CFC Financial Reporting & Analysis 4

Question 1

A controller notices that a subsidiary's functional currency differs from the parent's reporting currency. Which method should be used to translate the subsidiary's financials?

Accepted Answer

Current rate method, with translation adjustments in OCI

Answer

When the functional currency differs from the reporting currency, the current rate method is used and resulting translation adjustments are reported in OCI as part of accumulated other comprehensive income.

Question 2

Which ratio best measures how efficiently a company uses its assets to generate sales?

Accepted Answer

Asset turnover ratio

Answer

Asset turnover (Net Sales ÷ Average Total Assets) measures the revenue generated per dollar of assets, indicating operational efficiency.

Question 3

Under GAAP, research costs must be:

Accepted Answer

Expensed as incurred

Answer

Under US GAAP (ASC 730), research and development costs must be expensed as incurred because future benefits are too uncertain to capitalize.

Question 4

What is the effect on the financial statements when a company records an accelerated depreciation method instead of straight-line in the early years of an asset's life?

Accepted Answer

Lower net income and lower asset book value in early years

Answer

Accelerated depreciation produces higher depreciation expense in early years, reducing net income and accelerating the reduction of the asset's book value compared to straight-line.

Question 5

A company's earnings per share (EPS) calculation uses the weighted-average number of shares outstanding. If the company repurchases shares mid-year, the effect on diluted EPS will be:

Accepted Answer

Denominator decreases, potentially increasing EPS

Answer

Share repurchases reduce the weighted-average share count used in the EPS denominator, which tends to increase EPS when net income remains constant.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Financial Reporting & Analysis 4