FRA Quiz 1

During the process data phase of financial statement analysis, an analyst will most likely develop a:

• A. statement of purpose.
• B. common-size balance sheet.
• C. statement of cash flows.

Reviewing the MD&A section of an annual report is important because:

• A. future revenue projections must be disclosed.
• B. accounting policies may require subjective judgment by management.
• C. management commentary is typically unaudited.

Interim reports most likely:

• A. are audited.
• B. are issued semi-annually or quarterly.
• C. include a full set of financial statements and notes.

Neutrality of information in the financial statements most closely contributes to which qualitative characteristic?

• A. Relevance.
• B. Understandability.
• C. Faithful representation.

Which of the following statements best describes the role of the International Organization of Securities Commissions (IOSCO)? The IOSCO

• A. is the oversight body to which the International Accounting Standards Board (IASB) reports.
• B. is responsible for regulating financial markets of member nations.
• C. assists in attaining the goal of cross-border cooperation in combating violations of securities laws.

To evaluate the potential effect of an innovative and unique type of business transaction on financial statements, an analyst’s best approach is to:

• A. monitor the actions of standard setters and regulators.
• B. gain an understanding of the transaction’s economic purpose.
• C. consider the approach taken for “new” transactions that arose in the past.

At the start of the year, a company acquired new equipment at a cost of €50,000, estimated to have a three-year life and a residual value of €5,000. If the company depreciates the asset using the double declining balance method, the depreciation expense that the company will report for the third year is closest to:

• A. €3,328.
• B. €555.
• C. €3,705.

Expenses on the income statement may be grouped by:

• A. nature, but not by function.
• B. function, but not by nature.
• C. either function or nature.

For its fiscal year-end, Calvan Water Corporation (CWC) reported net income of $12 million and a weighted average of 2,000,000 common shares outstanding. The company paid $800,000 in preferred dividends and had 100,000 options outstanding with an average exercise price of $20. CWC’s market price over the year averaged $25 per share. CWC’s diluted EPS is closest to:

• A. $5.33.
• B. $5.54.
• C. $5.94.

Which of the following statements is most accurate regarding cash flow statements?

• A. Under IFRS, the indirect method of preparation is encouraged.
• B. Under IFRS, interest paid can be reported either as an operating or as an investing cash flow.
• C. Under US GAAP, bank overdrafts should be classified as a financing cash flow.