CFA Level 1 FRA Exam 96 Questions with Answers
Current Ratio - CORRECT ANSWER Current Assets divided by current liabilities
Quick Ratio - CORRECT
... [Show More] ANSWER Cash plus marketable securities plus receivables divided by current liabilities
Cash Ratio - CORRECT ANSWER Cash plus marketable securities divided by current liabilities
Defensive Interval Ratio - CORRECT ANSWER Cash plus marketable securities plus receivables divided by average daily expenditures
Cash Conversion cycle - CORRECT ANSWER days in inventory plus days in accounts receivables minus days in accounts payable
Accounts receivable turnover - CORRECT ANSWER revenue divided by average accounts receivable
inventory turnover - CORRECT ANSWER cost of goods sold divided by average inventory
Accounts payable turnover - CORRECT ANSWER purchases divided by average accounts payable
Cost of Goods Sold - CORRECT ANSWER Beginning inventory plus purchases minus ending inventory
Operating cycle - CORRECT ANSWER days in inventory plus days in accounts receivable
Fixed asset turnover - CORRECT ANSWER revenue divided by average net fixed assets
working capital turnover - CORRECT ANSWER revenue divided by average working capital
equity turnover - CORRECT ANSWER revenue divided by average equity
debt to equity ratio - CORRECT ANSWER total debt divided by total equity
debt ratio - CORRECT ANSWER total debt divided by total assets
debt to total capital ratio - CORRECT ANSWER total debt divided by total debt plus total equity
Financial leverage ratio - CORRECT ANSWER average total assets divided by average total equity
interest coverage ratio - CORRECT ANSWER EBIT divided by interest payments
Fixed charge coverage ratio - CORRECT ANSWER EBIT plus lease payments divided by interest payments plus lease payments
Gross profit - CORRECT ANSWER Sales minus cost of goods sold
Gross profit margin - CORRECT ANSWER gross profit divided by revenue
operating profit margin - CORRECT ANSWER operating profit divided by revenue
pretax margin - CORRECT ANSWER earnings before tax divided by revenue
Net profit margin - CORRECT ANSWER net income divided by revenue
Return on assets - CORRECT ANSWER net income divided by average total assets
Return on Assets - CORRECT ANSWER EBIT divided by average total assets
operating return on assets - CORRECT ANSWER operating profit divided by average total assets
return on total capital - CORRECT ANSWER EBIT divided by average total capital
Return on Equity - CORRECT ANSWER net income divided by average total equity
Return on Equity - CORRECT ANSWER Return on Assets times financial leverage
Return on Equity - CORRECT ANSWER Net profit margin times asset turnover times leverage ratio
Return on common equity - CORRECT ANSWER net income minus preferred dividends divided by average common equity
DuPont Formula - CORRECT ANSWER Net profit margin times total asset turnover times leverage
Net Profit margin - CORRECT ANSWER net income divided by revenue
Total asset turnover - CORRECT ANSWER Revenue divided by average assets
Leverage - CORRECT ANSWER Average assets divided by average equity
Extended DuPont Formula - CORRECT ANSWER Tax burden times interest burden times operating profit margin times asset turnover times leverage
Tax burden - CORRECT ANSWER Earnings after tax divided by earnings before tax
Interest burden - CORRECT ANSWER Earnings before tax divided by EBIT
Operating profit margin - CORRECT ANSWER EBIT divided by revenue
Total asset turnover - CORRECT ANSWER revenue divided by average assets
leverage - CORRECT ANSWER average assets divided by average equity
Leverage - CORRECT ANSWER 1 plus debt to equity ratio
Growth Rate - CORRECT ANSWER retention rate times return on equity
Retention rate - CORRECT ANSWER One minus dividend payout ratio
Dividend payout ratio - CORRECT ANSWER dividends per share divided by earnings per share
After tax interest expense - CORRECT ANSWER Interest expense times one minus the tax rate
Working Capital investment - CORRECT ANSWER Increase or decrease in non cash operating assets and liabilities
Net Borrowings - CORRECT ANSWER Debt issued minus principal repaind
Fixed Capital Investment - CORRECT ANSWER equals capital expenditures
Free Cash Flow to the Firm - CORRECT ANSWER Net income plus non cash charges plus after tax interest expense minus fixed working capital minus working capital investment
Free Cash Flow from Operations - CORRECT ANSWER Cash flow from operations plus after tax interest expense minus fixed capital investment
Free Cash Flow to equity - CORRECT ANSWER Cash Flow From operations minus fixed capital investment plus net borrowings
Percentiles - CORRECT ANSWER equals n plus 1 times y divided by 100
Measurement of Inventory with IFRS - CORRECT ANSWER Inventory is reported on the balance sheet at the lower of cost or new realizable value
Net Realizable value - CORRECT ANSWER equal to the expected sales price less the estimated selling costs and completion costs
Net realizable value less than balance sheet value - CORRECT ANSWER inventory is written down to net realizable value and the loss is recognized in the income statement
Valuation allowance account - CORRECT ANSWER contra account where the inventory write down is accomplished. This separates the original cost of inventory from the carrying value of inventory
Measurement of Inventory with GAAP - CORRECT ANSWER inventory is reported on the balance sheet at the lower of cost or market
Market Value - CORRECT ANSWER usually equal to replacement cost but cannot be greater than net realizable value or less than net realizable value minus a normal profit margin
Identifiable intangible asset under IFRS - CORRECT ANSWER Must be capable of being separated from the firm or arise from a contractual or legal right. Must be controlled by the firm. Must be expected to provide future economic benefits
Unidentifiable intangible asset - CORRECT ANSWER cannot be purchased separately and may have an indefinite life -- Goodwill
Research Costs - CORRECT ANSWER Under IFRS research costs are expensed as incurred
Under GAAP research costs are expensed as incurred
Development Costs - CORRECT ANSWER Under IFRS development costs may be capitalized
Under GAAP development costs are expensed as incurred
Capitalize cost - CORRECT ANSWER list the expenditure as an asset on the balance sheet. Allocate to the income statement through depreciation or amortization of expense
Expense Cost - CORRECT ANSWER allocate expenditure to income statement in the period incurred
Internally generated goodwill - CORRECT ANSWER expensed in the period incurred
Carrying or book value - CORRECT ANSWER The net value of an asset or liability on the balance sheet. For property, plant and equipment, carrying value equals historical cost minus accumulated depreciation
Straight-line Depreciation - CORRECT ANSWER original cost - salvage value divided by depreciable life
Double declining balance - CORRECT ANSWER 2 divided by depreciable life in years times book value at beginning of year x output units in the period
Units of production - CORRECT ANSWER original cost - salvage value divided by life in output units times output units in the period
Component Depreciation under IFRS - CORRECT ANSWER requires firm to depreciate the components of an asset separately
Component Depreciation under GAAP - CORRECT ANSWER allowed under GAAP but is seldom used
Revaluation model - CORRECT ANSWER IFRS alternative that permits a long-lived asset to be reported at its fair value, as long as an active market exists for the asset
Revaluation surplus - CORRECT ANSWER an increase in an assets value above historical cost is not reported as a gain in the income statement but as a component of shareholders' equity in the revaluation surplus account
Recoverability - CORRECT ANSWER Under GAAP an asset is considered impaired if the carrying value is greater than the asset's future UNDISCOUNTED cash flow stream
Loss measurement under GAAP - CORRECT ANSWER If imparied, the asset's value is written down to fair value on the balance sheet and a loss, equal to the excess of carrying value over the fair value or the discounted value of future cash flows is recognized in the income statement
Impaired - CORRECT ANSWER Asset is impaired if its carrying value exceeds its net realizable value which is fair value minus selling costs
IFRS criteria for finance lease - CORRECT ANSWER title of the leased asset is transferred to the lessee at the end of the lease
IFRS criteria for finance lease - CORRECT ANSWER Lessee can purchase the leased asset for a price that is significantly lower than the fair value of the asset
IFRS criteria for finance lease - CORRECT ANSWER The lease term covers a major portion of the asset's economic life
IFRS criteria for finance lease - CORRECT ANSWER The present value of the lease payments is substantially equal to the fair value of the leased asset
IFRS criteria for finance lease - CORRECT ANSWER the leased asset is so specialized that only the lessee can use the asset without significant modifications
GAAP criteria for finance lease - CORRECT ANSWER title to the leased asset is transferred to the lessee at the end of the lease period
GAAP criteria for finance lease - CORRECT ANSWER A bargain purchase option permits the lessee to purchase the leased asset for a price that is significantly lower than fair market value
GAAP criteria for finance lease - CORRECT ANSWER The lease period is 75% or more of the asset's economic life
GAAP criteria for finance lease - CORRECT ANSWER The present value of the lease payments is 90% or more of the fair value of the leased asset
Capitalized Inventory Costs - CORRECT ANSWER Include purchase cost, conversion or manufacturing costs which include labor and overhead, and other costs to bring inventory to its present state and location
Inventory costs recognized as expenses - CORRECT ANSWER include abnormal waste, storage costs not required for production, selling costs and administrative overhead
characteristics of decision useful financial reporting - CORRECT ANSWER relevance and faithful representation
relevance - CORRECT ANSWER information presented in financial statements is useful in making decisions
Information must be material
Faithful representation - CORRECT ANSWER encompasses the qualities of completeness, neutrality and the absence of errors
sustainability - CORRECT ANSWER one dollar of high quality earnings is expected to add more value to a company than one dollar of low quality earnings
factors for low quality financial reporting - CORRECT ANSWER motivation, opportunity and rationalization of behavior
Channel Stuffing - CORRECT ANSWER overloading a distribution channel to increase sales
Bill and hold - CORRECT ANSWER Customer buys the goods and receives an invoice but requests that the firm keep the goods at their location for a period of time. Increases earning in current period by recognizing revenue for goods that are actually still in inventory [Show Less]