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CFA CFA I Exam
CFA Level I Chartered Financial Analyst (Page 134 )

Updated On: 30-Jan-2026
Page 134 of 793
PDF with 3960 Questions

If a company fails to record a material amount of depreciation in a previous year, this is considered

  1. an accounting error.
  2. a change in estimate.
  3. an unusual item.
  4. a change in accounting principle.

Answer(s): A

Explanation:

This is neither unusual or a change, but simply an error.



Which of the following is/are current liabilities?

  1. Accounts receivable
    II. Cash advances received
    III. Advance magazine subscription payments received
    IV. Revenues from credit card fees
  2. II, III & IV
  3. II & III
  4. III & IV
  5. I, II, III & IV

Answer(s): A

Explanation:

Accounts receivable represent current assets.



Which of the following marketable securities would provide the greatest liquidity and stability?

  1. None of these answers
  2. All of these answers
  3. AA corporate bonds that mature in 5 years
  4. Common stock of a publicly held firm
  5. U.S. treasury bills

Answer(s): E

Explanation:

F. S. treasury bills would be the most liquid because the maximum maturity is 182 days (although most treasury bills purchased by firm's have a shorter maturity). In addition, the value of treasury bills would fluctuate less than the value of the common stock of another firm or long-term corporate bonds.



In a given period, the firm's beginning gross investment is 6,000 and ending gross investment is 10,000. The accumulated depreciation at the beginning was 500 and the ending balance in this account was 1,500. The firm uses straight-line depreciation. Then, the average depreciable life of the firm's assets is ________.

  1. 6.67 years
  2. 6 years
  3. 10 years
  4. 12 years

Answer(s): C

Explanation:

Note that: Average depreciable life = Ending Gross Investment/Depreciation expense. Depreciation expense = 1,500-500 = 1,000. Hence, ADL = 10,000/1,000 = 10 years.



Firm A uses Double Declining and Firm B uses Sum-of-digits method of depreciation. In the first year, which of the following is/are TRUE?

  1. A shows lower assets than B
    II. A shows higher retained earnings than B
    III. A shows a higher debt-to-equity ratio than B
    IV. A shows a lower debt-to-asset ratio
  2. II & IV
  3. I & III
  4. I, III & IV
  5. II, III & IV

Answer(s): B

Explanation:

Double Declining results in a higher depreciation in the first year. Therefore, Firm A shows lower assets, lower income and hence lower equity in the first year. Thus, its debt-to-equity and debt-to- asset ratios are higher than B's.



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