FA Financial Reporting and Analysis

Question 1

Which financial statement summarizes a company's revenues and expenses over a specific period?

Accepted Answer

Income Statement

Answer

The income statement reports revenues, expenses, and net income or loss for a defined accounting period.

Question 2

What does the current ratio measure?

Accepted Answer

Short-term liquidity

Answer

The current ratio (current assets ÷ current liabilities) measures a company's ability to pay short-term obligations.

Question 3

Under US GAAP, which inventory costing method assumes the most recently purchased items are sold first?

Accepted Answer

LIFO

Answer

LIFO (Last-In, First-Out) assumes the newest inventory is sold first, which can reduce taxable income during periods of rising prices.

Question 4

Which ratio measures how efficiently a company collects receivables?

Accepted Answer

Accounts Receivable Turnover Ratio

Answer

Accounts receivable turnover (net credit sales ÷ average accounts receivable) indicates how many times receivables are collected during a period.

Question 5

What is the primary purpose of a common-size income statement?

Accepted Answer

To express all line items as a percentage of net sales

Answer

A common-size income statement expresses each line item as a percentage of net revenues, facilitating comparison across companies or time periods.

FA - Finance Analyst Practice Test