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Test Prep CFA-Level-I Exam
CFA® Level I Chartered Financial Analyst (Page 146 )

Updated On: 11-Jan-2026
Page 146 of 793
PDF with 3963 Questions

How should the effect of a change in accounting estimate be accounted for?

  1. None of these answers.
  2. By reporting pro forma amounts for prior periods.
  3. In the period of change and future periods if the change affects both.
  4. By restating amounts reported in financial statements of prior periods.
  5. As prior-period adjustments to beginning retained earnings.

Answer(s): C

Explanation:

The effect of a change in accounting estimate must be accounted for as a component of income from continuing operations in the period of change and in future periods.



In a period of falling prices, the FIFO inventory method

  1. neither of these answers is correct
  2. both of these answers are correct
  3. magnifies the effects of the business cycle on income
  4. gives the lowest possible value for ending inventory

Answer(s): B

Explanation:

The first-in-first-out (FIFO) method is based on the assumption that the costs of the first items acquired should be assigned to the first items sold, therefore ending inventory on hand is based on the most recent prices.



Realized gains and losses from sales of assets are measured as

  1. fair value of asset less net book value of asset.
  2. sales price of asset less net book value of asset.
  3. net book value less fair value of asset.
  4. sales price of asset less fair value of asset.

Answer(s): B



A firm has total assets of 5,320, net sales of 8,395, average receivables of 894, current assets of 2,393 and a current ratio of 1.2. Its average receivables collection period equals ________.

  1. 41.73 days
  2. 29.92 days
  3. 23.19 days
  4. 38.87 days
  5. Receivables turnover ratio = Net annual sales/average receivables

Answer(s): D

Explanation:

This is measured by two ratios in slightly different ways:
E. Receivables turnover ratio = Net annual sales/average receivables
F. Average receivables collection period = 365/receivables turnover In this case, receivables turnover = 8,395/894 = 9.39. Therefore, average receivables collection period = 365/9.39 = 38.87 days. Notice that the collection period is measured in "days."



Calculating COGS under a periodic inventory system relies on which of the following?

  1. a physical count of the ending inventory
  2. an analysis of the inventory value of each sale
  3. both of these answers are correct
  4. neither of these answers is correct

Answer(s): A

Explanation:

Under the periodic inventory system, only the ending inventory is counted and priced. Cost of goods sold is determined by deducting the cost of the ending inventory from the cost of goods available for sale.



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