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CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 102 )

Updated On: 26-Jan-2026
Page 102 of 793
PDF with 3960 Questions

The following financial data on CashCow, Inc. have been taken from its financial statements for 1996:

  1. Dividends paid $25,000
  2. Sale of land $64,000
  3. Inventory purchases $29,000
  4. Purchase of a warehouse $208,000
  5. Bonds issued $90,000
    F Dividends received from investments $17,000
  6. Interest paid on bonds $2,400
  7. Salaries paid $107,400
  8. Cash collection from customers $28,400
  9. Loss on land sale $18,000
  10. Beginning cash balance $312,000
    In the above question, the ending cash balance of the firm was ________.
  11. $157,600
  12. $121,600
  13. $139,600
    N. $172,400

Answer(s): C

Explanation:

Note that the loss on equipment is a non-cash event. Using the direct method, beginning cash balance + net cash inflow = ending cash balance Hence, ending balance = 312,000 + (-25,000+64,000-29,000 - 208,000 + 90,000 + 17,000 - 2,400 - 107,400 + 28,400) = $139,600.



The par value of a common stock represents

  1. the estimated market value of the stock when it was issued.
  2. none of these answers.
  3. the liability ceiling of a shareholder when a company undergoes bankruptcy proceedings.
  4. the total value of the stock that must be entered in the issuing corporation's records.
  5. the amount that must be recorded on the issuing corporation's record as paid-in capital.

Answer(s): C

Explanation:

Par value represents a stock's legal capital. It is an arbitrary value assigned to stock before it is issued. Par value represents a shareholder's liability ceiling because, as long as the par value has been paid in to the corporation, the shareholder obtains the benefits.



Which of the following is NOT a revenue recognition method when there is uncertainty surrounding the realizability of income?

  1. Completed Contract Method
  2. Cost Recovery Method
  3. Installment Sales Method
  4. Real Estate Method

Answer(s): A

Explanation:

The completed contract method is used for revenue recognition in the case of long-term contracts. In particular, it is chosen instead of the percentage-of-completion method if there are no reliable measures of the degree to which the contract obligations have been fulfilled.



Which of the following would be considered a liability that arises from operating activities?

  1. Taxes payable
  2. All of these answers
  3. Unearned income
  4. Accounts payable
  5. Accrued salaries

Answer(s): B

Explanation:

All of these answers represent liabilities that originate from the operation of a business; i.e., from the normal course of operating a business. Liabilities that arise from "operations" typically do not require compensation in the form of interest. This can be contrasted with liabilities that arise from financing activities where the lender requires the payment of interest to compensate for the extension of credit.



Which of the following best describes retained earnings?

  1. All of these answers.
  2. None of these answers.
  3. Retained earnings represent the cumulative net profits a firm since inception.
  4. Retained earnings represent the sum total of cash obtained from the sale of common stock to investors.
  5. Retained earnings represent the cumulative net profits of a firm since inception, minus cumulative dividends paid to common stockholders.

Answer(s): E

Explanation:

Retained earnings represent the earned capital of a firm. It consists of the accumulated undistributed earnings (net profits, less cash dividends) of a firm since inception.



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