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Free CFA-Level-I Exam Braindumps (page: 479)

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Over a given year, a firm's total assets increased by $8,000 and total liabilities decreased by $6,000. If the firm did not issue any new equity and paid out $1,800 in dividends, then its net income during the year was ________.

  1. $12,200
  2. $200
  3. $3,800
  4. $15,800

Answer(s): D

Explanation:

Total assets - Total liabilities = Equity. Hence,
Change in Assets - Change in Liabilities = Change in Equity.
Thus, change in equity = 8,000-(-6,000) = $14,000 All of the net income not paid out as dividends goes into increasing the equity. Since no new shares were issued, Net Income = change in equity + dividends paid. This gives net income = $14,000 + $1,800 = $15,800.



The reason that the translation of foreign subsidiaries will generate discrepancies between the changes in accounts reported on the balance sheet and those reported in the cash flow statement is

  1. the change in the exchange rate does not appear on the balance sheet but will appear as a component of cash collections it is not a change resulting from operations.
  2. the change in the exchange rate appears as part of the balance of accounts receivable on the balance sheet but will not appear as a component of cash collections because it is not a change resulting from operations.
  3. the change in the exchange rate does not appear on the balance sheet but will appear as a component of cash from financing activities.
  4. the change in the exchange rate appears as part of the stockholders' equity on the balance sheet but will not appear as a component of cash collections because it is not a change resulting from operations.

Answer(s): B

Explanation:

Thus, cash flow from operations does not include the effects of the translation process.



Which of the following is/are true under accrual accounting?

  1. Expenses are recognized as services are used.
    II. Revenues are recognized when service is performed.
    III. Revenues are recognized in proportion to expenditures incurred.
    IV. Revenues are matched with the associated costs.
  2. I & III
  3. I, II, III & IV
  4. I, II & IV
  5. II, III & IV

Answer(s): C

Explanation:

Accrual accounting follows the Matching Principle, which requires that revenues and gains be recognized when earned and expenses and losses be recognized when incurred. Under this, (I), (II) and (IV) are correct.
However, (III) is not necessarily true.



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
The average inventory processing period for 1994 equals ________.

  1. 164.9 days
  2. 223.6 days
  3. 114.7 days
  4. 198.2 days
  5. Inventory turnover ratio = COGS/average inventory.

Answer(s): A

Explanation:

This can be estimated using either net sales (as is the case with receivables) or the cost-of-goods- sold. COGS is preferable since it does not include the profit margins involved in net sales.
Therefore, two relevant ratios are:
E. Inventory turnover ratio = COGS/average inventory.
F. Average inventory processing period = 365/inventory turnover.
Typically, average inventory for a given year is taken to be the average of the ending values of the inventory for this year and the last year. For 1994, the average inventory equals (3549+3126)/2 = 3,338. Inventory turnover ratio = 7,387/3,338 = 2.21. Average inventory processing period = 365/2.21 = 164.9 days.






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