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CFA Level 2 > Financial Reporting & Analysis > Flashcards

Financial Reporting & Analysis Flashcards

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1
Q

In an inflationary environment, a LIFO firm has higher or lower COGS?

A

Higher

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2
Q

In an inflationary environment, a LIFO firm has higher or lower EBT?

A

Lower

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3
Q

In an inflationary environment, a LIFO firm has higher or lower Taxes?

A

Lower

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4
Q

In an inflationary environment, a LIFO firm has higher or lower Net Income?

A

Lower

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5
Q

In an inflationary environment, a LIFO firm has higher or lower Inventory?

A

Lower

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6
Q

In an inflationary environment, a LIFO firm has higher or lower Working Capital?

A

Lower, because current assets are reduced

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7
Q

In an inflationary environment, a LIFO firm has higher or lower Retained Earnings?

A

Lower

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8
Q

In an inflationary environment, a LIFO firm has higher or lower Operating Cash Flows?

A

Higher

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9
Q

In an inflationary environment, a LIFO firm has higher or lower Total Cash Flows?

A

Higher, because taxes paid are lower

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10
Q

LIFO Reserve is calculated by…

A

subtracting total LIFO Inventory from FIFO Inventory (disclosed in firm’s footnotes)

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11
Q

The LIFO Effect is calculated as…

A

the change in LIFO Reserve from one period to the next

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12
Q

To adjust inventory when converting a LIFO firm to a FIFO firm…. FIFO Inventory =

A

LIFO Inventory + LIFO Reserve

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13
Q

To adjust cash when converting a LIFO firm to a FIFO firm… FIFO Cash =

A

LIFO Cash - (Reserve x tax rate)

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14
Q

To adjust Equity when converting a LIFO firm to a FIFO firm…. FIFO Equity =

A

LIFO Equity + [Reserve x (1 - tax rate)]

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15
Q

To adjust COGS when converting a LIFO firm to a FIFO firm…. FIFO COGS =

A

LIFO COGS - change in Reserve

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16
Q

To adjust Taxes when converting a LIFO firm to a FIFO firm…. FIFO Taxes =

A

LIFO Taxes + (Change in Reserve x tax rate)

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17
Q

To adjust Net Income when converting a LIFO firm to a FIFO firm…. FIFO Net Income =

A

LIFO Net Income + [Change in Reserve x (1 - tax rate)]

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18
Q

When adjusting LIFO to FIFO, the Current Ratio increases or decreases?

A

Increases

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19
Q

When adjusting LIFO to FIFO, Inventory Turnover increases or decreases?

A

Decreases

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20
Q

When adjusting LIFO to FIFO, the Long-Term Debt-to-Equity ratio increases or decreases?

A

Decreases

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21
Q

When adjusting LIFO to FIFO, Gross Profit increases or decreases?

A

Increases

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22
Q

When adjusting LIFO to FIFO, Net Profit increases or decreases?

A

Increases

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23
Q

Capitalizing v. Expensing long-lived assets results in higher or lower Assets and Equity?

A

Higher

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24
Q

Capitalizing v. Expensing long-lived assets results in higher or lower Net Income in the first year?

A

Higher

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25
Q

Capitalizing v. Expensing long-lived assets results in higher or lower Net Income in future years?

A

Lower

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26
Q

Capitalizing v. Expensing long-lived assets results in higher or lower Income variability?

A

Lower

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27
Q

Capitalizing v. Expensing long-lived assets results in higher or lower ROA and ROE in the first year?

A

Higher

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28
Q

Capitalizing v. Expensing long-lived assets results in higher or lower ROA or ROE in future years?

A

Lower

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29
Q

Capitalizing v. Expensing long-lived assets results in higher or lower Debt Ratio and Debt-to-Equity?

A

Lower

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30
Q

Capitalizing v. Expensing long-lived assets results in higher or lower Operating Cash Flows (CFO)?

A

Higher

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31
Q

Capitalizing v. Expensing long-lived assets results in higher or lower Investing Cash Flows (CFI)?

A

Lower

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32
Q

How does impairment of a long-lived asset effect the balance sheet?

A

reduces assets, liabilities (through deferred taxes) ,and stockholder’s equity

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33
Q

How does impairment of a long-lived asset effect the income statement?

A

decreases current period net income; reduced depreciation results in higher net income in future periods

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34
Q

How does impairment of a long-lived asset effect cash flows?

A

It doesn’t

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35
Q

How does impairment of a long-lived asset effect the fixed asset ratio and the total asset turnover ratio?

A

increase due to reduced assets

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36
Q

How does impairment of a long-lived asset effect the debt-to-equity ratio?

A

increases due to reduced equity

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37
Q

How does impairment of a long-lived asset effect the current year ROA and ROE?

A

decrease, because reduction in net income is greater than the reduction in assets/equity

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38
Q

How does impairment of a long-lived asset effect future ROA and ROE?

A

increase due to lower assets and equity, higher net income with lower depreciation

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39
Q

Finance Leases v. Operating Leases have higher or lower assets?

A

Higher

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40
Q

Finance Leases v. Operating Leases have higher or lower liabilities?

A

Higher

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41
Q

Finance Leases v. Operating Leases have higher or lower net income in early years?

A

Lower

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42
Q

Finance Leases v. Operating Leases have higher or lower net income in later years?

A

Higher

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43
Q

Finance Leases v. Operating Leases have higher or lower total net income?

A

total net income is the same

44
Q

Finance Leases v. Operating Leases have higher or lower cash flow from operations?

A

Higher

45
Q

Finance Leases v. Operating Leases have higher or lower cash flow from financing?

A

Lower

46
Q

Finance Leases v. Operating Leases have higher or lower total cash flow?

A

total cash flow is the same

47
Q

Finance Leases v. Operating Leases have higher or lower asset turnover?

A

Lower

48
Q

Finance Leases v. Operating Leases have higher or lower return on assets in early years?

A

Lower

49
Q

Finance Leases v. Operating Leases have higher or lower return on equity in early years?

A

Lower

50
Q

Finance Leases v. Operating Leases have higher or lower Debt-to-Assets?

A

Higher

51
Q

Finance Leases v. Operating Leases have higher or lower Debt-to-Equity?

A

Higher

52
Q

What is recorded on the balance sheet for Trading Securities?

A

Fair Value

53
Q

What is recorded on the balance sheet for Available-for-Sale Securities?

A

Fair Value

Unrealized Gains & Losses

54
Q

What is recorded on the balance sheet for Held-to-Maturity Securities?

A

Amortized Cost

55
Q

What is recorded on the income statement for Available-for-Sale Securities?

A

Dividends
Interest
Realized Gains & Losses

56
Q

What is recorded on the income statement for Trading Securities?

A

Dividends
Interest
Realized Gains & Losses
Unrealized Gains & Losses

57
Q

What is recorded on the income statement for Held-to-Maturity Securities?

A

Interest

Realized Gains & Losses

58
Q

Full Goodwill (U.S. GAAP) is calculated how?

A

= total fair value of subsidiary - fair value of net identifiable assets

59
Q

Total Fair Value of Subsidiary = ?

A

= Fair value of purchases price x 1/%owned

60
Q

Minority Interest for Full Goodwill is calculated how?

A

= % not owned x total fair value of subsidiary

61
Q

Partial Goodwill (IFRS) is calculated how?

A

= purchase price - (% owned x total fair value of net identifiable assets)

62
Q

Minority Interest for Partial Goodwill is calculated how?

A

= % not owned x partial fair value of net identifiable assets

63
Q

Under the Equity Method v. the Acquisition Method, Sales are higher or lower?

A

Lower

64
Q

Under the Equity Method v. the Acquisition Method, Net Income is higher or lower?

A

Net Income is the same

65
Q

Under the Equity Method v. the Acquisition Method, Assets and Liabilities are higher or lower?

A

lower

66
Q

Under the Equity Method v. the Acquisition Method, Shareholder’s Equity is higher or lower?

A

lower

67
Q

Under the Equity Method v. the Acquisition Method, the Leverage ratio is higher or lower?

A

It depends on certain factors

68
Q

Under the Equity Method v. the Acquisition Method, the Net Profit Margin ratio is higher or lower?

A

Higher

69
Q

Under the Equity Method v. the Acquisition Method, the ROE ratio is higher or lower?

A

Higher

70
Q

Under the Equity Method v. the Acquisition Method, the ROA ratio is higher or lower?

A

Higher

71
Q

What are the components of PBO/PVDBO?

A 
Beginning PBO
\+ Service Cost
\+ Interest cost
- actuarial gains
\+ actuarial losses
\+ plan amendments
- benefits paid
---------------------------------
= Ending PBO
72
Q

What are the components that make up the Fair Value of Plan Assets for a DBP?

A 
Beginning Fair Value
\+ Actual return on plan assets
\+ Employer contributions
- Benefits Paid
--------------------------------------
Fair value at end of year
73
Q

How do you determine funded status of a DBP?

A

Funded Status = fair value of plan assets - PBO

74
Q

Where does the funded status appear in the financial statements for a DBP?

A

funded status appears on the Balance Sheet as an Asset or Liability

75
Q

What is the Total Periodic Pension cost of a DBP?

A

Total Periodic Pension Cost = contributions - change in funded status

OR

Service cost
+ Interest Cost
+ Plan amendments
+/- current period actuarial losses/gains
- actual return
————————————————–
= TPPC (true cost)

76
Q

How do you calculate Pension Cost under US GAAP?

A 
Service Cost (actual)
\+ Interest Cost (actual)
- Expected return on plan assets
\+/- amort. of actuarial gains/losses
\+/- amort of past service cost
---------------------------------------------
= Periodic Pension Cost under US GAAP
77
Q

Where do unamortized past service cost and actuarial gains and losses appear under US GAAP?

A

unamortized past service cost and actuarial gains and losses appear in OCI under US GAAP

78
Q

How do you calculate Pension Cost under IFRS?

A 
Service cost
\+/- [beg funded status x discount rate]
\+/- past service costs
-------------------------------------------------------
= Periodic Pension Cost under IFRS
79
Q

How are monetary assets and liabilities translated using the temporal method?

A

current rate

80
Q

how are monetary assets and liabilities translated using the current rate method?

A

current rate

81
Q

how are non-monetary assets and liabilities translated using the temporal method?

A

historical rate

82
Q

how are non-monetary assets and liabilities translated using the current rate method?

A

current rate

83
Q

how is common stock translated under the temporal method?

A

historical rate

84
Q

how is common stock translated under the current rate method?

A

historical method

85
Q

how is equity (as a whole) translated under the current rate method?

A

current rate

86
Q

how is equity (as a whole) translated under the temporal method?

A

mixed, because the change in retained earnings included net income and that is translated mixed.

87
Q

how are revenues and SG&A translated under the temporal method?

A

average rate

88
Q

how are revenues and SG&A translated under the current rate method?

A

average rate

89
Q

how are COGS translated under the temporal method?

A

historical rate

90
Q

how are COGS translated under the current rate method?

A

average rate

91
Q

how is depreciation translated under the temporal method

A

historical rate

92
Q

how is depreciation translated under the current rate method

A

average rate

93
Q

how is net income translated under the temporal method?

A

mixed

94
Q

how is net income translated under the current rate method?

A

average rate

95
Q

where does the exchange rate gain or loss appear under the temporal method?

A

on the Income statement as a remeasurement gain/loss

96
Q

where does the exchange rate gain or loss appear under the current rate method?

A

in Equity as Cumulative Translation Adjustment

97
Q

How is exposure calculated under the current rate method?

A

exposure = shareholder’s equity = assets - liabilities

98
Q

how is exposure calculated under the temporal method?

A

exposure = (cash + AR) - (AP + current debt + LT debt) = net monetary asset/liability

99
Q

what is Cumulative Translation Adjustment (CTA)?

A

under the current rate method, CTA is the accumulation of translation gains/losses on the balance sheet.

100
Q

under the temporal method, if the exposure is a net monetary asset and the currency is appreciating is there a gain or loss?

A

gain

101
Q

under the temporal method if there is a net monetary asset and the currency is depreciating is there a gain or loss?

A

loss

102
Q

under the current rate method, if the exposure is a net asset and the currency is appreciating then is there a gain or loss?

A

gain

103
Q

under the current rate method, if the exposure is a net asset and the currency is depreciating, is there a gain or loss?

A

loss

104
Q

calculate economic value added (EVA)?

A

EVA = NOPAT - cost of capital

105
Q

calculate enterprise value

A

EV = debt + equity + preferred equity - cash & investments

CFA Level 2 (5 decks)

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