FSA TE9 Test2

None

• A. 3.12.
• B. 0.32.
• C. 2.44.

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.

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.

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.

None

• A. is $18 million.
• B. is increased by the derivatives accounted for as hedges.
• C. includes $4 million in other comprehensive income.

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.

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

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

• A. expenses.
• B. liabilities.
• C. operating activities.

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

• A. A decrease in the effective tax rate.
• B. A decrease in interest expense.
• C. An increase in average assets.

Q. A high-quality financial report may reflect:

• A. earnings smoothing.
• B. low earnings quality.
• C. understatement of asset impairment.