QUESTION: 2089

A firm has a net profit margin of 25%. Its total asset turnover equals 1.3 and equity turnover equals 2.1. The firm's ROE and financial leverage equal ________.

28.6%, 1.47
43.2%, 1.33
52.5%, 1.62
39.8%, 0.62

Answer(s): C

Explanation:

ROE = net income/equity = (net income/sales)*(sales/equity) = net profit margin * equity turnover = 25%*2.1 = 52.5% Financial Leverage = Total assets/equity = (total assets/sales)*(sales/equity) = (1/asset turnover)*(equity turnover) = 2.1/1.3 = 1.62.

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QUESTION: 2090

When compared to the percentage-of-completion method, the completed contract method

reports larger total assets.
reports higher net assets.
reports higher cash flows.
reports income earlier.
uses higher estimates of selling prices.

Answer(s): A

Explanation:

The completed contract method reports larger total assets because it accumulates inventory.

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QUESTION: 2091

In the direct method statement of cash flows, the primary component of investing cash flow is typically

dividend payments.
long-term investments in securities.
capital expenditures for long-term assets.
repayment of debt.
investments in affiliates.

Answer(s): C

Explanation:

Capital expenditures for long-term assets such as plant and machinery are usually the primary component of investing cash flow.

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QUESTION: 2092

Items reported as prior-period adjustments

do not include the effect of a mistake in the application of accounting principles as this is accounted for as a change in accounting principle rather than a prior-period adjustment.
do not affect the presentation of prior-period comparative financial statements.
are reflected as adjustments of the opening balance of the retained earnings of the earliest period presented.
none of these answers.
do not require further disclosure in the body of financial statements.

Answer(s): C

Explanation:

Prior-period adjustments are made for the correction of errors. All the effects of errors on prior-period financial statements are reported as adjustments to beginning retained earnings for the earliest period presented in the retained earnings statement.

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Free CFA-Level-I Exam Braindumps (page: 523)

QUESTION: 2089

Explanation:

QUESTION: 2090

Explanation:

QUESTION: 2091

Explanation:

QUESTION: 2092

Explanation: