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Advanced Financial Reporting And Analysis

Subject : business-skills
Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Nature of liability; Maturity dates; Stated and effective int. rates; Call and conversion features; covenants; security pledged as collateral; Amount of Debt maturity in each of the next 5 years; Fair value of o/s instrutments






2. FIFO: EI = newest purchases - LIFO: EI = oldest purchases - Avg. Costs: EI = Available for sale/Units - Specific ID: high value items (cars - diamonds etc)






3. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher






4. Assets: higher - Liabilities: Higher - NI (Early yrs): Lower - CFO: Higher (b/c only interest portion is classed as CFO) - CFF: Lower (b/c principal repayment portion) - Total CF: Same - Since Int. exp + depre > lease pymt in the early years. This de






5. Inflow - (bringing bond UP to par)






6. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal






7. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.






8. Income subject to tax as per Tax Return






9. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.






10. Current Ratio (CA/CL): lower - Work. Cap (CA -CL): Lower - Asset TO: (Sales/TA): Lower - ROA (EAT/TA): Lower - ROE (EAT/E): Lower - Debt/Equity: Higher - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ra






11. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (






12. [net income - preferred dividends] + [convertible prf.dividends] + [convertible debt int.] (1-t) / (weighted avg. of c/s o/s) + (shares from conversion of conv. pfd. shares) + (shares from conversion of conv. debt) + (shares issuable from stock optio






13. +Cash rcvd from customer - +Cash dividends rcvd - +Cash interest rcvd - +Other cash income ((trading securities) - Payment to suppliers - Cash expenses (wages etc) - Cash interest paid - Cash taxes paid






14. If any ONE out of the FOUR are met must be classifed as Financial Lease: 1) Title transfered to lessee at the end of lease; 2) Bargain purchase option at the end of the lease; 3) Lease period is at least 75% of asset's useful life; 4) The PV of least






15. 365/(AR T/O) = 365/(Rev/Avg. AR)






16. 1) Incentive/Pressure (the motive to commit fraud) 2) Opportunity (exists with weak internal controls) 3) Attitude/rationalization (mindset that fraud is justified)






17. A: Increase = use cash (-) - Decrease = source cash (+) - L: Increase = source cash (+) - Decrease = use of cash (-) - E: Increase = source cash (+) - Decrease = use of cash (-)






18. Reported BELOW the line. Operations mgmt has decided to dispose of but: 1) has not yet done so or 2) did so in CY after it generated profit/(loss) Must be physicallly and operationally distinct from firm. Analyst must determine effects on future inco






19. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows






20. 'Equity' -Chg in debt - Cash raised from equity and debt - -Chg in c/s - Cash spent on repurchasing equity or redeeming debt -Dividends paid - Calculate dividend declared: NI -*Div.Declared = chg in are/E - Div. Declared +(-) chg in div. payable = c






21. When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote - it also files the statement with the SEC as Form DEF-14A.






22. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates






23. (GAAP) Internally created intangibles 1) (R&D) are expensed 2) Advertising 3) Software (developed to establish feasibility)






24. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate






25. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives






26. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]






27. 1) Aggregation where appropriate; 2) No offsetting assets against liabilities or income against exp.; 3) Classifed B/S; 4) Minimum Info on face; 5) Minimum disclosure; 6) Comparative info.






28. 1) Character: Mgmt reputation and history of repayment 2) Collateral: ability to pledge specific collateral reduces lender risk 3) Capacity: ability to replay debt. requires LT view of firms prospect.

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29. For inventory that has a limited shelf life ex) Because the movies have a very limited shelf life and will greatly deteriorate in value with age - especially after the first year - FIFO is the most appropriate method of accounting for the movies for






30. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)






31. Amount deductible in future tax return






32. A company can issue securities to certain qualified buyers without registering the securities with the SEC - but must notify the SEC that it intends to do so.






33. 2 step-process 1) Recoverability: carrying value > undiscounted CF from asset's use and disposal 2) Loss measurement: Loss is the excess of carrying value over the asset's fair market value or PV of cash flows - Loss reversal for held-for-use assets






34. 1) is a contra asset account used to reduce the value of a DTA - 2) it is used to reduce the asset when future taxable income is deemed to be insefficient to fully use the DTA.






35. Profit is recognized only when it exceeds estimated total cost.






36. Contributed capital = c/s @ par plus add'l paid-in capital - Treasury stock (reaquired by frim but not yet retired) - are/E = Accum' NI less dividends - Minority (non-controlling) interest - Comprehensive income items: all chg in SOE not in I/S or fr

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37. Under GAAP 1) Purchased patentes - copyrights - franchises - licenses - brands - and trademarks 2) Direct response advertising 3) Goodwill arising from transactions - (Proceeds - FMV net assets required = goodwill) 4) Software development costs once






38. Profit recognized is the proportion of cash collected x total expected profit Revenue = (COG provided to date/total COG to be provided) x total expected revenue






39. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up






40. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage






41. 1) Evaluating equity investments for a portfolio; 2) Evaluating potential M&A; 3) Evaluating a subsidiary of a parent company; 4) Deciding on private equity/ venture cap investment 5) Determine creditworthiness - borrowing; 6) Extending credit to






42. 1) held-to-maturity: @ amortized cost (i.e Bonds) 2) trading: @ fair value through P&L @ fair mkt value - unrealized g/(l) are recognized on the I/S. 3) available-for-sale: @ fair mkt value - unrealized g/(l) are NOT recognized on the I/S - instead r






43. Cash Flow available for distribution to all investors (stockholders & debt holders) CFO + int(1-t) - fixed capital investment or [FCFF calculated from NI = NI + noncash charged + (Int exp(1-tax rate) - net cap investment - working capital invt.]






44. Is more relevant than book value: Recent changes allow more liability to be recorded at FMV (IFRS & GAAP require disclosure of FMV) - Downward adj. in liability will Increase equity and decrease leverage ratio - Upward adj in liability will decrease






45. Unlisted instruments - Held-to-maturity investments - Loans - Receivables






46. Slow moving or obsolete inventory






47. Both: General agreement on objectives; focus on wide range of users - IASB: One objective for all users - FASB: Separate objectives for business entities and non-business entities.






48. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments






49. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy






50. GAAP: more quantitative rules - IFRS: more qualitative approach based on whether the risks and reward of the asset have tranferred.