FSA Exam Paper PDF

Simulazioni FSA The following exam is designed to assess your understanding of Financial Statement Analysis at an advanced level. You will analyze various financial statements and apply your knowledge of accounting concepts. All questions are closed-ended. Make sure to carefully read each question...

Simulazioni FSA The following exam is designed to assess your understanding of Financial Statement Analysis at an advanced level. You will analyze various financial statements and apply your knowledge of accounting concepts. All questions are closed-ended. Make sure to carefully read each question and use the financial data provided to perform necessary calculations. Exam Outline: Section 2: Cash Flow Statement Classification 1. For each item in the Statement of Cash Flows, classify as Operating, Investing, or Financing activities. 2. Compute the total cash flows for each category. Section 3: Inventory Valuation 1. Using the provided inventory data, calculate Ending Inventory under: o LIFO (Last-In, First-Out) method o FIFO (First-In, First-Out) method Section 4: Valuation of Goodwill and Gross Profit 1. Based on the data for an acquisition, calculate: o Goodwill if Purchase Price > Fair Market Value of Assets. o Gross Profit based on the provided revenue and cost data. Section 5: Journal Entries – True or False 1. Indicate whether each journal entry statement is True or False: o Recording depreciation increases accumulated depreciation and decreases net income. o Repurchasing stock results in an increase in equity. Section 6: Accounting Methods 1. Determine if the cash flow statement is prepared using the Direct or Indirect method based on the items listed. Exam Questions: 1. Section 1: o Q1. Calculate the total expenses if additional costs are $1,000 on top of existing expenses of $20,000. § A) $19,000 § B) $20,000 § C) $21,000 § D) $22,000 o Q2. Gross Profit Margin if Revenue is $50,000 and Gross Profit is $30,000. § A) 20% § B) 40% § C) 60% § D) 80% 2. Section 2: o Q3. Classify the following as Operating, Investing, or Financing activity: Purchase of new machinery worth $15,000. § A) Operating § B) Investing § C) Financing § D) None 3. Section 3: o Q4. Using the LIFO method, calculate Ending Inventory if beginning inventory is $10,000, purchases are $5,000, and cost of goods sold (COGS) is $8,000. § A) $2,000 § B) $3,000 § C) $5,000 § D) $7,000 4. Section 4: o Q5. Calculate the Goodwill if the purchase price is $200,000 and fair market value of assets is $150,000. § A) $25,000 § B) $50,000 § C) $75,000 § D) $100,000 5. Section 5: o Q6. True or False: “Recording an expense always increases liabilities.” § A) True § B) False 6. Section 6: o Q7. Determine the method used in a cash flow statement with line items for Depreciation Expense and changes in Working Capital. § A) Direct § B) Indirect Exam 1 Question 1 1. Given the following values, calculate the current ratio: o Current assets: €150,000 o Current liabilities: €100,000 a) 1.0 b) 1.5 c) 2.0 d) 0.67 Question 2 1. Which of the following is included in shareholders' equity? a) Net income b) Short-term liabilities c) Long-term assets d) Depreciation Question 3 1. Company Alpha has sales of €500,000, cost of goods sold of €300,000, and operating expenses of €100,000. What is the operating margin? a) €100,000 b) €150,000 c) €200,000 d) €250,000 Question 4 1. Given the following: operating cash flow (€20,000), cash flow from investing (€5,000), and cash flow from financing (€10,000), what is the total net cash flow? a) €35,000 b) €25,000 c) €15,000 d) €5,000 Question 5 1. A company has a debt ratio of 0.4. If equity is €300,000, what is the company's total debt? a) €100,000 b) €120,000 c) €150,000 d) €180,000 Question 6 1. Given the following situation: current assets of €90,000, current liabilities of €60,000, inventory of €20,000, what is the quick ratio? a) 0.83 b) 1.17 c) 1.50 d) 2.00 Question 7 1. If a company’s sales are €200,000 and its cost of goods sold is €120,000, what is the gross profit? a) €80,000 b) €100,000 c) €120,000 d) €150,000 Question 8 1. Company Gamma has net income of €50,000, total liabilities of €200,000, and total assets of €500,000. What is the ROA (Return on Assets)? a) 10% b) 15% c) 25% d) 20% Question 9 1. Company XYZ has cash of €10,000, accounts receivable of €5,000, and inventory of €7,000. Short-term liabilities are €20,000. What is the current ratio? a) 1.1 b) 1.2 c) 1.5 d) 0.9 Question 10 1. Knowing that gross profit is €120,000, operating expenses are €50,000, and depreciation is €20,000, what will be the operating income (EBIT)? a) €50,000 b) €70,000 c) €90,000 d) €100,000 Question 11  1. If total debt of a company is €180,000 and equity is €220,000, what is the debt/equity ratio? a) 0.82 b) 0.90 c) 1.10 d) 1.50 Question 12 1. Which of the following is a method used to value inventory? a) FIFO b) LIFO c) Weighted average cost d) All of the above Question 13 1. If a company has €40,000 in accounts receivable and annual sales of €400,000, what is the receivables turnover ratio? a) 8 times b) 10 times c) 12 times d) 15 times Question 14 1. Given net income of €90,000 and total sales of €600,000, what is the net profit margin? a) 10% b) 12% c) 15% d) 18% Question 15 1. Company ABC has a price-to-earnings (P/E) ratio of 20 and earnings per share of €2. What is the stock price? a) €20 b) €30 c) €40 d) €50 Question 16 1. What does negative operating cash flow indicate? a) The company spent more than it earned from operations b) The company is insolvent  c) The company has no debt d) The company is highly profitable Question 17 1. Given total assets of €600,000 and equity of €250,000, what is the equity multiplier? a) 1.4 b) 2.0 c) 2.4 d) 3.0 Question 18 1. Which accounting principle is applied to valuing intangible assets? a) Prudence b) Market value c) Historical cost d) Fair value Question 19 1. What does a high debt ratio indicate? a) Greater reliance on equity b) Higher financial risk c) Greater growth opportunities d) Lower solvency Question 20 1. Which of the following is an indicator of profitability? a) Debt/equity ratio b) Operating margin c) Current ratio d) Quick ratio Exam 1 Question 1 1. Given the following values, calculate the current ratio: o Current assets: €150,000 o Current liabilities: €100,000 a) 1.0 b) 1.5 c) 2.0 d) 0.67 Question 2 1. Which of the following is included in shareholders' equity? a) Net income b) Short-term liabilities c) Long-term assets d) Depreciation Question 3 1. Company Alpha has sales of €500,000, cost of goods sold of €300,000, and operating expenses of €100,000. What is the operating margin? a) €100,000 b) €150,000 c) €200,000 d) €250,000 Question 4 1. Given the following: operating cash flow (€20,000), cash flow from investing (€5,000), and cash flow from financing (€10,000), what is the total net cash flow? a) €35,000 b) €25,000 c) €15,000 d) €5,000 Question 5 1. A company has a debt ratio of 0.4. If equity is €300,000, what is the company's total debt? a) €100,000 b) €120,000 c) €150,000 d) €180,000 Question 6 1. Given the following situation: current assets of €90,000, current liabilities of €60,000, inventory of €20,000, what is the quick ratio? a) 0.83 b) 1.17 c) 1.50 d) 2.00 Question 7 1. If a company’s sales are €200,000 and its cost of goods sold is €120,000, what is the gross profit? a) €80,000 b) €100,000 c) €120,000 d) €150,000 Question 8 1. Company Gamma has net income of €50,000, total liabilities of €200,000, and total assets of €500,000. What is the ROA (Return on Assets)? a) 10% b) 15% c) 25% d) 20% Question 9 1. Company XYZ has cash of €10,000, accounts receivable of €5,000, and inventory of €7,000. Short-term liabilities are €20,000. What is the current ratio? a) 1.1 b) 1.2 c) 1.5 d) 0.9 Question 10 1. Knowing that gross profit is €120,000, operating expenses are €50,000, and depreciation is €20,000, what will be the operating income (EBIT)? a) €50,000 b) €70,000 c) €90,000 d) €100,000 Question 11  1. If total debt of a company is €180,000 and equity is €220,000, what is the debt/equity ratio? a) 0.82 b) 0.90 c) 1.10 d) 1.50 Question 12 1. Which of the following is a method used to value inventory? a) FIFO b) LIFO c) Weighted average cost d) All of the above Question 13 1. If a company has €40,000 in accounts receivable and annual sales of €400,000, what is the receivables turnover ratio? a) 8 times b) 10 times c) 12 times d) 15 times Question 14 1. Given net income of €90,000 and total sales of €600,000, what is the net profit margin? a) 10% b) 12% c) 15% d) 18% Question 15 1. Company ABC has a price-to-earnings (P/E) ratio of 20 and earnings per share of €2. What is the stock price? a) €20 b) €30 c) €40 d) €50 Question 16 1. What does negative operating cash flow indicate? a) The company spent more than it earned from operations b) The company is insolvent  c) The company has no debt d) The company is highly profitable Question 17 1. Given total assets of €600,000 and equity of €250,000, what is the equity multiplier? a) 1.4 b) 2.0 c) 2.4 d) 3.0 Question 18 1. Which accounting principle is applied to valuing intangible assets? a) Prudence b) Market value c) Historical cost d) Fair value Question 19 1. What does a high debt ratio indicate? a) Greater reliance on equity b) Higher financial risk c) Greater growth opportunities d) Lower solvency Question 20 1. Which of the following is an indicator of profitability? a) Debt/equity ratio b) Operating margin c) Current ratio d) Quick ratio QUIZ I: QUESTION 1: The allowance for uncollectible account is a counter-asset? True False (Yes, the allowance for uncollectible accounts (also known as the allowance for doubtful accounts or bad debt reserve) is classified as a contra-asset account. It reduces the value of accounts receivable on the balance sheet, reflecting the amount of receivables that the company does not expect to collect. This account is used to estimate potential losses from customers who may default on their payments. The net realizable value of the accounts receivable is shown after deducting the allowance for uncollectible accounts from the gross receivables) QUESTION 2: The periodic depreciation charge of €50 will increase the value of depreciation expense and decrease the value of Property and Equipment, net by the same amount of €50. True False (Yes, that statement is correct. A periodic depreciation charge of €50 will have the following effects: Increase in Depreciation Expense: The €50 charge will be recorded as an expense in the income statement under "Depreciation Expense," increasing total operating expenses by that amount. Decrease in Property and Equipment, net: Simultaneously, the same €50 will decrease the "Property and Equipment, net" account (which represents the book value of the asset) on the balance sheet. This is because depreciation reduces the value of the asset over time. This results in a reduction in net income due to the increased expense, and a decrease in the carrying value of fixed assets (Property and Equipment, net) on the balance sheet.) QUESTION 3: On December 31, 2018 the annual lease of €84,000 prepaid on September 1st 2018, expired for 4 of 12 months. The transaction will entail: an increase in rent expense of €28,000; an increase in retained income €28,000. True False (The scenario you described seems to involve adjusting entries for prepaid rent and rent expense. Let's break it down: Prepaid Rent: On September 1, 2018, the company prepaid a lease of €84,000 for 12 months. This means the company paid the full rent in advance but only incurred the expense for 4 months (from September 1 to December 31, 2018) by the end of the year. Rent Expense: Since only 4 months out of the 12-month lease have been used by December 31, 2018, the rent expense should be calculated for these 4 months. Steps to calculate the correct amounts: 1. Rent Expense for 4 months: Annual lease: €84,000 Monthly rent: €84,000 ÷ 12 months = €7,000 Rent expense for 4 months (Sep–Dec): €7,000 × 4 months = €28,000 2. Prepaid Rent for the remaining 8 months: The remaining amount represents the prepaid rent for the period January– August 2019. Prepaid rent balance: €7,000 × 8 months = €56,000 Accounting Entries: Increase in Rent Expense: An expense of €28,000 will be recorded for the 4 months used (September to December). Decrease in Prepaid Rent: The prepaid rent balance will decrease by €28,000 for the amount used, leaving €56,000 as the prepaid rent for future months. Correction to the Statement: The transaction should not result in an increase in retained income, but rather: 1. An increase in rent expense of €28,000 (as stated correctly). 2. A decrease in prepaid rent of €28,000, not retained income. Retained income would generally only be affected indirectly, through net income at the end of the reporting period. If rent expense increases, net income decreases, which could eventually lower retained earnings.) QUESTION 4: On December 31, 2018 miscellaneous expenses for 2018 were paid in full in cash, €70,000. The transaction will entail: a decrease in cash €70,000; a decrease in retained earnings €70,000. True False (In the case of paying miscellaneous expenses for 2018 in full, let's clarify the accounting treatment. Transaction Breakdown: 1. Miscellaneous Expenses: Expenses represent costs incurred during the year, which will reduce net income and ultimately impact retained earnings. 2. Payment in Cash: The payment reduces the company's cash balance. Correct Accounting Treatment: 1. Decrease in Cash: When the miscellaneous expenses are paid in full in cash, it reduces the cash balance by €70,000. 2. Increase in Expenses and Effect on Retained Earnings: The payment of €70,000 will increase expenses on the income statement, reducing net income by the same amount. Since retained earnings are the accumulated profits or losses of the company, the reduction in net income will reduce retained earnings. Accounting Entries: Debit: Miscellaneous Expenses €70,000 Credit: Cash €70,000 Effect on Retained Earnings: Expenses reduce net income, and since net income (or loss) flows into retained earnings at the end of the accounting period, this will indirectly reduce retained earnings. Therefore: Decrease in Retained Earnings: €70,000 (via the reduction in net income due to the €70,000 of expenses). Conclusion: The statement is correct: Decrease in cash: €70,000 Decrease in retained earnings: €70,000 This reflects the impact of the payment on both the balance sheet and the income statement.) QUESTION 5: The retained earnings at the year end, not distributed in the form of dividends, will be carried forward to the next accounting. True False (Yes, the retained earnings at the year-end, which are not distributed as dividends, will indeed be carried forward to the next accounting period. These retained earnings represent the portion of net income that the company has chosen to reinvest in the business rather than distribute to shareholders. They appear on the balance sheet under shareholders' equity and can be used for future growth, paying off debt, or other financial needs of the company.) QUESTION 6: On 31st of March, 2020 merchandise carried in inventory at a cost of €1.2 million was sold. The transaction will entail: a decrease in inventory €1.2 million; a decrease in retained income €1.2 million. True False (It seems like there’s a slight misunderstanding in the treatment of the transaction. Here’s a breakdown of what actually happens when inventory is sold: 1. Decrease in Inventory: Yes, the inventory account will decrease by €1.2 million because the cost of the merchandise (the cost of goods sold, or COGS) is transferred from the inventory account to the income statement. 2. Increase in Expenses (COGS): The cost of goods sold (COGS) will increase by €1.2 million, which reduces net income. 3. Sales Revenue: If the inventory is sold for more than its cost, you would also have an increase in sales revenue, which would be higher than €1.2 million (depending on the selling price). 4. Retained Earnings: The reduction in retained earnings will not be by €1.2 million exactly. Retained earnings decrease by the net effect of the sale (i.e., sales revenue minus COGS). So if the selling price was, for example, €2 million, the net income would increase by €0.8 million (€2 million - €1.2 million), which would flow into retained earnings. In summary, the entries would look like this:  Inventory (Asset) decreases by €1.2 million. Cost of Goods Sold (Expense) increases by €1.2 million. Sales Revenue (Revenue) increases by the selling price. Retained Earnings (Equity) will change based on the net profit from the sale (Sales - COGS). Let me know if you need a detailed journal entry or further clarification!) QUESTION 7: The payment of €2,550 on open accounts payable will increase the value of cash and the value of accounts payable by the same amount of € 2,550. True False (The statement is incorrect. A payment of €2,550 on open accounts payable will decrease both cash and accounts payable by €2,550, not increase them. Here's why: Cash: When the payment is made, cash is reduced because you're using money to settle the accounts payable. Accounts Payable: This liability decreases because you've paid off part of what was owed. So, both the value of cash and accounts payable decrease by €2,550.) QUIZ WEEK 1 AND 2: QUESTION 1: A company purchased equipment on January 1, 2020, for €30,000. The equipment has an estimated useful life of 5 years and no residual value. What will be the depreciation expense at the end of 2020, assuming the straight-line method is used? A. €6,000 B. €5,000 C. €7,500 D. €10,000 Answer: A (Depreciation = €30,000 ÷ 5 = €6,000 per year) QUESTION 2: On March 1, 2020, a company received €12,000 in advance for a 12-month service contract. By the end of the year, how much of this amount will be recognized as revenue? A. €12,000 B. €10,000 C. €4,000 D. €8,000 Answer: B (Service for 10 months: €12,000 ÷ 12 × 10 = €10,000) QUESTION 3: On December 31, 2021, a company had Accounts Receivable of €100,000 and an Allowance for Doubtful Accounts of €5,000. What is the net realizable value of the Accounts Receivable? A. €100,000 B. €95,000 C. €105,000 D. €90,000 Answer: B (Net Realizable Value = Accounts Receivable - Allowance for Doubtful Accounts = €100,000 - €5,000 = €95,000) QUESTION 4: On September 1, 2021, a company prepaid €24,000 for a one-year office rental. How much of this should be recognized as an expense by December 31, 2021? A. €8,000 B. €6,000 C. €10,000 D. €24,000 Answer: A (Prepaid for 12 months, but used for 4 months: €24,000 ÷ 12 × 4 = €8,000) QUESTION 5: A company sold merchandise on account for €5,000 with a cost of €3,000. How will this transaction impact the income statement? A. Increase Sales Revenue by €3,000 B. Increase Sales Revenue by €5,000 C. Decrease Inventory by €5,000 D. Decrease Sales Revenue by €3,000 Answer: B (Sales Revenue will increase by €5,000, and Cost of Goods Sold will increase by €3,000.) QUESTION 6: A company paid off an accounts payable of €15,000. What is the impact on the financial statements? A. Increase in cash by €15,000 B. Decrease in accounts payable by €15,000 C. Decrease in retained earnings by €15,000 D. Increase in accounts payable by €15,000 Answer: B (The accounts payable decreases by €15,000, and cash decreases by the same amount.) QUESTION 7: On January 1, 2020, a company issued bonds with a face value of €100,000 at a discount of €5,000. What is the carrying amount of the bonds on the issue date? A. €105,000 B. €100,000 C. €95,000 D. €90,000 Answer: C (Carrying amount = Face value - Discount = €100,000 - €5,000 = €95,000) QUESTION 8: A company’s trial balance shows Salaries Expense of €80,000 and Salaries Payable of €15,000 at year-end. How much was paid in cash for salaries during the year? A. €95,000 B. €65,000 C. €80,000 D. €15,000 Answer: B (Cash Paid = Salaries Expense - Increase in Salaries Payable = €80,000 - €15,000 = €65,000) QUESTION 9: The balance sheet of a company shows inventory of €50,000, and the income statement shows Cost of Goods Sold (COGS) of €120,000. If purchases during the year were €110,000, what was the opening inventory? A. €60,000 B. €50,000 C. €70,000 D. €80,000 Answer: A (COGS = Opening Inventory + Purchases - Closing Inventory → €120,000 = X + €110,000 - €50,000 → X = €60,000) QUESTION 10: A company purchased land for €200,000, issuing a €50,000 down payment and a note payable for the balance. What is the impact on the total assets? A. Increase by €200,000 B. Increase by €150,000 C. Decrease by €50,000 D. No change Answer: A (Total assets increase by €200,000: Land increases, and cash decreases, but the note payable is a liability.) QUESTION 11: A company’s balance sheet shows Equipment of €100,000, and Accumulated Depreciation of €40,000. If the company sells the equipment for €50,000, what is the gain or loss? A. €10,000 Gain B. €10,000 Loss C. €20,000 Loss D. No Gain or Loss Answer: A (Book Value = €100,000 - €40,000 = €60,000; Sale Price = €50,000 → Loss = €60,000 - €50,000 = €10,000 Loss) QUESTION 12: On April 1, 2021, a company borrowed €30,000 by signing a 6-month, 6% note. How much interest expense will be recognized by September 30, 2021? A. €450 B. €600 C. €900 D. €1,200 Answer: B (Interest = Principal × Rate × Time → €30,000 × 6% × (6 ÷ 12) = €900) QUESTION 13: A company declared dividends of €10,000 but paid only €6,000 during the year. What is the effect on the retained earnings? A. Decrease by €10,000 B. Decrease by €6,000 C. No effect D. Increase by €4,000 Answer: A (Retained earnings decrease by the declared amount of dividends, €10,000, regardless of payment timing.) QUESTION 14: A company had revenues of €300,000 and expenses of €200,000. Dividends declared during the year were €30,000. What is the effect on retained earnings? A. Increase by €70,000 B. Decrease by €30,000 C. Increase by €100,000 D. Increase by €300,000 Answer: A (Net Income = Revenues - Expenses = €300,000 - €200,000 = €100,000. Retained Earnings increase by €70,000 after accounting for dividends.) QUESTION 15: A company’s balance sheet shows total assets of €500,000 and liabilities of €200,000. What is the equity? A. €300,000 B. €500,000 C. €700,000 D. €200,000 Answer: A (Equity = Assets - Liabilities = €500,000 - €200,000 = €300,000) VERY DIFFICULT QUESTIONS: QUESTION 1: A parent company acquires 80% of a subsidiary for €800,000. The fair value of the subsidiary’s net assets is €900,000, and the non-controlling interest (NCI) is measured at its fair value of €200,000. What is the amount of goodwill recognized? 1. €100,000 2. €180,000 3. €200,000 4. €0 Answer: 2. €180,000 Explanation: QUESTION 2: A company purchases equipment for €300,000, with tax depreciation over 5 years and accounting depreciation over 10 years. The tax rate is 30%. What is the deferred tax liability at the end of year 3? 1. €18,000 2. €30,000 3. €27,000 4. €9,000 Answer: 3. €27,000 QUESTION 3: Foreign Currency Translation A company sells goods for USD 1,000,000 at a time when the exchange rate is 1.20 USD/EUR. The company has expenses of USD 700,000, incurred when the exchange rate is 1.15 USD/EUR. What are the revenue and expenses in EUR? 1. €833,333 revenue, €608,696 expense 2. €850,000 revenue, €600,000 expense 3. €833,333 revenue, €700,000 expense 4. €850,000 revenue, €608,696 expense Answer: 1. €833,333 revenue, €608,696 expense QUESTION 4: A company enters into a 5-year lease agreement, paying €50,000 per year. The interest rate implicit in the lease is 5%. What is the present value of the lease liability?  1. €230,000 2. €217,678 3. €250,000 4. €200,000 Answer: 2. €217,678 QUESTION 5: A company has a contract to sell goods for €500,000. By year-end, it has delivered 30% of the goods and received 20% of the payment. Under IFRS 15, how much revenue should the company recognize? 1. €150,000 2. €100,000 3. €200,000 4. €500,000 Answer: 1. €150,000 QUESTION 6: A company reports a service cost of €150,000, interest cost of €30,000, and expected return on plan assets of €40,000 for its defined benefit pension plan. It also recognizes an actuarial gain of €10,000. What is the pension expense for the year? 1. €130,000 2. €140,000 3. €150,000 4. €160,000 Answer: 4. €160,000 QUESTION 7: A company has beginning inventory of 1,000 units at €50 per unit. During the period, it purchases another 1,500 units at €60 per unit. At the end of the period, 800 units remain unsold. What is the value of ending inventory using the FIFO method? 1. €48,000 2. €50,000 3. €52,000 4. €45,000 Answer: 3. €52,000 QUESTION 8: A company reports net income of €500,000. During the year, accounts receivable increased by €100,000, accounts payable decreased by €50,000, and depreciation expense was €75,000. What is the cash flow from operating activities under the indirect method? 1. €475,000 2. €425,000 3. €500,000 4. €450,000 Answer: 2. €425,000 QUESTION 9: A company enters into a cash flow hedge for forecasted sales. By the end of the year, the hedging instrument has a loss of €40,000, which is fully effective. How should the company account for this loss? 1. Recognize the €40,000 loss in profit or loss  2. Recognize the €40,000 loss in OCI (Other Comprehensive Income) 3. Do not recognize the loss 4. Recognize the €40,000 loss as an adjustment to equity Answer: 2. Recognize the €40,000 loss in OCI (Other Comprehensive Income) QUESTION 10: Company A acquires Company B for €1,500,000. At the time of acquisition, Company B has identifiable net assets with a fair value of €1,200,000 and liabilities of €300,000. How much goodwill should be recognized from this acquisition? 1. €600,000 2. €300,000 3. €0 4. €900,000 Answer: 1. €600,000 QUIZ II Domanda 1 1. Given the following data, what is the value of ending inventory as determined by the average cost method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $580 $540 $1,560 1 punti Domanda 2 1. Income before depreciation and taxes amounts to $167,200. Using straight-line depreciation, the current year’s depreciation expense will be $31,200. Using double-declining-balance depreciation, the current year’s depreciation expense will be $41,200. Assuming a tax rate of 30%, what is the net cash saved in income taxes by using double-declining-balance depreciation over straight- line depreciation? $3,000 $4,000 $7,000 $11,100 1 punti Domanda 3 1. Given the following data, what is the value of gross profit as determined by the FIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $1,620 $600 $540 $1,560 1 punti Domanda 4 1. Given the following data, what is the value of ending inventory as determined by the FIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $600 $540 $1,560 1 punti Domanda 5 1. Given the following data, what is the value of gross profit as determined by the LIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $600 $540 $1,560 1 punti Domanda 6 1. Given the following data, what is the value of ending inventory as determined by the LIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $600 $540 $1,560 1 punti Domanda 7 1. The collection period of Armie’s for 2011 was 30 days; total credit sales were $7,300,000; and average receivables were $600,000. If sales increase to $8,030,000, and the average receivables stays the same, what happens? Hint collection period is 360 divided by the Account Receivable turnover a. One day’s sales equals $20,000. b. The collection period is now 27 days. c. The average receivables are now $660,000. d. The collection period is now 32 days. 1 punti Domanda 8 1. On January 2, 2016, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. KJ Corporation uses the straight-line method of depreciation. On January 1st 2018, KJ Corporation seels the assets for $180,000 in cash. The sale will... Generate a gain of $16,000 Generate a loss of $16,000 Will not affect the P&L None of the above 1 punti Domanda 9 1. Given the following data, what is the value of gross profit as determined by the average cost method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $1,600 $600 $540 $1,560 1 punti Domanda 10 1. The allowance for uncollectible accounts of Saibons at the end of the year prior to any adjustment is equals to 1,000. The Account Receivables at year end appear as it follows: 1-180 days 180-360 days Over 360 days Total Accounts receivable €70,000 €30,000 €2,000 €102,000 Percentage of uncollectibility 1% 2% 90% Uncollectible accounts € 700 € 600 €1,800 € 3,100 Knowning that the company uses the aging of accounts receivables to determine the amount of the allowance at the year end, which is the net realizable value of the Accounts Receivable at the year end? € 102,000 € 101,000 € 98,900 € 103,000 1 punti QUIZ I: QUESTION 1: The allowance for uncollectible account is a counter-asset? True False (Yes, the allowance for uncollectible accounts (also known as the allowance for doubtful accounts or bad debt reserve) is classified as a contra-asset account. It reduces the value of accounts receivable on the balance sheet, reflecting the amount of receivables that the company does not expect to collect. This account is used to estimate potential losses from customers who may default on their payments. The net realizable value of the accounts receivable is shown after deducting the allowance for uncollectible accounts from the gross receivables) QUESTION 2: The periodic depreciation charge of €50 will increase the value of depreciation expense and decrease the value of Property and Equipment, net by the same amount of €50. True False (Yes, that statement is correct. A periodic depreciation charge of €50 will have the following effects: Increase in Depreciation Expense: The €50 charge will be recorded as an expense in the income statement under "Depreciation Expense," increasing total operating expenses by that amount. Decrease in Property and Equipment, net: Simultaneously, the same €50 will decrease the "Property and Equipment, net" account (which represents the book value of the asset) on the balance sheet. This is because depreciation reduces the value of the asset over time. This results in a reduction in net income due to the increased expense, and a decrease in the carrying value of fixed assets (Property and Equipment, net) on the balance sheet.) QUESTION 3: On December 31, 2018 the annual lease of €84,000 prepaid on September 1st 2018, expired for 4 of 12 months. The transaction will entail: an increase in rent expense of €28,000; an increase in retained income €28,000. True False (The scenario you described seems to involve adjusting entries for prepaid rent and rent expense. Let's break it down: Prepaid Rent: On September 1, 2018, the company prepaid a lease of €84,000 for 12 months. This means the company paid the full rent in advance but only incurred the expense for 4 months (from September 1 to December 31, 2018) by the end of the year. Rent Expense: Since only 4 months out of the 12-month lease have been used by December 31, 2018, the rent expense should be calculated for these 4 months. Steps to calculate the correct amounts: 1. Rent Expense for 4 months: Annual lease: €84,000 Monthly rent: €84,000 ÷ 12 months = €7,000 Rent expense for 4 months (Sep–Dec): €7,000 × 4 months = €28,000 2. Prepaid Rent for the remaining 8 months: The remaining amount represents the prepaid rent for the period January– August 2019. Prepaid rent balance: €7,000 × 8 months = €56,000 Accounting Entries: Increase in Rent Expense: An expense of €28,000 will be recorded for the 4 months used (September to December). Decrease in Prepaid Rent: The prepaid rent balance will decrease by €28,000 for the amount used, leaving €56,000 as the prepaid rent for future months. Correction to the Statement: The transaction should not result in an increase in retained income, but rather: 1. An increase in rent expense of €28,000 (as stated correctly). 2. A decrease in prepaid rent of €28,000, not retained income. Retained income would generally only be affected indirectly, through net income at the end of the reporting period. If rent expense increases, net income decreases, which could eventually lower retained earnings.) QUESTION 4: On December 31, 2018 miscellaneous expenses for 2018 were paid in full in cash, €70,000. The transaction will entail: a decrease in cash €70,000; a decrease in retained earnings €70,000. True False (In the case of paying miscellaneous expenses for 2018 in full, let's clarify the accounting treatment. Transaction Breakdown: 1. Miscellaneous Expenses: Expenses represent costs incurred during the year, which will reduce net income and ultimately impact retained earnings. 2. Payment in Cash: The payment reduces the company's cash balance. Correct Accounting Treatment: 1. Decrease in Cash: When the miscellaneous expenses are paid in full in cash, it reduces the cash balance by €70,000. 2. Increase in Expenses and Effect on Retained Earnings: The payment of €70,000 will increase expenses on the income statement, reducing net income by the same amount. Since retained earnings are the accumulated profits or losses of the company, the reduction in net income will reduce retained earnings. Accounting Entries: Debit: Miscellaneous Expenses €70,000 Credit: Cash €70,000 Effect on Retained Earnings: Expenses reduce net income, and since net income (or loss) flows into retained earnings at the end of the accounting period, this will indirectly reduce retained earnings. Therefore: Decrease in Retained Earnings: €70,000 (via the reduction in net income due to the €70,000 of expenses). Conclusion: The statement is correct: Decrease in cash: €70,000 Decrease in retained earnings: €70,000 This reflects the impact of the payment on both the balance sheet and the income statement.) QUESTION 5: The retained earnings at the year end, not distributed in the form of dividends, will be carried forward to the next accounting. True False (Yes, the retained earnings at the year-end, which are not distributed as dividends, will indeed be carried forward to the next accounting period. These retained earnings represent the portion of net income that the company has chosen to reinvest in the business rather than distribute to shareholders. They appear on the balance sheet under shareholders' equity and can be used for future growth, paying off debt, or other financial needs of the company.) QUESTION 6: On 31st of March, 2020 merchandise carried in inventory at a cost of €1.2 million was sold. The transaction will entail: a decrease in inventory €1.2 million; a decrease in retained income €1.2 million. True False (It seems like there’s a slight misunderstanding in the treatment of the transaction. Here’s a breakdown of what actually happens when inventory is sold: 1. Decrease in Inventory: Yes, the inventory account will decrease by €1.2 million because the cost of the merchandise (the cost of goods sold, or COGS) is transferred from the inventory account to the income statement. 2. Increase in Expenses (COGS): The cost of goods sold (COGS) will increase by €1.2 million, which reduces net income. 3. Sales Revenue: If the inventory is sold for more than its cost, you would also have an increase in sales revenue, which would be higher than €1.2 million (depending on the selling price). 4. Retained Earnings: The reduction in retained earnings will not be by €1.2 million exactly. Retained earnings decrease by the net effect of the sale (i.e., sales revenue minus COGS). So if the selling price was, for example, €2 million, the net income would increase by €0.8 million (€2 million - €1.2 million), which would flow into retained earnings. In summary, the entries would look like this:  Inventory (Asset) decreases by €1.2 million. Cost of Goods Sold (Expense) increases by €1.2 million. Sales Revenue (Revenue) increases by the selling price. Retained Earnings (Equity) will change based on the net profit from the sale (Sales - COGS). Let me know if you need a detailed journal entry or further clarification!) QUESTION 7: The payment of €2,550 on open accounts payable will increase the value of cash and the value of accounts payable by the same amount of € 2,550. True False (The statement is incorrect. A payment of €2,550 on open accounts payable will decrease both cash and accounts payable by €2,550, not increase them. Here's why: Cash: When the payment is made, cash is reduced because you're using money to settle the accounts payable. Accounts Payable: This liability decreases because you've paid off part of what was owed. So, both the value of cash and accounts payable decrease by €2,550.) QUIZ WEEK 1 AND 2: QUESTION 1: A company purchased equipment on January 1, 2020, for €30,000. The equipment has an estimated useful life of 5 years and no residual value. What will be the depreciation expense at the end of 2020, assuming the straight-line method is used? A. €6,000 B. €5,000 C. €7,500 D. €10,000 Answer: A (Depreciation = €30,000 ÷ 5 = €6,000 per year) QUESTION 2: On March 1, 2020, a company received €12,000 in advance for a 12-month service contract. By the end of the year, how much of this amount will be recognized as revenue? A. €12,000 B. €10,000 C. €4,000 D. €8,000 Answer: B (Service for 10 months: €12,000 ÷ 12 × 10 = €10,000) QUESTION 3: On December 31, 2021, a company had Accounts Receivable of €100,000 and an Allowance for Doubtful Accounts of €5,000. What is the net realizable value of the Accounts Receivable? A. €100,000 B. €95,000 C. €105,000 D. €90,000 Answer: B (Net Realizable Value = Accounts Receivable - Allowance for Doubtful Accounts = €100,000 - €5,000 = €95,000) QUESTION 4: On September 1, 2021, a company prepaid €24,000 for a one-year office rental. How much of this should be recognized as an expense by December 31, 2021? A. €8,000 B. €6,000 C. €10,000 D. €24,000 Answer: A (Prepaid for 12 months, but used for 4 months: €24,000 ÷ 12 × 4 = €8,000) QUESTION 5: A company sold merchandise on account for €5,000 with a cost of €3,000. How will this transaction impact the income statement? A. Increase Sales Revenue by €3,000 B. Increase Sales Revenue by €5,000 C. Decrease Inventory by €5,000 D. Decrease Sales Revenue by €3,000 Answer: B (Sales Revenue will increase by €5,000, and Cost of Goods Sold will increase by €3,000.) QUESTION 6: A company paid off an accounts payable of €15,000. What is the impact on the financial statements? A. Increase in cash by €15,000 B. Decrease in accounts payable by €15,000 C. Decrease in retained earnings by €15,000 D. Increase in accounts payable by €15,000 Answer: B (The accounts payable decreases by €15,000, and cash decreases by the same amount.) QUESTION 7: On January 1, 2020, a company issued bonds with a face value of €100,000 at a discount of €5,000. What is the carrying amount of the bonds on the issue date? A. €105,000 B. €100,000 C. €95,000 D. €90,000 Answer: C (Carrying amount = Face value - Discount = €100,000 - €5,000 = €95,000) QUESTION 8: A company’s trial balance shows Salaries Expense of €80,000 and Salaries Payable of €15,000 at year-end. How much was paid in cash for salaries during the year? A. €95,000 B. €65,000 C. €80,000 D. €15,000 Answer: B (Cash Paid = Salaries Expense - Increase in Salaries Payable = €80,000 - €15,000 = €65,000) QUESTION 9: The balance sheet of a company shows inventory of €50,000, and the income statement shows Cost of Goods Sold (COGS) of €120,000. If purchases during the year were €110,000, what was the opening inventory? A. €60,000 B. €50,000 C. €70,000 D. €80,000 Answer: A (COGS = Opening Inventory + Purchases - Closing Inventory → €120,000 = X + €110,000 - €50,000 → X = €60,000) QUESTION 10: A company purchased land for €200,000, issuing a €50,000 down payment and a note payable for the balance. What is the impact on the total assets? A. Increase by €200,000 B. Increase by €150,000 C. Decrease by €50,000 D. No change Answer: A (Total assets increase by €200,000: Land increases, and cash decreases, but the note payable is a liability.) QUESTION 11: A company’s balance sheet shows Equipment of €100,000, and Accumulated Depreciation of €40,000. If the company sells the equipment for €50,000, what is the gain or loss? A. €10,000 Gain B. €10,000 Loss C. €20,000 Loss D. No Gain or Loss Answer: A (Book Value = €100,000 - €40,000 = €60,000; Sale Price = €50,000 → Loss = €60,000 - €50,000 = €10,000 Loss) QUESTION 12: On April 1, 2021, a company borrowed €30,000 by signing a 6-month, 6% note. How much interest expense will be recognized by September 30, 2021? A. €450 B. €600 C. €900 D. €1,200 Answer: B (Interest = Principal × Rate × Time → €30,000 × 6% × (6 ÷ 12) = €900) QUESTION 13: A company declared dividends of €10,000 but paid only €6,000 during the year. What is the effect on the retained earnings? A. Decrease by €10,000 B. Decrease by €6,000 C. No effect D. Increase by €4,000 Answer: A (Retained earnings decrease by the declared amount of dividends, €10,000, regardless of payment timing.) QUESTION 14: A company had revenues of €300,000 and expenses of €200,000. Dividends declared during the year were €30,000. What is the effect on retained earnings? A. Increase by €70,000 B. Decrease by €30,000 C. Increase by €100,000 D. Increase by €300,000 Answer: A (Net Income = Revenues - Expenses = €300,000 - €200,000 = €100,000. Retained Earnings increase by €70,000 after accounting for dividends.) QUESTION 15: A company’s balance sheet shows total assets of €500,000 and liabilities of €200,000. What is the equity? A. €300,000 B. €500,000 C. €700,000 D. €200,000 Answer: A (Equity = Assets - Liabilities = €500,000 - €200,000 = €300,000) VERY DIFFICULT QUESTIONS: QUESTION 1: A parent company acquires 80% of a subsidiary for €800,000. The fair value of the subsidiary’s net assets is €900,000, and the non-controlling interest (NCI) is measured at its fair value of €200,000. What is the amount of goodwill recognized? 1. €100,000 2. €180,000 3. €200,000 4. €0 Answer: 2. €180,000 Explanation: QUESTION 2: A company purchases equipment for €300,000, with tax depreciation over 5 years and accounting depreciation over 10 years. The tax rate is 30%. What is the deferred tax liability at the end of year 3? 1. €18,000 2. €30,000 3. €27,000 4. €9,000 Answer: 3. €27,000 QUESTION 3: Foreign Currency Translation A company sells goods for USD 1,000,000 at a time when the exchange rate is 1.20 USD/EUR. The company has expenses of USD 700,000, incurred when the exchange rate is 1.15 USD/EUR. What are the revenue and expenses in EUR? 1. €833,333 revenue, €608,696 expense 2. €850,000 revenue, €600,000 expense 3. €833,333 revenue, €700,000 expense 4. €850,000 revenue, €608,696 expense Answer: 1. €833,333 revenue, €608,696 expense QUESTION 4: A company enters into a 5-year lease agreement, paying €50,000 per year. The interest rate implicit in the lease is 5%. What is the present value of the lease liability?  1. €230,000 2. €217,678 3. €250,000 4. €200,000 Answer: 2. €217,678 QUESTION 5: A company has a contract to sell goods for €500,000. By year-end, it has delivered 30% of the goods and received 20% of the payment. Under IFRS 15, how much revenue should the company recognize? 1. €150,000 2. €100,000 3. €200,000 4. €500,000 Answer: 1. €150,000 QUESTION 6: A company reports a service cost of €150,000, interest cost of €30,000, and expected return on plan assets of €40,000 for its defined benefit pension plan. It also recognizes an actuarial gain of €10,000. What is the pension expense for the year? 1. €130,000 2. €140,000 3. €150,000 4. €160,000 Answer: 4. €160,000 QUESTION 7: A company has beginning inventory of 1,000 units at €50 per unit. During the period, it purchases another 1,500 units at €60 per unit. At the end of the period, 800 units remain unsold. What is the value of ending inventory using the FIFO method? 1. €48,000 2. €50,000 3. €52,000 4. €45,000 Answer: 3. €52,000 QUESTION 8: A company reports net income of €500,000. During the year, accounts receivable increased by €100,000, accounts payable decreased by €50,000, and depreciation expense was €75,000. What is the cash flow from operating activities under the indirect method? 1. €475,000 2. €425,000 3. €500,000 4. €450,000 Answer: 2. €425,000 QUESTION 9: A company enters into a cash flow hedge for forecasted sales. By the end of the year, the hedging instrument has a loss of €40,000, which is fully effective. How should the company account for this loss? 1. Recognize the €40,000 loss in profit or loss  2. Recognize the €40,000 loss in OCI (Other Comprehensive Income) 3. Do not recognize the loss 4. Recognize the €40,000 loss as an adjustment to equity Answer: 2. Recognize the €40,000 loss in OCI (Other Comprehensive Income) QUESTION 10: Company A acquires Company B for €1,500,000. At the time of acquisition, Company B has identifiable net assets with a fair value of €1,200,000 and liabilities of €300,000. How much goodwill should be recognized from this acquisition? 1. €600,000 2. €300,000 3. €0 4. €900,000 Answer: 1. €600,000 QUIZ II Domanda 1 1. Given the following data, what is the value of ending inventory as determined by the average cost method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $580 $540 $1,560 1 punti Domanda 2 1. Income before depreciation and taxes amounts to $167,200. Using straight-line depreciation, the current year’s depreciation expense will be $31,200. Using double-declining-balance depreciation, the current year’s depreciation expense will be $41,200. Assuming a tax rate of 30%, what is the net cash saved in income taxes by using double-declining-balance depreciation over straight- line depreciation? $3,000 $4,000 $7,000 $11,100 1 punti Domanda 3 1. Given the following data, what is the value of gross profit as determined by the FIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $1,620 $600 $540 $1,560 1 punti Domanda 4 1. Given the following data, what is the value of ending inventory as determined by the FIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $600 $540 $1,560 1 punti Domanda 5 1. Given the following data, what is the value of gross profit as determined by the LIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $600 $540 $1,560 1 punti Domanda 6 1. Given the following data, what is the value of ending inventory as determined by the LIFO method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $2,880 $600 $540 $1,560 1 punti Domanda 7 1. The collection period of Armie’s for 2011 was 30 days; total credit sales were $7,300,000; and average receivables were $600,000. If sales increase to $8,030,000, and the average receivables stays the same, what happens? Hint collection period is 360 divided by the Account Receivable turnover a. One day’s sales equals $20,000. b. The collection period is now 27 days. c. The average receivables are now $660,000. d. The collection period is now 32 days. 1 punti Domanda 8 1. On January 2, 2016, KJ Corporation acquired equipment for $260,000. The estimated life of the equipment is 5 years or 40,000 hours. The estimated residual value is $20,000. KJ Corporation uses the straight-line method of depreciation. On January 1st 2018, KJ Corporation seels the assets for $180,000 in cash. The sale will... Generate a gain of $16,000 Generate a loss of $16,000 Will not affect the P&L None of the above 1 punti Domanda 9 1. Given the following data, what is the value of gross profit as determined by the average cost method? Sales revenue 300 units at $15 per unit Purchases 240 units at $10 per unit Beginning inventory 120 units at $9 per unit $1,600 $600 $540 $1,560 1 punti Domanda 10 1. The allowance for uncollectible accounts of Saibons at the end of the year prior to any adjustment is equals to 1,000. The Account Receivables at year end appear as it follows: 1-180 days 180-360 days Over 360 days Total Accounts receivable €70,000 €30,000 €2,000 €102,000 Percentage of uncollectibility 1% 2% 90% Uncollectible accounts € 700 € 600 €1,800 € 3,100 Knowning that the company uses the aging of accounts receivables to determine the amount of the allowance at the year end, which is the net realizable value of the Accounts Receivable at the year end? € 102,000 € 101,000 € 98,900 € 103,000 1 punti