QUESTION: 1749

A liability can be recognized when

an obligation exists to make a future payment based on a past event
any time a future payment is due
only when the amount is certain
all of these answers are correct

Answer(s): A

Explanation:

The amount need not be certain and some future payments such as wages to be paid in the future may not be reported as liabilities.

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QUESTION: 1750

Profit margin is a ratio that:

shows the return on net sales
is calculated as net sales divided by operating expenses
yields the company's financial position at a point in time
compares total assets to net sales

Answer(s): A

Explanation:

Profit margin, also called return on net sales, is calculated by dividing net income by net sales. This ratio measures the average portion of each dollar of revenue that ends up as profit.

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QUESTION: 1751

The Income Statement:

reflects the current operating performance of the firm.
II. indicates whether the firm is healthy and growing or not.
III. explains the changes in assets, liabilities and equity of the firm.
IV. is a snapshot of a firm's operations at a given time.
I, II & IV
II & III
I, II, III & IV
I only

Answer(s): D

Explanation:

To assess the health and growth of a firm, one needs the cashflow statement in addition to the income statement to evaluate the liquidity and solvency of the firm. III is not true since the Income statement does not contain all the details which pertain to changes in assets and liabilities. Finally, (IV) is true of a balance sheet; an income statement displays some aspects of a firm's operations over a selected period.

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QUESTION: 1752

When a firm records a lease as a capital lease:

Its working capital increases.
Its current ratio decreases.
Its debt-to-asset ratio increases.
Its financial leverage ratio decreases.

Answer(s): B

Explanation:

A capital lease is recorded as an asset as well as a liability. The next principal payment to be made on the lease is recorded as current liability (since it occurs within an operating cycle), thus decreasing the current ratio and working capital. The remaining portion is recorded as a long-term liability. Since total assets increase, the financial leverage ratio (assets/equity) increases.

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Free CFA-Level-I Exam Braindumps (page: 438)

QUESTION: 1749

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QUESTION: 1750

Explanation:

QUESTION: 1751

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QUESTION: 1752

Explanation: