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WorksheetsFRA 1. 9 Test 2
Total questions: 40
Worksheet time: 1hrs 20mins
Name
Class
Date
1.
Overloading distribution channels (“channel stuffing”) would understate:
a)
A. inventories.
b)
B. accounts receivable.
c)
C. revenues.
2.
Q. Costs incurred for intangible assets are generally expensed when they are:
a)
A. internally developed.
b)
B. individually acquired.
c)
C. acquired in a business combination.
3.
Q. The gain or loss on a sale of a long-lived asset to which the revaluation model has been applied is most likely calculated using sales proceeds less:
a)
A. carrying amount.
b)
B. carrying amount adjusted for impairment.
c)
C. historical cost net of accumulated depreciation.
4.
a)
A. asset of $300,000,000.
b)
B. asset of $1,400,000,000.
c)
C. liability of $1,100,000,000.
5.
Q. Under US GAAP, when assets are acquired in a business combination, goodwill most likely arises from:
a)
A. contractual or legal rights.
b)
B. assets that can be separated from the acquired company.
c)
C. assets that are neither tangible nor identifiable intangible assets.
6.
Q. Compared with a finance lease, an operating lease:
a)
A. is similar to renting an asset.
b)
B. is equivalent to the purchase of an asset.
c)
C. term is for the majority of the economic life of the leased asset.
7.
Q. Which technique most likely increases the cash flow provided by operations?
a)
A. Stretching the accounts payable credit period
b)
B. Applying all non-cash discount amortization against interest capitalized
c)
C. Shifting classification of interest paid from financing to operating cash flows
8.
Q. If a company uses the fair value model to value investment property, changes in the fair value of the asset are least likely to affect:
a)
A. net income.
b)
B. net operating income.
c)
C. other comprehensive income.
9.
Q. Projecting profit margins into the future on the basis of past results would be most reliable when the company:
a)
A. is in the commodities business.
b)
B. operates in a single business segment.
c)
C. is a large, diversified company operating in mature industries.
10.
A company is selling a long-lived asset with a carrying amount of $70,000 for $80,000. The original cost of this asset was $120,000. In the year of sale, this event is most likely to be reported on the income statement as:
a)
A. a gain of $10,000.
b)
B. a loss of $40,000.
c)
C. revenues of $80,000.
11.
Q. Using the straight-line method of depreciation for reporting purposes and accelerated depreciation for tax purposes would most likely result in a:
a)
A. valuation allowance.
b)
B. deferred tax asset.
c)
C. temporary difference.
12.
a)
A. 17
b)
B. 20
c)
C. 6
13.
A company is purchasing a customer list that it expects will provide economic benefits for the next 5 years. The company chooses to use an accelerated amortization method. The choice will most likely result in an amortization expense that will be the:
a)
A. highest in the fifth year.
b)
B. highest in the first year.
c)
C. same in all five years.
14.
Q. The information provided by a low-quality financial report will most likely:
a)
A. decrease company value.
b)
B. indicate earnings are not sustainable.
c)
C. impede the assessment of earnings quality.
15.
For a company that prepares its financial statements under IFRS, for which of the following assets is it most likely that it could report using the fair value model?
a)
A. A building the company owns and uses to house its administrative activities
b)
B. A building owned by the company and leased out to tenants
c)
C. Houses built by the company for sale to customers
16.
Q. Lesp Industries issues five-year bonds dated 1 January 2015 with a face value of $2,000, 000 and 3% coupon rate paid annually on 31 December. The market interest rate on bonds of comparable risk and term is 4%. The sales proceeds of the bonds are $1,910,964. Under the effective interest rate method, the interest expense in 2017 is closest to:
a)
A. $77,096 .
b)
B. $77,780 .
c)
C. $77,807 .
17.
a)
A. $14,180 .
b)
B. $14,980 .
c)
C. $15,480 .
18.
a)
A. 0 .
b)
B. 70,000 .
c)
C. 60,000 .
19.
a)
A. 3.91.
b)
B. 3.25.
c)
C. 2.59.
20.
The effectiveness of a debt covenant in disciplining financial reporting quality is most often limited due to:
a)
A. ineffectiveness of financial triggers.
b)
B. reporting requirements that may not be legally binding.
c)
C. potential for managers to inflate earnings.
21.
Q. If a company uses a non-GAAP financial measure in an SEC filing, then the company must:
a)
A. give more prominence to the non-GAAP measure if it is used in earnings releases.
b)
B. provide a reconciliation of the non-GAAP measure and equivalent GAAP measure.
c)
C. exclude charges requiring cash settlement from any non-GAAP liquidity measures.
22.
Q. Which of the following statements most likely describes a situation that would motivate a manager to issue low-quality financial reports?
a)
A. The manager’s compensation is tied to stock price performance.
b)
B. The manager has increased the market share of products significantly.
c)
C. The manager has brought the company’s profitability to a level higher than competitors.
23.
Q. A firm issues a bond with a coupon rate of 5.00% when the market interest rate is 5.50% on bonds of comparable risk and terms. One year later, the market interest rate increases to 6.00%. Based on this information, the effective interest rate is:
a)
A. 5.00%.
b)
B. 5.50%.
c)
C. 6.00%.
24.
Q. Cinnamon, Inc. recorded a total deferred tax asset in Year 3 of $12,301, offset by a $12,301 valuation allowance. Cinnamon most likely:
a)
A. fully utilized the deferred tax asset in Year 3.
b)
B. has an equal amount of deferred tax assets and deferred tax liabilities.
c)
C. expects not to earn any taxable income before the deferred tax asset expires.
25.
Q. A company issues $30,000,000 face value of five-year bonds dated 1 January 2015 when the market interest rate on bonds of comparable risk and terms is 5%. The bonds pay 4% interest annually on 31 December. Based on the effective interest rate method, the carrying amount of the bonds on 31 December 2015 is closest to:
a)
A. $28,466,099 .
b)
B. $28,800,000 .
c)
C. $28,936,215 .
26.
Q. Income tax expense reported on a company’s income statement equals taxes payable, plus the net increase in:
a)
A. deferred tax assets and deferred tax liabilities.
b)
B. deferred tax assets, less the net increase in deferred tax liabilities.
c)
C. deferred tax liabilities, less the net increase in deferred tax assets.
27.
Q. Under US GAAP, a lessor’s reported revenues at lease inception will be highest if the lease is classified as:
a)
A. a sales-type lease.
b)
B. an operating lease.
c)
C. a direct financing lease.
28.
Q. In contrast to earnings quality, financial reporting quality most likely pertains to:
a)
A. sustainable earnings.
b)
B. relevant information.
c)
C. adequate return on investment.
29.
a)
A. €4.5 million charge to revaluation surplus and €2.0 million charge to net income
b)
B. €6.5 million charge to revaluation surplus
c)
C. €6.5 million charge to net income
30.
Q. Juan Martinez, CFO of VIRMIN, S.A., is selecting the depreciation method to use for a new machine. The machine has an expected useful life of six years. Production is expected to be relatively low initially but to increase over time. The method chosen for tax reporting must be the same as the method used for financial reporting. If Martinez wants to minimize tax payments in the first year of the machine’s life, which of the following depreciation methods is Martinez most likely to use?
a)
A. Straight-line method.
b)
B. Units-of-production method.
c)
C. Double-declining balance method.
31.
a)
A. £2,300,000.
b)
B. £3,100,000.
c)
C. £4,600,000.
32.
Q. All else equal, in the fiscal year when long-lived equipment is purchased:
a)
A. depreciation expense increases.
b)
B. cash from operations decreases.
c)
C. net income is reduced by the amount of the purchase.
33.
Q. When a database eliminates companies that cease to exist because of a merger or bankruptcy, this can result in:
a)
A. look-ahead bias.
b)
B. back-testing bias.
c)
C. survivorship bias.
34.
a)
A. $50,000 higher.
b)
B. $50,000 lower.
c)
C. the same.
35.
Which of the following is most likely a sign of inventory manipulation to improve reported financial results?
a)
A. Inventory markdowns for obsolescence.
b)
B. Declining inventory turnover ratio.
c)
C. Selective sales of older layers of inventory.
36.
a)
A. growth investor.
b)
B. market-oriented investor.
c)
C. value investor.
37.
Q. Which of the following would most likely signal that a company may be using aggressive accrual accounting policies to shift current expenses to later periods? Over the last five-year period, the ratio of cash flow to net income has:
a)
A. increased each year.
b)
B. decreased each year.
c)
C. fluctuated from year to year.
38.
Q. When accounting standards require recognition of an expense that is not permitted under tax laws, the result is a:
a)
A. deferred tax liability.
b)
B. temporary difference.
c)
C. permanent difference.
39.
Which of the following companies would most likely be considered to have the lowest financial reporting quality, other things equal?
a)
A. A company that provides high quality, decision-useful information under GAAP but delays its reports.
b)
B. A company that reports significant profits due to a favorable exchange rate movement.
c)
C. A company that reports the results from two different segments as a combined entity.
40.
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:
a)
A. return on assets to increase.
b)
B. return on equity to decline.
c)
C. net profit margin to increase.
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