QUESTION: 1605

Firm A uses the completed contract method and an otherwise identical Firm B uses percentage-of- completion method for revenue recognition in a project. Then, during the project,

Firm A shows lower assets than B.
Firm B shows higher inventory than A.
Firm A shows higher equity than B.
Firm A shows higher inventory than B.

Answer(s): D

Explanation:

Under the completed contract method, revenues and expenses are recognized only after the contract has been fulfilled. During all intermediate periods, costs are reported as inventory while revenues are treated as advances from customers. On the other hand, in the percentage-of-completion method, revenues are recognized in proportion to the percentage of the project completed, as measured by the costs incurred or engineering estimates available. Therefore, a firm shows higher assets and liabilities under completed contract method but lower equity than under percentage-of-completion.

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QUESTION: 1606

Which of the following is not an example of a cash flow from operations?

none of these answers is correct
cash received from customers
cash paid for merchandise
cash paid for taxes

Answer(s): A

Explanation:

Operating activities include the cash effects of transactions and other events that enter into the determination of net income. All of the responses apply.

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QUESTION: 1607

All of the following are financing cash flows EXCEPT?

cash payments on preferred dividends
cash received from new debt
cash changes in contributed capital from equity issue
cash changes in retained earnings

Answer(s): D

Explanation:

Cash changes in retained earnings arise from income and hence, are part of operating cash flows.

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QUESTION: 1608

Accounting rules specify that interest must be capitalized for assets that are

not being used in the earning activities of the enterprise and not undergoing the activities necessary to get them ready for use.
routinely produced.
being constructed or otherwise being produced as discrete projects for an enterprise's own use.
none of these answers.
in use or ready for their intended use in the earning activities of the enterprise.

Answer(s): C

Explanation:

Interest costs must be capitalized only for assets constructed for internal use, or for sale or lease as discrete projects.

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Free CFA-Level-I Exam Braindumps (page: 402)

QUESTION: 1605

Explanation:

QUESTION: 1606

Explanation:

QUESTION: 1607

Explanation:

QUESTION: 1608

Explanation: