CFA Institute CFA-LEVEL-1 Online Practice Questions and Exam Preparation

CFA Institute CFA-LEVEL-1 Online Questions & Answers

• Question 371:

  A firm has long-term assets worth 3,812 and total assets worth 5,937. It has a total equity of 3,934 and long term debt of 879. The firm's current ratio equals ________.

  A. 1.32
  B. 0.92
  C. 1.03
  D. 1.89
  D. 1.89

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  Explanation

  The firm's current assets equal 5,937 - 3,812 = 2,125. The total liabilities equal total assets - total equity = 5,937 - 3,934 = 2,003. Thus, the current liabilities equal 2,003 - 879 = 1,124. The current ratio is then equal to current assets/current liabilities = 2125/1124 = 1.89

• Question 372:

  How much must you deposit today in order to withdraw $1,500 in 1 year, $400 in 2 years and $1,500 in 4 years, assuming your money earns 6% per year, compounded annually?

  A. $2,771.03
  B. $2,821.95
  C. $2,959.23
  D. $3,029.49
  E. $404. 92
  C. $2,959.23

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  Explanation

  Solve this question by working 3 compound interest problems. On the BAII Plus, press 1 N, 6 I/Y, 0 PMT, 1500 FV, CPT PV, which yields $1,415. 09. Then press STO 1. Then press 2 N, 400 FV, CPT PV, which yields $356. 00. Then press + RCL 1 = STO 1. Then press 4 N, 1500 FV, CPT PV, which yields $1,188.14. Then press + RCL 1 = to see the answer. On the HP12C, press 1 n, 6 i, 0 PMT, 1500 FV, PV. Then press STO 1. Then press 2 N, 400 FV, PV. Then press RCL 1 + STO 1. Then press 4 n, 1500 FV, PV. Then press RCL 1 + to see the answer. Note that the answer will be displayed as a negative number. Make sure the BAII Plus has the P/Y value set to 1.

• Question 373:

  Which of the following is/are FALSE about Basic EPS and Diluted EPS?

  I. Basic EPS excludes anti-dilutive securities but Diluted EPS must include these.

  II. Basic EPS ignores instruments like convertible bonds and warrants but Diluted EPS does not.

  III.

  The Treasury stock method, when applied to Basic EPS, compares the average stock price during the period to the strike price in determining conversion.

  A. III only
  B. I and III
  C. I, II and III
  D. II only
  B. I and III

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  Explanation

  Note that the questions asks for false statements. (I) is false since both methods exclude anti-dilutive securities from computations. Further, since the Basic EPS ignores all potentially dilutive securities and takes into account only simple capital structure instruments (stocks, bonds, preferred equity), it has no need for the Treasury Stock method i.e. the Treasury stock method is never used in the computation of Basic EPS.

• Question 374:

  The "extra" money you take on a trip in case your car breaks down is an example of the

  A. transactions demand for money.
  B. inflationary demand for money.
  C. restrictive demand for money.
  D. speculative demand for money.
  E. precautionary demand for money.
  E. precautionary demand for money.

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  Explanation

  Precautionary demand for money is defined as a demand for cash balances in case of unforeseen circumstances which require money.

• Question 375:

  Beginning inventory of 50 units, purchased at $5 50 units purchased at $10 35 units purchased at $9 25 units sold at $15 70 units sold at $12 Tax rate = 40% Beginning LIFO reserve = $300

  Given the above, the net income using Average Cost method is ________.

  A. $279
  B. $224
  C. $381
  D. $249
  A. $279

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  Explanation

  The Average Cost method first calculates the average value of each item in the inventory, including the purchases made during the period. In this case, the total inventory value at cost is 50*5 + 50*10 + 35*9 = $1,065. This is the value of (50

  + 50 + 35) = 135 units. Therefore, average cost per unit = 1,065/135 = $7. 89. Total COGS under Average Cost method is then $7. 89*95 = $749.44. The total revenue equals 25*15 + 70*12 = 1,215, coming from a sale of 95 units. Thus, pretax income = 1,215 - 749.44 = $465. 56. The after-tax income equals 465. 56*0.6 = $279.

• Question 376:

  A selected group of employees of Unique Buying Services is to be surveyed with respect to a new pension plan. In depth interviews are to be conducted with each employee selected in the sample. The employees are classified as follows. Classification Event Number of Employees Supervisors A 120 Maintenance B 50 Production C 1,460 Management D 302 Secretarial E 68 What is the probability that the first person selected is in management AND in supervision?

  A. 0.00
  B. None of these answers
  C. 0.15
  D. 0.21
  E. 0.06
  A. 0.00

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  Explanation

  There are 2000 employees of which 302 are in management and 120 in supervision. However, there are no employees who are in both management and supervision. Therefore the probability is 0.

• Question 377:

  A test to determine whether a convertible security is dilutive or antidilutive is to calculate EPS

  A. for the security alone and compare it to the EPS without inclusion of the security.
  B. for the security alone and compare it to the EPS with inclusion of the security.
  C. for the security alone.
  D. without inclusion of the security.
  E. with inclusion of the security.
  A. for the security alone and compare it to the EPS without inclusion of the security.

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  Explanation

  By comparing the EPS of the security alone with the EPS without inclusion of the security, if the former is smaller than the latter, then the security is dilutive which means it causes EPS to decline.

• Question 378:

  Which of the following is the best example of a quota?

  A. a tax placed on all small cars sold in the domestic market
  B. a limit imposed on the number of men's suits that can be imported from a foreign country
  C. a $100-per-car excise tax levied on all small cars sold in the domestic market
  D. a subsidy from the U.S. government to domestic manufacturers of small cars so they can compete more effectively with foreign producers of small cars
  E. a $100-per-car fee imposed on all small cars imported
  B. a limit imposed on the number of men's suits that can be imported from a foreign country

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  Explanation

  An import quota is a specific quantity (or value) of a good permitted to be imported into a country during a given year.

• Question 379:

  The following financial data on CashCow, Inc. have been taken from its financial statements for 1996:

  A. $157,600
  B. $121,600
  C. $139,600
  D. $172,400
  E. Bonds issued $90,000 F Dividends received from investments $17,000
  G. Interest paid on bonds $2,400
  H. Salaries paid $107,400
  I. Cash collection from customers $28,400
  J. Loss on land sale $18,000 K. Beginning cash balance $312,000 In the above question, the ending cash balance of the firm was ________.
  C. $139,600

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  Explanation

  Note that the loss on equipment is a non-cash event. Using the direct method, beginning cash balance + net cash inflow = ending cash balance Hence, ending balance = 312,000 + (-25,000+64,000-29,000 - 208,000 + 90,000 + 17,000 2,400 - 107,400 + 28,400) = $139,600.

• Question 380:

  Which of the following is/are true under GAAP?

  I. Inventories can only be "written down" but not "written up."

  II. Marketable securities are carried at acquisition cost.

  III.

  For income tax purposes, LIFO is preferable to FIFO during inflation.

  A. II only
  B. I, II and III
  C. III only
  D. I and III
  C. III only

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  Explanation

  (I) is not true since after a write-down, inventories can be written back up to the original cost if the prices of goods increase sufficiently. (II) is also not true since marketable securities are carried at current market value. Finally, when prices are rising, the COGS under LIFO is higher than that under FIFO, leading to lower tax payments.