Accounting choices within GAAP that decrease reported performance in the current period and may increase performance in later periods are most likely examples of:

C. earnings that are not sustainable.

For a bond issued at a premium, using the effective interest rate method, the:

B. amortization of the premium increases each year.

A. carrying amount increases each year.

C. premium is evenly amortized over the life of the bond.

The following excerpt was taken from the notes of a company’s financial statements that were prepared in accordance with International Financial Reporting Standards. All figures are in thousands of Australian dollars. Note 12: Broadcast Licenses During 2014, the company successfully disposed of broadcast licenses that were held for sale for A$37,900 (net book value of A$23,500). Based on the successful completion of that sale, the impairment losses taken in 2012 on other licenses have been reversed, restoring those intangible assets to their amortized historical cost. Broadcast licenses are amortized over a period of 15–25 years. The note leads an analyst to believe that the rapid reversal of the impairment loss related to the broadcast licenses arose as an attempt by management to manage earnings. If the analyst’s belief is correct, her analysis of the original 2013 financial statements would most likely have shown that, compared with the economic reality in 2013, the company had:

C. overstated net profit margin.

B. understated fixed asset turnover.

All else equal, in the fiscal year when long-lived equipment is purchased:

A. depreciation expense increases.

B. cash from operations decreases.

C. net income is reduced by the amount of the purchase.

At the end of the year, a company revalued its manufacturing facilities, increasing their carrying amount by 12%. There had been no prior downward revaluation of these facilities. The revaluation will most likely cause the company’s:

B. return on equity to decline.

A. return on assets to increase.

C. net profit margin to increase.

Under IFRS, reversals of impairments of long-lived assets are allowed:

A. for previously recognized impairment losses only.

B. if the recoverable amount exceeds the previous carrying amount.

C. for assets held for sale only.

Which of the following is an example of an affirmative debt covenant? The borrower is:

C. required to perform regular maintenance on equipment pledged as collateral.

A. prohibited from entering into mergers.

B. prevented from issuing excessive additional debt.

Which of the following is lowest in quality on the spectrum of GAAP conforming financial reports?

A. Aggressive accounting choices

C. Conservative accounting choices

A company is most likely to:

C. change from the fair value model when the company transfers investment property to property, plant, and equipment.

A. use a fair value model for some investment property and a cost model for other investment property.

B. change from the fair value model when transactions on comparable properties become less frequent.

Under IFRS, an impairment loss on a property, plant, and equipment asset is measured as the excess of the carrying amount over the asset’s:

C. undiscounted expected future cash flows.

A US company that complies with US GAAP would like to exclude some items in determining non-GAAP financial measures, other than EBIT and EBITDA. Which of the following items may be excluded?

B. Impairment charges for long-lived assets

A. For performance measures, items tagged as infrequent that occurred within the past two years

C. For liquidity measures, litigation costs requiring cash settlement

Projecting profit margins into the future on the basis of past results would be most reliable when the company:

C. is a large, diversified company operating in mature industries.

A. is in the commodities business.

B. operates in a single business segment.

Which of the following concerns would most likely motivate a manager to make conservative accounting choices?

B. Expected weakening in the business environment

A. Attention to future career opportunities

C. Debt covenant violation risk in the current period

Which of the following best describes an opportunity for management to issue low-quality financial reports?

A. Ineffective board of directors

B. Pressure to achieve some performance level

C. Corporate concerns about financing in the future

Regarding a company’s debt obligations, which of the following is most likely presented on the balance sheet?

C. The portion of long-term debt due in the next 12 months

B. Maturity dates for debt obligations

When earnings are increased by deferring research and development (R&D) investments until the next reporting period, this choice is considered:

B. earnings management as a result of a real action.

C. earnings management as a result of an accounting choice.

For which of the following companies would forecasting future operating profits based on historical performance be most appropriate? A domestic industrial security company that has served a stable portfolio of clients for many years A domestic mining company whose extraction costs are quite stable even though the underlying commodities are volatile in price An international personal care products company that manufactures and sells in many countries, with relatively stable local demand and stable local costs at its manufacturing sites

C. The industrial security company

B. The personal care products company

The impairment of intangible assets with finite lives affects:

C. both the balance sheet and the income statement.

A. the balance sheet but not the income statement.

B. the income statement but not the balance sheet.

Under IFRS, what must be disclosed under the cost model of valuation for investment properties?

B. The method for determining fair value

C. Reconciliation between beginning and ending carrying amounts of investment property

Under IFRS, it is most appropriate to include which of the following pension costs of a defined-benefit plan in other comprehensive income?

A. Net interest expense accrued on the beginning net pension liability

Analysts should treat deferred tax liabilities that are expected to reverse as:

C. neither liabilities nor equity.

Which technique most likely increases the cash flow provided by operations?

A. Stretching the accounts payable credit period

B. Applying all non-cash discount amortization against interest capitalized

C. Shifting classification of interest paid from financing to operating cash flows

FRA 1.4 Test 2

Authored by Education Trustville

Professional Development, Other

University - Professional Development

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Which of the following situations represents a motivation, rather than an opportunity, to issue low-quality financial reports?

A. Poor internal controls

B. Search for a personal bonus

C. Inattentive board of directors

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

A. lower.

B. higher.

C. the same.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Which of the following is least likely an advantage to the lessee in a leasing agreement?

A. High residual value

B. Low down payment required

C. Lower financing costs than purchasing the asset

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

A company issues €1 million of bonds at face value. When the bonds are issued, the company will record a:

A. cash inflow from investing activities.

B. cash inflow from financing activities.

C. cash inflow from operating activities.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

One concern when screening for stocks with low price-to-earnings ratios is that companies with low P/Es may be financially weak. What criterion might an analyst include to avoid inadvertently selecting weak companies?

A. Net income less than zero

B. Debt-to-total assets ratio below a certain cutoff point

C. Current-year sales growth lower than prior-year sales growth

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

A company issues €10,000,000 face value of 10-year bonds dated 1 January 2015 when the market interest rate on bonds of comparable risk and terms is 6%. The bonds pay 7% interest annually on 31 December. Based on the effective interest rate method, the interest expense on 31 December 2015 is closest to:

A. €644,161.

B. €700,000.

C. €751,521.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

A. a loss of ARP 15,000.

B. a gain of ARP 15,000.

C. a gain of ARP 18,333.

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FRA 1.4 Test 2

Which of the following situations represents a motivation, rather than an opportunity, to issue low-quality financial reports?

Which of the following is least likely an advantage to the lessee in a leasing agreement?

A company issues €1 million of bonds at face value. When the bonds are issued, the company will record a:

One concern when screening for stocks with low price-to-earnings ratios is that companies with low P/Es may be financially weak. What criterion might an analyst include to avoid inadvertently selecting weak companies?

Accounting choices within GAAP that decrease reported performance in the current period and may increase performance in later periods are most likely examples of:

For a bond issued at a premium, using the effective interest rate method, the:

CROCO S.p.A sells an intangible asset with a historical acquisition cost of €12 million and an accumulated depreciation of €2 million and reports a loss on the sale of €3.2 million. Which of the following amounts is most likely the sale price of the asset?

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