CFA Financial Reporting & Analysis 3

Question 1

Which of the following would increase a company's current ratio but NOT its quick ratio?

Accepted Answer

Purchasing inventory on credit

Answer

Purchasing inventory on credit increases current assets (inventory) and current liabilities equally, but inventory is excluded from the quick ratio numerator.

Question 2

A finance lease on the lessee's books results in which of the following compared to an operating lease?

Accepted Answer

Higher debt-to-equity ratio

Answer

Finance leases require recognizing a liability on the balance sheet, increasing the debt-to-equity ratio compared to an operating lease.

Question 3

Under the percentage-of-completion method for long-term contracts, revenue recognized in a period is based on:

Accepted Answer

Costs incurred to date as a proportion of total estimated costs

Answer

Revenue is recognized proportionally based on costs incurred to date divided by total estimated costs, reflecting the stage of completion.

Question 4

Common-size income statements express each line item as a percentage of:

Accepted Answer

Revenue

Answer

Common-size income statements divide each line item by revenue, enabling comparison across companies of different sizes.

Question 5

A write-down of inventory to net realizable value under IFRS will immediately affect:

Accepted Answer

Both the balance sheet and income statement

Answer

An inventory write-down reduces the inventory asset on the balance sheet and is recognized as an expense on the income statement in the same period.

CFA Practice Test

CFA Practice Test

CFA Financial Reporting & Analysis 3