Schweser Printable Exams

SchweserPro 2014 CFA Level I

Question 1 - 97252

Earlier this year, Ponca Corporation purchased non-dividend paying equity securities which it classified as trading securities. Information related to the securities follows:

Security Cost Fair value at year-end

X $400,000 $435,000

Y $550,000 $545,000

What amounts should Ponca report in its year-end income statement and balance sheet as a result of its investment in securities X and Y?

Income Statement Balance Sheet A) $30,000 unrealized gain $950,000

B) No gain or loss $980,000

C) $30,000 unrealized gain $980,000

Question 2 - 93535

Which of the following items would NOT be included in cash flow from investing?

A) Proceeds related to acquisitions.B) Buying or selling a building.C) Selling stock of the company.

Question 3 - 97951

A company has convertible preferred stock outstanding. In the computation of diluted earnings per share, common shares issued when convertible preferred stock is converted are added to the denominator of the basic EPS equation, and the numerator is:

A) adjusted by adding back convertible preferred stock dividends.B) not adjusted.C) adjusted by adding back non-convertible preferred stock dividends.

10

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Question 4 - 97278

Carpenter Corporation reported the following statement of shareholders’ equity as of December 31, 2006:

Common stock at par $600,000 Additional paid-in-capital 900,000 Treasury stock (200,000) Retained earnings 10,500,000 Accumulated other comprehensive income 450,000

$12,250,000

During 2007, Carpenter:

earned net income of $1,700,000. declared dividends of $300,000. $75,000 of the dividends remain unpaid. purchased held-to-maturity securities for $100,000. The securities have a fair value of $110,000

at year-end. purchased available-for-sale securities for $250,000. The securities have a fair value of $225,000

at year-end. translated the financial statements of a foreign subsidiary and calculated a $90,000 unrealized

gain. purchased treasury stock for $75,000. The stock was valued at $60,000 when issued.

Calculate Carpenter’s retained earnings and accumulated other comprehensive income as of December 31, 2007.

Retained earnings Accumulated other comprehensive income

A) $11,900,000 $65,000

B) $12,125,000 $515,000

C) $11,900,000 $515,000

Question 5 - 97458

Capital Corp.’s activities in the year 20X5 included the following:

At the beginning of the year, Capital purchased a cargo plane from Aviation Partners for $10 million in exchange for $2 million cash, $3 million in Capital Corp. bonds and $5 million in Capital Corp. preferred stock.

Interest of $150,000 was paid on the bonds, and dividends of $250,000 were paid on the preferred stock.

At the end of the year, the cargo plane was sold for $12,000,000 cash to Standard Company. Proceeds from the sale were used to pay off the $3 million in bonds held by Aviation Partners.

On Capital Corp.’s U.S. GAAP statement of cash flows for the year ended December 31, 20X5, cash flow from investments (CFI) related to the above activities is:

A) $9,750,000.B) $6,750,000.

C) $10,000,000.

Question 6 - 97946

Selected information from Jupiter Corp.’s financial activities in the year 20X5 is as follows:

Net income is $18,300,000. 115,000 shares of common stock were outstanding on January 1. The average market price per share was $150 in 20X5. 200 warrants, which each allow the holder to purchase 100 shares of common stock at an

exercise price of $100 per common share, were outstanding the entire year. 60,000 shares of common stock were issued on April 1. 45,000 shares of common stock were purchased by the company as treasury stock on October 1.

Jupiter Corp.’s diluted earnings per share for 20X5 are closest to:

A) $117.75.B) $123.02.C) $159.13.

Question 7 - 98075

The Better Building Company has a contract to build a building for $100 million. The estimate of the cost of the project is $75 million. In the first year of the project, BB had costs of $30 million. The Better Building Company’s reported profit for the first year of the contract, using the percentage-of-completion method, is:

A) $0.B) $20 million.C) $10 million.

Question 8 - 97794

Which of the following statements regarding basic and diluted earnings per share (EPS) is most accurate?

A) To calculate diluted EPS, use net income less preferred dividends in the numerator.B) If diluted EPS is less than basic EPS then the convertible securities are said to be antidilutive.C) Diluted EPS does not include antidilutive securities in its computation.

Question 9 - 97385

Johnson Corp. had the following financial results for the fiscal 2004 year:

Current ratio 2.00

Quick ratio 1.25

Current liabilities $100,000

Inventory turnover

12

Gross profit % 25

The only current assets are cash, accounts receivable, and inventory. The balance in these accounts has remained constant throughout the year. Johnson’s net sales for 2004 were:

A) $300,000. B) $1,200,000. C) $900,000.

Question 10 - 97895

Are the quick ratio and the debt-to-capital ratio used primarily to assess a company’s ability to meet short-term obligations?

Quick ratio Debt-to-capital ratioA) Yes No

B) Yes Yes

C) No Yes

Question 11 - 97256

When the market value of an investment in a debt security is less than its carrying value, how should the investor report the investment on the balance sheet if the security is classified as held-to-maturity and what amount should be reported if the security is classified as available-for-sale?

Held-to-maturity Available-for-sale

A) Amortized cost Amortized cost

B) Fair value Fair value

C) Amortized cost Fair value

Question 12 - 97394

Use the following information to calculate cash flows from operations using the indirect method.

Net Income: $12,000 Depreciation Expense: $1,000 Loss on sale of machinery: $500 Increase in Accounts Receivable: $2,000 Decrease in Accounts Payable: $1,500 Increase in Income taxes payable: $500 Repayment of Bonds: $3,000

A) Increase in cash of $7,500.B) Increase in cash of $10,500.C) Increase in cash of $9,500.

Question 13 - 97251

At the beginning of the year, Alpha Corporation purchased 10,000 shares of Beta Corporation for $20 per share. During the year, Beta paid a $2,000 cash dividend to Alpha. At the end of the year, Beta’s stock was selling for $22 per share. What amount should Alpha recognize in its year-end income statement if the investment is treated as an available-for-sale security and what amount should be recognized in the income statement if the investment is treated as a trading security?

Available-for-sale Trading security A) $2,000 $20,000

B) $2,000 $22,000

C) $0 $22,000

Question 14 - 97300

Impala Corporation reported the following financial information:

          2006 2007

Balance sheet values as of December 31:

< >> Prepaid insurance $650,000 $475,000

Interest payable 250,000 300,000

Cash flows for the year ended December 31:

Insurance premiums paid $845,000 $750,000

< >      >

Interest paid 900,000 900,000

Calculate Impala’s insurance expense and interest expense for the year ended December 31, 2007.

Insurance expense Interest expense A) $925,000 $950,000

B) $1,020,000 $950,000

C) $925,000 $850,000

Question 15 - 149991

Liabilities are best described as:

A) resources that are expected to provide future benefits.B) residual ownership interest.C) obligations that are expected to require a future outflow of resources.

Question 16 - 122499

Ratio analysis is most useful for comparing companies:

A) in different industries that use the same accounting standards.B) of different size in the same industry.C) that operate in multiple lines of business.

Question 17 - 98080

Which of the following statements about a classified balance sheet is least likely accurate? A classified balance sheet:

A) presents the net equity of each asset by subtracting its related liability.B) groups accounts by subcategories.C) distinguishes between current and noncurrent assets.

Question 18 - 97816

An analyst has gathered the following information about a company:

Balance Sheet

Assets

Cash 100

Accounts Receivable 750

Marketable Securities 300

Inventory 850

Property, Plant & Equip 900

Accumulated Depreciation (150)

Total Assets 2750

Liabilities and Equity

Accounts Payable 300

Short-Term Debt 130

Long-Term Debt 700

Common Stock 1000

Retained Earnings 620

Total Liab. and Stockholder's equity 2750

Income Statement

Sales 1500

COGS 1100

Gross Profit 400

SG&A 150

Operating Profit 250

Interest Expense 25

Taxes 75

Net Income 150

What is the inventory turnover ratio?

A) 1.29.B) 1.59.C) 0.77.

Question 19 - 97687

Which of the following is a measure of a firm's liquidity?

A) Cash Ratio.B) Equity Turnover.C) Net Profit Margin.

Question 20 - 98070

When a reliable estimate of costs exists, ultimate payment is assured, and revenue is earned as costs are incurred, which of the following revenue recognition methods should be used?

A) Percentage-of-completion method.B) Cost recovery method.C) Installment sales method.

Question 21 - 97892

Given the following income statement and balance sheet for a company:

Balance SheetAssets Year 2003 Year 2004Cash 500 450Accounts Receivable 600 660Inventory 500 550Total CA 1300 1660Plant, prop. equip 1000 1250Total Assets 2600 2910

Liabilities

Accounts Payable 500 550

Long term debt 700 700Total liabilities 1200 1652

Equity

Common Stock 400 400Retained Earnings 1260 1260Total Liabilities & Equity 2600 2910

Income Statement Sales 3000Cost of Goods Sold (1000)Gross Profit 2000SG&A 500Interest Expense 151EBT 1349Taxes (30%) 405Net Income 944

What is the operating profit margin?

A) 0.45.B) 0.67.C) 0.50.

Question 22 - 97698

An analysis of the industry reveals that firms have been paying out 45% of their earnings in dividends, asset turnover = 1.2; asset-to-equity (A/E) = 1.1 and profit margins are 8%. What is the industry’s projected growth rate?

A) 4.55%. B) 5.81%. C) 4.95%.

Question 23 - 93882

For the year ended December 31, 2007, Gremlin Corporation reported the following transactions:

Issued 5,000 shares of preferred stock for land with a fair value of $4.8 million. Purchased a patent for $3.3 million cash. Acquired 40% of the common stock of an affiliate for $2.7 million cash which was borrowed from

a bank. Exchanged equipment with a book value of $1.7 million for equipment valued at $2.1 million. The

exchange was an even trade. Converted bonds payable with a book value of $5 million to 50,000 shares of common stock with

a fair value of $6 million.

Calculate Gremlin’s cash flow from investing activities and cash flow from financing activities for the year ended December 31, 2007.

Cash flow from investing activities

Cash flow from financing activities

A) $6.0 million outflow $2.7 million inflow

B) $1.7 million inflow $1.3 million outflow

C) $2.7 million outflow $6.0 million inflow

Question 24 - 97996

An analyst gathered the following information about a company:

01/01/06 - 20,000 shares issued and outstanding 04/01/06 - 5.0% stock dividend 07/01/06 - 5,000 shares repurchased 10/01/06 - 2:1 stock split

What is the company’s weighted average number of shares outstanding at the end of 2006?

A) 37,000.B) 47,000.C) 39,500.

Question 25 - 97299

The following information is from the balance sheet of Silverstone Company:

Net Income for 5/1/20X5 to 5/31/20X5: $8,000 Balance 5/01/20X5 Account   Balance 5/31/20X5

$2,000   Inventory   $1,750$1,200   Prepaid exp.   $1,700$800   Accum. Depr.    $975

$425   Accounts

payable   $625

$650   Bonds payable   $550

Using the indirect method, calculate the cash flow from operations for Silverstone Company as of 5/31/20X5:

A) Increase in cash of $8,025. B) Increase in cash of $8,125. C) Increase in cash of $7,725.

Question 26 - 98040

When considering convertible preferred stock which of the following components of the earnings per share (EPS) equation needs to be adjusted to calculate diluted earnings per share?

A) The numerator and denominator.B) The numerator.C) The denominator.

Question 27 - 122498

Selected information from the most recent cash flow statement of Thibault Company appears below:

Cash collections €8,900Cash paid to suppliers (€3,700)Cash operating expenses (€1,500)Cash taxes paid (€2,400)Cash from operating activities €1,300   Cash paid for plant and equipment (€2,600)Cash interest received €700Cash dividends received €600Cash from investing activities (€1,300)   Cash received from debt issuance €2,000Cash interest paid (€400)Cash dividends paid (€600)Cash from financing activities €1,000   Total change in cash €1,000

Thibault’s reinvestment ratio for this period is closest to:

A) 0.75.B) 1.00.C) 0.50.

Question 28 - 97831

Selected information from Baltimore Corp’s financial activities in the year 2004 is as follows:

Net income was $4,200,000 . 750,000 shares of common stock were outstanding on January 1. The average market price per share was $50 in 2004. Dividends were paid in 2004.

10,000 warrants, which allowed the holder to purchase 10 shares of common stock for each warrant held at a price of $40 per common share, were outstanding the entire year. 

Baltimore’s diluted earnings per share (Diluted EPS) for 2004 is closest to:

A) $5.45.B) $5.60.

C) $4.94.

Question 29 - 97690

A firm’s financial statements reflect the following:

EBIT $2,000,000

Sales $16,000,000

Interest expense $900,000

Total assets $12,300,000

Equity $7,000,000

Effective tax rate 35%

Dividend payout rate 28%

Based on this information, what is the firm’s sustainable growth rate?

A) 8.82%.B) 10.63%.C) 7.35%.

Question 30 - 98004

Under the cost recovery method, profit is recognized:

A) at time of delivery. B) as collection occurs. C) after the amount of cost has been collected.

Question 31 - 98044

Which of the following statements regarding the methods of revenue recognition is most accurate? In the first year of a long-term contract:

A)the percentage-of-completion method generally results in lower retained earnings than the completed contract method.

B) the completed contract method is used when the selling price or cost estimates are unreliable.

C)the completed contract method, in comparison to the percentage-of-completion method, will generally result in higher net income.

Question 32 - 97715

According to the Financial Accounting Standards Board, what is the appropriate balance sheet treatment for available-for-sale securities and where are the unrealized gains and losses reported?

Balance sheet Unrealized gains and losses A) Fair value Other comprehensive income

B) Amortized cost Other comprehensive income

C) Fair value Net income

Question 33 - 97393

Use the following financial data for Moose Printing Corporation to calculate the cash flow from operations (CFO) using the indirect method.

Net income: $225 Increase in accounts receivable: $55 Decrease in inventory: $33 Depreciation: $65 Decrease in accounts payable: $25 Increase in wages payable: $15 Decrease in deferred taxes: $10 Purchase of new equipment: $65 Dividends paid: $75

A) Increase in cash of $173.B) Increase in cash of $248.C) Increase in cash of $183.

Question 34 - 140451

Liquidity-based presentation of a balance sheet is most likely to be used by a:

A) retailer.B) bank.C) manufacturer.

Question 35 - 97814

Which of the following statements about the earnings per share calculation are most accurate?

A) None of these choices are correct.

B)When calculating diluted EPS you must add the shares created from the conversion of the bonds to the denominator and the interest expense times the tax rate to the numerator.

C) If the diluted EPS is less than the basic EPS, then the diluted EPS is said to be anti-dilutive.

Question 36 - 97798

What would be the impact on a firm’s return on assets ratio (ROA) of the following independent transactions, assuming ROA is less than one?

Transaction #1 – A firm owned investment securities that were classified as available-for-sale and there was a recent decrease in the fair value of these securities.

Transaction #2 – A firm owned investment securities that were classified as trading securities and there was recent increase in the fair value of the securities.

Transaction #1 Transaction #2 A) Higher Lower

B) Higher Higher

C) Lower Higher

Question 37 - 97411

When using the indirect method for computing cash flow from operating activities, a change in accounts payable will require which of the following?

A) A negative (positive) adjustment to net income when accounts payable increases (decreases).B) A positive (negative) adjustment to net income when accounts payable increases (decreases).

C)A negative adjustment to net income regardless of whether accounts payable increases or decreases.

Question 38 - 96591

Kellen Harris is a credit analyst with the First National Bank. Harris has been asked to evaluate Longhorn Supply Company’s cash needs. Harris began by calculating Longhorn’s turnover ratios for 2007. After a discussion with Longhorn’s management, Harris decides to adjust the turnover ratios for 2008 as follows:

    2007 Actual Turnover

Expected Increase / (Decrease)

Accounts receivable 5.0 10%

Fixed asset 3.0 7%

Accounts payable 6.0 (20%)

Inventory 4.0 (5%)

Equity 5.5 —

Total asset 2.3 8%

Longhorn’s expected cash conversion cycle for 2008, based on the expected changes in turnover and assuming a 365 day year, is closest to:

A) 82 days.B) 86 days.C) 46 days.

Question 39 - 97350

Determine the cash flow from investing given the following table:

Item AmountCash payment of dividends

$30

Sale of equipment $25Net income $25Purchase of land $15Increase in accounts payable

$20

Sale of preferred stock

$25

Increase in deferred taxes

$5

A) -$5.

B) $10.

C) -$10.

Question 40 - 98073

Under U.S. GAAP, when an unreliable estimate of costs exists and ultimate payment is assured, which of the following revenue recognition methods should be used?

A) Completed contract method.B) Percentage-of-completion method.C) Cost recovery method.

Question 41 - 97963

A 12 percent $100,000 convertible bond was issued on October 1, 2004. It is dilutive and can be converted into 18,000 shares. The effective income tax rate for the year was 40%. What adjustments should be made to calculate diluted earnings per share?

< > td> Interest added to the numerator

Shares added to the denominator

A) $3,000 4,500

B) $1,800 4,500

C) $3,000 18,000

Question 42 - 98038

The following data pertains to the Sapphire Company:

Net income equals $15,000. 5,000 shares of common stock issued on January 1st.

10% stock dividend issued on June 1st. 1,000 shares of common stock were repurchased on July 1st. 1,000 shares of 10%, $100 par preferred stock each convertible into 8 shares of common were

outstanding the whole year.

What is the company’s diluted earnings per share (EPS)?

A) $1.00.B) $2.50.C) $1.15.

Question 43 - 97873

An analyst has gathered the following data about a company:

Average receivables collection period of 37 days. Average payables payment period of 30 days. Average inventory processing period of 46 days.

What is their cash conversion cycle?

A) 113 days.B) 53 days.C) 45 days.

Question 44 - 97969

An analyst has gathered the following information about a company:

110,000 shares of common outstanding at the beginning of the year. The company repurchases 20,000 of its own common shares on July 1. Net income is $300,000 for the year. 10,000 shares of existing 10 percent cumulative $100 par preferred outstanding that is not in

arrears at the beginning or ending of the year. The company also has $1 million in 10 percent callable bonds outstanding. The company has declared a $0.50 dividend on the common.

What is the company's basic Earnings Per Share?

A) $3.00.B) $1.00.C) $2.00.

Question 45 - 97400

Which of the following statements about the indirect method of calculating the statement of cash flows is NOT correct?

A)No adjustment is needed to account for changes in accounts receivable since no cash was involved.

B)No adjustment is needed to account for extraordinary items because they are found above net income and are thus already accounted for.

C) An adjustment is needed for the payment of deferred taxes.

Question 46 - 98227

Using a 365-day year, if a firm has net annual sales of $250,000 and average receivables of $150,000, what is its average collection period?

A) 1.7 days.B) 46.5 days.C) 219.0 days.

Question 47 - 98023

Assume that the exercise price of an option is $6, and the average market price of the stock is $10. Assuming 802 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the diluted earnings per share (EPS)?

A) 481.B) 802.C) 321.

Question 48 - 97803

The primary difference between basic EPS and diluted EPS is that:

A) diluted EPS includes the potential effects of convertible securities while basic EPS does not. B) proprietors and partners report basic EPS but corporations report diluted EPS.

C)extraordinary items and discontinued operations are omitted from basic EPS but included in diluted EPS.

Question 49 - 97760

Selected information from Feder Corp.’s financial activities for the year is as follows:

Net income was $7,650,000. 1,100,000 shares of common stock were outstanding on January 1. The average market price per share was $62. Dividends were paid during the year. The tax rate was 40%. 10,000 shares of 6% $1,000 par value preferred shares convertible into common shares at a rate

of 20 common shares for each preferred share were outstanding for the entire year. 70,000 options, which allow the holder to purchase 10 shares of common stock at an exercise

price of $50 per common share, were outstanding the entire year.

Feder Corp.’s diluted earnings per share (EPS) was closest to:

A) $5.32.B) $5.87.C) $4.91.

Question 50 - 98053

CPP Corporation has a contract to build a custom test chamber for a client for $100,000. CPP Corporation uses the percentage-of-completion method for accounting and estimates the total costs for the project to be equal to $80,000. CPP Corporation has promised to complete the project within three years. At year-end the customer has paid $60,000, equaling the total amount billed for the year, and total costs incurred to date are $40,000. On the income statement, net income for the year-end will be:

A) $10,000.B) $20,000.C) -$10,000.

Question 51 - 97813

Securities that improve basic per share earnings, or reduce per share losses, if they are exercised or converted to common stock are called:

A) antidilutive securities.B) dilutive securities.C) embedded securities.

Question 52 - 98007

Which of the following is least likely reported net of tax on the income statement under U.S. GAAP?

A) Income from discontinued operations.B) Extraordinary items.C) Interest expense.

Question 53 - 119450

The only section of the statement of cash flows that must be adjusted to convert a statement of cash flows from the indirect to the direct method is:

A) cash flows from operations.B) cash flows from investing.C) cash flows from financing.

Question 54 - 131563

Current assets that arise from the accrual process most likely include:

A) accounts receivable.B) cash equivalents.C) marketable securities.

Question 55 - 97986

Ajax Company's capital structure was as follows:

December 31, 2004 December 31, 2003

Outstanding shares of stock:

Common 200,000 200,000

Convertible preferred 5,000 5,000

6% Convertible Bonds $500,000 $500,000

During 2004, Ajax paid dividends of $2.00 per share on its preferred stock. The preferred shares are convertible into 10,000 shares of common stock. The 6% bonds are convertible into 15,000 shares of common stock. Net income for 2004 was $400,000. Assume that income tax rate is 40%.

Ajax’s basic and diluted earnings per share for 2004 are:

Basic EPS Diluted EPSA) $1.95 $1.86

B) $1.95 $1.95

C) $1.80 $1.86

Question 56 - 150001

Which expense recognition method is most appropriate for intangible assets with indefinite lives?

A) Use straight-line amortization.

B)Use accelerated amortization for tax reporting and straight-line amortization for financial reporting.

C) Test for impairment but do not amortize.

Question 57 - 98041

Stanley Corp. had 100,000 shares of common stock outstanding throughout 2004. It also had 20,000 stock options with an exercise price of $20 and another 20,000 options with an exercise price of $28. The average market price for the company's stock was $25 throughout the year. The stock closed at $30 on December 31, 2004. What are the number of shares used to calculate diluted earnings per share for the year?

A) 105,000. B) 104,000. C) 110,000.

Question 58 - 98002

The Kammel Building Company has a contract to build a building for $100 million. The estimate of the cost of the project is $75 million. In the first year of the project, Kammel had costs of $30 million. Kammel’s reported profit for the first year of the contract, using the completed contract method, is:

A) $15 million.B) $0.C) $10 million.

Question 59 - 95386

What are the main components of cash flow from operations?

A) Capitalization activities, sale of assets, and purchasing securities.

B)Changes in accounts receivable, inventory, accounts payable, and items that flow through the income statement.

C) Repayment of bonds, issuance of common stock, and stock splits.

Question 60 - 97345

Coleman Corporation’s unadjusted trial balance at the end of 2007 reflected compensation expense of $90 million. The trial balance did not include the following:

Because of the holidays, no salary accrual was made for the last week of the year. Salaries for the last week totaled $3.5 million and were paid on January 4, 2008.

Employee bonuses for 2007 totaled $5 million. The bonuses were paid on January 31, 2008.

Ignoring payroll taxes, what is Coleman’s adjusted compensation expense for the year ended 2007 and what impact will the adjustment have on Coleman’s 2007 current ratio?

Compensation expense Current ratio A) $98.5 million Decrease

B) $94.5 million Decrease

C) $98.5 million No effect

Question 61 - 147138

Which of the following transactions is most likely to be recognized on a firm’s statement of changes in equity?

A) Buying a machine from an equipment dealer.

B) Declaring a dividend on common shares.C) Investing cash in an exchange-traded fund.

Question 62 - 97965

The ZZT Company went public on June 1, 2004, by issuing 25 million shares of common stock. In 2005, the firm raised additional capital by issuing 2 million shares of preferred stock. What is the weighted average number of common shares outstanding for the year ending December 31, 2005?

A) 14,583,333.B) 25,000,000.C) 10,416,667.

Question 63 - 97950

A complex capital structure would typically contain:

A) variable rate notes.B) convertible bonds.C) bank notes.

Question 64 - 97930

Wells Incorporated reported the following common size data for the year ended December 31, 20X7:

Income Statement %

Sales 100.0

Cost of goods sold 58.2

Operating expenses 30.2

Interest expense 0.7

Income tax 5.7

Net income 5.2

Balance sheet % %

Cash 4.8 Accounts payable 15.0

Accounts receivable 14.9 Accrued liabilities 13.8

Inventory 49.4 Long-term debt 23.2

Net fixed assets 30.9 Common equity 48.0

Total assets 100.00 Total liabilities & equity 100.0

For 20X6, Wells reported sales of $183,100,000 and for 20X7, sales of $215,600,000. At the end of 20X6, Wells’ total assets were $75,900,000 and common equity was $37,800,000. At the end of 20X7, total assets were $95,300,000. Calculate Wells’ current ratio and return on equity ratio for 20X7.

Current ratio Return on equity A) 2.4 26.4%

B) 4.6 25.2%

C) 2.4 26.8%

Question 65 - 94899

How would a stock split be reported on the statement of cash flows? A stock split would:

A) be reported as a source of cash in the cash flows from financing.B) not be reported on the statement of cash flows because it is a non-cash event.C) be reported as a use of cash in the cash flows from financing.

Question 66 - 98001

Retrospective presentation is least likely required for a change from:

A) zero salvage value to positive salvage value.B) percentage-of-completion to completed contract revenue recognition.C) LIFO to average cost inventory valuation.

Question 67 - 97932

Which of the following ratios would least likely measure liquidity?

A) Quick ratio.B) Current ratio.C) Return on assets (ROA).

Question 68 - 97874

Given the following information about a company:

Receivables turnover = 10 times. Payables turnover = 12 times. Inventory turnover = 8 times.

What are the average receivables collection period, the average payables payment period, and the average inventory processing period respectively?

Average ReceivablesCollection Period

Average PayablesPayment Period

Average InventoryProcessing Period

A) 37 30 46

B) 37 30 52

C) 37 45 46

Question 69 - 140445

Selected financial ratios from Mulroy Company’s common-size income statements are as follows:

  20X1 20X2 20X3Gross profit margin 22% 24% 26%Operating profit margin 18% 20% 22%Pretax margin 15% 14% 13%Net profit margin 11% 10% 9%Relative to sales, it is most likely that Mulroy’s:

A) operating expenses are increasing.B) nonoperating expenses are increasing. C) income tax expense is increasing.

Question 70 - 98063

A video rental store with a large inventory of newly released movies is attempting to determine an appropriate method of depreciation for its movies for rental. As well, it is trying to determine an appropriate method of determining the cost of its inventory of movies for sale. Which of the following treatments is most appropriate for the movies for rental and movies for sale?

Movies for rental Movies for sale A) Straight-line depreciation Last-in, first-out

B) Accelerated depreciation Last-in, first-out

C) Accelerated depreciation First-in, first-out

Question 71 - 97846

Moulding Company’s net income was $13,820,000 with 2,600,000 shares outstanding. The average share price for the year was $58.00. Moulding had 10,000 options to purchase 10 shares each at $40 per share outstanding the entire year. Moulding Company’s diluted earnings per share are closest to:

A) $3.71.B) $5.32.C) $5.25.

Question 72 - 97437

Paragon Company's operating profits are $100,000, interest expense is $25,000, and earnings before taxes are $75,000. What is Paragon's interest coverage ratio?

A) 1 time.B) 4 times.C) 3 times.

Question 73 - 97957

At the beginning of this year Aristotle Co. had 400,000 shares of common stock outstanding. During the year, Aristotle paid a 10 percent stock dividend on May 31, issued 90,000 new common shares on June 30, and repurchased 12,000 shares on December 1. The number of shares Aristotle should use in computing earnings per share at the end of the year is:

A) 475,000. B) 484,000.C) 476,000.

Question 74 - 97832

Given the following income statement and balance sheet for a company:

Balance SheetAssets Year 2003 Year 2004Cash 500 450Accounts Receivable 600 660Inventory 500 550Total CA 1600 1660Plant, prop. equip 1000 1250Total Assets 2600 2910

Liabilities

Accounts Payable 500 550Long term debt 700 1002Total liabilities 1200 1552

Equity

Common Stock 400 538Retained Earnings 1000 820Total Liabilities & Equity 2600 2910

Income Statement Sales 3000Cost of Goods Sold (1000)Gross Profit 2000SG&A (500)Interest Expense (151)EBT 1349Taxes (30%) (405)Net Income 944

What is the current ratio for 2004?

A) 3.018.

B) 0.331.C) 2.018.

Question 75 - 95134

Which of the following best describes a ratio that measures a firm’s ability to acquire long-term assets with cash flows from operations, and a performance ratio, respectively?

Acquire assets with CFO Performance ratioA) Investing and financing ratio Cash-to-income ratio

B) Reinvestment ratio Debt payment ratio

C) Reinvestment ratio Cash-to-income ratio

Question 76 - 94938

What is the difference between the direct and the indirect method of calculating cash flow from operations?

A)The direct method starts with sales and follows cash as it flows through the income statement, while the indirect method starts with net income and adjusts for non-cash charges and other items.

B)The indirect method starts with gross income and adjusts to cash flow from operations, while the direct method starts with gross profit and flows through the income statement to calculate cash flows from operations.

C)Balance sheet items are not included in the cash flow from operations for the direct method, while they are included for the indirect method.

Question 77 - 97781

Which of the following statements regarding the treasury stock method of computing diluted shares is least accurate? The treasury stock method:

A) is used when the exercise price of the option is less than the average market price.

B)assumes that the hypothetical funds received by the company from the exercise of the options are used to sell shares of the company’s common stock in the market at the average market price.

C)increases the total number of shares by less than the number that the exercise of the options would create.

Question 78 - 97119

The following footnote appeared in Crabtree Company’s 20X7 annual report:

“On December 31, 20X7, Crabtree recognized a restructuring charge of $20 million, of which $5 million was for severance pay for employees who will be terminated in 20X8 and $15 million was for land that became permanently impaired in 20X7.†�

Based only on these changes, Crabtree’s net profit margin and fixed asset turnover ratio (using year-end financial statement values) in 20X8 as compared to 20X7 will be:

Net profit margin Fixed asset turnoverA) Higher Higher

B) Lower Higher

C) Higher Unchanged

Question 79 - 97825

In calculating the numerator for diluted Earnings Per Share, the interest on convertible debt is:

A) subtracted from earnings available to common shareholders after an adjustment for taxes.B) added to earnings available to common shareholders after an adjustment for taxes.C) added to earnings available to common shareholders.

Question 80 - 97981

Washington, Inc.’s stock transactions during the year 20X4 were as follows:

January 1    720,000 shares issued and outstandingMay 1    2 for 1 stock split occurred

What was Washington’s weighted average number of shares outstanding during 20X4, for earnings per share (EPS) computation purposes?

A) 1,500,000.B) 1,666,667.C) 1,440,000.

Question 81 - 97894

Rushford Corp.’s net income is $16,500,000 with 300,000 shares outstanding. The tax rate is 40%. The average share price for the year was $372. Rushford has 50,000, 9%, $1,000 par value convertible bonds outstanding. Each bond is convertible into two shares of common stock.

Rushford Corp.’s basic and diluted earnings per share (EPS) are closest to:

Basic EPS Dilutied EPSA) $55.00    $48.00

B) $65.63   $48.00

C) $55.00    $51.56

Question 82 - 97376

An examination of the cash receipts and payments of Xavier Corporation reveals the following:

Cash paid to suppliers for purchase of merchandise $5,000Cash received from customers 14,000Cash paid for purchase of equipment 22,000Dividends paid 2,000Cash received from issuance of preferred stock 10,000Interest received on short-term investments 1,000Wages paid 4,000Repayment of loan to the bank 5,000Cash from sale of land 12,000

Under U.S. GAAP, Xavier's cash flow from financing (CFF) and cash flow from investing (CFI) will be:

CFF CFIA) $10,000 $12,000

B) $3,000 $12,000

C) $3,000 -$10,000

Question 83 - 97808

Advantage Corp.'s capital structure was as follows:

December 31, 2005 December 31, 2004

Outstanding shares of stock:

Common 110,000 110,000

Convertible Preferred 10,000 10,000

8% Convertible Bonds $1,000,000 $1,000,000

During 2005, Advantage paid dividends of $3 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of common stock. Net income for 2005 was $850,000. Assume the income tax rate is 30%.

Calculate Advantage's basic and diluted earnings per share (EPS) for 2005.

Basic EPS Diluted EPSA) $7.45 $5.66

B) $6.31 $5.66

C) $7.45 $6.26

Question 84 - 97679

Lightfoot Shoe Company reported sales of $100 million for the year ended 20X7. Lightfoot expects sales to increase 10% in 20X8. Cost of goods sold is expected to remain constant at 40% of sales and Lightfoot would like to have an average of 73 days of inventory on hand in 20X8. Forecast Lightfoot’s average inventory for 20X8 assuming a 365 day year.

A) $8.0 million.

B) $22.0 million.C) $8.8 million.

Question 85 - 98020

Pinto Corporation is an automobile manufacturer located in North America. Pinto owns a 5 percent interest in one of its suppliers, Continental Supply Company. Each year, Pinto receives a cash dividend from Continental. Pinto’s engine supplier, National Supply Company, recently increased prices on goods sold to all customers due to higher labor costs. Should Pinto report the dividends received from Continental and the price increase from National as an operating or nonoperating component on its year-end income statement?

A) Both are nonoperating.B) Both are operating.C) Only one is operating.

Question 86 - 98005

The Widget Company had net income of $1 million for the period. There were 1 million shares of widget common stock outstanding for the entire period. If there are 100,000 options outstanding with an exercise price of $40, what is the diluted earnings per share for Widget common stock if the average price per share over the period was $50?

A) $1.00.B) $0.99.C) $0.98.

Question 87 - 97416

Given the following information, what is the adjustment to net income when calculating cash flow from operations using the indirect method?

Increase in accounts payable of $25. Sold one share of stock for $15. Paid dividends of $10 to shareholders. Depreciation expense of $100. Increase in inventory of $20.

A) -$50.B) +$105.C) -$95.

Question 88 - 96767

Given the following income statement and balance sheet for a company:

Balance Sheet

Assets Year 2006 Year 2007Cash 200 450Accounts Receivable 600 660Inventory 500 550Total CA 1300 1660Plant, prop. equip 1000 1580Total Assets 2600 3240LiabilitiesAccounts Payable 500 550Long term debt 700 1052Total liabilities 1200 1602EquityCommon Stock 400 538Retained Earnings 1000 1100Total Liabilities & Equity 2600 3240

Income Statement Sales 3000Cost of Goods Sold (1000)Gross Profit 2000SG&A 500Interest Expense 151EBT 1349Taxes (30%) 405Net Income 944

Which of the following is closest to the company's return on equity (ROE)?

A) 0.29.B) 1.83.C) 0.62.

Question 89 - 97373

To convert an indirect statement of cash flows to a direct basis, the analyst would:

A) subtract increases in inventory from cost of goods sold. B) add increases in accounts payable to cost of goods sold.C) add decreases in accounts receivables to net sales.

Question 90 - 97864

Selected information from Caledonia, Inc.’s financial activities in the year 20X6 is as follows:

Net income = $460,000. 2,300,000 shares of common stock were outstanding on January 1. The average market price per share was $2 and the year-end stock price was $1.50. 1,000 shares of 8%, $1,000 par value preferred shares were outstanding on January 1. Preferred

dividends were paid in 20X6.

10,000 warrants, each of which allows the holder to purchase 100 shares of common stock at an exercise price of $1.50 per common share, were outstanding the entire year.

Caledonia’s diluted earnings per share for 20X6 are closest to:

A) $0.165.B) $0.180.C) $0.15.

Question 91 - 97914

A firm’s financial statements reflect the following:

Current liabilities $4,000,000

Cash $400,000

Inventory $1,200,000

Accounts receivable $800,000

Short-term investments $2,000,000

Long-term investments $800,000

Accounts payable $2,500,000

What are the firm’s current ratio, quick ratio, and cash ratio?

Current Ratio Quick Ratio Cash RatioA) 0.8 0.6 1.1

B) 1.1 0.8 0.6

C) 1.1 0.6 0.8

Question 92 - 97389

Selected information from Rockway, Inc.’s U.S. GAAP financial statements for the year ended December 31, included the following (in $):

2004 2005Sales 17,000,000 21,000,000Cost of Goods Sold 11,000,000 15,000,000Interest Paid 800,000 1,000,000Current Income Taxes Paid 700,000 1,000,000Accounts Receivable 3,000,000 2,500,000Inventory 2,400,000 3,000,000Property, Plant & Equip. 2,000,000 16,000,000Accounts Payable 1,000,000 1,400,000Long-term Debt 8,000,000 9,000,000Common Stock 4,000,000 5,000,000

Using the direct method, cash provided or used by operating activities(CFO) in the year 2005 was:

A) $5,300,000.B) $6,300,000.C) $4,300,000.

Question 93 - 97320

Eagle Company’s financial statements for the year ended December 31, 20X5 were as follows (in $ millions):

Income StatementSales 150 Cost of Goods Sold (48)Wages Expense (56)Interest Expense (12)Depreciation (22)Gain on Sale of Equipment 6 Income Tax Expense ( 8)Net Income 10

Balance Sheet12-31-X4 12-31-X5

Cash 32 52Accounts Receivable 18 22Inventory 46 44Property, Plant & Equip. (net) 182 160Total Assets 278 278Accounts Payable 28 33Long-term Debt 145 135Common Stock 70 70Retained Earnings 35 40Total Liabilities & Equity 278 278

Cash flow from operations (CFO) for Eagle Company for the year ended December 31, 20X5 was (in $ millions).

A) $41.B) $29.C) $37.

Question 94 - 98066

Do gains and losses, as well as expenses appear on the income statement?

A) Both appear on the income statement.B) Only expenses appear on the income statement.C) Only gains and losses appear on the income statement.

Question 95 - 97871

To calculate the cash ratio, the total of cash and marketable securities is divided by:

A) total liabilities.B) current liabilities.C) total assets.

Question 96 - 98058

Extraordinary items are:

A) unusual in nature or infrequent.B) unusual in nature and infrequent.C) related to the normal course of business.

Question 97 - 97989

An analyst gathered the following information about a company:

01/01/04 - 50,000 shares issued and outstanding at the beginning of the year 04/01/04 - 5% stock dividend 10/01/04 - 10% stock dividend

What is the company’s weighted average number of shares outstanding at the end of 2004?

A) 57,500.B) 57,750.C) 55,000.

Question 98 - 97364

Use the following data from Delta's common size financial statement to answer the question:

Earnings after taxes = 18%Equity = 40%Current assets = 60%Current liabilities = 30%Sales = $300Total assets = $1,400

What is Delta's after-tax return on equity?

A) 18.0%.

B) 5.0%.C) 9.6%.

Question 99 - 98083

Which, if any, of the following statements about the installment sales method and cost recovery method is correct?

Statement 1: The cost recovery method recognizes revenue and associated costs of goods sold only when cash is received, based on gross profit margin.

Statement 2: The installment sales method recognizes sales when cash is received, but no gross profit is recognized until all of the cost of goods sold is collected.

A) Neither statement is correct.B) Only one of these statements is correct.C) Both statements are correct.

Question 100 - 95656

Which of the following choices most accurately illustrates an operating liability and which most accurately illustrates a financing liability?

Operating liabilities Financing liabilities A) Accounts payable Current portion of long-term debt

B) Short-term note payable Current portion of long-term debt

C) Customer advances Accrued liabilities

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