FSA Final

Question 1

Which of the following auditor’s opinions indicate that auditor has found at least one
exception to GAAP accounting in company’s preparation and/or presentation of their
financials?

Answer 1

Qualified

Question 2

If a company reports a profit on their income statement, but shows negative operating cash
flow on the cash flow statement, which of the following could account for the discrepancy
between net income and operating cash flow?

Answer 2

There was an increase in inventory

Question 3

If sales increase, COGS expenses are leveraged, and the operating profit margin remains
flat, operating profit will:

Answer 3

Increase at the same rate as sales growth

Question 4

To find out the amount of dollars that were generated from the sale of marketable
securities, one would look at:

Answer 4

The investing section of the cash flow statement

Question 5

Amortization of intangibles is an example of:

Answer 5

Accrual accounting

Question 6

A decrease in other non-current liabilities will result in:

Answer 6

A use of cash on the cash flow statement

Question 7

Which of the following would free cash flow NOT be used for?

Answer 7

None of the above

Question 8

The proceeds from a divestiture of an asset would appear:

Answer 8

On the cash flow statement under the investing section

Question 9

If the average collection period days are declining, holding all else equal, working capital
needs would be:

Answer 9

Decreasing

Question 10

Fully diluted shares outstanding are:

Answer 10

The actual number of shares outstanding plus the amount of potentially additional
shares outstanding from convertible warrants, bonds, and exercisable, but
unexercised stock options

Question 11

Assume a firm has a current ratio of 1.5x and a debt ratio of 0.7x. The firm then takes cash
and pays down short-term debt. The firm’s quick ratio and debt ratio will:

Answer 11

The current ratio will increase, and the debt ratio will decrease

Question 12

If a company’s days inventory held increase, holding all else constant, which of the
following is most likely to occur:

Answer 12

Operating cash flow will decline

Question 13

Assuming a period of inflation, the LIFO method will:

Answer 13

Most accurately reflect the current value of the cost of goods sold

Question 14

When constructing the cash flow statement, changes in marketable securities listed in the
current asset section of the balance sheet should be classified under the:

Answer 14

Investing section

Question 15

If a company’s net debt position goes from negative $100 to negative $200:

Answer 15

It is impossible to determine without additional information

Question 16

If a company takes an impairment charge to write-off goodwill associated with a past
acquisition (ignoring any tax impact):

Answer 16

Total assets and equity will both decline by the same amount

Question 17

Assume a firm has a current ratio of 1.7x and a quick ratio of 0.6x. The firm then purchases
inventory on account. The firm’s current ratio and quick ratio will?

Answer 17

Both the current ratio and the quick ratio will decrease

Question 18

Which inventory accounting method will result in the highest quality of earnings in a
period of deflation:

Answer 18

LIFO

Question 19

Which one of the following would be considered the highest quality source of earnings
growth:

Answer 19

An increase in sales

Question 20

If a company’s operating profit is growing faster than sales, but its earnings per share are
growing slower than sales, which of the following would account for this phenomenon?

Answer 20

The company increased their financial leverage