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CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 128 )

Updated On: 30-Jan-2026
Page 128 of 793
PDF with 3960 Questions

A test to determine whether a convertible security is dilutive or antidilutive is to calculate EPS

  1. for the security alone and compare it to the EPS without inclusion of the security.
  2. for the security alone and compare it to the EPS with inclusion of the security.
  3. for the security alone.
  4. without inclusion of the security.
  5. with inclusion of the security.

Answer(s): A

Explanation:

By comparing the EPS of the security alone with the EPS without inclusion of the security, if the former is smaller than the latter, then the security is dilutive which means it causes EPS to decline.



At the end of an accounting period, each expense that has been incurred but not yet paid should be recorded as

  1. a reversing entry
  2. an opening entry
  3. an adjusting entry
  4. a closing entry

Answer(s): C

Explanation:

Expenses should be recognized in the period in which they are incurred. In order to be consistent with the matching principle, an adjusting entry must be made to record the expense, regardless of whether it has been paid.



Which of the following is/are true about held-to-maturity securities?

  1. They are mostly non-current assets.
    II. They are reported at fair market value.
    III. Income on these securities is included in operating income.
  2. II only
  3. II & III
  4. I & III
  5. I, II & III

Answer(s): C

Explanation:

Marketable securities classified as "Held-to-maturity" are financial securities purchased with the intent (and ability) to hold until maturity. They are therefore categorized as non-current assets in all periods except the one in which they are about to mature. They are reported on the balance sheet at theamortized historical cost and income on the securities, including amortization of premium or discount, is part of the operating income.



Which of the following would be classified a cash inflow from investing activities?

  1. Proceeds from collecting the principal amount of loans.
  2. Proceeds from selling investments in the equity securities of other companies.
  3. All of these answers are correct.
  4. Proceeds from selling investments in the debt securities of other entities, except cash equivalents.

Answer(s): C

Explanation:

All responses qualify as cash inflows from investing activities.



Under an inflationary, LIFO environment with stable inventories, which of the following is true compared to FIFO?

Working Capital Taxes Current Ratio

  1. Higher Lower Lower
    II. Lower Lower Lower
    III. Higher Lower Lower
    IV. Lower Higher Higher
  2. II
  3. I
  4. IV
  5. III

Answer(s): A

Explanation:

With rising prices and stable inventories, the COGS is higher under LIFO than under FIFO, thus lower net income and lower taxes. Ending inventory is valued lower under LIFO than under FIFO and hence, a lower current asset value and lower working capital and current ratio.



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