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NEW QUESTION 240
The impact of sales of receivables is:
I). Operating cash flow is reduced because the proceeds are reported as financing cash flows.
II). A portion of operating cash flow in the current period is borrowed from the future.
III). In the future, if a company sought to reduce the amount of receivables sold or securitized, operating cash flow would decline.
- A. I and II.
- B. II and III.
- C. II only.
Answer: B
Explanation:
The proceeds is reported as operating cash flow.
NEW QUESTION 241
Susan Co. had 300,000 common shares issued and outstanding at December 31, 2001. No common shares were issued during 2002. On January 1, 2002, Susan issued 200,000 nonconvertible preferred shares. During 2002, Susan declared and paid $100,000 cash dividends on the common shares and
$ 80,000 on the preferred shares. Net income for the year ended December 31, 2002 was $620,000. What should be Susan's 2002 earnings per common share?
- A. $1.73
- B. $2.07
- C. $1.80
Answer: C
Explanation:
($620,000-$80,000)/300,000=$1.80
NEW QUESTION 242
Suppose that the probability of A is 0.80 and the probability of B is 0.60, if A and B are independent events, what is the joint probability of A and B?
- A. 0.80
- B. 0.48
- C. 0.75
Answer: B
Explanation:
Since A and B are independent events P(A) = P(A|B) = 0.8 and P(AB) = P(A|B)
P(B) = 0.80 x 0.60 = 0.48.
NEW QUESTION 243
What is the interest rate risk, in percentage price change, of a semiannual-pay 9%, 15-year bond with an 8.5% yield if rates decrease by 50 and 75 basis points?
- A. 4.28%; 6.51%
- B. -2.12%; -4.31
- C. -4.00; -3.875%
Answer: A
Explanation:
Current price = 104.19. Full Valuation at -50 basis points = 108.65; +4.28%. Full Valuation at
-75 basis points = 110.97; +6.51%.
NEW QUESTION 244
Seventy-five employees from a large company were randomly surveyed in regards to the length of time they have been working for the company. The sample revealed a mean of 8.2 years and a standard deviation of 2.3 years.
What is the value of the point estimate of the population mean?
- A. 8.2 years
- B. 2.3 years
- C. 75 years
Answer: A
NEW QUESTION 245
Determine net sales for 20x2 if the average days' sales uncollected equals 73 days and Accounts
Receivable at the end of 20x1 was $4,250 and at the end of 20x2 was $4,750.
- A. $21,250.
- B. $22,500.
- C. $23,750.
Answer: B
Explanation:
Net sales equals average accounts receivable multiplied by the receivable turnover and the receivable turnover equals 365 days divided by the average days' sales uncollected. Average accounts receivable equals $4,500 [($4,250 + $4,750)/2]. Therefore, net sales are $22,500 [($4,500 x (365/73)].
NEW QUESTION 246
In accounting for a lease transaction classified as a capital lease, over the term of the lease:
- A. the lease payments by the lessee constitute a payment for lease liability plus interest.
- B. the gross sum of the lease payments equals the dollar amount that would have been paid by the lessee to purchase the property on the date of the inception of the lease.
- C. the asset should be depreciated by the lessor in a systematic and rational manner.
Answer: A
Explanation:
Lesees must make a payment that includes a payment on the debt outstanding as well as interest on the debt.
NEW QUESTION 247
Liquidity risk corresponds to the risk
- A. inherent in the business of a firm.
- B. of an investor not being able to sell a security close to its fair value quickly.
- C. of bankruptcy imposed by leverage in a firm's capital structure.
Answer: B
Explanation:
Liquidity risk is related to the depth of the market when it comes to transacting securities. If an investor cannot sell a security quickly at its fair value, liquidity risk is said to exist.
NEW QUESTION 248
A company's quick ratio:
- A. Can never be larger than its current ratio at the same date.
- B. Indicates the length of time the company takes to pay its short-term creditors.
- C. Indicates how quickly the company converts its current assets to cash.
Answer: A
NEW QUESTION 249
When credit is granted to a company by its suppliers and employees, the balance sheet classification is called
- A. short-term debt.
- B. operating and trade liabilities.
- C. current portion of long-term debt.
Answer: B
Explanation:
Operating and trade liabilities, and advances from customers are consequences of operating activities.
NEW QUESTION 250
An investor reads an article regarding one of his holdings. He is surprised to find out that there is significant evidence of massive accounting fraud at the firm. This source of risk is best described as:
- A. systematic
- B. unsystematic
- C. financial
Answer: B
Explanation:
This source of risk is unique to the firm.
NEW QUESTION 251
Unrealistically optimistic assumptions about collectability of receivables and loans is an example of
- A. Following GAAP but selecting alternatives within GAAP that bias or distort reported results to achieve a desired outcome.
- B. Stretching accounting principles to achieve a desired outcome.
- C. Using unrealistic or inappropriate estimates and assumptions to achieve a desired outcome.
Answer: C
NEW QUESTION 252
I). The generally accepted accounting principle (GAAP) that determines when revenue should be recorded in the accounting records is called the realization principle.
II). The generally accepted accounting principle (GAAP) that determines when expenses should be recorded in the accounting records is called the realization principle.
- A. both are true.
- B. only I is true.
- C. both are false.
Answer: B
Explanation:
I). The realization principle determines when revenue should be recorded in the accounting records. Revenue is realized when services are rendered to customers or when goods sold are delivered to customers.
II). The matching principle is the generally accepted accounting principle that determines when expenses should be recorded in the accounting records. The revenue earned during an accounting period is matched (offset) with the expenses incurred in generating this revenue.
NEW QUESTION 253
Nick is bullish on the Big Apple Index, which is currently at 3500. Since he has limited cash, he has decided to buy an at-the-money index option - option price is $10 per share. If the Index rises to 3508 at expiration, the option will be:
- A. out of the money.
- B. at the money.
- C. in the money.
Answer: C
NEW QUESTION 254
The Code of Ethics encompasses the concept(s) of:
I). integrity and respect.
II). independent judgment.
III). competence.
IV). contractual provisions.
- A. I and II only.
- B. I, II, III and IV.
- C. I, II, and III.
Answer: C
NEW QUESTION 255
If the cross elasticity of demand is -2:
- A. The products are substitutes and demand is cross price elastic.
- B. The products are substitutes and demand is cross price inelastic.
- C. The products are complements and demand is cross price elastic.
Answer: C
Explanation:
This means that e.g. a 10% increase in the price of one product reduces the quantity demanded of another product by 20%; the products are complements and the cross price elasticity is elastic (because the effect on quantity demanded is greater than the change in price in percentages).
NEW QUESTION 256
An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 15 percent and a variance of 400 and 70 percent in a T-bill that pays 6 percent. His portfolio's expected return and standard deviation are __________ and __________, respectively.
- A. 8.7%; 6%.
- B. 11.4%; 6%.
- C. 8.7%; 12%.
Answer: A
Explanation:
Expected return: 30% x 15% + 70% x 6% = 8.7%.Standard deviation: 30% x 20% = 6%.
NEW QUESTION 257
To decrease the federal funds rate, the Fed can use open market operations to
- A. decrease the quantity of reserves demanded.
- B. decrease the quantity of reserves supplied.
- C. increase the quantity of reserves supplied.
Answer: C
Explanation:
The Fed cannot change the demand curve for reserves.
NEW QUESTION 258
The concepts of spot and forward rates are most closely associated with which one of the following explanations of the term structure of interest rates?
- A. Segmented market theory
- B. Liquidity premium theory
- C. Expectations hypothesis
Answer: C
NEW QUESTION 259
The existence of momentum is:
- A. rational.
- B. contrary to market efficiency.
- C. not true.
Answer: A
Explanation:
Having stocks with some degree of momentum in their prices may reflect prices adjusting to a shock in growth rates.
NEW QUESTION 260
A survey of top executives revealed that 35% of them regularly read Time magazine, 20% real
Newsweek and 40% read U.S. News & World Report. Ten percent read both Time and U.S. News &
World Report. What is the probability that a particular top executive reads either Time or U.S. News &
World Report regularly?
- A. 0.65
- B. 0.85
- C. 0.06
Answer: A
Explanation:
35% + 40% - 10% = 65%
NEW QUESTION 261
What is the area under the normal curve between z = 1.0 and z = 2.0?
- A. 0.7408
- B. 0.1359
- C. 0.4772
Answer: B
Explanation:
From the z-tables, z = 1 is 0.3413 and z = 2 is 0.4772. So the area in between is 0.4772 -
0 .3413 = 0.1359.
NEW QUESTION 262
Your supervisor has asked you to increase trading volume in all discretionary accounts because he wants to increase revenues for the firm. You believe that this would be inappropriate for most of your clients. You should
- A. discuss the situation with the firm's legal counsel and try to disassociate yourself from the practice.
- B. resign your position immediately
- C. contact CFA Institute to report a violation
Answer: A
NEW QUESTION 263
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