CFA一级Financial Statement Analysis∶ Basic Concepts.doc

1七 Investment Tools: Financial Statement Analysis: Basic Concepts1.A: Preliminary Reading Measuring Business IncomeQuestion ID: 16608Net income is defined as the difference between:A. liabilities and assets.B. owners’ equity and expenses.C. profit and expenses.D. revenues and expenses.DNet income is the difference between revenues and expenses. The difference between assets and liabilities is net assets and the difference between profit and expenses and owners equity and expenses is not defined in accounting terms.Question ID: 16611The initial recording of unearned revenue would generate a:A. credit to cash.B. debit to revenue.C. debit to cash.D. debit to prepaid expense.CTo record unearned revenue you would debit cash and credit unearned revenue. This is due to the revenue not being earned when the cash is received. When the revenue is earned then another entry would be made to debit unearned revenue and credit revenue.Question ID: 16610Accumulated depreciation is the result of:A. writing off an asset.B. purchasing land.C. an expense being prepaid.2D. capitalizing an asset.DCapitalizing an asset means writing off the benefit of the asset over its useful life, this in turn creates depreciation expense and accumulated depreciation.Question ID: 16612Accrual basis of accounting is considered better than the cash basis because:A. it produces more useful financial statements.B. it matches liabilities with expenses.C. revenue is recognized when cash is received.D. adjusting entries are NOT required.AAccrual basis accounting follows the matching principle – expenses are recognized in the same period in which the associated revenues are generated, thus making for more useful financial statements.Question ID: 16609Which of the following principles does NOT result in adjusting entries being made?A. Revenue recognition.B. Accrual basis of accounting.C. Cash basis of accounting.D. The matching principle.CThe cash basis of accounting does not result in adjusting entries. The accrual basis, the matching principle, and revenue recognition all require adjusting entries be made at some point.31.B: Preliminary Reading Financial Reporting and AnalysisQuestion ID: 14544Which of the following is the CORRECT format for the balance sheet in order of occurrence:A. liabilities, assets, stockholder’s equity.B. assets, stockholder’s equity, liabilities.C. assets, liabilities, stockholder’s equity. D. stockholder’s equity, liabilities, assets.CQuestion ID: 14543For accounting purposes, which of the following is NOT an essential characteristic of an asset?A. The enterprise can obtain the benefit and can limit others' access to it.B. It embodies a probable future economic benefit.C. Its value is known with certainty.D. The event giving the enterprise the claim to the benefit has already occured. CBy definition for accounting purposes, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.Question ID: 16614An example of an other expense in a multistep income statement would be:A. selling expense.B. prepaid expense.C. interest expense.D. income taxes.C4An expense classified as “other” in a multistep income statement is a non-operating cost. Interest expense is an other expense, prepaid expense is a liability, income taxes are a provision for reporting purposes and a selling expense is an operating expense.Question ID: 16613A multistep income statement includes:A. details of all line items.B. total sales and total expenses only.C. operating revenue and expenses only.D. subtotals.DA multistep income statement includes subtotals as you progress to net income.Question ID: 16615Which of the following would NOT be included on a balance sheet?A. Retained earnings.B. Prepaid Rent.C. Accumulated depreciation.D. Cost of goods sold.DCost of goods sold are expenses incurred to manufacture a product, therefore; it is an income statement account. Retained earnings, Prepaid rent and accumulated depreciation are all balance sheet accounts.Question ID: 16616Common stock is recorded where on the financial statements?A. In stockholders’ equity.B. In accounts payable.C. In accounts receivable.5D. In other expense.ACommon stock is a component of stockholders’ equity; it is the investment in shares made by stockholders.1.C: Preliminary Reading Short-Term Liquid AssetsQuestion ID: 20066Which of the following is the CORRECT way to record an unrealized holding gain on a trading investment? An unrealized holding gain is recorded as:A. a receivable on the balance sheet.B. an increase to current liabilities.C. a gain on the income statement.D. an adjustment to stockholder’s equity.CAn unrealized holding gain on a trading investment is recorded as a gain on the income statement. On the balance sheet, the investment is written up to its fair market value.Question ID: 20067To record a loss on an available-for-sale investment a company would need to:A. credit stockholder’。