QUESTION: 1633

Which of the following is/are true?

An increase in inventories has a positive impact on cash flows.
II. An increase in receivables has a negative impact on cash flows.
III. Deferred taxes increase current cash balance.
IV. Utilization of tax loss carry-forwards has a positive impact on cash flows.
I, II & IV
II & III
I & IV
II, III & IV

Answer(s): D

Explanation:

An increase in inventories implies cash was spent to obtain more goods than were sold. An increase in receivables implies part of the sales were made on credit, not a cash basis. Deferring taxes implies some of the cash expense was delayed into the future, increasing the current cash balance. Utilization of taxloss carry- forwards implies a reduction in the taxable income by the amount of the carry-forward. This reduces cash expense on taxes.

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QUESTION: 1634

A benefit period for accounting amortization can not exceed how many years ________.

Answer(s): B

Explanation:

In accounting no benefit can be amortized over more than 40 years. The difficulties of going further do not provide sufficient benefit to justify the cost.

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QUESTION: 1635

Suppose the average stock price in the above example were 40. How many shares will be used in the calculation of Diluted EPS now?

none of these answers
1,250,000
1,208,333
1,300,000

Answer(s): C

Explanation:

Since the average stock price now exceeds the strike price, the warrants are assumed converted. The proceeds from the exercise equal 800,000*35 = 28 million. The Treasury Stock method assumes a purchase of shares at 40 using these proceeds. Thus, the number of shares repurchased = 28,000,000/40 = 700,000. Thus, the additional shares arising from warrant exercise equals 800,000 - 700,000 = 100,000. Now, in the Treasury Stock method, options and warrants are assumed to be exercised at the beginning of the period or at the time of issuance, whichever is later. Thus, in this case, the addition 100,000 shares have been outstanding since May 31, 1998. So the weighted number of shares for Diluted EPS = 1 million + 200,000*9/12 + 100,000*7/12 = 1,208,333 shares.

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QUESTION: 1636

For accounting purposes, which of the following is/are TRUE about assets?

Assets are future benefits whose values are known today.
II. Assets are generated by past transactions or events.
III. Assets include the value of residual ownership of the firm.
IV. Assets are best viewed as sources of future cash flows.
I, II, III & IV
I, II & IV
II only
I & II

Answer(s): C

Explanation:

Assets are defined as "probable future benefits obtained or controlled by a particular entity as a result of past transactions or events." III refers to "Equity" while IV is not correct since the benefits need not be solely in the form of cash.

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Free CFA-Level-I Exam Braindumps (page: 409)

QUESTION: 1633

Explanation:

QUESTION: 1634

Explanation:

QUESTION: 1635

Explanation:

QUESTION: 1636

Explanation: