Financial Reporting & Analysis Flashcards
7 cards from real CFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Reporting & Analysis flashcards as text
Which of the following scenarios would trigger an impairment test for a long-lived asset under ASC 360?
Answer: A significant adverse change in the asset's physical condition or business climate
ASC 360 requires a recoverability test when a triggering event occurs, such as a significant adverse change in the extent or manner the asset is used or in its physical condition.
When computing free cash flow (FCF) for financial analysis, which formula is most commonly used?
Answer: Operating cash flow minus capital expenditures
Free cash flow is most commonly defined as operating cash flow minus capital expenditures, representing cash available after maintaining or expanding the asset base.
A firm has an interest coverage ratio of 1.2. What does this indicate?
Answer: The firm barely covers its interest expense, indicating high financial risk
An interest coverage ratio (EBIT ÷ Interest Expense) near 1.0 means earnings barely cover interest, signaling elevated default risk and limited financial cushion.
Under the percentage-of-completion method, how is revenue recognized for long-term contracts?
Answer: Proportionally based on the stage of completion
The percentage-of-completion method recognizes revenue in proportion to work completed, typically measured by costs incurred relative to total estimated costs.
Which of the following items would appear in the financing activities section of the cash flow statement?
Answer: Issuance of long-term debt
Proceeds from issuing long-term debt are a financing inflow because they represent borrowing from lenders to fund the business.
A company restates prior-period financial statements due to a material accounting error. How is the correction reported?
Answer: As a prior-period adjustment to the opening retained earnings balance
Under ASC 250, correction of a material error in prior-period statements is reported as a retrospective restatement, with the cumulative effect reflected as an adjustment to beginning retained earnings.
In horizontal (trend) analysis, what is the base-year figure used to calculate percentage change?
Answer: The earliest year presented in the analysis
Horizontal analysis uses the earliest year (base year) as the denominator to measure the percentage change in financial statement items over subsequent periods.