Cisco®
Oracle
CompTIA
Checkpoint
ISC
EC-Council
EXIN
Fortinet
ITIL®
Juniper
Microsoft
VMware
Avaya
SAP
Google
Salesforce
Amazon
Palo Alto Networks
ISC2
Splunk®
All Vendors
  2. Home
  3. Exams
  4. Test Prep
  5. CFA-Level-I

Free Test Prep CFA-Level-I Exam Questions (page: 80)

Page 80 of 496
PDF with 3963 Questions

In the successful effort method, oil firms:

  1. are required to expense all oil-drilling costs resulting in dry holes.
    II. can capitalize drilling costs which result in productive oil wells.
    III. are required to capitalize all oil-drilling costs.
    IV. are required to expense all oil-drilling costs.
  2. I only
  3. I & II
  4. III & IV
  5. II only

Answer(s): B

Explanation:

In extractive industries, firms are allowed to use either the full-cost method, in which all search and development costs can be capitalized, or the successful-efforts method, where all such costs are expensed unless they result in revenue-generating assets, in which case, they are capitalized. If an oil drilling firm uses the successful-efforts method, it expenses costs incurred on dry holes and capitalizes those resulting in oil- producing wells.



MacDonald Inc. reported net income of $300,000 for 1996. Changes occurred in several balance sheet accounts as follows:

Equipment $25,000 increase
Accumulated depreciation 40,000 increase
Note payable 30,000 increase

Additional information:

During 1996, MacDonald sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.

In December 1996, MacDonald purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.

Depreciation expense for the year was $52,000.

In MacDonald's 1996 statement of cash flows, net cash used in investing activities is ________.

  1. $12,000
  2. $18,000
  3. $20,000
  4. $32,000
  5. $2,000

Answer(s): E

Explanation:

The purchase and sale of equipment are investing activities. The firm spent $20,000 cash to buy equipment and received $18,000 cash (net book value was $13,000 plus $5,000 gain) by selling its old equipment.
Therefore, the net cash used in investing is $2,000. The issuance of a note payable is part of the acquisition price of equipment and is classified as a noncash financing and investing activity.



"Horizontal analysis" refers to:

  1. comparison of various quantities in a common-sized financial statement.
  2. comparison of a firm's financial statements with those of a similar firm.
  3. comparative analysis of financial statements as they evolve over time.
  4. comparative study of a firm's dependencies on businesses in the different industries in which it is active.

Answer(s): C

Explanation:

In comparative financial analysis, one of the important parts is detecting trends in the changes that occur over time in the different financial statements. This trend analysis is quirkily referred to as "horizontal analysis," probably because comparison implies a side-by-side analysis of the financial items in the statements. Two popular techniques in horizontal analysis are "year-to-year change" analysis and "Index number trend series" analysis.



Which of the following is NOT a disclosure requirement for financial instruments?

  1. Firms must present fair valuations of financial instruments in the financial statements or accompanying notes.
  2. Firm must present reasons for not meeting any of the disclosure requirements.
  3. Firms must disclose the purposes of holding any speculative financial instruments.
  4. Firms must disclose significant assumptions used to value financial instruments.

Answer(s): C

Explanation:

Firms must disclose the purposes of holding any speculative financial instruments.



The purpose of the Management Report is to:

  1. analyze favorable and unfavorable trends affecting the firm.
    II. reinforce senior management's responsibilities for the company's financial and internal control systems.
    III. review the firm's financial condition in light of short-term liquidity requirements and proposed investment activities.
    IV. emphasize the roles of management, directors and auditors in the preparation of financial statements.
  2. I, II & III
  3. II & III
  4. II, III & IV
  5. II & IV

Answer(s): D

Explanation:

I & III are part of Management's Discussion & Analysis (MD&A)



The Statement of Stockholders' Equity does not report

  1. any minimum pension liability.
  2. any cumulative impact on prior period earnings.
  3. the investment of the owners in the firm.
  4. the various accounting adjustments that reflect selected market value changes in noncurrent assets.
  5. the effect of exchange rate changes on certain foreign subsidiaries.

Answer(s): B

Explanation:

Any cumulative impact on prior period earnings is reported net of tax after extraordinary items and discontinued operations on the income statement.



A test to determine whether a convertible security is dilutive or antidilutive is to calculate EPS

  1. for the security alone and compare it to the EPS without inclusion of the security.
  2. for the security alone and compare it to the EPS with inclusion of the security.
  3. for the security alone.
  4. without inclusion of the security.
  5. with inclusion of the security.

Answer(s): A

Explanation:

By comparing the EPS of the security alone with the EPS without inclusion of the security, if the former is smaller than the latter, then the security is dilutive which means it causes EPS to decline.



At the end of an accounting period, each expense that has been incurred but not yet paid should be recorded as

  1. a reversing entry
  2. an opening entry
  3. an adjusting entry
  4. a closing entry

Answer(s): C

Explanation:

Expenses should be recognized in the period in which they are incurred. In order to be consistent with the matching principle, an adjusting entry must be made to record the expense, regardless of whether it has been paid.



Viewing page 80 of 496



Post your Comments and Discuss Test Prep CFA-Level-I exam prep with other Community members:

CFA-Level-I Exam Discussions & Posts