AIFA Financial Statement Analysis & Accounting

Question 1

Which financial statement provides a snapshot of a company's assets, liabilities, and equity at a specific point in time?

Accepted Answer

Balance Sheet

Answer

The Balance Sheet (also called Statement of Financial Position) reports a company's financial position at a single date, organized by assets, liabilities, and shareholders' equity.

Question 2

Under GAAP, when a company sells goods on credit, revenue should generally be recognized when:

Accepted Answer

Control of the goods has transferred to the buyer

Answer

Under ASC 606 (GAAP revenue recognition standard), revenue is recognized when control of the promised goods or services transfers to the customer, regardless of when cash is received.

Question 3

A company reports net income of $500,000, depreciation of $80,000, and an increase in accounts receivable of $30,000. What is the operating cash flow using the indirect method?

Accepted Answer

$550,000

Answer

Operating cash flow = Net income + Depreciation (non-cash) – Increase in AR = $500,000 + $80,000 – $30,000 = $550,000.

Question 4

Which depreciation method results in the highest depreciation expense in the early years of an asset's life?

Accepted Answer

Double-declining balance depreciation

Answer

Double-declining balance is an accelerated depreciation method that applies double the straight-line rate to the declining book value, producing the largest expense in the earliest years.

Question 5

The current ratio is calculated as:

Accepted Answer

Current Assets / Current Liabilities

Answer

The current ratio equals current assets divided by current liabilities, measuring a company's short-term liquidity and ability to pay near-term obligations.

AIFA - Applied Investment & Finance Analyst Practice Test

AIFA - Applied Investment & Finance Analyst Practice Test

AIFA Financial Statement Analysis & Accounting