Analysis of Income Taxes
9 public questions with explanations, formulas, and exam traps.
CFA Level I subject
Financial Statement Analysis practice questions
Financial Statement Analysis questions require careful reading of accounting choices, ratios, cash flow classification, inventories, taxes, leases, and reporting quality. This section currently includes 160 public practice questions across 38 topic modules, with explanations, formulas, traps, and key takeaways.
Indicative public exam weight: 11-14%. Start with a topic guide when you need focused review, or use adaptive mode for mixed practice and due reviews.
Analysis of Inventories
9 public questions with explanations, formulas, and exam traps.
Analysis of Long-Term Assets
10 public questions with explanations, formulas, and exam traps.
Analyzing Balance Sheets
8 public questions with explanations, formulas, and exam traps.
Analyzing Income Statements
10 public questions with explanations, formulas, and exam traps.
Analyzing Statements of Cash Flows I
10 public questions with explanations, formulas, and exam traps.
Analyzing Statements of Cash Flows II
9 public questions with explanations, formulas, and exam traps.
Asset Impairment
1 public question with explanations, formulas, and exam traps.
Cash Flow Classification
1 public question with explanations, formulas, and exam traps.
Common-Size Analysis
1 public question with explanations, formulas, and exam traps.
Deferred Taxes
1 public question with explanations, formulas, and exam traps.
Direct Method CFO
1 public question with explanations, formulas, and exam traps.
DuPont Analysis
1 public question with explanations, formulas, and exam traps.
Earnings per Share
10 public questions with explanations, formulas, and exam traps.
Effective Tax Rate
1 public question with explanations, formulas, and exam traps.
EPS
1 public question with explanations, formulas, and exam traps.
Expense Recognition and Capitalization
1 public question with explanations, formulas, and exam traps.
Financial Analysis Techniques
12 public questions with explanations, formulas, and exam traps.
Financial Instruments and Liabilities
1 public question with explanations, formulas, and exam traps.
Financial Reporting Quality
10 public questions with explanations, formulas, and exam traps.
Financial Reporting Standards and Financial Statements
5 public questions with explanations, formulas, and exam traps.
Free Cash Flow
1 public question with explanations, formulas, and exam traps.
FSA Framework and Sources
1 public question with explanations, formulas, and exam traps.
Intangibles and Goodwill
1 public question with explanations, formulas, and exam traps.
Integration of Financial Statement Analysis Techniques
5 public questions with explanations, formulas, and exam traps.
Introduction to Financial Statement Analysis
13 public questions with explanations, formulas, and exam traps.
Introduction to Financial Statement Modeling
9 public questions with explanations, formulas, and exam traps.
Inventory Methods
1 public question with explanations, formulas, and exam traps.
Lease Accounting
1 public question with explanations, formulas, and exam traps.
Lower of Cost and NRV
1 public question with explanations, formulas, and exam traps.
Non-GAAP Measures
1 public question with explanations, formulas, and exam traps.
Nonrecurring Items
1 public question with explanations, formulas, and exam traps.
Pensions
1 public question with explanations, formulas, and exam traps.
Pro Forma Modeling and Bias
1 public question with explanations, formulas, and exam traps.
Reporting Quality
1 public question with explanations, formulas, and exam traps.
Revenue Recognition
1 public question with explanations, formulas, and exam traps.
Share-Based Compensation
1 public question with explanations, formulas, and exam traps.
Topics in Long-Term Liabilities and Equity
8 public questions with explanations, formulas, and exam traps.
Financial Statement Analysis
Analysis of Income Taxes
Under US GAAP, a valuation allowance is most likely recognized against:
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Analysis of Income Taxes
Renata Costa's firm buys equipment for $900 at the start of the year. For financial reporting it depreciates the asset straight-line at $150 per year; for tax purposes, first-year depreciation is $300. The tax rate is 30%. At year-end, the balance sheet most likely reports:
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Analysis of Income Taxes
Kenji Sato compiles the following for a company: taxable income of $700 million and a statutory tax rate of 30%. During the year, deferred tax liabilities increased by $25 million and deferred tax assets increased by $10 million, with no valuation allowance. Income tax expense for the year is closest to:
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Analysis of Income Taxes
Income tax expense is best described as:
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Analysis of Income Taxes
Pretax accounting income is 1,000, taxable income is 800, and the tax rate is 25%. Taxes payable are closest to:
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Analysis of Income Taxes
A company recognizes revenue in accounting income before it is taxable. The temporary difference most likely creates:
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Analysis of Income Taxes
Income tax expense is 180, pretax income is 900, and cash taxes paid are 150. The effective tax rate is closest to:
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Analysis of Income Taxes
An asset has a carrying amount of 500 and tax base of 420. The tax rate is 30%. The related deferred tax item is closest to:
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Analysis of Income Taxes
A permanent difference that increases pretax accounting income relative to taxable income will most likely:
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Analysis of Inventories
During a period of rising inventory purchase prices and stable inventory quantities, a company using the weighted average cost method most likely reports cost of goods sold that is:
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Analysis of Inventories
Under US GAAP, Halvern Industrial reports inventory using LIFO. At year-end, the LIFO reserve is $140 million and the tax rate is 25%. When Daniel Kim restates the balance sheet to a FIFO basis, shareholders' equity increases by an amount closest to:
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Analysis of Inventories
Under US GAAP, Quenton Mills values its LIFO inventory at the lower of cost or market. A product line has cost of $200, estimated selling price of $215, costs to complete and sell of $25, a normal profit margin of $20, and replacement cost of $184. The required writedown is closest to:
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Analysis of Inventories
Under IFRS, inventories are measured at:
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Analysis of Inventories
During a period of rising purchase prices, compared with FIFO, LIFO most likely reports:
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Analysis of Inventories
A company using LIFO reports COGS of 1,000. The LIFO reserve increased from 120 to 150. COGS under FIFO is closest to:
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Analysis of Inventories
Average inventory is 250, cost of goods sold is 1,000, and sales are 1,200. Days of inventory on hand, using a 365-day year, is closest to:
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Analysis of Inventories
A company using LIFO during rising prices sells more units than it purchases, causing old inventory layers to be included in COGS. The most likely effect is:
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Analysis of Inventories
An IFRS reporter writes inventory down from cost of 100 to NRV of 82. In the next period, NRV recovers to 95. The carrying amount after reversal is closest to:
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Analysis of Long-Term Assets
Under the IFRS revaluation model, a first-time upward revaluation of a machine above its depreciated historical cost is most likely recognized in:
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Analysis of Long-Term Assets
Fatima Zahra reviews a company that uses straight-line depreciation with negligible residual values. Gross PP&E is $800 million, accumulated depreciation is $240 million, and annual depreciation expense is $80 million. The average age of the company's assets is closest to:
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Analysis of Long-Term Assets
A machine has a carrying amount of $500. Expected future undiscounted cash flows are $520, fair value less costs of disposal is $430, and value in use is $460. The impairment loss recognized under US GAAP and under IFRS, respectively, is closest to:
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Analysis of Long-Term Assets
Straight-line depreciation expense is calculated as:
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Analysis of Long-Term Assets
A machine costs 500, has residual value of 50, and useful life of 5 years. Annual straight-line depreciation is closest to:
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Analysis of Long-Term Assets
A machine has a carrying amount of 120 and is sold for 95. The income statement effect is most likely:
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Analysis of Long-Term Assets
Under IFRS, research costs for an internally generated intangible asset are generally:
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Analysis of Long-Term Assets
Under IFRS, an impaired asset with carrying amount of 300 has fair value less costs of disposal of 240 and value in use of 260. Impairment loss is closest to:
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Analysis of Long-Term Assets
Compared with expensing a qualifying cost immediately, capitalizing the cost will most likely cause current-period CFO and CFI to be:
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Analysis of Long-Term Assets
Goodwill acquired in a business combination is most likely:
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Analyzing Balance Sheets
Under IFRS, a liability is most likely classified as current when:
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Analyzing Balance Sheets
Under IFRS, Tomás Herrera's firm holds a corporate bond within a business model whose objective is achieved both by collecting contractual cash flows and by selling the bonds; the cash flows are solely payments of principal and interest. Unrealized fair value changes on this bond are most likely reported in:
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Analyzing Balance Sheets
Mei-Ling Chen analyzes a retailer with cash of $60 million, marketable securities of $90 million, receivables of $150 million, and inventories of $180 million; current liabilities total $300 million. Daily cash expenditures are $4.0 million. The defensive interval ratio is closest to:
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Analyzing Balance Sheets
Goodwill is most likely recognized when:
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Analyzing Balance Sheets
A company has cash of 40, marketable securities of 30, receivables of 90, inventories of 120, and current liabilities of 200. The quick ratio is closest to:
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Analyzing Balance Sheets
A vertical common-size balance sheet expresses each balance sheet item as a percentage of:
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Analyzing Balance Sheets
A company's liabilities-to-equity ratio is 1.5. Total assets are 500. Total liabilities are closest to:
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Analyzing Balance Sheets
An analyst comparing book value with market value should most likely conclude that:
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Analyzing Income Statements
A travel-booking platform arranges hotel stays between guests and independent hotels. The hotels set room prices, bear the risk of unsold rooms, and are responsible for providing the stay; the platform collects payment from guests and retains a 10% commission. The platform should most likely recognize as revenue:
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Analyzing Income Statements
Veloria Foods began the year with 600,000 common shares outstanding. On 1 July it executed a 2-for-1 stock split, and on 1 October it repurchased 60,000 shares. Net income for the year is $2,370,000 and the company has no preferred stock. Basic EPS is closest to:
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Analyzing Income Statements
Kestrel Dynamics reports net income of $4,500,000 with 1,500,000 weighted-average common shares outstanding. It has 200,000 employee stock options with an exercise price of $25 (average market price $40) and a $10,000,000 face value convertible bond with a 6% annual coupon, convertible into 300,000 common shares. The tax rate is 25%. Diluted EPS is closest to:
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Analyzing Income Statements
Under revenue recognition from contracts with customers, a performance obligation is best described as:
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Analyzing Income Statements
A cost that is expensed in the period incurred rather than capitalized is most likely a:
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Analyzing Income Statements
A company reports revenue of 800, cost of goods sold of 500, selling expense of 120, administrative expense of 80, and interest expense of 30. Gross profit margin is closest to:
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Analyzing Income Statements
A company sells equipment classified as part of an operating segment it has exited and reports the result separately below income from continuing operations. The item is most likely classified as:
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Analyzing Income Statements
A software company receives cash in advance for a one-year subscription and provides service evenly over the year. Revenue is most likely recognized:
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Analyzing Income Statements
A distributor reports sales gross rather than net. The most likely analytical effect, holding profit constant, is:
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Analyzing Income Statements
During the current year a company capitalizes 90 of costs that another company expenses immediately. Ignoring taxes and depreciation, current-year net income and total assets of the capitalizing company are most likely:
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Analyzing Statements of Cash Flows I
Under IFRS, income taxes paid are most likely classified on the statement of cash flows as cash flows from:
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Analyzing Statements of Cash Flows I
Priya Raman is converting an indirect-method statement to the direct method. Selling, general, and administrative expense for the year is $240 million. During the year, prepaid expenses increased by $15 million and accrued expense liabilities increased by $10 million. Cash paid for operating expenses is closest to:
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Analyzing Statements of Cash Flows I
Omar Haddad reviews a company that reports interest expense of $48 million for the year, which includes $6 million of bond discount amortization. Interest payable increased by $4 million during the year. Cash paid for interest is closest to:
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Analyzing Statements of Cash Flows I
Cash paid to acquire equipment is most likely classified as a cash flow from:
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Analyzing Statements of Cash Flows I
Under U.S. GAAP, interest paid is classified as:
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Analyzing Statements of Cash Flows I
Net income is 100, depreciation expense is 25, accounts receivable increased by 10, inventory decreased by 5, and accounts payable increased by 8. CFO using the indirect method is closest to:
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Analyzing Statements of Cash Flows I
Sales are 500. Accounts receivable increased from 60 to 75. Cash received from customers is closest to:
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Analyzing Statements of Cash Flows I
Cost of goods sold is 300, inventory increased by 20, and accounts payable increased by 15. Cash paid to suppliers is closest to:
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Analyzing Statements of Cash Flows I
Under IFRS, dividends paid may be classified as:
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Analyzing Statements of Cash Flows I
A company reports a gain on sale of equipment in net income. Under the indirect method, the gain is most likely:
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Analyzing Statements of Cash Flows II
When evaluating the major sources and uses of cash flow, an analyst most likely expects a mature, profitable company to:
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Analyzing Statements of Cash Flows II
Sofia Russo estimates that a company's free cash flow to the firm (FCFF) is $250 million. Interest paid during the year was $40 million, the tax rate is 30%, and net borrowing was $35 million. Free cash flow to equity (FCFE) is closest to:
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Analyzing Statements of Cash Flows II
Lucas Ferreira gathers the following annual data for a manufacturer: net income $180 million, depreciation $60 million, interest expense $45 million, capital expenditures $150 million, and investment in working capital $30 million. The tax rate is 25%. Free cash flow to the firm (FCFF) is closest to:
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Analyzing Statements of Cash Flows II
A common-size statement of cash flows most often expresses each cash flow item as a percentage of:
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Analyzing Statements of Cash Flows II
CFO is 240 and includes interest paid as an operating cash flow. Interest paid is 30, the tax rate is 25%, and capital expenditures are 100. FCFF is closest to:
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Analyzing Statements of Cash Flows II
CFO is 180, capital expenditures are 70, net borrowing is 25, and dividends paid are 15. FCFE is closest to:
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Analyzing Statements of Cash Flows II
CFO is 90, average current liabilities are 150, and average current assets are 225. The operating cash flow ratio is closest to:
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Analyzing Statements of Cash Flows II
A company reports rising net income, declining CFO, and a large increase in receivables. The most appropriate interpretation is:
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Analyzing Statements of Cash Flows II
An analyst sees positive CFO generated mainly by delaying payments to suppliers while sales and margins decline. The most accurate conclusion is:
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Asset Impairment
A machine has carrying amount 1,000. Under IFRS, value in use is 840 and fair value less costs of disposal is 810. Impairment loss is closest to:
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Cash Flow Classification
An IFRS reporter classifies interest paid as financing, interest received as investing, and dividends received as operating. Under US GAAP, these items are most commonly classified as:
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Common-Size Analysis
Revenue rises from 500 to 560. Gross margin falls from 38% to 34%, while SG&A/sales falls from 24% to 21%. Operating margin before depreciation most likely:
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Deferred Taxes
Tax depreciation exceeds accounting depreciation by 40 million in the current year. The tax rate is 25%. The difference most likely creates:
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Direct Method CFO
Sales are 1,200; accounts receivable increase 90; COGS is 720; inventory increases 50; accounts payable increases 30. Cash collected from customers and cash paid to suppliers are closest to:
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DuPont Analysis
A company has net income 120, revenue 1,500, average assets 1,000, and average equity 400. Three-part DuPont ROE is closest to:
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Earnings per Share
Basic earnings per share is calculated as net income available to common shareholders divided by:
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Earnings per Share
Net income is 1,200, cumulative preferred dividends are 120, and weighted-average common shares are 450. Basic EPS is closest to:
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Earnings per Share
A company had 1,000 shares outstanding all year and issued 200 shares on 1 October. Weighted-average shares outstanding for the year are closest to:
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Earnings per Share
A company has 1,000 average shares and 150 options outstanding with an exercise price of 20. The average market price is 30. Under the treasury stock method, incremental shares are closest to:
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Earnings per Share
Net income is 900, preferred dividends are 60, average common shares are 300, and convertible preferred would add back the 60 dividend and add 30 common shares. Diluted EPS considering this security is closest to:
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Earnings per Share
A convertible bond would increase the diluted EPS numerator by 45 after tax and add 10 shares to the denominator. Basic EPS is 3.80. The bond is most accurately classified as:
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Effective Tax Rate
Pretax accounting profit is 200, taxable income is 170, and taxes payable are 42.5. The difference is entirely tax-exempt interest income. Effective tax rate is closest to:
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EPS
A company has net income 90 million, preferred dividends 6 million, and 30 million weighted-average common shares. It has 4 million convertible preferred shares, each convertible into two common shares. Diluted EPS is closest to:
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Expense Recognition and Capitalization
A company spends 12 million on an improvement that extends a machine's useful life and increases capacity, plus 2 million on routine maintenance. It expenses all 14 million. Compared with proper treatment in the expenditure year, this most likely:
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Financial Analysis Techniques
An analyst compares the operating margin of a beverage company with the operating margins of its industry competitors for the same fiscal year. This comparison is best described as:
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Financial Analysis Techniques
Elena Vasquez analyzes the segment disclosures of a conglomerate. The Consumer segment reports revenue of $400 million and average segment assets of $250 million; the Industrial segment reports revenue of $300 million and average segment assets of $300 million. The Consumer segment's asset turnover is closest to:
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Financial Analysis Techniques
Arjun Mehta assembles the following data for a company: net income $120 million, pretax income $160 million, operating income (EBIT) $200 million, revenue $2,000 million, average total assets $1,600 million, and average shareholders' equity $640 million. Using the five-part DuPont decomposition, ROE is closest to:
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Financial Analysis Techniques
Inventory turnover is most appropriately classified as a:
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Financial Analysis Techniques
A limitation of ratio analysis is that ratios:
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Financial Analysis Techniques
Revenue and credit sales are 1,200, cost of goods sold is 900, average receivables are 150, and the year has 365 days. Days sales outstanding is closest to:
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Financial Analysis Techniques
Net income is 80, average assets are 500, and average equity is 250. ROE is closest to:
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Financial Analysis Techniques
A company's net profit margin is 8%, total asset turnover is 1.5, and financial leverage is 2.0. ROE using three-part DuPont is closest to:
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Financial Analysis Techniques
A company has DSO of 40 days, days of inventory on hand of 70 days, and days payable outstanding (number of days of payables) of 35 days. Cash conversion cycle is closest to:
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Financial Analysis Techniques
Two companies have the same ROE. Company A has higher financial leverage and lower asset turnover than Company B. The most appropriate conclusion is:
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Financial Instruments and Liabilities
A five-year bond is issued at a discount because the coupon rate is below the market yield. Under amortized cost using the effective interest method, first-year interest expense is based on:
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Financial Reporting Quality
Which of the following accounting choices is most likely considered conservative rather than aggressive?
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Financial Reporting Quality
A company has a weak internal audit function, a board dominated by insiders, and complex related-party structures that escape scrutiny. Within the framework of conditions for low-quality financial reporting, these characteristics best illustrate:
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Financial Reporting Quality
A manufacturer reports revenue growth of 5%, while finished goods inventory grows 35% and gross margin improves by three percentage points. Management raised production volumes during the year even though order backlogs were flat. The most appropriate interpretation is that:
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Financial Reporting Quality
Financial reporting quality is best described as the degree to which reports:
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Financial Reporting Quality
Aggressive accounting most likely refers to accounting choices that:
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Financial Reporting Quality
A company excludes restructuring charges from non-GAAP earnings every year. This presentation choice is most likely:
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Financial Reporting Quality
Which condition is most likely conducive to low-quality or fraudulent financial reporting?
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Financial Reporting Quality
An issuer changes from expensing to capitalizing certain costs, extends asset useful lives, and reports CFO growth mainly from higher payables. The combined pattern most likely indicates:
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Financial Reporting Quality
A company reports high-quality earnings most likely when earnings are:
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Financial Reporting Standards and Financial Statements
Under accrual accounting, revenue is most appropriately recognized when:
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Financial Reporting Standards and Financial Statements
A qualified audit opinion is best described as an opinion indicating that:
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Financial Reporting Standards and Financial Statements
A company reports high accounting profit while operating cash flow is negative for the year. The most appropriate analyst response is to:
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Financial Reporting Standards and Financial Statements
The qualitative characteristic most directly supported when companies apply the same accounting policies from period to period is:
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Financial Reporting Standards and Financial Statements
An issuer changes depreciation estimates after new engineering evidence indicates longer useful lives. The most accurate analyst classification is:
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Free Cash Flow
A company reports CFO 180, cash paid for fixed assets 70, interest paid 24, tax rate 25%, and net borrowing 30. FCFF and FCFE are closest to:
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FSA Framework and Sources
An analyst observes a qualified audit opinion, management emphasis on adjusted EBITDA, and a note disclosing a covenant waiver obtained after year-end. The most appropriate next step is to:
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Intangibles and Goodwill
An acquirer pays 80 million for a business with identifiable net assets at fair value of 62 million, including a customer relationship asset. It estimates 9 million of assembled workforce value that is NOT separately recognized. Goodwill is closest to:
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Integration of Financial Statement Analysis Techniques
An analyst normalizing earnings for valuation should most appropriately adjust reported net income by:
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Integration of Financial Statement Analysis Techniques
A ratio numerator uses income statement data and the denominator uses a balance sheet amount. The analyst most appropriately uses:
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Integration of Financial Statement Analysis Techniques
Company X uses FIFO and Company Y uses LIFO under U.S. GAAP during rising prices. To improve comparability with FIFO, the analyst adjusts Company Y by:
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Integration of Financial Statement Analysis Techniques
A company capitalizes development costs under IFRS while a U.S. GAAP peer expenses similar costs. In the development year, the IFRS reporter will most likely show:
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Integration of Financial Statement Analysis Techniques
A firm's ROE rises because net margin falls, asset turnover is stable, and financial leverage increases sharply. The most appropriate interpretation is:
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Introduction to Financial Statement Analysis
In the financial statement analysis framework, after the analyst collects input data, the next step is most likely to:
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Introduction to Financial Statement Analysis
An adverse audit opinion most likely indicates that a company's financial statements:
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Introduction to Financial Statement Analysis
Management commentary included with audited financial statements is best described as:
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Introduction to Financial Statement Analysis
Amara Diallo, an equity analyst, wants details on the backgrounds of a company's board members, the structure of executive compensation, and potential conflicts of interest between management and shareholders. She is most likely to find this information in the company's:
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Introduction to Financial Statement Analysis
A credit analyst is assessing whether an issuer can meet interest and principal payments. The role of financial statement analysis in this assignment is most likely to emphasize:
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Introduction to Financial Statement Analysis
Ingrid Olsen reviews the annual report of Brunmark AS. The auditor expresses an unqualified opinion on the financial statements but adds an emphasis-of-matter paragraph describing substantial doubt about Brunmark's ability to continue as a going concern. The MD&A, in contrast, presents an optimistic recovery plan. The most appropriate conclusion is that the financial statements:
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Introduction to Financial Statement Analysis
An analyst compares a manufacturer reporting under IFRS with a peer reporting under U.S. GAAP. The analyst's most appropriate first response is to:
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Introduction to Financial Statement Analysis
An equity analyst prepares a valuation update after a company announces a new lease accounting standard will be adopted next year. The most appropriate action is to:
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Introduction to Financial Statement Modeling
In a sales-based pro forma model, the most common starting point is a forecast of:
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Introduction to Financial Statement Modeling
An analyst forecasts sales by estimating total market size, market share, and price. This approach is best described as:
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Introduction to Financial Statement Modeling
An analyst anchors next year's margin forecast too closely to last year's margin despite evidence of a permanent input-cost shock. The bias is most likely:
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Introduction to Financial Statement Modeling
A company faces intense rivalry and low barriers to entry. In a Porter's five forces framework, the most likely forecast effect is:
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Introduction to Financial Statement Modeling
A model forecasts revenue growth of 12% per year for five years while capital expenditures, working capital, and fixed assets remain flat as a percentage of revenue. The forecast is most likely:
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Inventory Methods
In a period of rising purchase prices and stable inventory quantities, compared with FIFO, LIFO most likely reports:
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Lease Accounting
A lessee signs a five-year equipment lease with fixed annual payments. The contract conveys the right to control the identified equipment for the lease term, title remains with the lessor, and there is no bargain purchase option. At commencement, current lessee accounting most likely:
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Lower of Cost and NRV
Inventory cost is 4.8 million. Estimated selling price is 5.1 million, completion costs are 0.4 million, and selling costs are 0.2 million. Under IFRS lower of cost and NRV, the write-down is closest to:
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Non-GAAP Measures
A company excludes restructuring charges every year, stock compensation, customer acquisition costs, and discontinued-operation losses from adjusted EBITDA. Reconciliations are provided. The analyst should:
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Nonrecurring Items
For forecasting sustainable earnings, an analyst sees income from continuing operations, a discontinued operation, and a retrospective accounting-policy change. The most appropriate treatment is to:
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Pensions
A pension plan promises employees 1.6% of final salary for each year of service. Plan assets are held in a trust, and the employer must fund any actuarial shortfall. The plan is best described as:
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Pro Forma Modeling and Bias
An analyst forecasts sales growth of 10%, COGS at 60% of sales, fixed SG&A of 180, depreciation at 5% of beginning PP&E, and tax at 25%. The most appropriate modeling approach is to:
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Reporting Quality
A company follows high-quality standards, has an unqualified audit, and provides transparent notes, but earnings are dominated by a one-time litigation gain and a commodity price spike. The most accurate assessment is:
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Revenue Recognition
A software firm sells a three-year license and three years of support for 300,000 cash upfront. Stand-alone prices are 240,000 for the license and 120,000 for support. The license is delivered immediately; support is provided evenly. Revenue at inception is closest to:
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Share-Based Compensation
A company grants equity-settled employee stock options that vest after three years of service. Grant-date fair value is reliably measured, and employees provide service over the vesting period. The most appropriate treatment is to:
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Topics in Long-Term Liabilities and Equity
A company issues a fixed-coupon bond at a premium because its coupon rate exceeds the market yield at issuance. Under the effective interest method, the company's annual interest expense over the bond's life most likely:
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Topics in Long-Term Liabilities and Equity
Aldgate Transit issues a four-year bond with a face value of $1,000,000 and a 4% annual-pay coupon when the market yield for comparable bonds is 5%, receiving proceeds of $964,540. Using the effective interest method, interest expense in the first year is closest to:
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Topics in Long-Term Liabilities and Equity
Under US GAAP, Nordquist Logistics signs a five-year equipment lease with annual payments of $59,349 due at each year-end. The lease liability and right-of-use asset are initially measured at $250,000 using the 6% rate implicit in the lease, and the asset is amortized straight-line. If the lease is classified as a finance lease, total expense recognized in the first year is closest to:
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Topics in Long-Term Liabilities and Equity
For a defined contribution pension plan, the employer's pension expense is most likely based on:
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Topics in Long-Term Liabilities and Equity
Under IFRS for a lessee, most leases are initially recognized as:
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Topics in Long-Term Liabilities and Equity
A defined benefit pension plan has plan assets of 900 and a present value of the defined benefit obligation of 1,050. The funded status is closest to:
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Topics in Long-Term Liabilities and Equity
Under U.S. GAAP lessee accounting, compared with a finance lease, an operating lease generally reports:
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Topics in Long-Term Liabilities and Equity
Share-based compensation expense for employee stock options is generally recognized:
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Earnings per Share
When computing diluted EPS, a company with potentially dilutive securities outstanding most likely excludes a convertible security from the diluted calculation when:
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Earnings per Share
Brindle Foods began the year with 200,000 common shares outstanding. On 1 April it issued 48,000 new common shares for cash, and on 1 September it executed a 2-for-1 stock split. The weighted-average number of shares outstanding for the year is closest to:
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Earnings per Share
Tessaro Marine reports net income of USD 3,150,000 and has 1,000,000 weighted-average common shares outstanding and no preferred stock. Throughout the year it had outstanding convertible bonds with a face value of USD 8,000,000 and a 5% annual coupon, convertible in total into 250,000 common shares. The tax rate is 30%. Diluted EPS is closest to:
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Earnings per Share
Loremont Systems reports net income of USD 1,320,000, has 500,000 weighted-average common shares outstanding, and pays no preferred dividends. It has 90,000 employee stock options outstanding all year with an exercise price of USD 32; the average market price of the stock during the year was USD 48. Diluted EPS is closest to:
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Introduction to Financial Statement Analysis
An analyst seeking details about a company's significant accounting policies, contractual commitments, and contingent liabilities should most appropriately review the:
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Introduction to Financial Statement Analysis
Compared with the audited financial statements, management commentary is most likely useful because it provides:
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Introduction to Financial Statement Analysis
In addition to annual and interim financial reports, an analyst evaluating changes in product demand would most appropriately use:
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Introduction to Financial Statement Analysis
An independent auditor issues an unqualified opinion on a company's financial statements. The opinion most likely provides:
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Introduction to Financial Statement Analysis
An analyst beginning a company review wants to follow the financial statement analysis framework in the proper sequence. The step that most appropriately comes before collecting any input data is:
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Financial Analysis Techniques
An analyst decomposes Marlowe Retail's ROE using the five-component extended DuPont model. In Year 1: tax burden 0.75, interest burden 0.90, EBIT margin 12%, asset turnover 1.2, financial leverage 2.0. In Year 2: tax burden 0.75, interest burden 0.80, EBIT margin 12%, asset turnover 1.2, financial leverage 2.5. The increase in ROE from Year 1 to Year 2 is most likely attributable to:
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Financial Analysis Techniques
An analyst compares two companies with identical ROE. Company X reports net income of USD 90 million on revenue of USD 1,500 million, average assets of USD 1,000 million, and average equity of USD 600 million. Company Y reports net income of USD 60 million on revenue of USD 1,200 million, average assets of USD 800 million, and average equity of USD 400 million. Based on a DuPont decomposition, the analyst most appropriately concludes that:
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Financial Reporting Quality
A company reports revenue growth of 5%, accounts receivable growth of 35%, and declining cash flow from operations, while also extending customer payment terms. This pattern most likely warrants investigation for:
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Introduction to Financial Statement Modeling
An analyst forecasts a retail chain's revenue by projecting same-store sales growth for each existing location and adding expected revenue from announced new store openings, then aggregating the results across all regions. This revenue forecasting approach is best described as:
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Introduction to Financial Statement Modeling
An analyst with an existing buy recommendation on an equipment maker builds next year's forecast by collecting distributor interviews that support strong demand while dismissing two supplier reports of falling order volumes as unreliable. The behavioral bias most likely affecting the forecast is:
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Introduction to Financial Statement Modeling
Corvana Industrial reported revenue of USD 800 million this year. For next year, an analyst assumes revenue grows 10%, cost of goods sold equals 55% of revenue, and selling, general, and administrative expense consists of a fixed USD 120 million plus a variable component equal to 5% of revenue. Forecast operating profit for next year is closest to:
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Introduction to Financial Statement Modeling
Pellagrin Devices currently generates revenue of USD 1,000 million, with variable costs equal to 60% of revenue and fixed operating costs of USD 250 million. An analyst forecasts revenue to increase 10% next year with the cost structure unchanged. Forecast operating profit for next year is closest to:
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