CFC Financial Reporting & Analysis 5

Question 1

Which of the following scenarios would trigger an impairment test for a long-lived asset under ASC 360?

Accepted Answer

A significant adverse change in the asset's physical condition or business climate

Answer

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.

Question 2

When computing free cash flow (FCF) for financial analysis, which formula is most commonly used?

Accepted Answer

Operating cash flow minus capital expenditures

Answer

Free cash flow is most commonly defined as operating cash flow minus capital expenditures, representing cash available after maintaining or expanding the asset base.

Question 3

A firm has an interest coverage ratio of 1.2. What does this indicate?

Accepted Answer

The firm barely covers its interest expense, indicating high financial risk

Answer

An interest coverage ratio (EBIT ÷ Interest Expense) near 1.0 means earnings barely cover interest, signaling elevated default risk and limited financial cushion.

Question 4

Under the percentage-of-completion method, how is revenue recognized for long-term contracts?

Accepted Answer

Proportionally based on the stage of completion

Answer

The percentage-of-completion method recognizes revenue in proportion to work completed, typically measured by costs incurred relative to total estimated costs.

Question 5

Which of the following items would appear in the financing activities section of the cash flow statement?

Accepted Answer

Issuance of long-term debt

Answer

Proceeds from issuing long-term debt are a financing inflow because they represent borrowing from lenders to fund the business.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC Financial Reporting & Analysis 5