Q. Assuming no changes in other variables, which of the following would decrease ROA?

C. An increase in average assets.

A. A decrease in the effective tax rate.

B. A decrease in interest expense.

Q. A high-quality financial report may reflect:

C. understatement of asset impairment.

Q. Which of the following is a required financial statement disclosure for long-lived intangible assets under US GAAP?

C. Estimated amortization expense for the next five fiscal years

B. The reversal of impairment losses

Q. In a comprehensive financial analysis, financial statements should be:

C. adjusted for differences in accounting standards, such as international financial reporting standards and US generally accepted accounting principles.

A. used as reported without adjustment.

B. adjusted after completing ratio analysis.

A company has consistently and significantly increased its cash balance over the past three years. The least likely explanation for the increase in cash is a:

A. forthcoming issue of new equity.

C. planned increase in the dividend.

Q. Nutmeg, Inc. uses the LIFO method to account for inventory. During years in which inventory unit costs are generally rising and in which the company purchases more inventory than it sells to customers, its reported gross profit margin will most likely be:

A. lower than it would be if the company used the FIFO method.

B. higher than it would be if the company used the FIFO method.

C. about the same as it would be if the company used the FIFO method.

A company that prepares its financial statements in accordance with IFRS incurred and capitalized €2 million of development costs during the year. These costs were fully deductible immediately for tax purposes, but the company is depreciating them over two years for financial reporting purposes. The company has a long history of profitability, which is expected to continue. Which is the most appropriate way for an analyst to incorporate the differential tax treatment in his analysis? He should include it in:

B. liabilities when calculating the company’s debt-to-equity ratio.

A. equity when calculating the company’s return-on-equity ratio.

C. liabilities when calculating the company’s current ratio.

Q. 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

An analyst examining the statement of cash flows for possible manipulation is least likely to be concerned about a(n):

A. cash flow from operations to net income ratio consistently higher than 1.

B. increase in cash from operations arising from a large change in accounts payable.

C. change in the classification of interest paid from an operating cash flow to a financing cash flow.

Q. MARU S.A. de C.V., a Mexican corporation that follows IFRS, has elected to use the revaluation model for its property, plant, and equipment. One of MARU’s machines was purchased for 2,500,000 Mexican pesos (MXN) at the beginning of the fiscal year ended 31 March 2010. As of 31 March 2010, the machine has a fair value of MXN 3,000,000. Should MARU show a profit for the revaluation of the machine?

B. No, because this revaluation is recorded directly in equity.

C. No, because value increases resulting from revaluation can never be recognized as a profit.

Q. Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method?

C. Cash received from customers.

Q. Providing information about the performance and financial position of companies so that users can make economic decisions best describes the role of:

C. financial statement analysis.

Q. Under the revaluation model for property, plant, and equipment and the fair model for investment property:

A. fair value of the asset must be able to be measured reliably.

B. net income is affected by all changes in the fair value of the asset.

C. net income is never affected if the asset increases in value from its carrying amount.

Which of the following common debt covenants best describes an affirmative covenant?

B. Prohibiting financial ratios from falling below specified levels

A. Restricting future borrowings

Which of the following ratios is most likely to be used as a measure of operating performance?

B. Working capital turnover ratio

Q. A company redeems $1,000,000 face value bonds with a carrying value of $990,000. If the call price is 104 the company will:

B. recognize a loss on the extinguishment of debt of $50,000.

A. reduce bonds payable by $1,000,000.

C. recognize a gain on the extinguishment of debt of $10,000.

Under IFRS, the costs incurred in the issuance of bonds are most likely:

B. included in the measurement of the bond liability.

C. deferred as an asset and amortized on a straight-line basis.

FSA TE9 Test2

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Professional Development

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40 questions

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MULTIPLE CHOICE QUESTION

2 mins • 1 pt

None

A. 3.12.

B. 0.32.

C. 2.44.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Low quality earnings most likely reflect:

A. low-quality financial reporting.

B. company activities which are unsustainable.

C. information that does not faithfully represent company activities.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

An inventory system that reduces average inventory without affecting sales will most likely reduce the:

A. quick ratio.

B. inventory turnover.

C. cash conversion cycle.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

According to the International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting, the two fundamental qualitative characteristics that make financial information useful are best described as:

A. understandability and verifiability.

B. relevance and faithful representation.

C. timeliness and accrual accounting.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

None

A. is $18 million.

B. is increased by the derivatives accounted for as hedges.

C. includes $4 million in other comprehensive income.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

A company that prepares its financial statements in accordance with IFRS issues £5,000,000 face value 10-year bonds on 1 January 2013 when market interest rates for such bonds are 5.50%. The bonds carry a coupon of 6.50% with interest paid annually on 31 December. The carrying value of the bonds as of 31 December 2014 will be closest to:

A. £5,316,000.

B. £4,695,000.

C. £5,301,000.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Q. Which of the following is most likely to be considered a potential benefit of accounting conservatism?

A. A reduction in litigation costs

B. Less biased financial reporting

C. An increase in current period reported performance

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FSA TE9 Test2

None

Q. Low quality earnings most likely reflect:

An inventory system that reduces average inventory without affecting sales will most likely reduce the:

According to the International Accounting Standards Board’s (IASB) Conceptual Framework for Financial Reporting, the two fundamental qualitative characteristics that make financial information useful are best described as:

None

Q. Which of the following is most likely to be considered a potential benefit of accounting conservatism?

Obligations arising from past events that are expected to result in an outflow of economic benefits from an entity are most likely known as:

Q. Assuming no changes in other variables, which of the following would decrease ROA?

Q. A high-quality financial report may reflect:

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