FRA Review

Assume the companies use a periodic inventory system.<br /><br />Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in 2018. Compared to the results the company would have reported if the write-down had never occurred, Zimt’s reported 2018:

• A. profit was overstated.
• B. cash flow from operations was overstated.
• C. year-end inventory balance was overstated.

For its fiscal year-end, Sublyme Corporation reported net income of $200 million and a weighted average of 50,000,000 common shares outstanding. There are 2,000,000 convertible preferred shares outstanding that paid an annual dividend of $5. Each preferred share is convertible into two shares of the common stock. The diluted EPS is closest to:

• A. $3.52.
• B. $3.65.
• C. $3.70.

• A. net profit margin and financial leverage have decreased.
• B. net profit margin and financial leverage have increased.
• C. net profit margin has decreased but its financial leverage has increased.

• A. essentially unchanged.
• B. higher by 2.5%.
• C. lower by 2.3%.

Which of the following best describes a reason a company would acquire the use of equipment through an operating lease rather than by purchase?

• A. To take advantage of less costly financing
• B. To obtain preferential tax treatment for the lease payments compared with ownership
• C. To increase cash from operations

Using the straight-line method of depreciation for reporting purposes and accelerated depreciation for tax purposes would most likely result in a:

• A. valuation allowance.
• B. deferred tax asset.
• C. temporary difference.

Which of the following is most likely a lessee’s disclosure about operating leases?

• A. Lease liabilities.
• B. Future obligations by maturity.
• C. Net carrying amounts of leased assets.

• A. $1,250.
• B. $950.
• C. $1,050.

Valuing assets at the amount of cash or equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition most closely describes which measurement of financial statement elements?

• A. Current cost.
• B. Historical cost.
• C. Realizable value.

• A. $25,900.
• B. $46,300.
• C. $62,500.