
14. An independent audit report is most likely to provide:

A. absolute assurance about the accuracy of the financial statements.
B. reasonable assurance that the financial statements are fairly presented.
C. a qualified opinion with respect to the transparency of the financial statements.
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15. Interim financial reports released by a company are most likely to be:
A. monthly.
B. unaudited.
C. unqualified.
16. Which of the following sources of information used by analysts is found outside a company’s
annual report?
A. Auditor’s report
B. Peer company analysis
C. Management discussion and analysis
17. For a company issuing securities in the United States to meet its obligations under the
Sarbanes–Oxley Act, which of the following is management required to attest to?
A. The adequacy of internal control over financial reporting
B. The suitability of management and director compensation agreements
C. The accuracy of estimates and assumptions used in preparing the financial
statements
18. Which of the following reports is least likely to be filed with the US SEC?
A. Annual report
B. Form 10-K
C. Proxy statement
19. Interim reports most likely:

A. are audited.
B. are issued semi-annually or quarterly.
C. include a full set of financial statements and notes
20. Which of the following statements is most accurate about the responsibilities of an auditor for
a publicly traded firm in the United States? The auditor must:
A. state that the financial statements are prepared according to generally accepted
accounting principles.
B. ensure that the financial statements are free from error, fraud, or illegal acts.
C. express an opinion about the effectiveness of the company’s internal control systems.
21. Common-size financial statements are most likely a component of which step in the financial
analysis framework?
A. Collect data
B. Analyze/interpret data
C. Process data
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22. Providing information about the performance of a company, its financial position, and
changes in financial position that is useful to a wide range of users is most accurately described
as the role of:
A. Financial reporting
B. The audit report
C. Financial Statement analysis
23. The role of the International Organization of Securities Commissions (IOSCO) is best
described as:
A. promoting cross-border cooperation and uniformity in securities regulation.
B. enforcing financial reporting requirements for entities participating in capital markets.
C. promoting the use of International Financial Reporting Standards (IFRS) and the
convergence of national accounting standards.
24. Where might an analyst look for details covering the full extent of a company’s capital
resources?
A. Balance sheet
B. Notes to the financial statements
C. Management discussion and analysis (MD&A)
25. Notes to financial statements most likely include:

A. an auditor’s opinion as to the fair presentation of the financial statements.
B. supplementary information about accounting policies, methods, and estimates.
C. a discussion of significant trends, events, and uncertainties that affect the operating
results.
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LM2: Analyzing the Income Statement
26. Fairplay reported the information shown in Exhibit 1 related to the sale of its products during
2009, which was its first year of business:
27. Apex Consignment sells items over the internet for individuals on a consignment basis. Apex
receives the items from the owner, lists them for sale on the internet, and receives a 25 percent
commission for any items sold. Apex collects the full amount from the buyer and pays the net
amount after commission to the owner. Unsold items are returned to the owner after 90 days.
During 2009, Apex had the following information:
 Total sales price of items sold during 2009 on consignment was EUR2,000,000.
 Total commissions retained by Apex during 2009 for these items was EUR500,000.
How much revenue should Apex report on its 2009 income statement?
A. EUR500,000
B. EUR2,000,000
C. EUR1,500,000
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28. A company previously expensed the incremental costs of obtaining a contract. All else being
equal, adopting the May 2014 IASB and FASB converged accounting standards on revenue
recognition makes the company’s profitability initially appear:
A. lower.
B. unchanged.
C. higher.
29. Under IFRS, a loss from the destruction of property in a fire would most likely be classified
as:
A. continuing operations.
B. discontinued operations.
C. other comprehensive income.
30. A company chooses to change an accounting policy. This change requires that, if practical,
the company restate its financial statements for:
A. all prior periods.
B. current and future periods.
C. prior periods shown in a report.
31. For 2009, Flamingo Products had net income of USD1,000,000. At 1 January 2009, there
were 1,000,000 shares outstanding. On 1 July 2009, the company issued 100,000 new shares for
USD20 per share. The company paid USD200,000 in dividends to common shareholders. What
is Flamingo’s basic earnings per share for 2009?
A. USD0.80
B. USD0.91
C. USD0.95
32. A company with no debt or convertible securities issued publicly traded common stock three
times during the current fiscal year. Under both IFRS and US GAAP, the company’s:
A. basic EPS equals its diluted EPS.
B. capital structure is considered complex at year-end.
C. basic EPS is calculated by using a simple average number of shares outstanding.
33. For its fiscal year-end, Sublyme Corporation reported net income of USD200 million and a
weighted average of 50,000,000 common shares outstanding. There are 2,000,000 convertible
preferred shares outstanding that paid an annual dividend of USD5. Each preferred share is
convertible into two shares of the common stock. The diluted EPS is closest to:
A. USD3.52
B. USD3.65
C. USD3.70
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34. For its fiscal year-end, Calvan Water Corporation (CWC) reported net income of USD12
million and a weighted average of 2,000,000 common shares outstanding. The company paid
USD800,000 in preferred dividends and had 100,000 options outstanding with an average
exercise price of USD20. CWC’s market price over the year averaged USD25 per share. CWC’s
diluted EPS is closest to:
A. USD5.33
B. USD5.54
C. USD5.94
35. Laurelli Builders (LB) reported the financial data shown in Exhibit 1 for year-end 31
December:
Which statement about the calculation of LB’s EPS is most accurate?

A. LB’s basic EPS is USD1.12.
B. LB’s diluted EPS is equal to or less than its basic EPS.
C. The weighted average number of shares outstanding is 2,210,000.
36. Cell Services Inc. (CSI) had 1,000,000 average shares outstanding during all of 2009. During
2009, CSI also had 10,000 options outstanding with exercise prices of USD10 each. The average
stock price of CSI during 2009 was USD15. For purposes of computing diluted earnings per
share, how many shares would be used in the denominator?
A. 1,003,333
B. 1,006,667
C. 1,010,000
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37. When calculating diluted EPS, which of the following securities in the capital structure
increases the weighted average number of common shares outstanding without affecting net
income available to common shareholders?
A. Stock options
B. Convertible debt that is dilutive
C. Convertible preferred stock that is dilutive
38. Which statement is most accurate? A common size income statement:

A. restates each line item of the income statement as a percentage of net income.
B. allows an analyst to conduct cross-sectional analysis by removing the effect of
company size.
C. standardizes each line item of the income statement but fails to help an analyst
identify differences in companies’ strategies.
39. The following information is available about a company for the current year:
 Net income of $32 million
 Weighted average number of common shares outstanding of 4.5 million
 $15 million of 12% convertible bonds, convertible into 50,000 shares
 200,000 options with an exercise price of $50 per share
 Average market price of $80 per share during the year
 Tax rate of 30%
The company’s diluted EPS is closest to:
A. $6.81.
B. $6.99.
C. $7.19.
40. Unless it is impractical to do so, changes in accounting policies are to be reported:

A. prospectively.
B. retrospectively.
C. at the bottom of the income statement in the year of change.
41. For which of the examples given would common-size income statements generally provide
the most insight?
A. A liquidity analysis of two companies within the same industry
B. A time-series analysis of a rapidly expanding single company
C. A comparison of similarly sized companies from different industries
42. The following information is available on a company for the current year.
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Net income $1,000,000

Average number of common shares outstanding 100,000
Details of convertible securities outstanding:
Convertible preferred shares outstanding 2,000
Dividend/share $10
Each preferred share is convertible into five shares of common stock
Convertible bonds, $100 face value per bond $80,000
8% coupon
Each bond is convertible into 25 shares of common stock
Corporate tax rate 40%
The company’s diluted EPS is closest to:

A. $7.57.
B. $7.69.
C. $7.72.
43. The following data is available on two companies that operate in the same industry:
Metric ($ millions) Company X Company Y
Sales 11.2 14.5
Cost of goods sold 5.7 7.7
Administration costs 1.9 2.2
Interest expense 0.3 0.7
Research and development expenses 1.5 1.7
Which of the following statements is most appropriate? Better margin performance will be
reported by:
A. Company Y at the gross margin level and Company X at the operating margin level.
B. Company Y at both the gross margin and operating margin levels.
C. Company X at the gross margin level and Company Y at the operating margin level.
44. Under general principles of expense recognition, a company should:

A. apply uniform treatment for administrative and depreciation costs.
B. recognize expenses in the period that it consumes the associated economic benefits.
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C. allocate lost economic benefits prospectively over the expected period in which the
benefits would have been earned.
45. After a two-for-one stock split, which of the following will most likely change relative to its
pre-split value?
A. Earnings per share (EPS)
B. Price-to-earnings ratio (P/E
C. Dividend payout ratio
46. The following relates to a company’s common equity over the course of the year:
Outstanding shares, at start of the year 2,000,000
Stock options outstanding, at start and end of the year (Exercise price: $5) 100,000
Shares issued on 1 April 300,000
Shares repurchased (treasury shares) on 1 July 100,000
Average market price of common shares for the year $20/share
If the company’s net income for the year is $5,000,000, its diluted EPS is closest to:
A. $2.17.
B. $2.20.
C. $2.22.
47. Oceanaqua Apparel (OA) is a manufacturer of swimwear. Abbreviated common-size income

statements and relevant industry data are presented below.
OA Common-Size Income Statement 2015 2014 2013
Net Revenues 100.0% 100.0% 100.0%
Cost of Sales 64.3 62.5 59.5
Gross Profit 35.7 37.5 40.5
Selling, General & Admin 23.5 23.2 25.5
Advertising 0.5 2.9 3.1
Operating Income 11.7 11.4 11.9
Interest Expense 1.8 2.2 3.8
Earnings Before Taxes 9.9 9.2 8.1
Taxes 2.0 2.0 1.9
Net Income 7.9 7.2 6.2
Swimwear Industry
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OA Common-Size Income Statement 2015 2014 2013

Gross Profit Margin 38.4% 39.1% 40.7%
Net Profit Margin 7.1 6.8 6.1
Which statement about OA’s three-year financial performance is most accurate? OA’s:
A. effective tax rate has been holding steady at approximately 2%.
B. revenues per dollar of sales costs are falling over the time period.
C. profit margins indicate performance superior to the industry average.
48. An artists’ cooperative sells its artwork on a consignment basis through a local art gallery.
The cooperative should most likely recognize revenue when the art gallery:
A. sells the artwork.
B. remits payment for the artwork.
C. receives the artwork.
49. A company sells a non-refundable, two-year service contract for €420. Based on historical
patterns, the company expects to incur 25% of service costs in the first year of the contract and
the remainder in the second year. The amount of revenue the company recognizes in the first
year is closest to:
A. €105.
B. €210.
C. €420.
50. The following financial information is available at the end of the year.
Share Information
Issued and
Security Authorized Outstanding Other Features
Common stock 500,000 250,000 Currently pays a dividend of $1 per share.
Preferred stock, 50,000 12,000 Nonconvertible, cumulative; pays a
Series A dividend of $4 per share.
Preferred stock, 50,000 30,000 Convertible; pays a dividend of $7.50 per
Series B share. Each share is convertible into 2.5
common shares.
Additional information:
Reported income for the year $1,000,000
The diluted EPS (earnings per share) is closest to:

A. $2.91.
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B. $2.93.
C. $3.08.
51. The following table shows changes to the number of common shares outstanding for a
company during 2012:
1 January 180,000 shares outstanding
1 June 60,000 shares issued
1 August 2-for-1 stock split
31 December 480,000 shares outstanding
To calculate earnings per share for 2012, the company’s weighted average number of shares
outstanding is closest to:
A. 315,000.
B. 215,000.
C. 430,000.
52. Under US GAAP, for reporting periods after 15 December 2015, unusual or infrequent items
are shown on the income statement separately:
A. below continuing operations.
B. below discontinued operations.
C. as part of continuing operations.
53. Selected year-end financial data for Mega Industries follows:

Net income $100 million
Tax rate 25 percent
Weighted average number of common shares outstanding 25 million
Convertible preferred shares* 10 million
Preferred dividend per share $1.00
* Each share is convertible into 0.5 shares of common stock.
The net difference between Mega’s reported basic EPS and its diluted EPS is closest to:
A. $0.74.
B. $0.27.
C. $0.37
54. Which of the following items is an example of deferred income?

A. Normal operating expenses that have been paid in advance
B. A payment received for contracted goods and services prior to their delivery
C. An expense recognized on a company’s income statement but not paid for as of the
balance sheet date
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LM3: Analyzing the Balance Sheet

55. All of the following are current assets except:
A. cash.
B. goodwill.
C. inventories.
56. The initial measurement of goodwill is most likely affected by:

A. an acquisition’s purchase price.
B. the acquired company’s book value.
C. the fair value of the acquirer’s assets and liabilities.
57. For financial assets classified as trading securities, how are unrealized gains and losses
reflected in shareholders’ equity?
A. They are not recognized.
B. They flow through income into retained earnings.
C. They are a component of accumulated other comprehensive income.
58. For financial assets classified as available for sale, how are unrealized gains and losses
B. They flow through retained earnings.
59. For financial assets classified as held to maturity, how are unrealized gains and losses
B. They flow through retained earnings.
60. A company has total liabilities of GBP35 million and total stockholders’ equity of GBP55
million. Total liabilities are represented on a vertical common-size balance sheet by a
percentage closest to:
A. 35 percent.
B. 39 percent.
C. 64 percent.
61. Which of the following would an analyst most likely be able to determine from a common-
size analysis of a company’s balance sheet over several periods?
A. An increase or decrease in sales
B. An increase or decrease in financial leverage
C. A more efficient or less efficient use of assets
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62. Defining total asset turnover as revenue divided by average total assets, all else equal,
impairment write-downs of long-lived assets owned by a company will most likely result in an
increase for that company in:
A. the debt-to-equity ratio but not the total asset turnover.
B. the total asset turnover but not the debt-to-equity ratio.
C. both the debt-to-equity ratio and the total asset turnover.
63. An investor concerned about a company’s ability to meet its near-term obligations is most
likely to calculate the:
A. current ratio.
B. return on total capital.
C. financial leverage ratio.
64. The most stringent test of a company’s liquidity is its:

A. cash ratio.
B. quick ratio.
C. current ratio.
65. An investor worried about a company’s long-term solvency would most likely examine its:
A. current ratio.
B. return on equity.
C. debt-to-equity ratio.
66. Consider the common-size balance sheets in Exhibit 1 for Company A, Company B, as well
as the industry average. Which statement is correct?
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A. Company A has below-average liquidity risk.

B. Company B has above-average solvency risk.
C. Company A has made one or more acquisitions.
67. Using information in question 66,Consider the common-size balance sheets in Exhibit 1 for
Company A, Company B, as well as the industry average.
The quick ratio for Company A is closest to:

A.0.43.
B.0.57.
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C.1.00.
68. Same table in question 67, The financial leverage ratio for Company B is closest to:
A.0.55.
B.1.22.
C.2.22.
69. Same table in question 67, Which ratio indicates lower liquidity risk for Company A
compared with Company B?
A.Cash ratio
B.Quick ratio
C.Current ratio
70. Use the following common-size balance sheet information to answer the question below.
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Which company is most likely to have grown through acquisitions?

A. Company X
B. Company Y
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C. Company Z
71. Deferred tax liabilities result when:

A. taxable income in a period is less than reported financial statement income before
taxes.
B. items of expense are included in financial statement income in earlier periods than
those for which taxable income is reported.
C. straight-line depreciation methods are used for tax purposes and accelerated methods
are employed for financial statement purposes.
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LM4+5: Analyzing the CF Statement

72. Based on the information in Exhibit 1 for Pinkerly Inc., a fictitious company, what are the
total adjustments that the company would make to net income in order to derive operating cash
flow?
A. Add USD5 million

B. Add USD21 million
C. Subtract USD9 million
73. When computing net cash flow from operating activities using the indirect method, an
addition to net income is most likely to occur when there is a:
A. gain on the sale of an asset.
B. loss on the retirement of debt.
C. decrease in a deferred tax liability.
74. An analyst gathered the information in Exhibit 1 from a company’s 2018 financial statements
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In 2018, the company declared and paid cash dividends of USD10 million and recorded
depreciation expense in the amount of USD25 million. The company considers dividends paid a
financing activity. The company’s 2018 cash flow from operations (in USD millions) was closest
to:
A.25.
B.45.
C.75.
75. Based on the information in Exhibit 1 for Star Inc., what are the total net adjustments that the
company would make to net income to derive operating cash flow?
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A. Add USD2 million

B. Add USD6 million
C. Subtract USD6 million.
76. In 2018, a company using US GAAP made cash payments of USD6 million for salaries,
USD2 million for interest expense, and USD4 million for income taxes. Additional information
for the company is provided in the Exhibit 1:
Based only on the information in Exhibit 1, the company’s operating cash flow for 2018 is
closest to:
A. USD6 million.
B. USD10 million.
C. USD14 million.
77. Green Glory Corp., a garden supply wholesaler, reported cost of goods sold for the year of
USD80 million. Total assets increased by USD55 million, including an increase of USD5 million
in inventory. Total liabilities increased by USD45 million, including an increase of USD2
million in accounts payable. The cash paid by the company to its suppliers is most likely closest
to:
A. USD73 million.
B. USD77 million.
C. USD83 million.
78. Purple Fleur S.A., a retailer of floral products, reported cost of goods sold for the year of
USD75 million. Total assets increased by USD55 million, but inventory declined by USD6
million. Total liabilities increased by USD45 million, and accounts payable increased by USD2
million. The cash paid by the company to its suppliers is most likely closest to:
A. USD67 million.
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B. USD79 million.
C. USD83 million.
79. White Flag, a women’s clothing manufacturer, reported salaries expense of USD20 million.
The beginning balance of salaries payable was USD3 million, and the ending balance of salaries
payable was USD1 million. How much cash did the company pay in salaries?
A. USD18 million
B. USD21 million
C. USD22 million
80. An analyst gathered the information in Exhibit 1 from a company’s 2018 financial
statements:
Based only on the information in Exhibit 1, the company’s 2018 statement of cash flows in the
direct format would include amounts (in US dollars millions) for cash received from customers
and cash paid to suppliers, respectively, that are closest to:
Cash received from customers Cash paid to suppliers
 A. 249.7 169.7
 B. 259.5 174.5
 C. 259.5 182.1
81. Golden Cumulus Corp., a commodities trading company, reported interest expense of USD19
million and taxes of USD6 million. Interest payable increased by USD3 million, and taxes
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payable decreased by USD4 million over the period. How much cash did the company pay for
interest and taxes?
A. USD22 million for interest and USD10 million for taxes
B. USD16 million for interest and USD2 million for taxes
C. USD16 million for interest and USD10 million for taxes
82. The information in Exhibit 1 is extracted from Sweetfall Incorporated’s financial statements.
The amount of cash Sweetfall Inc. paid to suppliers is:

A. USD25,700.
B. USD26,702.
C. USD27,826.
83. A company using IFRS reports its interest payments on long-term debt as a financing
activity. If the company reported under US GAAP, the most likely effect would be a:
A. higher cash flow from operations.
B. higher cash flow from financing activities.
C. lower cash flow from investing activities.
84. An analyst gathers the following information from a company’s current financial statements:
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If the company uses the direct method to prepare its cash flow statement, the cash received from
customers (in $ millions) will be closest to:
A. 26,368.
B. 25,296.
C. 26,492.
85. Under IFRS, dividends received are least likely classified as which type of cash flow on the
cash flow statement?
A. Financing
B. Operating
C. Investing
86. The following financial data are available for a company:
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Cash paid to suppliers (in thousands) in the current year is closest to:
A. €900.
B. €700.
C. €300.
87. An analyst gathers the following information from a company’s current financial statements:
If the company uses the direct method to prepare its cash flow statement, the cash paid to
suppliers (in $ millions) will be closest to:
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A. 12,334.
B. 13,328.
C.12,536.
88. The following annual financial data are available for a company:
Interest expense (in millions) for the year is closest to:

A. £97.4.
B. £109.2.
C. £71.6.
89. The following items are from a company’s cash flow statement.
Which of the following standards and formats did the company most likely use in the preparation
of its financial statements?
A. IFRS, direct format
B. IFRS, indirect format
C. Either IFRS or US GAAP, direct format
90. When a firm can choose where in the cash flow statement to classify interest received, which
of the following choices is the most appropriate?
A. As an financing activity under IFRS
B. As an investing activity under US GAAP
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C. As a operating activity under IFRS
91. Selected information from a company’s comparative income statement and balance sheet is
presented below:
The cash collected from customers in 2013 is closest to:

A. $88,500.
B. $96,100.
C. $111,500.
92. One appropriate method of preparing a common-size cash flow statement is to show each
line item:
A. of revenue and expense as a percentage of net revenue.
B. on the cash flow statement as a percentage of net revenue.
C. on the cash flow statement as a percentage of total cash outflows.
93. Which of the following is an appropriate method of computing free cash flow to the firm?
A. Add operating cash flows to capital expenditures and deduct after-tax interest
payments.
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B. Add operating cash flows to after-tax interest payments and deduct capital
expenditures.
C. Deduct both after-tax interest payments and capital expenditures from operating cash
flows.
94. The first step in cash flow statement analysis should be to:
A. evaluate consistency of cash flows.
B. determine operating cash flow drivers.
C. identify the major sources and uses of cash.
95. An analyst has calculated a ratio using as the numerator the sum of operating cash flow,
interest, and taxes and as the denominator the amount of interest. What is this ratio, what does it
measure, and what does it indicate?
A. This ratio is an interest coverage ratio, measuring a company’s ability to meet its
interest obligations and indicating a company’s solvency.
B. This ratio is an effective tax ratio, measuring the amount of a company’s operating
cash flow used for taxes and indicating a company’s efficiency in tax management.
C. This ratio is an operating profitability ratio, measuring the operating cash flow
generated accounting for taxes and interest and indicating a company’s liquidity.
96. The following partial common-size cash flow statement and coverage ratio information is
available for a company:
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Compared with Year 1, the most appropriate conclusion an analyst can make about Year 2 is that
the company’s ability to use operating cash flows to:
A. acquire assets improved.
B. pay dividends decreased.
C. acquire assets, pay debts, and make distributions to owners decreased.
97. The following common-size cash flow statement is available for a company:
Cash Flow Statement for the Years Ended 31 December
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Compared with 2015, which of the following statements about 2016 is most accurate? The
company:
A. had a positive net operating cash flow.
B. directed a larger portion of cash outflows to investing activities.
C. relied more heavily on financing activities to generate cash inflows.
98. A firm reported the following financial statement items:
The free cash flow to the firm (FCFF) is closest to:

The free cash flow to the firm (FCFF) is closest to:
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A. €2,110.
B. €2,470.
C. €2,590.
99. The following financial statement data are available for a company:
The company’s cash-to-income ratio is closest to:

A. 0.79.
B. 0.66.
C. 0.52.
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LM6: Analysis of Inventories

100. Carrying inventory at a value above its historical cost would most likely be permitted if:
A. the inventory was held by a producer of agricultural products.
B. financial statements were prepared using US GAAP.
C. the change resulted from a reversal of a previous write-down.
Solution
A is correct. IFRS allow the inventories of producers and dealers of agricultural and forest
products, agricultural produce after harvest, and minerals and mineral products to be carried at
net realizable value even if above historical cost. (US GAAP treatment is similar.)
101. Eric’s Used Book Store prepares its financial statements in accordance with IFRS.
Inventory was purchased for GBP1 million and later marked down to GBP550,000. One of the
books, however, was later discovered to be a rare collectible item, and the inventory is now
worth an estimated GBP3 million. The inventory is most likely reported on the balance sheet at:
A. GBP550,000.
B. GBP1,000,000.
C. GBP3,000,000.
102. Fernando’s Pasta purchased inventory and later wrote it down. The current net realizable
value is higher than the value when written down. Fernando’s inventory balance will most likely
be:
A. higher if it complies with IFRS.
B. higher if it complies with US GAAP.
C. the same under US GAAP and IFRS.
103. A write-down of the value of inventory to its net realizable value will have a positive effect
on the:
A. balance sheet.
B. income statement.
C. inventory turnover ratio.
104. Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the
cost of replacing the inventory, during periods of rising prices, the cost of sales reported by:
A. Zimt is too low.
B. Nutmeg is too low.
C. Nutmeg is too high.
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105. Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the
cost of replacing the inventory, during periods of rising prices the ending inventory balance
reported by:
A. Zimt is too high.
B. Nutmeg is too low.
C. Nutmeg is too high.
106. ike many technology companies, TechnoTools operates in an environment of declining

prices. Its reported profits will tend to be highest if it accounts for inventory using the:
A .FIFO method.
B. LIFO method.
C. Weighted average cost method.
107. Compared to using the weighted average cost method to account for inventory, during a
period in which prices are generally rising, the current ratio of a company using the FIFO
method would most likely be:
A .lower.
B. higher.
C. dependent upon the interaction with accounts payable.
108. Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in
2018. Compared to the ratios that would have been calculated if the write-down had never
occurred, Zimt’s reported that the 2017:
A. current ratio was too high.
B. gross margin was too high.
C. inventory turnover was too high.
109. Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in
2018. Compared to the results the company would have reported if the write-down had never
occurred, Zimt’s reported that the 2018:
A. profit was overstated.
B. cash flow from operations was overstated.
C. year-end inventory balance was overstated.
110. Compared to a company that uses the FIFO method, during periods of rising prices a
company that uses the LIFO method will most likely appear more:
A. liquid.
B. efficient.
C. profitable.
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111. Nutmeg, Inc. uses the LIFO method to account for inventory. During years in which
inventory unit costs are generally rising and in which the company purchases more inventory
than it sells to customers, its reported gross profit margin will most likely be:
A. lower than it would be if the company used the FIFO method.
B. higher than it would be if the company used the FIFO method.
C. about the same as it would be if the company used the FIFO method..
112. Compared to using the FIFO method to account for inventory, during periods of rising
prices, a company using the LIFO method is most likely to report higher:
A. net income.
B. cost of sales.
C. income taxes.
113. Carey Company reports under US GAAP, whereas Jonathan Company reports under IFRS.
It is least likely that:
A. Carey has reversed an inventory write-down.
B. Jonathan has reversed an inventory write-down.
C. Jonathan and Carey both use the FIFO inventory accounting method.
114. Hans Annan, CFA, a food and beverage analyst, is reviewing Century Chocolate’s
inventory policies as part of his evaluation of the company. Century Chocolate, based in
Switzerland, manufactures chocolate products and purchases and resells other confectionery
products to complement its chocolate line. Annan visited Century Chocolate’s manufacturing
facility last year. He learned that cacao beans, imported from Brazil, represent the most
significant raw material and that the work-in-progress inventory consists primarily of three
items: roasted cacao beans, a thick paste produced from the beans (called chocolate liquor), and a
sweetened mixture that needs to be “conched” to produce chocolate. On the tour, Annan learned
that the conching process ranges from a few hours for lower-quality products to six days for the
highest-quality chocolates. While there, Annan saw the facility’s climate-controlled area where
manufactured finished products (cocoa and chocolate) and purchased finished goods are stored
prior to shipment to customers. After touring the facility, Annan had a discussion with Century
Chocolate’s CFO regarding the types of costs that were included in each inventory category.
Annan has asked his assistant, Joanna Kern, to gather some preliminary information regarding
Century Chocolate’s financial statements and inventories. He also asked Kern to calculate the
inventory turnover ratios for Century Chocolate and another chocolate manufacturer for the most
recent five years. Annan does not know Century Chocolate’s most direct competitor, so he asks
Kern to do some research and select the most appropriate company for the ratio comparison.
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Kern reports back that Century Chocolate prepares its financial statements in accordance with
IFRS. She tells Annan that the policy footnote states that raw materials and purchased finished
goods are valued at purchase cost, whereas work in progress and manufactured finished goods
are valued at production cost. Raw material inventories and purchased finished goods are
accounted for using the FIFO method, and the weighted average cost method is used for other
inventories. An allowance is established when the net realizable value of any inventory item is
lower than the value calculated previously.
Kern provides Annan with the selected financial statements and inventory data for Century
Chocolate. The ratio exhibit Kern prepared compares Century Chocolate’s inventory turnover
ratios to those of Gordon’s Goodies, a US-based company. Annan returns the exhibit and tells
Kern to select a different competitor that reports using IFRS rather than US GAAP. During this
initial review, Annan asks Kern why she has not indicated whether Century Chocolate uses a
perpetual or a periodic inventory system. Kern replies that she learned that Century Chocolate
uses a perpetual system but did not include this information in her report because inventory
values would be the same under either a perpetual or periodic inventory system. Annan tells
Kern she is wrong and directs her to research the matter.
While Kern is revising her analysis, Annan reviews the most recent month’s Cocoa Market
Review from the International Cocoa Organization. He is drawn to the statement that “the ICCO
daily price, averaging prices in both futures markets, reached a 29-year high in US dollar terms
and a 23-year high in special drawing rights (SDRs) terms (the SDR unit comprises a basket of
major currencies used in international trade: US dollar, euro, pound sterling, and yen).” Annan
makes a note that he will need to factor the potential continuation of this trend into his analysis.
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What is the most likely justification for Century Chocolate’s choice of inventory valuation
method for its purchased finished goods?
A. It is the preferred method under IFRS.
B. It allocates the same per unit cost to both cost of sales and inventory.
C. Ending inventory reflects the cost of goods purchased most recently.
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115. Use information in question 104, In Kern’s comparative ratio analysis, the 2018 inventory
turnover ratio for Century Chocolate is closest to:
A. 5.07.
B. 5.42.
C. 5.55.
116. Use information in question 104, The most accurate statement regarding Annan’s reasoning
for requiring Kern to select a competitor that reports under IFRS for comparative purposes is that
under US GAAP:
A. fair values are used to value inventory.
B. the LIFO method is permitted to value inventory.
C. the specific identification method is permitted to value inventory.
117. Use information in question 104, Ignoring any tax effect, the change in net realizable value
of the black licorice jelly beans from 2017 to 2018 will most likely result in:
A. an increase in gross profit of CHF7,775.
B. an increase in gross profit of CHF11,670.
C. no impact on cost of sales because under IFRS, write-downs cannot be reversed.
118. Use information in question 104, If the trend noted in the ICCO report continues and
Century Chocolate plans to maintain constant or increasing inventory quantities, the most likely
impact on Century Chocolate’s financial statements related to its raw materials inventory will be:
A. a cost of sales that more closely reflects current replacement values.
B. a higher allocation of the total cost of goods available for sale to cost of sales.
C. a higher allocation of the total cost of goods available for sale to ending inventory.
119. ZP Corporation is a (hypothetical) multinational corporation headquartered in Japan that

trades on numerous stock exchanges. ZP prepares its consolidated financial statements in
accordance with US GAAP. Excerpts from ZP’s 2018 annual report are presented below.
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The management discussion and analysis (MD&A) indicated that the prices of raw material,
other production materials, and parts increased. Based on the inventory valuation methods
described in Note 2, which inventory classification would least accurately reflect current prices?
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A. Raw materials
B. Finished goods
C. Work in process
120. Use information in question 119, If ZP had prepared its financial statement in accordance
with IFRS, the inventory turnover ratio (using average inventory) for 2018 would be:
A. lower.
B. higher.
C. the same
121. Use information in question 119, Which observation is most likely a result of looking only
at the information reported in Exhibit 2, Note 9?
A. Increased competition has led to lower unit sales.
B. There have been significant price increases in supplies.
C. Management expects a further downturn in sales during 2019..
122. Use information in question 119, In Exhibit 2, the Industry and Business Risk excerpt states
that, “Increased competition may lead to lower unit sales and excess production capacity and
excess inventory. This may result in a further downward price pressure.” The downward price
pressure could lead to inventory that is valued above current market prices or net realizable
value. Any write-downs of inventory are least likely to have a significant effect on the inventory
valued using:
A. weighted average cost.
B. first-in, first-out (FIFO).
C. last-in, first-out (LIFO).
123. Use information in question 119, During periods of rising inventory unit costs, a company
using the FIFO method rather than the LIFO method will report a lower:
A. current ratio.
B. inventory turnover.
C. gross profit margin.
124. Use information in question 119, Compared with a company that uses the FIFO method,
during a period of rising unit inventory costs, a company using the LIFO method will most likely
appear more:
A. liquid.
B. efficient.
C. profitable.
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125. Use information in question 119, In a period of declining inventory unit costs and constant
or increasing inventory quantities, which inventory method is most likely to result in a higher
debt-to-equity ratio?
A. LIFO
B. FIFO
C. Weighted average cost
126. During its first two years of operations, a retailer has found that the cost of the inventory
was quite variable. The following table shows the company’s purchases and sales during the past
two years.
In Year 2, the company’s inventory turnover ratio was 3.67, using end-of-period inventory and
cost of goods sold (COGS). The method that the retailer is using to value its inventory is most
likely:
A. first-in, first-out (FIFO).
B. last-in, first-out (LIFO).
C. weighted average cost.
127. Selected financial information about a company is provided in the table:
Which of the following conclusions is most accurate based on the foregoing information?
A. The company faces a strong possibility of future write-downs.

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B. The price of supplies increased significantly.

C. Management anticipates a strong increase in product demand.
128. The following information is available for a manufacturing company:
If the company is using International Financial Reporting Standards (IFRS) instead of US

GAAP, its cost of goods sold (in millions) is most likely:
A. $0.3 higher.
B. $0.3 lower.
C. the same.
129. A company that prepares its financial statements using IFRS wrote down its inventory value
by €20,000 at the end of year 1. In year 2, prices increased and the same inventory at the end of
the year was worth €30,000 more than its value at the end of the prior year. Which of the
following statements is most accurate? In year 2, the company’s cost of sales:
A. was unaffected.
B. decreased by €30,000.
C. decreased by €20,000.
130. Under US GAAP, financial statement disclosures relating to inventory are least likely to
include which of the following? Information about the:
A. reversal of any inventory write-down.
B. amount of inventories pledged as security for liabilities.
C. inventory valuation method used.
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LM7: Analysis of Long-term Assets

131. An analyst is studying the impairment of the manufacturing equipment of WLP Corp., a
UK-based corporation that reports under IFRS. He gathers the following information about the
equipment:
Based on this information, the amount of impairment loss that WLP will need to report on its
income statement related to the manufacturing equipment is closest to:
A. GBP2,300,000.
B. GBP3,100,000.
C. GBP4,600,000.
132. Use information in question 131, Under IFRS, an impairment loss on a property, plant, and
equipment asset is measured as the excess of the carrying amount over the asset’s:
A. fair value.
B. recoverable amount.
C. undiscounted expected future cash flows.
133. Use information in question 131, The impairment of intangible assets with finite lives
affects:
A. only the balance sheet.
B. only the income statement.
C. both the balance sheet and the income statement.
134. Melanie Hart, CFA, is a transportation analyst. Hart has been asked to write a research
report on Altai Mountain Rail Company (AMRC). Like other companies in the railroad industry,
AMRC’s operations are capital intensive, with significant investments in long-lived tangible
assets as property, plant, and equipment. In November of 2021, AMRC’s board of directors hired
a new team to manage the company. In reviewing the company’s 2022 annual report, Hart is
concerned about some of the accounting choices that the new management has made. These
choices differ from those of the previous management and from common industry practice. Hart
has highlighted the following statements from the company’s annual report:
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With respect to Statement 3, what is the most likely effect of the impairment loss?
A. Net income in years prior to 2022 was likely understated.
B. Net profit margins in years after 2022 will likely exceed the 2022 net profit margin.
C. Cash flow from operating activities in 2022 was likely lower due to the impairment
loss.
135. Based on Exhibit 1, the best estimate of the average remaining useful life of the company’s
plant and equipment at the end of 2022 is:
A. 20.75 years.
B. 24.25 years.
C. 30.00 years.
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136. Brian Jordan is interviewing for a junior equity analyst position at Orion Investment
Advisors. As part of the interview process, Mary Benn, Orion’s Director of Research, provides
Jordan with information about two hypothetical companies, Alpha and Beta, and asks him to
comment on the companies’ financial statements and ratios. Both companies prepare their
financial statements in accordance with International Financial Reporting Standards (IFRS) and
are identical in all respects except for their accounting choices.
Jordan is told that, at the beginning of the current fiscal year, both companies purchased a major
new computer system and began building new manufacturing plants for their own use. Alpha
capitalized and Beta expensed the cost of the computer system; Alpha capitalized and Beta
expensed the interest costs associated with the construction of the manufacturing plants.
Benn asks Jordan, “What was the impact of these decisions on each company’s current fiscal
year financial statements and ratios?”
Jordan responds, “Alpha’s decision to capitalize the cost of its new computer system instead of
expensing it results in lower net income, lower total assets, and higher cash flow from operating
activities in the current fiscal year. Alpha’s decision to capitalize its interest costs instead of
expensing them results in a lower fixed asset turnover ratio and a higher interest coverage ratio.”
Jordan is told that Alpha uses the straight-line depreciation method and Beta uses an accelerated
depreciation method; both companies estimate the same useful lives for long-lived assets. Many
companies in their industry use the units-of-production method.
Benn asks Jordan, “What are the financial statement implications of each depreciation method,
and how do you determine a company’s need to reinvest in its productive capacity?”
Jordan replies, “All other things being equal, the straight-line depreciation method results in the
least variability of net profit margin over time, while an accelerated depreciation method results
in a declining trend in net profit margin over time. The units-of-production can result in a net
profit margin trend that is quite variable. I use a three-step approach to estimate a company’s
need to reinvest in its productive capacity. First, I estimate the average age of the assets by
dividing net property, plant, and equipment by annual depreciation expense. Second, I estimate
the average remaining useful life of the assets by dividing accumulated depreciation by
depreciation expense. Third, I add the estimates of the average remaining useful life and the
average age of the assets in order to determine the total useful life.”
Jordan is told that at the end of the current fiscal year, Alpha revalued a manufacturing plant; this
increased its reported carrying amount by 15 percent. There was no previous downward
revaluation of the plant. Beta recorded an impairment loss on a manufacturing plant; this reduced
its carrying value by 10 percent.
Benn asks Jordan “What was the impact of these decisions on each company’s current fiscal year
financial ratios?”
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Jordan responds, “Beta’s impairment loss increases its debt to total assets and fixed asset
turnover ratios, and lowers its cash flow from operating activities. Alpha’s revaluation increases
its debt to capital and return on assets ratios, and reduces its return on equity.”
Jordan’s response about his approach to estimating a company’s need to reinvest in its
productive capacity is most likely correct regarding estimating the:
A. average age of the asset base.

B. total useful life of the asset base.
C. average remaining useful life of the asset base.
137. Use information in question 136, Jordan’s response about the effect of Beta’s impairment
loss is incorrect with respect to the impact on its:
A. debt to total assets.
B. fixed asset turnover.
C. cash flow from operating activities.
138. Jordan’s response about the effect of Alpha’s revaluation is most likely correct with respect
to the impact on its:
A. return on equity.
B. return on assets.
C. debt to capital ratio.
140. A financial analyst at BETTO S.A. is analyzing the result of the sale of a vehicle for 85,000
Argentine pesos (ARP) on 31 December 2021. The analyst compiles the following information
about the vehicle:
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The result of the sale of the vehicle is most likely:

A. a loss of ARP 15,000.
B. a gain of ARP 15,000.
C. a gain of ARP 18,333.
141. CROCO S.p.A sells an intangible asset with a historical acquisition cost of EUR12 million
and an accumulated amortization of EUR2 million and reports a loss on the sale of EUR3.2
million. Which of the following amounts is most likely the sale price of the asset?
A. EUR6.8 million
B. EUR8.8 million
C. EUR13.2 million
142. Use information in question 140, The gain or loss on a sale of a long-lived asset to which
the revaluation model has been applied is most likely calculated using sales proceeds less:
A. carrying amount.
B. carrying amount adjusted for impairment.
C. historical cost net of accumulated depreciation.
143. Which of the following is a required financial statement disclosure for long-lived intangible
assets under US GAAP?
A. The useful lives of assets
B. The reversal of impairment losses
C. Estimated amortization expense for the next five fiscal years
144. After reading the financial statements and footnotes of a company that reports under IFRS,
an analyst identified the following three intangible assets:
 product patent expiring in 40 years;
 copyright with no expiration date; and
 goodwill acquired 2 years ago in a business combination.
Intangible assets with finite useful lives mostly differ from intangible assets with infinite useful
lives with respect to accounting treatment of:
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A. revaluation.
B. impairment.
C. amortization.
145. Costs incurred for intangible assets are generally expensed when they are:
A. internally developed.
B. individually acquired.
C. acquired in a business combination.
146. Under US GAAP, when assets are acquired in a business combination, goodwill most likely
arises from:
A. contractual or legal rights.
B. assets that can be separated from the acquired company.
C. assets that are neither tangible nor identifiable intangible assets.
147. Holding all else constant, a company that develops intangible assets internally rather than
purchasing them is most likely to report:
A. lower amounts of assets.
B. higher investing cash outflows.
C. lower operating cash outflows.
148. At the end of the year, a company reported an impairment loss on its manufacturing plant,
reducing its carrying amount by 10%. The impairment loss is least likely to cause the company’s:
A. debt-to-asset ratio to increase.
B. fixed asset turnover to increase.
C. cash flow from operations to decline.
149. Below are excerpts from a company’s intangible assets note for 2015:
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The 2015 opening carrying amount (in millions) of the company’s definite-life intangible assets
is closest to:
A. $377.
B. $361.
C. $473.
150. A company that reports in accordance with IFRS does not use the cost model to value its
investment properties and property, plant, and equipment. Information related to an investment
property and a plant is as follows:
The impact on its net income for the year will most likely be a gain (in thousands) of:
A. €100.
B. €200.
C. €300.
151. The following selected fixed asset information is available for a company:
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The company’s fixed asset turnover ratio is closest to:

A. 1.78.
B. 8.01.
C. 1.51.
152. A company uses the straight-line method to depreciate its assets. One of its assets is
accounted for under the revaluation model. At the end of Year 1, a revaluation gain is recorded
for this asset in other comprehensive income. If there is no further revaluation in Year 2, what is
the most appropriate depreciable base for the asset in Year 2?
A. No depreciation expense will be recorded under the revaluation model
B. The asset’s value including the revaluation gain
C. The asset’s original cost
153. At the end of the year, a company revalued its manufacturing facilities, increasing their
carrying amount by 12%. There had been no prior downward revaluation of these facilities. The
revaluation will most likely cause the company’s:
A. return on assets to increase.
B. return on equity to decline.
C. net profit margin to increase.
154. A Canadian printing company that prepares its financial statements according to IFRS has
experienced a decline in the demand for its products. The following information (in Canadian
dollars) relates to the company’s printing equipment as of the current fiscal year end:
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The impairment loss (in C$) is closest to:

A. 0.
B. 70,000.
C. 60,000.
155. An analyst has assembled the following information with respect to a production facility:
Under IFRS, the impairment loss on this production facility (in thousands) will be closest to:
A. £27.
B. £32.
C. £28.
156. In 2015, a company undertook the following two transactions:
A. Borrowed money from an insurance company and pledged (thế chấp) some of its
production facilities as collateral for the loan.
B. Entered into an agreement with a local construction company to build a new research
facility at a fixed price. Construction is to begin by 1 January 2016 and be completed by
31 December 2018.
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With respect to required disclosures in the company’s financial statements, which of the
following is most accurate? If the company reports under:
A. US GAAP, only the pledged borrowing must be disclosed.
B. International Financial Reporting Standards (IFRS), neither transaction must be
disclosed.
C. US GAAP, neither transaction must be disclosed.
157. A company is selling a long-lived asset with a carrying amount of $70,000 for $80,000. The
original cost of this asset was $120,000. In the year of sale, this event is most likely to be
reported on the income statement as:
A. a gain of $10,000.
B. a loss of $40,000.
C. revenues of $80,000.
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LM8: Analysis of Long-Term Liabilities and Equity

158. Which of the following is a potential drawback of compensating employees with stock
options?
A. The grant may make employees adverse to risk.
B. The grant may make employees seek more risk.
C. Both of the above are potential drawbacks.
159. Which of the following statements is true?

A. Share-based compensation does not have to be treated as an expense, when no cash is
exchanged.
B. Share-based compensation programs can take a variety of forms, including those that
are equity-settled and those that are cash settled.
C. Employees will receive a benefit of the stock option as long as they work long enough
for the option to vest.
160. Which of the following is a difference between a stock grant and a stock option grant?
A. Whereas the fair value of stock grants is usually based on the market value at the date
of the grant, the fair value of option grants must be estimated.
B. Companies account for stock grants by allocating compensation expense over the
employee service period, whereas compensation expense for stock options is expensed
immediately.
C. Compensation expense is determined based on the market value of a share of stock on
the grant date, whereas the measurement date for the value of an option is when the
employee exercises the option.
161. Assume ABC Company, a fictional company provides the following disclosure about its
stock compensation plans:
“The average fair value of shares granted was USD20.86, USD16.42, and USD17.80 in 2021,
2020, and 2019 respectively.” If the company granted 18,000 shares, with a three-year vesting
period in 2021, what is the annual compensation expense for the 2021 shares granted?
A. USD125,160
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B. USD339,480
C. USD375,480
162. Assume XYZ Company discloses the following information in its Stock Compensation
note: As of 31 December 2021, we had USD630 million of unrecognized compensation cost
related to nonvested stock-based compensation awards granted under our plan. We expect to
recognize this cost over a weighted average period of 3.2 years as stock-based compensation
expense. What is the expected compensation expense in 2025?
A. USD39 million
B. USD197 million
C. USD630 million
163. Beginning with fiscal year 2019, for leases with a term longer than one year, lessees report a
right-to-use asset and a lease liability on the balance sheet:
A. only for finance leases.
B. only for operating leases.
C. for both finance and operating leases.
164. For a lessor, the leased asset appears on the balance sheet and continues to be depreciated
when the lease is classified as:
A. a finance lease.
B. a sales-type lease.
C. an operating lease.
165. Under both IFRS and US GAAP, a lessor in an operating lease recognizes:
A. selling profit at lease inception.
B. a lease asset comprising the lease receivable and relevant residual value at lease
inception.
C. lease receipts as income and related costs, including depreciation, as expenses over the
lease term.
166. Compared with a finance lease, an operating lease:
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A. is similar to renting an asset.

B. is equivalent to the purchase of an asset.
C. has a term for the majority of the economic life of the leased asset.
167. Under US GAAP, a lessee’s accounting for a long-term finance lease after inception will
include:
A. recognizing a single lease expense.
B. recording depreciation expense on the right-of-use asset.
C. increasing the balance of the lease liability by a portion of the lease payment.
168. A company enters into a finance lease agreement to acquire the use of an asset
for three years with lease payments of EUR19,000,000 starting next year. The leased
asset has a fair market value of EUR49,000,000 and the present value of the lease
payments is EUR47,250,188. Based on this information, the value of the lease liability
reported on the company’s balance sheet at lease inception is closest to:
A. EUR47,250,188.
B. EUR49,000,000.
C. EUR57,000,000.
169. Penben Corporation has a defined benefit pension plan. At 31 December, its pension
obligation is EUR10 million and pension assets are EUR9 million. Under either IFRS or US
GAAP, the reporting on the balance sheet would be closest to which of the following?
A. EUR10 million is shown as a liability, and EUR9 million appears as an asset.
B. EUR1 million is shown as a net pension obligation.
C. Pension assets and obligations are not required to be shown on the balance sheet but
only disclosed in footnotes.
170. The information below is associated with a company that offers its employees a defined
benefit plan:
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Based on this information, the company’s balance sheet will present a net pension:
A. asset of USD300,000,000.
B. asset of USD1,400,000,000.
C. liability of USD1,100,000,000.
171. Relative to purchasing an asset, leases generally:

A. have more restrictive provisions than other forms of borrowing.
B. provide less costly financing in the form of lower fixed interest rates.
C. require a larger down payment.
172. Previously, a manufacturer of high-quality industrial electrical generators only sold its units
to customers, but it has just introduced a leasing program. The generators have expected useful
lives of about 25 years, and the company anticipates that the leases will have a term of 20 years
or more. If the company reports under International Financial Reporting Standards, which of the
following statements about the first year of the new leasing program is most accurate? The
company will recognize:
A. revenue equal to the value of the leased asset.
B. depreciation of the leased asset as an expense.
C. cost of goods sold equal to the market value of the asset.
173. Under US GAAP, for defined-benefit plans, which of the following items is reported as
profit and loss?
A. Interest expense accrued on the beginning pension obligation in the period incurred.
B. Actuarial gains and losses in the current period.
C. Past service costs in the period they arise.
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174. A company that prepares its financial statements according to IFRS leased a piece of
equipment on 1 January of Year 1. Information relevant to the transaction is as follows:
 Five annual lease payments of $25,000, with the first payment due 1 January of Year 1
 Interest rate on similar company debt is currently 8%
 The fair value of the equipment is $115,000
 Useful life of the equipment is seven years
 The company depreciates other equipment in the same asset class on a straight-line basis
The total expense related to the lease on the company’s income statement for Year 1 will be
closest to:
A. $22,024.
B. $25,000.
C. $28,185.
175. Under IFRS, it is most appropriate to include which of the following pension costs of a
defined-benefit plan in other comprehensive income?
A. Net interest expense accrued on the beginning net pension liability
B. Actuarial gains or losses
C. Employees service cost
176. Which of the following is least likely an advantage to the lessee in a leasing agreement?
A. High residual value
B. Low down payment required
C. Lower financing costs than purchasing the asset
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LM9: Analysis of Income Taxes

1. In the current year, Michaels Company has a carrying amount of USD3,500,000 and tax base
of USD5,000,000 for accounts receivable. Michaels will most likely recognize:
A. a deferred tax asset.
B. a deferred tax liability.
C. no deferred tax asset or liability.
2. James Company has received USD500,000 of tax credits from the recent installation of solar
panels that will directly reduce their taxes. Which of the following best describes these tax
credits?
A. Permanent difference
B. Taxable temporary difference
C. Deductible temporary difference.
3. Please use the selected data in Exhibit 1 for the Samuels Corporation.
4. Which of the following is added to income tax payable to determine the company’s income
tax expense as reported on the income statement?
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A. Deferred tax assets

B. Deferred tax liabilities
C. Changes in deferred tax assets and liabilities
5. Jamison Corp. is domiciled in the United States and has significant operations in the United
Kingdom and Australia. The statutory tax rates are 21 percent in the United States, 19 percent in
the United Kingdom, and 30 percent in Australia. The company generates Profit before tax of
USD2,000,000 in the United States, USD500,000 in the United Kingdom, and USD750,000 in
Australia. There are no other differences between Jamison’s effective and statutory tax rates.
Jamison’s combined effective tax rate is closest to:
A. 21.0 percent.
B. 22.8 percent.
C. 23.3 percent.
6. Which of the following statements about tax rates is correct?

A. The effective tax rate is typically used for forecasting cash flows.
B. The cash tax rate is relevant for projecting earnings on the income statement.
C. A company’s income tax expense equals the sum of current taxes plus the change in
deferred tax assets and liabilities.
7. Please use the selected disclosure data in Exhibit 1 and Exhibit 2 for the Marcy Corporation.
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Marcy’s effective tax rate was lowest in:

A. Year 1.
B. Year 2.
C. Year 3.
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8. Using information in question 7, Relative to Marcy’s effective tax rate on foreign income, the
company’s effective tax rate on US income was:
A. lower in each year presented.
B. higher in each year presented.
C. higher in some periods and lower in others.
9. In the current year, a company increased its deferred tax asset by $500,000. During the year,
the company most likely:
A. became entitled to a $500,000 tax refund.
B. reported a lower accounting profit than taxable income.
C. had permanent differences between accounting profit and taxable income.
10. The following information is available for a company that prepares its financial statements
according to US GAAP:
The overall effect on 2015 net income from the above changes in the company’s deferred tax
accounts is closest to a:
A. $200,000 increase.
B. $300,000 increase.
C. $200,000 decrease.
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LM 10: Financial Reporting Quality

1. In contrast to earnings quality, financial reporting quality most likely pertains to:
A. sustainable earnings.
B. relevant information.
C. adequate return on investment.
2. The information provided by a low-quality financial report will most likely:

A. decrease company value.
B. indicate earnings are not sustainable.
C. impede the assessment of earnings quality.
3. To properly assess a company’s past performance, an analyst requires:

A. high earnings quality.
B. high financial reporting quality.
C. both high earnings quality and high financial reporting quality.
4. Low quality earnings most likely reflect:

A. low-quality financial reporting.
B. company activities which are unsustainable.
C. information that does not faithfully represent company activities.
5. Earnings that result from non-recurring activities most likely indicate:

A. lower-quality earnings.
B. biased accounting choices.
C. lower-quality financial reporting.
6. Which attribute of financial reports would most likely be evaluated as optimal in the financial
reporting spectrum?
A. Conservative accounting choices
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B. Sustainable and adequate returns

C. Emphasized pro forma earnings measures
7. Financial reports of the lowest level of quality reflect:

A. fictitious events.
B. biased accounting choices.
C. accounting that is non-compliant with GAAP.
8. When earnings are increased by deferring research and development (R&D) investments until
the next reporting period, this choice is considered:
A. non-compliant accounting.
B. earnings management as a result of a real action.
C. earnings management as a result of an accounting choice.
9. A high-quality financial report may reflect:

A. earnings smoothing.
B. low earnings quality.
C. understatement of asset impairment.
10. If a particular accounting choice is considered aggressive in nature, then the financial
performance for the reporting period would most likely:
A. be neutral.
B. exhibit an upward bias.
C. exhibit a downward bias.
11. Conservative accounting choices will most likely lead to:

A. decreased reported earnings in later periods.
B. increased reported earnings in the period under review.
C. increased debt reported on the balance sheet at the end of the current period.
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12. Which of the following is most likely to be considered a potential benefit of accounting
conservatism?
A. A reduction in litigation costs
B. Less biased financial reporting
C. An increase in current period reported performance
13. Which of the following statements most likely describes a situation that would motivate a
manager to issue low-quality financial reports? The manager has:
A. increased the market share of products significantly.
B. earned compensation that is linked to stock price performance.
C. brought the company’s profitability to a level higher than competitors.
14. Which of the following concerns would most likely motivate a manager to make
conservative accounting choices?
A. Attention to future career opportunities
B. Debt covenant violation risk in the current period
C. Unexpected strength in the business environment
15. Which of the following conditions best explains why a company’s manager would obtain
legal, accounting, and board level approval prior to issuing low-quality financial reports?
A. Motivation
B. Opportunity
C. Rationalization
16. A company is experiencing a period of strong financial performance. To increase the

likelihood of exceeding analysts’ earnings forecasts in the next reporting period, the company
would most likely undertake accounting choices for the period under review that:
A. inflate reported revenue.
B. delay expense recognition.
C. accelerate expense recognition.
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17. Which of the following situations represents a motivation, rather than an opportunity, to issue
low-quality financial reports?
A. Poor internal controls
B. Search for a personal bonus
C. Inattentive board of directors
18. Which of the following situations will most likely motivate managers to inflate reported
earnings?
A. Possibility of bond covenant violation
B. Earnings that have exceeded analysts’ forecasts
C. Earnings that have grown from the prior-year period
19. Which of the following best describes an opportunity for management to issue low-quality
financial reports?
A. Ineffective board of directors
B. Pressure to achieve some performance level
C. Corporate concerns about financing in the future
20. An audit opinion of a company’s financial reports is most likely intended to:
A. detect fraud.
B. reveal misstatements.
C. ensure that financial information is presented fairly.
21. If a company uses a non-GAAP financial measure in an SEC filing, then the company must:
A. give more prominence to the non-GAAP measure if it is used in earnings releases.
B. provide a reconciliation of the non-GAAP measure and equivalent GAAP measure.
C. exclude charges requiring cash settlement from any non-GAAP liquidity measures.
22. A company wishing to increase earnings in the reporting period may choose to:
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A. decrease the useful life of depreciable assets.

B. lower estimates of uncollectible accounts receivables.
C. classify a purchase as an expense rather than a capital expenditure.
23. Which technique most likely increases the cash flow provided by operations?
A. Stretching the accounts payable credit period
B. Applying all non-cash discount amortization against interest capitalized
C. Shifting classification of interest paid from financing to operating cash flows
24. Bias in revenue recognition would least likely be suspected if:

A. the firm engages in barter transactions.
B. reported revenue is higher than the previous quarter.
C. revenue is recognized before goods are shipped to customers.
25. Which of the following is an indication that a company may be recognizing revenue
prematurely? Relative to its competitors, the company’s:
A. asset turnover is decreasing.
B. receivables turnover is increasing.
C. days sales outstanding is increasing.
26. Which of the following would most likely signal that a company may be using aggressive
accrual accounting policies to shift current expenses to later periods? Over the last five-year
period, the ratio of cash flow to net income has:
A. increased each year.
B. decreased each year.
C. fluctuated from year to year.
27. An analyst reviewing a firm with a large reported restructuring charge to earnings should:
A. view expenses reported in prior years as overstated.
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B. disregard it because it is solely related to past events.

C. consider making pro forma adjustments to prior years’ earnings.
28. The effectiveness of a debt covenant in disciplining financial reporting quality is most often
limited due to:
A. ineffectiveness of financial triggers.
B. reporting requirements that may not be legally binding.
C. potential for managers to inflate earnings.
29. Which of the following conditions would most likely create opportunities for a company to
issue low-quality financial reports?
A. A company with an audit committee comprised only of independent board members
B. Government cutbacks in the enforcement branch of the financial regulator
C. Accounting standards that provide few choices
30. Overloading distribution channels (“channel stuffing”) would understate:
A. inventories.
B. accounts receivable.
C. revenues.
31. Which of the following is the best example of conservative accounting?

A. Reducing the allowance for bad debt expense below the experienced loss rate.
B. Deferring R&D expenses to a subsequent year.
C. Choosing to depreciate new equipment over the shortest estimate of its useful life.
32. Which of the following items is a non-GAAP financial measure?
A. Net income after taxes
B. Income from operations
C. EBITDA
33. Conservative, rather than aggressive, accounting is most likely associated with:
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A. increased sustainability of earnings.

B. higher current reported performance.
C. recognition of losses once certain.
34. Changing the estimates of the salvage value of capital assets is the least effective way to
manage earnings during the life of an asset for companies whose method of depreciation is:
A. straight-line.
B. units-of-production.
C. double-declining balance.
35. Which of the following conditions is most likely associated with decreased earnings quality?
Compared with the prior year, the reporting entity’s earnings:
A. decreased slightly in response to the introduction of conservative accounting policies.
B. were similar in magnitude but included a large gain on the sale of a manufacturing
plant.
C. increased slightly because of a reduction in bad debt expense based on more-current
experiences.
36. Under the indirect method of presenting operating cash flows, which action to alter the cash
flow from operations will be most difficult to detect?
A. Defer payment of a current liability
B. Transact with an unconsolidated special purpose entity
C. Change inventory costing from FIFO to weighted average
37. Which of the following descriptions of financial reporting is considered to be of the highest
quality?
A. Within GAAP but with earnings management
B. Within GAAP but with biased choices
C. Outside GAAP but with conservative choices
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38. Which of the following approaches will most likely reveal manipulation of financial
reporting?
A. Using EBITDA to adjust for non-recurring items
B. Evaluating potential warning signals in isolation
C. Comparing a company’s methods and policies to those of its peers
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LM11: Financial Analysis Techniques

1. Comparison of a company’s financial results to other peer companies for the same time period
is called:
A. time-series analysis.
B. common-size analysis.
C. cross-sectional analysis.
2. An analyst observes a decrease in a company’s inventory turnover. Which of the following

would most likely explain this trend?
A. The company installed a new inventory management system, allowing more efficient
inventory management.
B. Due to problems with obsolescent inventory last year, the company wrote off a large
amount of its inventory at the beginning of the period.
C. The company installed a new inventory management system but experienced some
operational difficulties resulting in duplicate orders being placed with suppliers.
3. Which of the following would best explain an increase in receivables turnover?

A. The company adopted new credit policies last year and began offering credit to
customers with weak credit histories.
B. Due to problems with an error in its old credit scoring system, the company had
accumulated a substantial amount of uncollectible accounts and wrote off a large amount
of its receivables.
C. To match the terms offered by its closest competitor, the company adopted new
payment terms now requiring net payment within 30 days rather than 15 days, which had
been its previous requirement.
4. Brown Corporation had average days of sales outstanding of 19 days in the most recent fiscal
year. Brown wants to improve its credit policies and collection practices and decrease its
collection period in the next fiscal year to match the industry average of 15 days. Credit sales in
the most recent fiscal year were $300 million, and Brown expects credit sales to increase to $390
million in the next fiscal year. To achieve Brown’s goal of decreasing the collection period, the
change in the average accounts receivable balance that must occur is closest to:
A. +USD0.41 million.
B. –USD0.41 million.
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C. –USD1.22 million.
5. An analyst is interested in assessing both the efficiency and liquidity of Spherion PLC. The
analyst has collected the data in Exhibit 1 for Spherion:
Based on the data in Exhibit 1, what is the analyst least likely to conclude?
A. Inventory management has contributed to improved liquidity.
B. Management of payables has contributed to improved liquidity.
C. Management of receivables has contributed to improved liquidity.
6. To assess a company’s ability to fulfill its long-term obligations, an analyst would most likely
examine:
A. activity ratios.
B. liquidity ratios.
C. solvency ratios.
7. An analyst is evaluating the solvency and liquidity of Apex Manufacturing and has collected
the data in Exhibit 1:
Which of the following would be the analyst’s most likely conclusion?
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A. The company is becoming less liquid, as evidenced by the increase in its debt-to-
equity ratio from 0.35 to 0.50 from FY3 to FY5.
B. The company is becoming increasingly more liquid, as evidenced by the increase in its
debt-to-equity ratio from 0.35 to 0.50 from FY3 to FY5.
C. The company is becoming increasingly less solvent, as evidenced by the increase in its
debt-to-equity ratio from 0.35 to 0.50 from FY3 to FY5.
8. Using information in question 7, With regard to the data in Problem 5, what would be the most
reasonable explanation of the financial data?
A. The decline in the company’s equity results from a decline in the market value of this
company’s common shares.
B. The EUR250 increase in the company’s debt from FY3 to FY5 indicates that lenders
are viewing the company as increasingly creditworthy.
C. The decline in the company’s equity indicates that the company may be incurring
losses, paying dividends greater than income, or repurchasing shares.
9. An analyst observes the data in Exhibit 1 for two companies:
Which of the following choices best describes reasonable conclusions that the analyst might
make about the two companies’ ability to pay their current and long-term obligations?
A. Company A’s current ratio of 4.0 indicates it is more liquid than Company B, whose
current ratio is only 1.2, but Company B is more solvent, as indicated by its lower debt-
to-equity ratio.
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B. Company A’s current ratio of 0.25 indicates it is less liquid than Company B, whose
current ratio is 0.83, and Company A is also less solvent, as indicated by a debt-to-equity
ratio of 200 percent compared with Company B’s debt-to-equity ratio of only 30 percent.
C. Company A’s current ratio of 4.0 indicates it is more liquid than Company B, whose
current ratio is only 1.2, and Company A is also more solvent, as indicated by a debt-to-
equity ratio of 200 percent compared with Company B’s debt-to-equity ratio of only 30
percent.
10. The following data appear in the five-year summary of a major international company. A
business combination with another major manufacturer took place in FY13.
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The company’s total assets at year-end FY9 were GBP3,500 million. Which of the following
choices best describes reasonable conclusions an analyst might make about the company’s
efficiency?
A. Comparing FY14 with FY10, the company’s efficiency deteriorated, as indicated by
its current ratio.
B. Comparing FY14 with FY10, the company’s efficiency deteriorated due to asset
growth faster than turnover revenue growth.
C. Comparing FY14 with FY10, the company’s efficiency improved, as indicated by a
total asset turnover ratio of 0.86 compared with 0.64.
11. Using information in question 10, Which of the following choices best describes reasonable
conclusions an analyst might make about the company’s solvency?
A. Comparing FY14 with FY10, the company’s solvency improved, as indicated by the
growth in its profits to GBP 645 million.
B. Comparing FY14 with FY10, the company’s solvency deteriorated, as indicated by a
decrease in interest coverage from 10.6 to 8.4.
C. Comparing FY14 with FY10, the company’s solvency improved, as indicated by an
increase in its debt-to-assets ratio from 0.14 to 0.27.
conclusions an analyst might make about the company’s liquidity?
A. Comparing FY14 with FY10, the company’s liquidity improved, as indicated by an
increase in its current ratio from 0.71 to 0.75.
B. Comparing FY14 with FY10, the company’s liquidity deteriorated, as indicated by a
decrease in interest coverage from 10.6 to 8.4.
C. Comparing FY14 with FY10, the company’s liquidity improved, as indicated by an
conclusions an analyst might make about the company’s profitability?
A. Comparing FY14 with FY10, the company’s profitability improved, as indicated by an
B. Comparing FY14 with FY10, the company’s profitability improved, as indicated by
the growth in its shareholders’ equity to GBP6,165 million.
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C. Comparing FY14 with FY10, the company’s profitability deteriorated, as indicated by

a decrease in its net profit margin from 11.0 percent to 5.7 percent.
14. An analyst compiles the data in Exhibit 1 for a company:
Based only on the information above, the most appropriate conclusion is that, over the period
FY13 to FY15, the company’s:
A. net profit margin and financial leverage have decreased.
B. net profit margin and financial leverage have increased.
C. net profit margin has decreased but its financial leverage has increased.
15. A decomposition of ROE for Integra SA is as follows:
Which of the following choices best describes reasonable conclusions an analyst might make
based on this ROE decomposition?
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A. Profitability and the liquidity position both improved in FY12.

B. The higher average tax rate in FY12 offset the improvement in profitability, leaving
ROE unchanged.
C. The higher average tax rate in FY12 offset the improvement in efficiency, leaving
ROE unchanged.
16. A decomposition of ROE for Company A and Company B is as follow
An analyst is most likely to conclude that:

A. Company A’s ROE is higher than Company B’s in FY15, and one explanation
consistent with the data is that Company A may have purchased new, more efficient
equipment.
B. the difference between the two companies’ ROE in FY15 is very small and Company
A’s ROE remains similar to Company B’s ROE mainly due to Company A increasing its
financial leverage.
C. Company A’s ROE is higher than Company B’s in FY15, and one explanation
consistent with the data is that Company A has made a strategic shift to a product mix
with higher profit margins
17. When developing forecasts, analysts should most likely:

A. develop possibilities relying exclusively on the results of financial analysis.
B. aim to develop extremely precise forecasts using the results of financial analysis.
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C. use the results of financial analysis, analysis of other information, and judgment.
18. Selected information for a company and its industry’s average return on equity (ROE) is
provided:
Which of the following is most likely a contributor to the company’s inferior ROE compared
with that of the industry? The company’s lower:
A. tax burden ratio.
B. financial leverage.
C. interest burden ratio.
19. By themselves, financial ratios are least likely to be sufficient in determining a company’s:
A. past performance.
B. creditworthiness.
C. current financial condition.
20. The following selected financial information is available:
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The company’s cash conversion cycle (in days) is closest to:

A. 76.4.
B. 45.2.
C. 38.2.
21. Based on each company's interest coverage ratio, which company is the most solvent?
A. Company B
B. Company C
C. Company A
22. An analysis used to forecast earnings that shows a range of possible outcomes as specific
assumptions change best describes which of the following techniques?
A. Scenario analysis
B. Simulation
C. Sensitivity analysis
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23. Consider the following information available for a company for last year:
The average shareholder’s equity is closest to:

A. $164,557.
B. $123,418.
C. $219,409.
24. Other factors held constant, the reduction of a company’s average accounts payable because
of suppliers offering less trade credit will most likely:
A. not affect the operating cycle.
B. reduce the operating cycle.
C. increase the operating cycle.
25. A company’s most recent balance sheet shows the following values (NZ$ thousands):
The company’s debt-to-capital ratio is closest to:

A. 0.65.
B. 0.77.
C. 1.86.
26. A portion of a company’s balance sheet appears in the following table (euros in millions):
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The company’s quick ratio is closest to:

A. 1.40.
B. 0.06.
C. 0.73.
27. An analyst has calculated the following ratios for a company:
The company’s return on equity (ROE) is closest to:

A. 22.7%.
B. 4.8%.
C. 15.2%.
28. Selected information for a company is provided.
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The company’s cash conversion cycle (in days) is closest to:

A. 84.
B. 138.
C. 120.
29. Which of the following ratios is most likely to be used as a measure of operating
performance?
A. Cash ratio
B. Working capital turnover ratio
C. Defensive interval ratio
30. An analyst is completing her analysis of three companies in the same industry. Which of
these companies is the most solvent?
A. Company C
B. Company B
C. Company A
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LM12: Introduction to Financial Statement Modeling

1. Nigel French, an analyst at Taurus Investment Management, is analyzing Archway
Technologies, a manufacturer of luxury electronic auto equipment, at the request of his
supervisor, Lukas Wright. French is asked to evaluate Archway’s profitability over the past five
years relative to its two main competitors, which are located in different countries with
significantly different tax structures.
French begins by assessing Archway’s competitive position within the luxury electronic auto
equipment industry using Porter’s five forces framework. A summary of French’s industry
analysis is presented in Exhibit 1.
French notes that for the year just ended (2019), Archway’s COGS was 30 percent of
sales. To forecast Archway’s income statement for 2020, French assumes that all
companies in the industry will experience an inflation rate of 8 percent on the COGS.
Exhibit 2 shows French’s forecasts relating to Archway’s price and volume changes.
After putting together income statement projections for Archway, French forecasts Archway’s
balance sheet items. He uses Archway’s historical efficiency ratios to forecast the company’s
working capital accounts.
Based on his financial forecast for Archway, French estimates a terminal value using a valuation
multiple based on the company’s average price-to-earnings multiple (P/E) over the past five
years. Wright discusses with French how the terminal value estimate is sensitive to key
assumptions about the company’s future prospects. Wright asks French:
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“What change in the calculation of the terminal value would you make if a technological
development that would adversely affect Archway was forecast to occur sometime beyond your
financial forecast horizon?”
Which profitability metric should French use to assess Archway’s five-year historic performance
relative to its competitors?
A. Current ratio
B. Operating margin
C. Return on invested capital
2. Using information in question 1, Based on the current competitive landscape presented in
Exhibit 1, French should conclude that Archway’s ability to:
A. pass along price increases is high.
B. demand lower input prices from suppliers is low.
C. generate above-average returns on invested capital is low.
3. Using information in question 1, Based on the current competitive landscape presented in
Exhibit 1, Archway’s operating profit margins over the forecast horizon are least likely to:
A. decrease.
B. remain constant.
C. increase.
4. Using information in question 1, Based on Exhibit 2, Archway’s forecasted gross profit

margin for 2020 is closest to:
A. 62.7 percent.
B. 67.0 percent.
C. 69.1 percent.
5. Using information in question 1, If the luxury electronic auto equipment industry is subject to
rapid technological changes and market share shifts, how should French best adapt his approach
to modeling?
A. Examine base rates
B. Forecast multiple scenarios
C. Speak to analysts who hold diverse opinions on the stock.
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6. Gertrude Fromm is a transportation sector analyst at Tucana Investments. She is conducting an

analysis of Omikroon, N.V., a hypothetical European engineering company that manufactures
and sells scooters and commercial trucks.
Omikroon’s petrol scooter division is the market leader in its sector and has two competitors.
Omikroon’s petrol scooters have a strong brand name and a well-established distribution
network. Given the strong branding established by the market leaders, the cost of entering the
industry is high. But Fromm anticipates that small, inexpensive, imported petrol-fueled
motorcycles could become substitutes for Omikroon’s petrol scooters.
Fromm uses ROIC as the metric to assess Omikroon’s performance.
Omikroon has just introduced the first electric scooter to the market at year-end 2019. The
company’s expectations are as follows:
 Competing electric scooters will reach the market in 2021.

 Electric scooters will not be a substitute for petrol scooters.
 The important research costs in 2020 and 2021 will lead to more efficient electric
scooters.
Fromm decides to use a five-year forecast horizon for Omikroon after considering the following
three factors:
Omikroon will initially outsource its electric scooter parts. But manufacturing these parts in-
house beginning in 2021 will imply changes to an existing factory. This factory cost EUR7
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million three years ago and had an estimated useful life of 10 years. Fromm is evaluating two
scenarios:
Using Porter’s five forces analysis, which of the following competitive factors is most likely to
have the greatest impact on Omikroon’s petrol scooter pricing power?
A. Rivalry
B. Threat of substitutes
C. Threat of new entrants
7. Using information in question 6, The metric used by Fromm to assess Omikroon’s

performance incorporates:
A. the degree of financial leverage.
B. operating liabilities relative to operating assets.
C. the firm’s competitiveness relative to companies in other tax regimes.
8. Using information in question 6, Based on Omikroon’s expectations, the gross profit margin
of Omikroon’s electric scooter division in 2021 is most likely to be affected by:
A. competition.
B. research costs.
C. cannibalization by petrol scooters.
9. Using information in question 6, Fromm’s sensitivity analysis will result in a decrease in the
2020 base case gross profit margin closest to:
A. 0.55 percent.
B. 0.80 percent.
C. 3.32 percent.
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10. Using information in question 6, To validate the forecast for rapid growth in the electronic
scooter market over the next 10 years, Fromm speaks to the management of Omikroon and
investor relations of ZeroWheel, a competitor. Which behavioral bias is Fromm most likely
subject to?
A. Confirmation
B. Conservatism
C. Overconfidence
11. Angela Green, an investment manager at Horizon Investments, intends to hire a new
investment analyst. After conducting initial interviews, Green has narrowed the pool to three
candidates. She plans to conduct second interviews to further assess the candidates’ knowledge
of industry and company analysis.
Prior to the second interviews, Green asks the candidates to analyze Chrome Network Systems, a
company that manufactures internet networking products. Each candidate is provided Chrome’s
financial information presented in Exhibit 1.
Green asks each candidate to forecast the 2020 income statement for Chrome and to outline the
key assumptions used in their analysis. The job candidates are told to include Horizon’s
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economic outlook for 2020 in their analysis, which assumes nominal GDP growth of 3.6 percent,
based on expectations of real GDP growth of 1.6 percent and inflation of 2.0 percent.
Green receives the models from each of the candidates and schedules second interviews. To
prepare for the interviews, Green compiles a summary of the candidates’ key assumptions in
Exhibit 2.
Based on Exhibit 1, which of the following provides the strongest evidence that Chrome displays
economies of scale?
A. Increasing net sales
B. Profit margins that are increasing with net sales
C. Gross profit margins that are increasing with net sales
12. Using information in question 11, Based on Exhibits 1 and 2, Candidate C’s forecast for cost
of sales in 2020 is closest to:
A. USD18.3 million.
B. USD18.9 million.
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C. USD19.3 million.
13. Using information in question 11, Based on Exhibits 1 and 2, Candidate A’s forecast for
SG&A expenses in 2020 is closest to:
A. USD23.8 million.
B. USD25.5 million.
C. USD27.4 million.
14. Using information in question 11, Based on Exhibit 2, forecasted interest expense will reflect
changes in Chrome’s debt level under the forecast assumptions used by:
A. Candidate A.
B. Candidate B.
C. Candidate C.
15. Using information in question 11, Candidate B asks Green if she had additional information
on Horizon’s industry peers and competitors, to put the profitability estimates in a richer context.
By asking for this additional information for their analysis, Candidate B is most likely seeking to
mitigate which behavioral bias?
A. Conservatism
B. Base rate neglect
C. illusion of control
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FSA 2024 CFA Question

FSA – Question bank 2024 in CFA

LM1: Intro to FSA

4. The primary role of financial statement analysis is best described as:

5. International Financial Reporting Standards are currently developed by which entity?

6. US GAAP are currently developed by which entity?

7. A core objective of the International Organization of Securities Commissions is to:

14. An independent audit report is most likely to provide:

19. Interim reports most likely:

25. Notes to financial statements most likely include:

LM2: Analyzing the Income Statement

Which statement about the calculation of LB’s EPS is most accurate?

38. Which statement is most accurate? A common size income statement:

40. Unless it is impractical to do so, changes in accounting policies are to be reported:

Net income $1,000,000

The company’s diluted EPS is closest to:

44. Under general principles of expense recognition, a company should:

47. Oceanaqua Apparel (OA) is a manufacturer of swimwear. Abbreviated common-size income

OA Common-Size Income Statement 2015 2014 2013

The diluted EPS (earnings per share) is closest to:

53. Selected year-end financial data for Mega Industries follows:

54. Which of the following items is an example of deferred income?

LM3: Analyzing the Balance Sheet

56. The initial measurement of goodwill is most likely affected by:

64. The most stringent test of a company’s liquidity is its:

A. Company A has below-average liquidity risk.

The quick ratio for Company A is closest to:

Which company is most likely to have grown through acquisitions?

71. Deferred tax liabilities result when:

LM4+5: Analyzing the CF Statement

A. Add USD5 million

A. Add USD2 million

Cash received from customers Cash paid to suppliers

The amount of cash Sweetfall Inc. paid to suppliers is:

86. The following financial data are available for a company:

Interest expense (in millions) for the year is closest to:

C. As a operating activity under IFRS

The cash collected from customers in 2013 is closest to:

98. A firm reported the following financial statement items:

The free cash flow to the firm (FCFF) is closest to:

The company’s cash-to-income ratio is closest to:

LM6: Analysis of Inventories

106. ike many technology companies, TechnoTools operates in an environment of declining

119. ZP Corporation is a (hypothetical) multinational corporation headquartered in Japan that

127. Selected financial information about a company is provided in the table:

A. The company faces a strong possibility of future write-downs.

B. The price of supplies increased significantly.

128. The following information is available for a manufacturing company:

If the company is using International Financial Reporting Standards (IFRS) instead of US

LM7: Analysis of Long-term Assets

A. average age of the asset base.

The result of the sale of the vehicle is most likely:

The company’s fixed asset turnover ratio is closest to:

The impairment loss (in C$) is closest to:

156. In 2015, a company undertook the following two transactions:

LM8: Analysis of Long-Term Liabilities and Equity

159. Which of the following statements is true?

166. Compared with a finance lease, an operating lease:

A. is similar to renting an asset.

171. Relative to purchasing an asset, leases generally: