QUESTION: 1573

Property, Plant & Equipment has all of the following characteristics except:

They are intended for use in operating activities, and are not acquired for sale in the ordinary course of business.
They are classified as noncurrent tangible assets
Their service potential diminishes with use.
They don't typically make up a large part of a corporation's operating assets.

Answer(s): D

Explanation:

They are typically the largest of the operating assets. Included in this category would be heavy equipment and machinery as well as real estate and buildings used in the business.

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QUESTION: 1574

Which of the following is/are true about turnover ratios?

A high receivables turnover ratio might imply overly lax credit policy.
II. A low inventory ratio implies that capital might be locked up for a long time in excess inventory.
III. A high payables turnover ratio implies that the firm is lagging behind in its credit payments.
II only
I, II & III
I & II
I & III

Answer(s): A

Explanation:

The receivables turnover is the ratio of net sales to average receivables. If this ratio is high, then it indicates that the receivables are relatively low compared to sales. This could happen if the credit policy is stringent, forcing fewer sales on credit. The inventory turnover is the ratio of net sales to average inventory. A low value for this ratio indicates that the firm is maintaining a high level of inventory to maintain the sales. This might be an indicator (though not necessarily) that capital is being locked up in excess inventory. The payables turnover ratio is the ratio of the cost of goods sold to average trade payables. A high ratio implies that the payables are not very high compared to the COGS. This will happen when the firm is paying off its payables debt at a quick pace.

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QUESTION: 1575

The "Management Discussion and Analysis" section of the stockholder's report need not contain which of the following?

Analysis of cash flows and liquidity.
II. Discussion of unusual events like discontinued operations.
III. Future outlook based on current and past events.
IV. Firm's ability to maintain its dividend policy while sustaining growth.
III & IV
III only
I & II
IV only

Answer(s): A

Explanation:

Companies are encouraged, but not required, to provide forward-looking information i.e. they need not extrapolate past trends into the future to draw conclusions about the firm's prospects.

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QUESTION: 1576

Which of the following is/are true about straight-line depreciation?

With constant pre-depreciation income, it leads to an increasing rate of return over time.
II. It ignores loss of productivity and increased maintenance costs over time.
III. It leads to higher taxes in later years compared to accelerated depreciation methods.
I, II & III
I & III
II & III
I & II

Answer(s): D

Explanation:

With accelerated depreciation methods, the depreciation expense gets lower than that in the case of straight line depreciation, leading to higher taxes in the later years. One of the mathematical facts about straight-line and accelerated depreciation methods is that even when the pre-depreciation income stays constant, the rate of return steadily increases over time purely because of the decrease in asset value.

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Free CFA-Level-I Exam Braindumps (page: 394)

QUESTION: 1573

Explanation:

QUESTION: 1574

Explanation:

QUESTION: 1575

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QUESTION: 1576

Explanation: