level1-Mock-113HYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKHYPERLINKInstituteStandardIII(B)2.answer:B.Membersshoulddiscloseallmattersthatreasonablycouldbeexpectedimpairthemember'sobjectivityasoutlinedinStandardI(B),andStandardVI(A).LevelI"GuidanceStandardsI-VII,"InstituteStandardI(B),StandardVI(A)3.answer:C.Althoughdepartingemployeesnottakeemployerpropertywhendeparting,theguidanceforStandard–Loyaltyoutlines,themodelPiedmontpresentedtohisnewemployerwasnotBranch'sItwascreatedbyPiedmontpriorhisemploymentwithBranch.modelwasnotcreatedforBranchinthecourseofhisemployment,eventhoughitadoptedbyBranch.LevelI"GuidanceStandardsI-VII,"InstituteStandardIV(A)2/45level1-Mock-1134.answer:C.Priortoundertakinganalysiswithregardtoexpectedreturns,anadviserdeterminethesuitabilityofaninvestmentclass,includingwhetherfitswithintheclient'srisktoleranceandwhetheritisanallowableassetclassaspertheclient'sinvestmentpolicystatement.Onlyafterthesefactorshavebeendeterminedshouldsheproceed,appropriate,toanalyzeexpectedreturnstodetermineaparticularinvestmentrecommendation.LevelI"GuidanceStandardsI-VII,"InstituteStandardIII(C)5.answer:A.StandardVIrequiresdisclosureofconflictsbutdoesnotprohibitmembersfrommakingrecommendationsaslongatthepotentialconflictsareappropriatelydisclosed.LevelI"GuidanceStandardsI-VII,"InstituteStandardIV(A)6.answer:A.Photocopyingcopyrightedmaterial,regardlessoftheyearofpublication,isaviolationofStandardI(A)becausecopyrightedmaterialsareprotectedbyCandidatesandmembersmustcomplywithallapplicablelaws,rules,andregulationsandnotknowinglyparticipateorassistinaviolationoflaws.LevelI"GuidanceStandardsI-VII,"InstituteStandardI(A)7.answer:C.Composites(StandardIV–Composites)bedefinedaccordingsimilarinvestmentobjectivesand/orstrategies.portfoliosbeincludedthehistoricalreturnsofappropriatecomposites,andonlyfee-payingportfoliosaretobeincludedcomposites.3/45level1-Mock-113Non-discrectionaryportfoliosnotbeincludedinafirm'scomposites.LevelI"IntroductiontotheGlobalInvestmentPerformanceStandards(GIPS),"Institute8.answer:B.Firmsmustprovideinvestorswithacomprehensiveviewoftheirperformanceinofriskandreturns,notjustreturns.LevelI―TheGIPSStandards,‖InstituteSection:Overview9.answer:C.UnderStandardI(B),membersandcandidatesprotecttheirindependenceandAgreeingtoprovideobjectiveresearchcoverageofacompanydoesnotconstituteaviolationofthisstandard,providedtheanalystwritingthereportisfreetocomeupwithhisindependentconclusion.SmithcanagreeprovideresearchcoveragebutcannotGranite'sresearchdepartmenttoprovidingafavorablerecommendation.LevelI"GuidanceStandardsI-VII,"InstituteStandardI(B)10.answer:C.Acompositemustincludeallactualfee-paying,discretionaryportfoliosmanagedinaccordancewiththeinvestmentmandate,objective,orstrategy(StandardIV–Composites).Byincludingboththevalueandgrowthportfolios,thecompositeisupofportfolioswithdifferentinvestmentmandatesorstrategies.LevelI"IntroductiontotheGlobalInvestmentPerformanceStandards(GIPS)"Composites4/45level1-Mock-11311.answer:C.theGIPSstandardsfocusedprimarilyonreturns.Inthespiritoffairrepresentationandfulldisclosure,andorderprovideinvestorswithacomprehensiveviewofafirm'sperformance,currentGIPSstandardsincludesnewprovisionsrelatedtorisk.LevelI"TheGIPSStandards,"InstituteSection:Overview12.answer:A.Makingfullandfairdisclosureofallmattersthatcouldreasonablybeexpectedimpairone'sindependenceandobjectivityorinterferewithrespectivedutiesone'sclientsrequiredbyStandardVI(A)–DisclosureofConflicts.LevelI"GuidanceStandardsVII"StandardVI(A)–DisclosureofConflicts13.answer:B.Prior-clearanceprocessesguardagainstpotentialandactualconflictsofinterest;membersarerequiredtoabidebytheiremployer'scomplianceprocedures(StandardVI(B)).LevelI"GuidanceStandardsI-VII,"InstituteStandardV(A),StandardVI(B)14.answer:B.Joneshasusedthemosaictheorytocombinenonmaterial,nonpublicinformationwithmaterialpublicinformation.LevelI"GuidanceStandardsI-VII,"InstituteStandardII(A)MaterialNonpublicInformation5/45level1-Mock-11315.answer:C.PunishingabuseinthefinancialmarketsisnotoneofthesixcomponentsoftheCodeofEthics.LevelI―CodeofEthics,‖InstituteSection:CodeofEthics16.answer:C.AfterafirmpresentsaminimumoffiveyearsofGIPS-compliantperformance,thefirmpresentanadditionalyearofperformanceeachbuildingupaminimumof10yearsofGIPS-compliantperformance.LevelI"TheGIPSStandards,"InstituteSection:HistoricalPerformanceRecord17.answer:B.Lan'sactionsdonotviolateStandardIV(A)–DutiesEmployers.Landoesnotusecompanytoarrangementsforhisnewventure,nordoeshemisappropriateanyinformation(financialmodelsorclientcontacts)fromhisAllofLan'sactionsareunderStandardIV(A).LevelI"GuidanceStandardsI-VII,"InstituteStandardIV(A)18.answer:A.MembersandcandidatesarerequiredtodiscloseanycompensationarrangementtotheiremployersthatinvolvesperformingtasksorservicesthattheiremployerscanDisclosureisrequiredeventheactivitiesoccurduringnon-workhours.LevelI"GuidanceStandardsI-VII,"InstituteStandardIV(A)LoyaltytoEmployer6/45level1-Mock-113Questions19~32RelateQuantitativeanalysis19.answer:A.Theratioequal2.0whentheEBITis$40million.Giventhatthevaluesbetween$36millionand$48millionareequallytheprobabilityoftheratiobeingequaltoorlessthan2.0is33.3%(=[$40million–million]/[$48million–$36million]).theprobabilityoftheratiobeinggreaterthan2.0is66.7%(i.e.,1–Probabilityoftheratiobeingequaltoorlessthan2.0).LevelI"CommonProbabilityDistributions,"RichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection3.120.answer:B.Firsttheoutcomeofinterest,–0.40,isstandardizedforthegivennormaldistribution:Z=(X–μ)/σ=(–0.40–5.00)/2=2.70.ThenusethetablefindtheprobabilityofaZvaluebeing2.70standarddeviationsbelowthemean(i.e.,whenz≤0).Thevalueis1–≤+2.70).thisproblem,thesolutionis:1–0.9965=0.0035=0.35%.LevelI"CommonProbabilityDistributions,"RichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection3.221.answer:B.Becausethescreensindependent,theprobabilityofpassingallfoursimultaneouslyistheproductoftheirrespectiveprobabilities:P(ABCD)=P(A)P(B)P(C)P(D),whereP(A)=0.65istheprobabilityofpassingScreen1,P(B)=0.45andistheprobabilityofpassingScreen2,7/45level1-Mock-113P(C)=0.40andistheprobabilityofpassingScreen3,P(D)=0.30istheprobabilityofpassingScreen4.P(ABCD)=0.65×0.45×0.40×0.30=0.0351.Given1,200potentialinvestments,approximately1,200×0.0351=42.12~42willpassthescreens.LevelI"ProbabilityConcepts,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidRunkleSection2"FinancialStatementAnalysis:Applications,"ThomasR.Robinson,JanHendrikvanGreuning,ElaineandMichaelA.BroihahnSection522.answer:B.OddsarecalculatedasP(Z)/[1–P(Z)].Inthisproblem,0.14/0.86=0.16279~0.163.LevelI"ProbabilityConcepts,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidRunkleSection223.answer:B.Acrosstwoperiods,therefourpossibilities:anupmovefollowedbyanupmove($121.00endvalue),anupmovefollowedbyadownmove($101.20endvalue),adownmovefollowedbyupmove($101.20endvalue),andadownmovefollowedbyadownmove($84.64endvalue).Theprobabilityofanupmovefollowedbyadownmoveis0.40×0.60=0.24.probabilityofadownmovefollowedbyupmoveis0.60×0.40,whichalso=0.24.Bothofthesesequencesresultendvalueof$101.20.Therefore,theprobabilityofendvalueof$101.20is48%.thefollowingformulacouldbeused:nn!pXpXxp1pnxp1pEquationnxxx(nx)!x!x8/45level1-Mock-113Wheren=2(numberofperiods)x=1(numberofupmoves:udanddu)p=0.40(probabilityofanmove)22!2!1!p0.4010.40210.400.620.400.600.481111LevelI―CommonProbabilityDistributions,‖RichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection2.224.answer:C.TheSharprationforaportfoliop,basedonhistoricalreturns,isdefinedasRRfSnpSpWhereRisthereturntotheportfolio,Risthereturnarisk-freeasset,andpfSisthestandarddeviationofreturnontheportfolio.Inthisinstance,2=(20%-4%)/S,ppp20%4%/28%.SolvingforS:SpLevelI"StatisticalConceptsandMarketReturns,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidE.RunkleSection7.825.answer:C.AIerroristhemistakeofrejectingthenullhypothesiswhenitis,infact,true.LevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection29/45level1-Mock-11326.answer:A.Usingafinancialcalculator:N=60;thediscountrate,I/Y=(6.5%/12)=0.54166667;PMT=€1,200;Futurevalue=€0;Mode=Begin;Calculatepresentvalue(PV):PV=€61,662.62.Alternatively:thestreamasanordinaryannuityof59periodsandaddthecurrentvalueof€1,200tothederivedUsingafinancialcalculator:N=59;thediscountrate,I/Y=(6.5%/12)=0.54166667;=€1,200;Futurevalue=€0;Mode=End;CalculatePV=€60,462.62;PV=€1,200+€60,462.62=€61,662.62.LevelI"TheofRichardDeFusco,DennisJeraldE.Pinto,andDavidE.RunkleSection6.127.answer:B.Apositive"hopedfor"conditionthatthenullwillberejected(andthealternativeaccepted)onlyiftheevidenceindicatesthatthepopulationparameterisgreaterthanθ0.Thus,H0:θ≤θ0versusHa:θ>θ0isthecorrectstatementofthenullandalternativehypotheses,LevelI"HypothesisRichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection228.answer:B.ThecovariancebetweenFundAandB,giventhestandarddeviationofreturnsandthecorrelationbetweenthetwofunds,iscalculatedas:RRRR,ABABABWhereRandRarestandarddeviationsofreturnsofFundsAandB,ABR,RisthecorrelationbetweenthereturnsofFundAandB.AB10/45level1-Mock-113Thentheportfoliostandarddeviationofreturnsiscalculatedasfollows:RportfolioWRWRWCovR,R0.52A22B2ABABABWhereWAandWBaretheweightsofFundsAandBintheportfolioσRportfolio20.52222Alternatively,correlationisuseddirectlytheformulaforportfoliostandarddeviation:RportfolioWRWRWR,RRR0.522A22BABABABABσRportfolio0.708.35%0.070.300.1320.700.300.800.070.130.52222LevelI"ProbabilityConcepts,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidRunkleSection329.answer:A.GiventhatXandYareindependent,theirjointprobabilityisequaltheproductoftheirindividualprobabilities.Inthiscase:P(XY)=P(X)P(Y)=0.2×0.5=0.1.LevelI"ProbabilityConcepts,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidRunkleSection230.answer:B.asamplesizeof10,thereare9degreesoffreedom.Theconfidenceintervalconceptisbasedonatwo-tailedapproach.Fora95%confidenceinterval,2.5%ofthedistributionwillbeeachtail.Thus,thecorrectt-statistictouseis2.262.confidenceintervaliscalculatedas:XtS/n0.025WhereXisthesamplesisthesamplestandarddeviation,andnthesize.thislevel1-Mock-113case:6.25±2.262×12/√10=6.25±8.58369or2.33to14.83.LevelI―SamplingandEstimation,‖RichardA.DeFusco,DennisJeraldE.Pinto,andDavidE.RunkleSection4.231.answer:B.Thisscenarioprovidesexampleofadiscreterandomvariable.pairedoutcomesforthediceareindicatedthefollowingtable.Theoutcomeofthedicesummingsixisthemostlikelyoccurofthethreechoicesbecauseitcanoccurinfivedifferentways,whereasthesummationfiveandninecanoccurinonlyfourdifferentways.SummedOutcomePairedOutcomes(Die1,Die2)(1,4),3),2),and1)(1,5),4),3),(4,2),and(5,1)(3,6),5),4),and3)PossibleCombinations545469LevelI"CommonProbabilityDistributions,"RichardA.DeFusco,DennisJeraldPinto,andDavidRunkleSection232.answer:A.Thetwodefiningpropertiesofaprobabilityareasfollows:1.probabilityofanyEventEisanumberbetweenzeroandone.2.oftheprobabilitiesofanysetofmutuallyexclusiveandexhaustiveeventsequalsone.LevelI"ProbabilityConcepts,"RichardA.DeFusco,DennisJeraldE.Pinto,andDavidRunkleSection212/45level1-Mock-113Questions33~44RelateEconomics33.answer:B.ThelossconsumersurplusbecauseofhigherpricesisrepresentedbyareaE+F+G+H.Thisexceedsthegainsfromproducersurplus(E)andgovernmentrevenuesonimports(G).Hencethenetwelfaretothecountryisadeadweightlossof[E+F+G+H]–[E]–[G]=F+H.Level1―DemandandSupplyAnalysis:Introduction,‖RichardEastinandGaryL.Arbogast,Sections3.9,3.10,3.13―InternationalandCapitalFlows,‖Usha-Reichert,PhD,andDanielRobertPhD,Section3.134.answer:C.AnincreasecapacityutilizationwillcauseanincreaseaggregatedemandthroughhigherinvestmentandwillincreaseGDP(economicexpansion).LevelI"AggregateOutput,Prices,andEconomicGrowth,"PaulR.KutasovicandRichardFritzSection3.3.135.answer:C.TheFisherstatesthatthenominalinterestrateistheoftherealrateofinterestandtheexpectedrateofinflationoveragiventimehorizon.Anincreaseinexpectedinflationwillresultahighernominalrate.LevelI―MonetaryandFiscalAndrewClareandStephenThomasSection2.1.736.answer:C.Thesum-of-value-addedmethodinvolvessummingthevalueadded(orincomecreated)ateachstepintheproductionanddistributionprocess.13/45level1-Mock-113LevelI"AggregateOutput,Prices,andEconomicGrowth,"PaulR.KutasovicandRichardFritzSection2.137.answer:C.Ifbothaggregatedemand(AD)andaggregatesupply(AS)increase,realGDPwillincreasebuttheimpactoninflationisnotclearunlessweknowthemagnitudeofthechangesbecauseanincreaseinADwillincreasethepricelevel,whereasincreaseinwilldecreasethepricelevel.IfADincreasesthanthepricelevelwillincrease.IfASincreasesmorethanAD,asdepictedinthegraphtheright,thepricelevelwilldecline.LevelI"AggregateOutput,Prices,andEconomicGrowth,"PaulR.KutasovicandRichardFritzSection3.4.538.answer:B.goodsviolatethefundamentalofdemandwhereasgoodsdonot.LevelI"DemandandSupplyAnalysis:ConsumerDemand,"RichardEastinandGaryL.ArbogastSections6.4,6.539.answer:A.Aboominthestockmarketincreasesthevalueoffinancialassetsandhouseholdwealth.Anincreaseinhouseholdwealthincreasesconsumerspendingandshiftstheaggregatedemandcurve14/45level1-Mock-113totheright.LevelI"AggregateOutput,Prices,andEconomicGrowth,"PaulR.KutasovicandRichardFritzSection3.3.140.answer:B.InitialPriceQuantityRelationshipQDPizza=0.70PPizza+0.009$5000.201.25=15.25–0.70PPizzaResultingDemandCurve:PPizza=21.79–1.43QDPizzaPriceQuantityRelationshipatNewIncomeLevelQDPizza=0.70PPizza+0.009$700-0.201.25=17.05–0.70PPizza,ResultingDemandCurve:PPizza=24.36–1.43QDPizzaTheslopeofherdemandcurveforpizzawillstillbe-1.43evenwiththehigherincomeof$700astheincreaseincomehasshiftedthedemandcurveoutwardandupwardbutnotaffecteditsslope.LevelI"DemandandSupplyAnalysis:Introduction,"RichardEastinandGaryL.ArbogastSection3.241.answer:C.Ifdemandiselastic,a1%reductioninpriceincreasesthequantitysoldbythan1%.LevelI"DemandandSupplyAnalysis:Introduction,"RichardEastinandGaryL.ArbogastSection4.142.answer:C.ArecessionarygapariseswhenequilibriumGDPisbelowpotentialDecreasedconfidence15/45level1-Mock-113lowersaggregatedemand,which,turn,leadseconomiccontractions.Asdemanddeclines,companiesreducetheirworkforceandtheunemploymentraterises.LevelI"AggregateOutput,Prices,andEconomicGrowth,"PaulR.KutasovicandRichardFritzSection3.4.243.answer:A.Consumersurplusariseswhenaconsumerpayslessforagoodthanthemaximumpricethatorhewaswillingtopayit.Consumersurplusisthevaluebenefit)ofagoodminusthepricepaidforit,summedoverthequantitybought.Becausenoconsumerwill(willingly)payapricegreaterthanthemarginalvalueorbenefit,consumersurplusisalwayspositive.LevelI"DemandandSupplyAnalysis:Introduction,"RichardEastinandGaryL.ArbogastSection3.944.answer:A.Agoodisinferiorgood.Allinferiorgoodshaveanegativeincome(lessispurchasedasincomerises).Althoughthesubstitutionisalwayspositiveforallgoods,foragood,theincomeisstrongandsonegativethatitoverpowersthesubstitutioneffect.Theresultisthatasitspricedeclines,lessofitispurchased;thisrelationshipresultsapositivelyslopedindividualdemandcurve.Therefore,isleastlikelythatthesubstitutionisnegative.LevelI"DemandandSupplyAnalysis:ConsumerDemand,"RichardEastinandGaryL.ArbogastSections6.3,6.416/45level1-Mock-113Questions45~68RelateFinancialStatementAnalysis45.answer:A.Commonsizestatementsaconvenientwaytocomparecompaniesofmagnitudes.CompanyXreportsbetter(higher)grossperformance.CompanyYreportsbetter(higher)operatingperformance.Metric(commonsize)SalesCompanyXCompanyYComparison100%51100%53CostofgoodssoldGross(GM)AdministrativecostsResearch&developmentexpensesOperating(OM)4947GMishigherOMishigher171513121920LevelI"UnderstandingIncomeStatements,"ElaineHenryandThomasR.RobinsonSection7.146.answer:A.U.S.GAAPrequiresthatlongtermcontractswhoseoutcomescanbereliablymeasuredshouldbeaccountedforusingthepercentage-of-completionmethod,basedonthestageofcompletion.Undertheoriginalassumptions,thecompanywouldhaverecognizedmillionofrevenue.CalculationsUnderthePercentage-of-CompletionMethodCostsincurredtodateEstimatedtotalcosts$12million$32million37.5%%totalcostsincurreddatecontractrevenue$40million17/45level1-Mock-113%revenueberecognizedCurrentyearrevenue37.5%$15millionNowthatthecompanyisunclearontheappropriatedesignandthusthecost,theoutcomecannotbereliablymeasured.Thecompletedcontractmethodisused.Underthisapproach,norevenue($0)isrecognizeduntilthecontractissubstantiallycomplete.Thedifferencereportedrevenueunderthetwomethodsis:$15million-$0=$15million.LevelI"UnderstandingIncomeStatements,"ElaineHenryandThomasR.RobinsonSection3.2.147.answer:B.Whetherthecompanysellsorleasestheasset,inventorywillbereduced.Forsales,thecompanywouldreportanaccountsreceivableclassifiedasacurrentasset(assumingsalesarenotinquestion).Iftheleasesqualifyasfinanceleases,thenthecompanywillreportaleasereceivable,whichisprimarilylongTherefore,comparedwithsellingunitsoutright,thecompany'scurrentassetsarelowerunderleasinganditsliquiditypositionwilldecrease.LevelI"Long-LivedAssets,"ElaineHenryandElizabethA.GordonSection9.2.2"Non-CurrentLiabilities,"ElizabethA.GordonandElaineHenrySection3.2.248.answer:B.Thegeneraljournalrecordstransactionsintheorderinwhichtheyoccur(chronologicalorder)andisthussortedbydate.LevelI"FinancialReportingMechanics,"ThomasR.Robinson,JanHendrikvanGreuning,KarenO'ConnorRubsam,ElaineandMichaelA.BroihahnSection6.118/45level1-Mock-11349.answer:A.Thecoststoincludeininventoriesareallcostsofpurchase,costsofconversion,andothercostsincurredbringingtheinventoriestheirpresentlocationandcondition.Itdoesnotincludeabnormalwastecostsorstorageoffinishedproduct.Cost￥Millions100,000–5,000PurchasepriceMinustradediscountsImportduties20,000ShippingofmaterialsmanufacturingfacilityManufacturingconversioncostsinventorycosts10,00050,000175,000LevelI―Inventories,‖MichaelA.BroihahnSection250.answer:C.Iftheleaseswerecapitalized,bothtotalassetsandliabilitieswouldincreasebythepresentvalueoftheleasepayments,asshowninthefollowingtable.PresentofOperatingLeasePayments(€Millions)Theleasecommitmentsafter2019assumedtobetheasin2019,sothereareestimatedtobe240/80=3additionalpayments.Thepresentvalueoftheoperatingleasepaymentscanbecalculatedasthesumofthepresentvaluesofannuities-in-advanceafour-yearannuitystartingimmediately(beginningof2015)andanotherannuitystartinginfouryears(2019)CashFlow×Annuity-in-AdvanceFactorDiscountPresent19/45level1-Mock-113byatStartof20152015to2018130×(4years,6%)=477.5Not477.5232.7710.2required2019and80×(4years,6%)=293.8at201911.064beyond(4years,6%)byfinancialcalculator:N=4;I=6;PMT=1;Mode=BGN;ComputePVAdjustedDebt/AssetRatioCalculationAdjustedlong-termdebtAdjustedtotalassets1,347+710=20,097+710=2,057/20,807=2,05720,8079.9%Adjustedlong-termdebt/assetratiotheindividualcashflowscanbeseparatelydiscounted.PresentofOperatingLeasePayments(€millions)CashFlow130CashFlowxPVFactor130×6.0%)130×6.0%)130×6.0%)130×6.0%)80×6.0%)PV0130.0122.6109.163.3113021303130480Beyond4240/80peryear=380×6.0%)×6.0%)169.4years710.1P(3years,6%)byfinancialcalculator:N=3;I=6;=1;Mode=END;ComputePVLevelI"Long-LivedAssets,"ElaineHenryandElizabethA.Gordon20/45level1-Mock-113Section9.2.1"Non-CurrentLiabilities,"ElizabethA.GordonandElaineHenrySection3.2.151.answer:C.TheIFRSConceptualFrameworkspecifiesanumberofgeneralfeaturesunderlyingthepreparationoffinancialstatements,includingmaterialityandaccrualbasis.Matchingisnotoneofthosegeneralfeatures;isageneralprincipleofexpenserecognition.LevelI"FinancialReportingStandards,"ElaineJanHendrikvanGreuning,andThomasR.RobinsonSections5.5,5.5.2"UnderstandingIncomeStatements,"ElaineHenryandThomasR.RobinsonSection4.152.answer:A.ForapubliclytradedfirmintheUnitedStates,theauditorexpressanopinionaswhetherthecompany'sinternalcontrolsystemisinaccordancewiththePublicAccountingOversightBoard,undertheSarbanesOxleyAct.opinionisgiveneitherinafinalparagraphintheauditor'sreportorasaseparateopinion.LevelI"FinancialStatementAnalysis:AnIntroduction,"ElaineHenryandThomasR.RobinsonSection3.1.753.answer:B.Thetwofundamentalqualitativecharacteristicsthatfinancialinformationusefulrelevanceandfaithfulrepresentation.Materialityrelatestothelevelofdetailoftheinformationneededachieverelevance.LevelI"FinancialReportingStandards,"ElaineJanHendrikvanGreuning,andThomasR.21/45level1-Mock-113RobinsonSection5.254.answer:C.Metric(￡’000)Endingretainedearnings821,000(580,000)60,000Less:openingretainedearningsAddback:dividendspaidNetincome301,000246,00055,000LOSSComprehensiveincomeOCI=Comprehensive–netincomeLevelI"UnderstandingIncomeStatements,"ElaineHenryandThomasR.RobinsonSection855.answer:B.Becauseboththepreferredsharesandthebondsaredilutive,theyshouldbothbeconvertedcalculatethedilutedEPS.DilutedEPSisthelowestpossiblevalue.BasicEPSDilutedDilutedEPS:DilutedEPS:BondConvertedPreferredConvertedBothConverted$1,000,0000Netincome$1,000,000$1,000,000$1,000,0000Preferreddividendscostofinterest8%×$80,000×(1–0.40)Numerator–$20,000–$20,000$3,840$3,840$980,000$983,840100,000$1,000,000100,000$1,003,840100,000commonshares100,000outstandingPreferredconverted10,00010,00022/45level1-Mock-113BondconvertedDenominator20,00020,000100,000$9.80120,000$9.09130,000EPS$8.20$7.72LevelI―UnderstandingIncomeStatements,‖ElaineHenryandThomasR.RobinsonSections6.2,6.356.answer:A.Aneffectiveframeworkshouldenhancethetransparencyoftheunderlyingeconomicsthroughthefinancialstatements;transparencyarisesthroughfulldisclosureandfairpresentation.LevelI"FinancialReportingStandards,"ElaineJanHendrikvanGreuningandThomasR.RobinsonSection6.157.answer:B.Theperiodicandperpetualsystemsresultintheinventoryandcostofgoodssoldvalues(andthusgrossprofitusingbothFIFOandspecificidentificationvaluationmethodsbutalwaysunderLIFO.LevelI―Inventories,‖MichaelA.BroihahnSection3.658.answer:C.Aliquidity-basedpresentationcanbeusedwhenitprovidesinformationthatisreliableandmorerelevant.Entitiesthattypicallychoosethisformatincludebanks.LevelI"UnderstandingBalanceSheets,"ElaineHenryandThomasR.Robinson23/45level1-Mock-113Section2.2,2.359.answer:B.Relevanceandfaithfulrepresentationthetwofundamentalqualitativecharacteristicsthatmakefinancialinformationuseful,accordingtotheIASBConceptualFramework.LevelI"FinancialReportingStandards,"ElaineJanHendrikvanGreuning,andThomasR.RobinsonSection5.260.answer:A.Intangibleassetswithindefinitelivesneedbetestedforimpairmentatleastplant,andequipment(includingland)andintangibleswithfinitelivesareonlytestediftherehasbeenasignificantchangeorotherindicationofimpairment.LevelI―UnderstandingBalanceSheets,‖ElaineHenryandThomasR.RobinsonSections4.1,4.3―Long-LivedAssets,‖ElaineHenryandElizabethA.GordonSections5.1,5.2,5.361.answer:C.Inperiodsofrisingprices,FIFOresultsahigherinventoryvalueandalowercostofgoodssoldandthusahighernetincome.highernetincomeincreasesreturnonsales.higherreportednetalsoincreasesretainedearningsandthusresultsalowerdebt-to-equityratio,notahigherone.combinationofhigherinventoryandlowercostofgoodssolddecreasesinventoryturnover(CGS/Inventory).LevelI―Inventories,‖MichaelA.BroihahnSections3.2,3.3,3.5,3.724/45level1-Mock-11362.answer:C.TherewouldbenoontheaccountingequationbecausethecompanyhasexchangedoneassetforCashhasdecreasedandequipment,acapitalasset,hasincreased.LevelI"FinancialReportingMechanics,"ThomasR.Robinson,JanHendrikvanGreuning,KarenO'ConnorRubsam,ElaineandMichaelA.BroihahnSection4.263.answer:B.UnderIFRS