QUESTION: 1701

Which of the following statements about the Securities and Exchange Commission (SEC) is true?

The SEC must audit all financial statements of publicly traded corporations.
The SEC has issued specific rules and regulations concerning the preparation of financial statements and the degree of detail that they contain.
None of these statements are true.
The SEC functions as the standard-setting body of the accounting profession.

Answer(s): B

Explanation:

The Securities and Exchange Commission has issued specific rules and regulations concerning the preparation of financial statements and the degree of detail that they contain.

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The following data have been extracted from the financial statements of a firm for two years, 1993 and 1994:

1993 1994
Assets 10,895 12,444
Sales 8,465 9,275
Inventory 3,126 3,549

COGS 7,120 7,387
Receivables 2,154 1,768

The receivables turnover ratio and the average receivables collection period for 1994 equal ________.

4.31, 84.77 days
5.25, 69.58 days
none of these answers
4.73, 77.17 days

Answer(s): D

Explanation:

Receivables turnover ratio = Net annual sales/average receivables Average receivables collection period = 365/ receivables turnover. Typically, average receivables for a given year are taken to be the average of the ending values of the receivables for this year and the last year. For 1994, the average receivables equal (2154+1768)/2 = 1,961. Receivables turnover ratio = 9,275/1,961 = 4.73. Average receivables collection period = 365/4.73 = 77.17 days.

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QUESTION: 1703

Which of the following is/are advantages of accelerated methods of depreciation?

They implicitly recognize the loss of productivity and increased maintenance costs over time.
II. They allow deferral of taxes compared to the straight-line method, thus making more cash available for current operations.
III. The lower depreciation charges in later years compensate for the greater uncertainty in future revenues.
I & III
II only
I, II & III
I & II

Answer(s): C

Explanation:

All three responses are correct as advantages of accelerated methods of depreciation.

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QUESTION: 1704

A firm has convertible bonds, preferred equity, common equity and straight bonds in its capital structure. In calculating Diluted EPS, which of the following is true about the earnings number used, assuming the convertible bonds are dilutive?

Earnings used = Net income - preferred dividends + interest payments on convertible
Earnings used = Net income - preferred dividends - interest payments on convertible net of taxes.
Earnings used = Net income - preferred dividends - interest payments on convertible before taxes.
Earnings used = Net income - preferred dividends + interest payments on convertible net of taxes.

Answer(s): D

Explanation:

Think of the earnings used in EPS calculations as the earnings that are available for distribution amongst common shareholders. Under Diluted EPS, convertible bonds are assumed converted if dilutive. Hence, for Diluted EPS purposes, convertible bond holders are assumed to be a part of the residual claimants of the earnings available after the liabilities to debt holders and preferred equity holders are satisfied. The earnings available for distribution amongst these security holders then equal Net income - preferred dividends + interest payments on convertible net of taxes.

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Free CFA-Level-I Exam Braindumps (page: 426)

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QUESTION: 1704

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