Cfa3

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Cfa3

  1. 1. Schweser Printable Exams SchweserPro 2014 CFA Level I Question 1 - 104037 Goldberg Inc. produces and sells electronic equipment. Which of the following inventory costs is most likely to be recognized as an expense on Goldberg’s financial statements in the period incurred? Question 2 - 127252 According to U.S. GAAP, which of the following would least likely require a lessee to capitalize a lease? Question 3 - 94746 A bond is issued with the following data:  $10 million face value.  9% coupon rate.  8% market rate.  3-year bond with semiannual payments. Assuming market rates do not change, what will the bond's market value be one year from now and what is the total interest expense over the life of the bond? Go Back Go to Answer Sheet Print this Page A) Conversion cost. B) Freight costs on inputs. C) Selling cost. A) The lease term is 75% or more of the estimated life of the leased asset. B) The present value of the minimum lease payments is 90% or more of the fair value of the leased asset. C) The lessee has an option to purchase the asset for its fair market value at the end of the lease. Value in 1-Year Total Interest Expense A) 10,181,495  2,962,107 B) 10,181,495   2,437,893 C) 11,099,495  2,437,893 Page 1 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  2. 2. Question 4 - 100932 Capitalizing interest costs related to a company’s construction of assets for its own use is required by: Question 5 - 127274 Lucille Edgewater, CFA, is analyzing Pfaff Company, which reports its long-lived assets using the revaluation model. Edgewater needs to determine 1) what Pfaff’s carrying value of property, plant and equipment would be under the historical cost model, and 2) which of Pfaff’s intangible assets have finite useful lives. Will these items be disclosed in Pfaff’s financial statements? Question 6 - 95725 Laser Tech has net temporary differences between tax and book income resulting in a deferred tax liability of $30.6 million. According to U.S. GAAP, an increase in the tax rate would have what impact on deferred taxes and net income, respectively: Question 7 - 95992 Unit Technologies uses accrual basis for financial reporting purposes and cash accounting for tax purposes. So far this year, Unit Technologies has recorded $195,000 in revenue for financial reporting purposes, but, on a cash basis, revenue was only $131,000. Assume expenses at 50 percent in both cases (i.e., $ 97,500 on accrual basis and $ 65,500 on cash basis), and a tax rate of 34%. What is the deferred tax liability or asset? A deferred tax: A) IFRS only. B) U.S. GAAP only. C) both IFRS and U.S. GAAP. A) Neither of these items is required to be disclosed. B) Both of these items are required to be disclosed. C) Only one of these items is required to be disclosed. Deferred Taxes Net Income A) Increase No effect B) No effect Decrease C) Increase Decrease A) liability of $16,320. B) liability of $10,880. C) asset of $10,880. Page 2 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  3. 3. Question 8 - 140456 Under which financial reporting standards is a firm required to discuss the circumstances when reversing an inventory writedown? Question 9 - 93657 If a firm overestimates its warranty expenses, which of the following results is least likely? Question 10 - 94515 Arlington, Inc. uses the first in, first out (FIFO) inventory cost flow assumption. Beginning inventory and purchases of refrigerated containers for Arlington were as follows: In November, Arlington sold 35 refrigerated containers to Johnson Company. What is the cost of goods sold assigned to the 35 sold containers? Question 11 - 93949 Given the following data regarding two firms under different scenarios, determine the amount of any deferred tax liability or asset. Firm 1: A) Both IFRS and U.S. GAAP. B) Neither IFRS nor U.S. GAAP. C) IFRS, but not U.S. GAAP. A) A deferred tax asset will result. B) Income tax expense will be greater than taxes payable. C) A timing difference will result between tax and financial reporting. Units Unit Cost Total Cost Beginning Inventory 20 $10,000 $200,000 Purchases, April 10 12,000 120,000 Purchases, July 10 12,500 125,000 Purchases, October 20 15,000 300,000 A) $382,500. B) $485,000. C) $434,583. Tax Reporting Financial Reporting Revenue $500,000 Revenue $500,000 Page 3 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  4. 4. Firm 2: Question 12 - 98031 Walsh Furniture has purchased a machine with a 7-year useful life for $250,000. At the end of its life it will have an estimated salvage value of $15,000. Using the double-declining balance (DDB) method, depreciation expense in year 2 is closest to: Question 13 - 104051 Marcel Inc. is a large manufacturing company based in the U.S. but also operating in several European countries. Marcel has long-lived assets currently in use that are valued on the balance sheet at $600 million. This includes previously recognized impairment losses of $80 million. The original cost of the assets was $750 million. The fair value of the assets was determined in a professional appraisal to be $690 million. Assuming that Marcel reports under U.S. GAAP, the new appraisal of the assets’ value most likely results in: Depreciation $100,000 Depreciation $50,000 Taxable income $400,000 Pretax income $450,000 Taxes payable $160,000 Tax expense $180,000 Net income $240,000 Net income $270,000 Tax Reporting Financial Reporting Revenue $500,000 Revenue $500,000 Warranty expense $0 Warranty expense $10,000 Taxable income $500,000 Pretax income $490,000 Taxes payable $200,000 Tax expense $196,000 Net income $300,000 Net income $294,000 Firm 1 Deferred Tax: Firm 2 Deferred Tax: A) $30,000 Asset $6,000 Asset B) $20,000 Liability $4,000 Asset C) $20,000 Asset $6,000 Liability A) $58,750. B) $51,020. C) $71,430. A) a $90 million gain in other comprehensive income. B) no change to Marcel’s financial statements. C) an $80 million gain on income statement and $10 million gain in other comprehensive income. Page 4 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  5. 5. Question 14 - 95850 Which of the following statements regarding finance and operating leases is least accurate? Question 15 - 94350 Using the lower of cost or market principle under U.S. GAAP, if the market value of inventory falls below its historical cost, the minimum value at which the inventory can be reported in the financial statements is the: Question 16 - 97789 Given the following data what is the ending inventory value using the LIFO method, assuming a periodic inventory system? Question 17 - 94035 When comparing capitalizing versus expensing costs which of the following statements is most accurate? Question 18 - 104052 A) For financial reporting of finance and operating leases, no entry is required on the lessee's balance sheet at the inception of the lease. B) During the life of an operating lease, the rent expense equals the lease payment. C) Asset turnover is higher for the lessee with an operating lease than a finance lease. A) market price minus selling costs minus normal profit margin. B) net realizable value. C) net realizable value minus selling costs. Purchases Sales 50 units at $50/unit 25 units at $55/unit 60 units at $45/unit 30 units at $50/unit 70 units at $40/unit 45 units at $45/unit A) $3,850. B) $3,250. C) $3,200. A) Expensing costs creates lower cash flows from operations and lower cash flows from investing. B) Capitalizing costs creates lower cash flows from operations and higher cash flows from investing. C) Capitalizing costs creates higher cash flows from operations and lower cash flows from investing. Page 5 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  6. 6. Davis Inc. is a large manufacturing company operating in several European countries. Davis has long-lived assets currently in use that are valued on the balance sheet at $600 million. This includes previously recognized impairment losses of $80 million. The original cost of the assets was $750 million. The fair value of the assets was determined by in independent appraisal to be $690 million. Which of the following entries may Davis record under IFRS? Question 19 - 104050 Felker Inc. owns a piece of specialized machinery. The original cost of the machinery was $500,000 and to date there is an accumulated depreciation balance of $140,000. Which of the following will Felker recognize on its income statement if it sells the machinery for $400,000? Question 20 - 93905 An impairment write-down is least likely to decrease a company's: Question 21 - 95846 Which of the following statements about tax deferrals is NOT correct? Question 22 - 104054 Christophe Inc. is an electronics manufacturing firm. It owns equipment with a tax basis of $800,000 and a carrying value of $600,000 as the result an impairment charge. It also has a tax loss carryforward of $300,000 that is expected to be utilized within the next year or two. The tax rate on these items is 40% but the tax rate is expected to decrease to 35% for the foreseeable future. Which of the following amounts is closest to the net effect of the change in tax rate on the income statement? A) $90 million gain on income statement. B) $80 million gain on income statement and a $10 million revaluation surplus. C) $90 million revaluation surplus. A) Loss of $100,000. B) Gain of $40,000. C) Loss of $360,000. A) assets. B) debt-to-equity ratio. C) future depreciation expense. A) Taxes payable are determined by pretax income and the tax rate. B) A deferred tax liability is expected to result in future cash outflow. C) Income tax paid can include payments or refunds for other years. Page 6 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  7. 7. Question 23 - 95999 A lessee most likely has an incentive to structure a lease as an operating lease rather than a finance lease when it: Question 24 - 95102 Which of the following situations will most likely require a company to record a valuation allowance on its balance sheet? Question 25 - 95070 In analyzing disclosures related to the financing liabilities of a company, which of the following disclosures would be least helpful to the analyst? Question 26 - 127270 Component depreciation is required under: A) Increase in deferred tax expense of $5,000. B) Decrease in deferred tax expense of $5,000. C) Increase in deferred tax expense of $25,000. A) does not have debt covenants. B) is very profitable. C) has a high debt-to-equity ratio. A) A firm is unlikely to have future taxable income that would enable it to take advantage of deferred tax assets. B) To report depreciation, a firm uses the double-declining balance method for tax purposes and the straight-line method for financial reporting purposes. C) A firm has differences between taxable and pretax income that are never expected to reverse. A) The interest expense for the period as provided on the income statement or in a footnote. B) The present value of the future bond payments discounted at the coupon rate of the bonds. C) Filings with the Securities and Exchange Commission (SEC) that disclose all outstanding securities and their features. A) IFRS, but not U.S. GAAP. B) both IFRS and U.S. GAAP. C) U.S. GAAP, but not IFRS. Page 7 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  8. 8. Question 27 - 97887 Which of the following statements about accounting treatments under IFRS and U.S. GAAP are most accurate regarding the periodic valuation of identifiable intangible assets and marketable securities classified as available for sale, respectively? Question 28 - 95441 An analyst gathered the following information about a company:  Pretax income = $10,000.  Taxes payable = $2,500.  Deferred taxes = $500.  Tax expense = $3,000. What is the firm's reported effective tax rate? Question 29 - 96448 Given the following inventory data about a firm:  Beginning inventory 20 units at $50/unit  Purchased 10 units at $45/unit  Purchased 35 units at $55/unit  Purchased 20 units at $65/unit  Sold 60 units at $80/unit What is the inventory value at the end of the period using first in, first out (FIFO)? Identifiable intangible assets Available-for-sale securities A) U.S. GAAP permits upward revaluation Carried at market value B) U.S. GAAP permits upward revaluation Carried at amortized cost C) IFRS permits upward revaluation Carried at market value A) 25%. B) 30%. C) 5%. A) $3,475. B) $3,100. C) $1,575. Page 8 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  9. 9. Question 30 - 95875 Assume an income tax rate of 40% and zero deferred tax liability on 31 December 2001. The deferred tax liability to be shown in the 31 December 2003, balance sheet and the 31 December 2004 balance sheet, is: Question 31 - 94518 Assume a city issues a $5 million bond to build a new arena. The bond pays 8 percent semiannual interest and will mature in 10 years. Current interest rates are 9%. Interest expense in the second semiannual period is closest to: Question 32 - 97356 When bonds are issued at a premium: Question 33 - 140457 The amortized cost of a trademark is least likely to appear on a firm’s balance sheet if the trademark was: Year ending 31 December: 2002 2003 2004 Income Statement: Revenues after all expenses other than depreciation $200 $300 $400 Depreciation expense 50 50 50 Income before income taxes $150 $250 $350 Tax return: Taxable income before depreciation expense $200 $300 $400 Depreciation expense 75 50 25 Taxable income $125 $250 $375 2003 2004 A) $0 $10 B) $10 $0 C) $25 $20 A) $106,550. B) $80,000. C) $210,830. A) coupon interest paid decreases each period as bond premium is amortized. B) earnings of the firm increase over the life of the bond as the bond premium is amortized. C) earnings of the firm decrease over the life of the bond as the bond premium is amortized. Page 9 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  10. 10. Question 34 - 94314 Penguin Company is planning to lease a $5 million machine to produce goods for eventual sale. Penguin is able to structure the lease so as to classify it as either an operating or a finance lease. Advantages to Penguin of classifying this lease as an operating lease are least likely to include that: Question 35 - 127242 At the beginning of 20X3, Creston Company issues $10 million face amount of 6% coupon bonds when the market rate of interest is 7%. The bonds mature in four years and pay interest annually. Assuming the effective interest rate method, what is the bond liability Creston will report at the end of 20X3? Question 36 - 94005 Selected information from Kentucky Corp.’s financial statements for the year ended December 31 was as follows (in $ millions): The balances were all associated with a single asset.  The asset was permanently impaired and has a present value of future cash flows of $4 million.  After Kentucky writes down the asset, Kentucky’s tax accounts will be affected as follows (the tax rate is 40%): Question 37 - 140460 Stannum Records obtains two intangible assets in a business acquisition: legal rights to reproduce songs, valued at $5 million, and a trademark valued at $1 million. The trademark expires in 10 years and can be renewed at a A) purchased from another firm. B) developed internally. C) obtained in the acquisition of another firm. A) no disclosures of payments due under the lease are required. B) depreciation is not recorded. C) the lease is not reported as debt on Penguin's balance sheet, so leverage ratios are not increased. A) $9,661,279 B) $10,346,511 C) $9,737,568 Property, Plant & Equip. 10   Deferred Tax Liability 0.6 Accumulated Depreciation (4)       A) taxes payable will decrease $800,000. B) deferred tax liability will be eliminated and deferred tax assets will increase $200,000. C) deferred tax liability will be eliminated and deferred tax assets will increase $1.4 million. Page 10 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  11. 11. minimal cost. Stannum estimates a 5-year useful life for the song rights. Because much of the songs’ economic value is realized in their early years, Stannum uses double-declining balance amortization. Amortization expense in the first year after the acquisition is closest to: Question 38 - 95375 When analyzing a company's financial leverage, deferred tax liabilities are best classified as: Question 39 - 95348 Assume an income tax rate of 40%. The company's income tax expense for 2002 is: Question 40 - 127259 Which of the following statements about inventory presentation and disclosures is most accurate? A) $2.1 million. B) $2.0 million. C) $2.2 million. A) a liability. B) a liability or equity, depending on the company's particular situation. C) neither as a liability, nor as equity. Year: 2002 2003 2004 Income Statement: Revenues after all expenses other than depreciation $200 $300 $400 Depreciation expense 50 50 50 Income before income taxes $150 $250 $350 Tax return: Taxable income before depreciation expense $200 $300 $400 Depreciation expense 75 50 25 Taxable income $125 $250 $375 A) $60. B) $50. C) $0. IFRS permits reversals of inventory writedowns but the firm must disclose the circumstances of the Page 11 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  12. 12. Question 41 - 127267 Czernezyk Company buys a delivery vehicle for €60,000. Czernezyk expects to drive the vehicle 400,000 kilometers over 4 years, at the end of which the firm expects to be able to sell the vehicle for €10,000. At the end of Year 2, the vehicle has been driven 250,000 kilometers. If Czernezyk depreciates the vehicle by the units of production method, its carrying value at the end of Year 2 is: Question 42 - 127261 Novak, Inc. owns equipment with a historical cost of $20,000, a useful life of 5 years, and an estimated salvage value of $5,000. Using the double declining balance method, depreciation expense in Year 3 for this equipment is: Question 43 - 127254 Which of the following is least likely disclosed in the financial statement footnotes of a lessee? Question 44 - 93981 Part 1) A) reversal in its financial statements. B) An analyst must determine which inventory cost method was used by examining the firm’s current and historical inventory values. C) Changing from FIFO to LIFO is a change in accounting principle that must be applied retrospectively. A) €28,750. B) €15,000. C) €31,250. A) $2,880. B) $3,000. C) $2,200. A) A general description of the leasing arrangement. B) The lease interest rate. C) The lease payments to be paid in each of the next five years. Units Unit Price Beginning Inventory 709 $2.00 Purchases 556 $6.00 Sales 959 $13.00 SGA Expenses $2,649 per annum Page 12 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  13. 13. What is the cost of goods sold using the weighted average method? Part 2) What is the cost of goods sold using the first in, first out (FIFO) method? Part 3) What is the ending inventory level in dollars using the FIFO method? Question 45 - 122500 A tax rate that has been substantively enacted is used to determine the balance sheet values of deferred tax assets and deferred tax liabilities under: Question 46 - 96475 Given the following data and assuming a periodic inventory system, what is the ending inventory value using the FIFO method? Question 47 - 127247 A) $3,423.82. B) $2,918.00. C) $3,604.02. A) $8,325.00. B) $2,772.10. C) $2,918.00. A) $4,142.00. B) $1,744.20. C) $1,836.00. A) U.S. GAAP only. B) IFRS only. C) both IFRS and U.S. GAAP. Purchases Sales 50 units at $50/unit 25 units at $55/unit 60 units at $45/unit 30 units at $50/unit 70 units at $40/unit 45 units at $45/unit A) $3,200. B) $3,600. C) $3,250. Page 13 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  14. 14. Which of the following provisions would least likely be included in the bond covenants? The borrower must: Question 48 - 94502 On December 31, 20X3 Okay Company issued 10,000 $1000 face value 10-year, 9% bonds to yield 7%. The bonds pay interest semi-annually. On its financial statements (prepared under U.S. GAAP) for the year ended December 31, 20X4, the effect of this bond on Okay's cash flow from operations is: Question 49 - 95558 On the lessee's cash flow statement, the principal portion of a finance lease payment is a: Question 50 - 104038 Diabelli Inc. is a manufacturing company that is operating at normal capacity levels. Which of the following inventory costs is most likely to be recognized as an expense on Diabelli’s financial statements when the inventory is sold? Question 51 - 150009 McKay Company uses a periodic inventory system and the FIFO inventory cost method. In the most recent period, McKay had beginning inventory of $4,200, purchases of $1,400, cost of sales $1,300, and ending inventory of $4,300. If McKay had used a perpetual inventory system, its ending inventory would have been: A) maintain insurance on the collateral that secures the bond. B) not increase dividends to common shareholders while the bonds are outstanding. C) maintain a debt-to-equity ratio of no less than 2:1. A) -$700,000. B) -$755,735. C) -$900,000. A) operating cash flow. B) financing cash flow. C) investing cash flow. A) Administrative overhead. B) Allocation of fixed production overhead. C) Selling cost. A) $4,300. B) $4,200. C) $4,400. Page 14 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  15. 15. Question 52 - 95968 A company purchases a new pizza oven for $12,675. It will work for 5 years and have no salvage value. The company will depreciate the oven over 5 years using the straight-line method for financial reporting, and over 3 years for tax reporting. If the tax rate for years 4 and 5 changes from 41% to 31%, the deferred tax liability as of the end of year 3 is closest to: Question 53 - 93954 Slovac Company purchased a machine that has an estimated useful life of eight years for $7,500. Its salvage value is estimated at $500. What is the depreciation expense for the second year, assuming Slovac uses the double-declining balance method of depreciation? Question 54 - 95135 For a given lease payment and term, which of the following is least accurate regarding the effects of the classification of the lease as a finance lease as compared to an operating lease? Question 55 - 96241 Corcoran Corp acquired an asset on 1 January 2004, for $500,000. For financial reporting, Corcoran will depreciate the asset using the straight-line method over a 10-year period with no salvage value. For tax purposes the asset will be depreciated straight line for five years and Corcoran’s effective tax rate is 30%. Corcoran’s deferred tax liability for 2004 will: A) $2,080 B) $1,570 C) $1,040 A) $1,406. B) $1,438. C) $1,875. A) The lessee's current ratio will be higher for a finance lease. B) The lessee's asset turnover will be lower for a finance lease. C) The lessee's debt-to-equity ratio will be higher for a finance lease. A) decrease by $50,000. B) decrease by $15,000. C) increase by $15,000. Page 15 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4
  16. 16. Question 56 - 97880 Lincoln Corporation and Continental Incorporated are identical companies except that Lincoln complies with U.S. Generally Accepted Accounting Principles and Continental complies with International Financial Reporting Standards. Assuming an inflationary environment and stable inventory quantities, which permissible cost flow assumption will minimize each firm’s pre-tax financial income? Question 57 - 94734 The lessee has an incentive to classify a lease as an operating lease, rather than as a finance lease, because an operating lease: Question 58 - 95995 A company purchased a new pizza oven directly from Italy for $12,676. It will work for 5 years and has no salvage value. The tax rate is 41%, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35% in years 1 and 2, and 30% in year 3. For purposes of this exercise ignore all expenses other than depreciation. What is the net income and depreciation expense for year one for financial reporting purposes?   © 2014 Schweser Lincoln Corporation Continental Incorporated A) Last-in, first-out Last-in, first-out B) First-in, first-out First-in, first-out C) Last-in, first-out Average cost A) has no risk involved because the lessor assumes all risk. B) has payments that are less than a capital lease's payments. C) does not appear on the balance sheet. Net Income Depreciation Expense A) $2,535 $3,169 B) $4,657 $2,748 C) $2,748 $2,535 Go Back Go to Answer Sheet Print this Page Page 16 of 16Printable Exams 29/03/2014http://127.0.0.1:20507/online_program/test_engine/printable_display.php?test_id=4

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