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Free Questions › CFA › Financial Statement Analysis
Free CFA Financial Statement Analysis Practice Questions & Answers
900 exam-style Financial Statement Analysis questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 631
Under IFRS, which classification is permitted for interest received?
Select an option first.
Correct answer: B — Investing or operating
Explanation: Why B is correct: IFRS allows interest received to be classified as either operating or investing. Why others are wrong: A is too restrictive. C is not permitted. D excludes operating, which IFRS allows.
Question 632
Which characteristic must be present for a component to qualify as an operating segment?
Select an option first.
Correct answer: B — It must have discrete financial information
Explanation: Why B is correct: Discrete financial information is required for operating segment identification. Why others are wrong: A is not required. C is not required; internal revenue counts. D is not required; loss-making segments still qualify.
Question 633
Which filing is most relevant for identifying proposals requiring shareholder votes?
Select an option first.
Correct answer: C — Form DEF-14A
Explanation: Why C is correct: Proxy statements list proposals requiring shareholder approval. Why others are wrong: A is interim financial reporting. B reports material events. D is annual reporting for non-US registrants.
Question 634
Which filing is used to disclose material changes in a company’s governance structure?
Select an option first.
Correct answer: B — Form 8-K
Explanation: Why B is correct: Form 8-K reports major events, including governance changes. Why others are wrong: A concerns employee benefit plans. C is annual reporting. D is interim reporting for non-US firms but not specifically for current events.
Question 635
Under US GAAP, development costs are generally:
Select an option first.
Correct answer: B — Expensed as incurred
Explanation: Why B is correct: US GAAP requires most development costs to be expensed immediately. Why others are wrong: A describes IFRS treatment. C is not a GAAP rule. D is too narrow; software rules are separate and specific.
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Question 636
Which filing is most useful for analyzing the relationship between new securities and existing capital structure?
Select an option first.
Correct answer: A — Securities Offering Registration Statement
Explanation: Why A is correct: Registration statements disclose details about new securities and their relationship to existing capital securities. Why others are wrong: B is interim reporting. C reports insider ownership. D concerns employee benefit plans.
Question 637
Under the converged revenue standard, the first step in recognizing revenue is to:
Select an option first.
Correct answer: B — Identify the contract with the customer
Explanation: Why B is correct: Step 1 is identifying the contract. Why others are wrong: A is step 3. C is step 4. D is part of determining the transaction price, not the first step.
Question 638
A performance obligation is considered distinct when:
Select an option first.
Correct answer: B — It can be separately identified and provides benefit on its own
Explanation: Why B is correct: A distinct obligation must be separately identifiable and provide standalone benefit. Why others are wrong: A does not determine distinctness. C is irrelevant to distinctness. D is a marketing choice, not an accounting criterion.
Question 639
Revenue is recognized when control transfers. Which indicator best supports transfer of control?
Select an option first.
Correct answer: B — Customer has legal title
Explanation: Why B is correct: Legal title is a key indicator of control transfer. Why others are wrong: A does not indicate control. C is part of contract formation, not control. D does not guarantee customer control.
Question 640
Period costs are generally:
Select an option first.
Correct answer: B — Expensed as incurred
Explanation: Why B is correct: Period costs (admin, IT, R&D, etc.) are expensed when incurred. Why others are wrong: A applies to product costs. C applies only to certain capitalizable costs. D applies only to product costs.
Question 641
Capitalized interest related to constructing an asset for internal use is later expensed through:
Select an option first.
Correct answer: B — Depreciation
Explanation: Why B is correct: Capitalized interest becomes part of the asset’s cost and is expensed via depreciation. Why others are wrong: A applies only to inventory. C applies to expensed interest, not capitalized interest. D applies to intangible assets, not constructed tangible assets.
Question 642
Capitalized interest for assets intended for sale (e.g., real estate inventory) is expensed through:
Select an option first.
Correct answer: B — Cost of goods sold
Explanation: Why B is correct: For inventory, capitalized interest becomes part of cost of sales when sold. Why others are wrong: A applies to long-lived assets. C is not correct for capitalized interest. D applies only to expensed interest.
Question 643
When analyzing interest coverage, an analyst should:
Select an option first.
Correct answer: C — Include both expensed and capitalized interest
Explanation: Why C is correct: True interest burden includes both expensed and capitalized interest. Why others are wrong: A and B omit part of the interest cost. D ignores solvency analysis.
Question 644
Under IFRS, expensed interest may be classified as:
Select an option first.
Correct answer: A — Operating or financing
Explanation: Why A is correct: IFRS allows interest paid in either operating or financing. Why others are wrong: B is not permitted. C is too restrictive. D is US GAAP only.
Question 645
Under US GAAP, interest paid must be classified as:
Select an option first.
Correct answer: A — Operating
Explanation: Why A is correct: US GAAP requires interest paid to be operating cash flow. Why others are wrong: B and C are not allowed. D is IFRS, not GAAP.
Question 646
Unusual or infrequent items under US GAAP are:
Select an option first.
Correct answer: B — Included in continuing operations but shown separately
Explanation: Why B is correct: GAAP includes them in continuing operations but presents them separately. Why others are wrong: A is outdated (extraordinary items eliminated). C applies to discontinued operations. D is incorrect.
Question 647
Under IFRS, unusual or infrequent items must be:
Select an option first.
Correct answer: C — Disclosed separately if material
Explanation: Why C is correct: IFRS requires separate disclosure when relevant to understanding performance. Why others are wrong: A is incorrect. B is not required. D is not an IFRS rule.
Question 648
Discontinued operations must be:
Select an option first.
Correct answer: C — Reported separately on a net basis
Explanation: Why C is correct: Discontinued operations appear separately, net of tax, at the bottom of the income statement. Why others are wrong: A and B contradict the standard. D is incomplete disclosure.
Question 649
Retrospective application of an accounting change means:
Select an option first.
Correct answer: C — All presented years are restated as if the new rule always applied
Explanation: Why C is correct: Retrospective application restates all comparative periods. Why others are wrong: A and B contradict the definition. D is incorrect.
Question 650
Basic EPS subtracts which amount from net income?
Select an option first.
Correct answer: B — Dividends on preferred shares
Explanation: Why B is correct: Preferred dividends reduce income available to common shareholders. Why others are wrong: A is not subtracted; common dividends do not affect EPS numerator. C and D are not part of basic EPS adjustments.
Question 651
The denominator of basic EPS is:
Select an option first.
Correct answer: C — Weighted average common shares outstanding
Explanation: Why C is correct: EPS uses weighted average shares to reflect changes during the period. Why others are wrong: A and B ignore intra-period changes. D is irrelevant.
Question 652
Under the if-converted method for convertible preferred stock, the numerator of diluted EPS:
Select an option first.
Correct answer: B — Increases by preferred dividends
Explanation: Why B is correct: If converted, preferred dividends would not be paid, increasing income available to common shareholders. Why others are wrong: A is the opposite of correct. C applies to convertible debt, not preferred stock. D ignores the required adjustment.
Question 653
Under the if-converted method for convertible debt, the numerator of diluted EPS increases by:
Select an option first.
Correct answer: B — After-tax interest expense
Explanation: Why B is correct: Conversion eliminates interest expense, so after-tax interest is added back. Why others are wrong: A ignores tax effects. C applies to preferred stock. D is unrelated.
Question 654
The incremental shares under the treasury stock method equal:
Select an option first.
Correct answer: A — Shares issued minus shares repurchased
Explanation: Why A is correct: Incremental shares = new shares issued – shares repurchased. Why others are wrong: B is mathematically incorrect. C and D ignore the net effect.
Question 655
Antidilutive securities are:
Select an option first.
Correct answer: B — Excluded from diluted EPS
Explanation: Why B is correct: Antidilutive securities cannot be included because they increase EPS. Why others are wrong: A contradicts standards. C is irrelevant; materiality does not apply. D is incorrect; both frameworks exclude them.
Question 656
Diluted EPS will always be:
Select an option first.
Correct answer: C — Lower than or equal to basic EPS
Explanation: Why C is correct: Dilution cannot increase EPS; it can only reduce or leave it unchanged. Why others are wrong: A is impossible. B is possible but not required. D is incorrect.
Question 657
Net profit margin is calculated as:
Select an option first.
Correct answer: B — Net income ÷ revenue
Explanation: Why B is correct: Net profit margin = net income / revenue. Why others are wrong: A is the inverse. C is gross margin. D is operating margin.
Question 658
A higher net profit margin generally indicates:
Select an option first.
Correct answer: B — Higher profitability
Explanation: Why B is correct: Higher net margin means more income per dollar of revenue. Why others are wrong: A is the opposite. C is unrelated. D is not implied.
Question 659
Gross profit margin is calculated as:
Select an option first.
Correct answer: B — Gross profit ÷ revenue
Explanation: Why B is correct: Gross margin = gross profit / revenue. Why others are wrong: A and D are inverses. C is net margin.
Question 660
Gross profit equals:
Select an option first.
Correct answer: A — Revenue minus cost of goods sold
Explanation: Why A is correct: Gross profit = revenue – COGS. Why others are wrong: B is operating income. C is not gross profit. D is net income.
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