CFA Domain 4: Financial Statement Analysis (Quiz 2)

A portfolio manager screens all the companies in a global equity index. Each company that passes the screen must have a positive net profit margin, a return on equity greater than 20%, and a price-to-earnings (P/E) ratio of less than 15. The requirement that companies must have a positive net profit margin most likely functions as a(n):

A company sells equipment that has a net book value of NOK 190,000 for a price of NOK 200,000. If the company prepares the statement of cash flows using the indirect method, the adjustment to deduct the NOK 10,000 gain on this sale should most accurately appear in the cash flow from:

At the beginning of the year, a company has £157,000 gross accounts receivable (AR) and £5,000 allowance for doubtful accounts. During the year, it recognizes credit sales of £525,000 and a bad debt expense of £15,000. It also collected £435,000 in cash from its customers. If the company writes off £8,000 as uncollectable, then the year-end balance for net AR is closest to:

At the end of its fiscal year, a company has net income of $8,750,000 and 1,000,000 weighted average common shares outstanding. It also has 200,000 shares of convertible preferred shares. Each preferred share pays a dividend of $15 per share and is convertible into two shares of the company's common stock. There are no other potentially dilutive securities. The company would most appropriately report diluted earnings per share of:

Which of the following is the best use of ratio analysis for a company?

A tech company develops and sells hardware for high-speed internet applications. It has completed its research for a new router and received a patent. The company now plans to develop a prototype and has purchased specialized equipment for the manufacturing process. Under US GAAP, which of the following costs can the company capitalize?

Assume an analyst knows only a company's earnings before interest and taxes. If the company reports under US GAAP and the analyst wanted to derive the company's cash from operations, which of the following would the analyst least likely need to consider?

A parent company has purchased 80% of a subsidiary's common stock. When reported on the consolidated balance sheet, the parent company's noncontrolling interest most likely:

When inventory unit costs decrease, the LIFO reserve is most likely to:

"A company using US GAAP begins the fiscal quarter with no inventory. The following inventory transactions are then recorded for the quarter: If the company uses a perpetual inventory system and reports under the LIFO method, the ending inventory (in $) is closest to:"

A company uses the effective interest rate method to account for all noncurrent debt obligations. It issued a 3-year, $5 million face value bond with semiannual coupon payments. At the time of issue, the market rate of interest was 7%. If the company pays coupon interest of $300,000 in Year 1, the carrying value of the bonds at the end of Year 1 is closest to:

With respect to its deferred tax items, under both IFRS and US GAAP a company can report:

If the value of a patent has been impaired, the impairment is most appropriately accounted for:

"An analyst collects the following annual data for a company: Which of the following best describes how the company's efficiency compares with the industry?"

Under US GAAP, a lessee reports periodic payments for the second year of a finance lease. Compared to using an operating lease, the lessee will most likely report:

At the beginning of this year, a company purchased electronic goods that cost €120,000 and chose to expense the purchase instead of capitalizing it. The electronics have a useful life of 3 years with zero salvage value, and the company uses straight-line depreciation. The company reports €300,000 in revenue each year and is taxed at 25%. There are no other expenses aside from the purchase cost and corporate tax. Based only on this information and compared to capitalizing the asset, expensing the asset most likely results in:

Which of the following is most likely considered a warning sign in a company's financial reporting?

In the third quarter of this year, a company that reports under US GAAP prepays a vendor $25,000 for software subscription services that will not begin until next year. The company will not recognize any expense for financial reporting purposes until the software service starts. However, the tax laws allow the company to deduct the full amount this year on their tax return. If the company's tax rate is 20%, the gross impact of this transaction in this year is most likely a $5,000 increase to:

A company reports a significant increase in earnings per share (EPS) for fiscal year 20X8. An analyst examining the annual financial statements determines that the increase arises mostly from sales of noncore fixed assets. The statements are GAAP-compliant in all respects, and the footnotes provide significant details about the sales. The financial statements most likely represent:

An analyst back-tests data to create a portfolio of bank stocks. However, many financial institutions have merged over the last five years. Which of the following issues should an analyst most appropriately be concerned about?