51 CFA Exam Level 1 Sample Questions and Answers

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Assets and liabilities increase by the bond proceeds +Interest expense is equal to the coupon payment+Proceeds are reported as cash inflow from financing activities and coupon payments are reported as cash outflows from operating activities+Repayment of principal is reported as cash outflow from financing activities

• Premium Bond Effects
• Par Value Bond Effects
• Revaluation Model
• Discount Bond Effects

+Reported on the balance sheet as above face value+As the premium is amortized the book value of the bond will decrease until it equals par value at maturity

• Recognition of DTA
• Premium Bond Effects
• Period Costs
• Discount Bond Effects

+Nature of liabilities+Maturity dates+Stated and effective interest rates+Call provisions and conversion privileges+Restrictions imposed by creditors+Assets pledged as security+The amount of debt maturing in each of the next 5 years

• Fixed Income Financial Statement Disclosures
• Inventory Disclosure
• Income Tax Expense
• Lease Disclosures

= Beginning Inventory + Purchases - Ending Inventory

• Derecognition
• Lease Disclosures
• Product Costs
• Cost of Goods Sold

A gain or loss is recognized by subtracting the redeem price from the book value of the bond liability at the redeem date;GAAP requires any remaining unamortized bond issuance costs must be written off and included in the gain or loss calculation;IFRS requires no write down since the legal and issuance costs have already been deducted

• If Company Redeems Bonds
• Temporary Difference
• Income Tax Expense
• Affirmative Covenants

+Less costly financing+Reduced risk of obsolescence +Less restrictive provisions+Off-balance-sheet financing+Tax reporting advantages

• Sales-Type Lease
• Operating Lease
• Benefits of a Lease
• Direct Finance Lease

Only done on assets with finite lives and is done the same as depreciation

• Amortization
• FIFO
• LIFO
• Derecognition

Only contains common stock and nonconvertible stock

• Accelerated Depreciation
• Simple Capital Structure
• Finance (Capital) Lease
• Income Tax Expense

Created when taxes payable are greater than income tax expense;POST-EMPLOYMENT BENEFITS, WARRANTY EXPENSES AND TAX LOSS CARRYFORWARDS ARE MOST COMMON CAUSES;Must be reduced if it is unlikely to be used under GAAP

• Deferred Tax Asset
• Interest Expense
• Taxes Payable
• Income Tax Expense

When the lease is treated like ownership for tax reporting to allow for the deduction of depreciation and interest expenses but the lease does not appear on the balance sheet

• Operating Lease
• Synthetic Lease
• Interest Expense
• Sales-Type Lease

The value reported on the financial statements net of depreciation

• Liability's Tax Base
• Asset's Tax Base
• Operating Lease
• Asset's Carrying Value