AIFA Financial Statement Analysis & Accounting 2

Question 1

In a DuPont analysis, Return on Equity (ROE) is decomposed into which three components?

Accepted Answer

Net profit margin, asset turnover, and equity multiplier

Answer

Gross margin, asset turnover, and leverage ratio

Answer

Operating margin, current ratio, and debt-to-equity

Answer

Revenue growth, net margin, and dividend payout

Question 2

Under FIFO inventory accounting during a period of rising prices, compared to LIFO, a company will report:

Accepted Answer

Higher net income and higher ending inventory

Answer

Lower net income and lower ending inventory

Answer

Higher net income and lower ending inventory

Answer

Lower net income and higher ending inventory

Question 3

Which of the following is classified as an off-balance-sheet financing arrangement?

Accepted Answer

Special purpose entity (SPE) used to transfer assets

Answer

Long-term bonds payable

Answer

Operating lease under ASC 842

Answer

Finance lease liability

Question 4

Goodwill recorded on an acquisition must be:

Accepted Answer

Tested for impairment annually under US GAAP

Answer

Amortized over 40 years under US GAAP

Answer

Written off immediately against retained earnings

Answer

Amortized over its useful economic life under IFRS only

Question 5

Earnings quality is considered HIGH when a company's earnings are primarily driven by:

Accepted Answer

Recurring operating cash flows closely matching net income

Answer

One-time gains from asset sales

Answer

Aggressive revenue recognition policies

Answer

Significant accruals and deferrals

Question 6

A deferred tax liability arises when:

Accepted Answer

Tax expense exceeds taxes currently payable

Answer

Taxes currently payable exceed tax expense

Answer

A company has net operating loss carryforwards

Answer

Accelerated tax depreciation creates a future deduction

Question 7

An analyst notes that a company's accounts receivable days (DSO) increased from 35 to 58 days over two years while revenue grew 5%. This most likely indicates:

Accepted Answer

Potential revenue recognition issues or collection problems

Answer

Improved efficiency in collecting receivables

Answer

A reduction in credit sales as a percentage of total sales

Answer

Strong demand leading to faster order fulfillment