Question 1 of 18

Question ID: 1575067

Four years ago, a company issued a fully amortizing annual-pay bond with a maturity of six years. The appropriate balance
sheet treatment of this security is to record the liability as:

A) current only.

B) non-current only.

C) part current and part non-current.

On January 1, Orange Computers issued employee stock options for 400,000 shares. Options on 200,000 shares have an
exercise price of $18, and options on the other 200,000 shares have an exercise price of $22. The year-end stock price was
$24, and the average stock price over the year was $20. The change in the number of shares used to calculate diluted
earnings per share for the year due to these options is closest to:

A) 20,000 shares.

B) 67,000 shares.

C) 100,000 shares.
Question 3 of 18
Question ID: 1575069

Goodwill is most likely to be:

A) amortized over its estimated useful life.

B) tested for impairment at least annually.

C) depreciated if certain criteria are met.

Picknicktisch Plc., a manufacturer of outdoor furniture, reported cost of goods sold for the year of €60 million. Inventory
declined by €4 million, but total assets increased by €30 million. Accounts payable increased by €1 million, while total
liabilities increased by €25 million. The amount that Picknicktisch paid to its suppliers during the year is closest to:

A) €55 million.

B) €57 million.

C) €63 million.
Question 5 of 18
Question ID: 1575071

An analyst wants to compare the cash flows of two United States companies, one that reports cash flow using the direct
method and one that reports it using the indirect method. The analyst is most likely to:

A) convert the indirect statement to the direct method to compare the firms’ cash expenditures.

B) adjust the reported CFO of the firm that reports under the direct method for depreciation and amortization expense.

C) increase CFI for any dividends reported as investing cash flows by the firm reporting cash flow by the direct method.
Question 6 of 18
Question ID: 1575072

The most appropriate method of computing free cash flow to equity (FCFE) is:

A) NI + NCC + Int(1 – tax rate) – FCInv – WCInv.

B) CFO + Int(1 – tax rate) – FCInv.

C) CFO – FCInv + net borrowing.

In the notes to its financial statements, Gilbert Company discloses a €400,000 reversal of an earlier write-down of inventory
values, which increases this inventory's carrying value to €2,000,000. It is least likely that:

A) the net realizable value of this inventory is €2,000,000.

B) a gain of €400,000 appears on the income statement.

C) the reasons for this reversal are also disclosed.

Considering financial reporting for research and development costs under IFRS, it would be most accurate to state that:

A) IFRS allows research costs to be capitalized.

B) IFRS requires research costs to be expensed.

C) IFRS requires development costs to be expensed.

Kreditnehmer AG enters a contract with Darlehensgeber SE that requires Kreditnehmer to pay €2 million at the end of each
of the next two years to Darlehensgeber for exclusive use of a specific machine over that time period. The present value of
these payments is €3.6 million. At the end of the contract, Kreditnehmer will return the machine to Darlehensgeber, as the
contract contains no purchase option. The machine could potentially be used in various applications by different kinds of
customers. The remaining useful life of the machine is five years, and its fair value is currently €6 million. This contract
should most accurately be categorized as:

A) a sales-type lease.

B) an operating lease.

C) a finance lease.
Question 10 of 18
Question ID: 1575076

Under U.S. GAAP, the pension component most likely to be recognized on the income statement in the period that it is
incurred is the:

A) past service costs.

B) actuarial gains and losses.

C) expected return on plan assets.

Graphics, Inc. has a deferred tax asset of $4,000,000 on its books. As of December 31, it is probable that $2,000,000 of the
deferred tax asset's value will never be realized because of the uncertainty about future income. Under U.S. GAAP,
Graphics, Inc. should:

A) reduce the deferred tax asset account by $2,000,000.

B) establish a valuation allowance of $2,000,000.

C) establish an offsetting deferred tax liability of $2,000,000.

When deferred tax liabilities are not expected to reverse, they should most appropriately be treated as:

A) equity.,

B) liabilities.

C) neither liabilities nor equity.

Which of the following is least likely to result in low-quality financial statements?

A) Unsustainable cash flows.

B) Activities that manage earnings.

C) Conservative accounting choices.

If a firm's management wishes to use its discretion to increase operating cash flows, it is most likely to:

A) capitalize an expense.

B) decrease the allowance for uncollectible accounts.

C) change delivery terms from FOB destination to FOB shipping point.

A decrease in a firm's inventory turnover ratio is most likely to result from:

A) a write-down of inventory.

B) goods in inventory becoming obsolete.

C) decreasing purchases in a period of stable sales.

Suppose that you wish to forecast future financial performance for a particular firm. You carry out an analysis to quantify
what would happen if some economic event occurred, such as the loss of a supply source, a loss of customers, or some
catastrophic event, by making a list of mutually exclusive and exhaustive events and assigning each probabilities. Then, you
evaluate the range of outcomes, and calculate statistical measures such as the mean and median values for different key
variables. The technique you are using is most likely to be categorized as:

A) sensitivity analysis.

B) scenario analysis.

C) simulation.
Question 17 of 18
Question ID: 1575083

Suppose that you are forecasting the balance sheet items for a company you are modeling, and you use the firm's
historical sales to net working capital ratio to forecast the company's working capital accounts. Your approach to forecasting
the working capital accounts is most likely to be classified as a:

A) bottom-up approach.

B) hybrid approach.

C) top-down approach.
Question 18 of 18
Question ID: 1575084

Suppose that our financial model for Wissenschaft AG estimates a terminal value using a valuation multiple based on the
company's average price-to-earnings multiple (P/E) over the past three years. Suppose further that a technological
development emerges that should affect Wissenschaft AG in a positive way, but that we expect this change will occur
sometime beyond our financial forecast horizon. In terms of our terminal value calculation, our most appropriate response to
this technological development would be to:

A) increase the required return.

B) make no change to the terminal value.

C) increase the price-to-earnings multiple.