Questions 1~27 Relate to Ethical and Professional Standards ....................................................

Questions 28~45 Relate to Quantitative Methods ........................................................................ 9

Questions 46~63 Relate to Economics ......................................................................................... 13

Questions 64~90 Relate to Financial Statement Analysis .......................................................... 17

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 Last Name: First Name:
MOCK EXAM A
No: Date:

Questions 1~27 Relate to Ethical and Professional Standards

1. If a member self-discloses a matter that questions his professional conduct in his annual

statement to the CFA Institute, an initial investigation is conducted by the:

A. Standard of Practice Council.

B. Disciplinary Review Committee.

C. Professional Conduct Program staff.

2. During an on-site company visit, Marsha Ward, CFA, accidentally overheard the Chief

Executive Officer (CEO) of Stargazer, Inc., discussing the company’s tender offer to purchase

Dynamica Enterprises, a retailer of Stargazer products. According to the CFA Institute

Standards of Professional Conduct, Ward most likely cannot use the information because:

A. it relates to a tender offer.

B. it was overheard and might be considered unreliable.

C. she does not have a reasonable and adequate basis for taking investment action.

3. With respect to issuer-paid research, members are not required to:

A. strictly limit the type of compensation they accept from the covered company.

B. fully disclose the nature of compensation received from the covered company.

C. accept compensation related only to investment performance of the covered company.

4. Rex Leopold, CFA, is a financial advisor. Leopold plans to leave his current employer to start
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his own competing business. During non-business hours, and before giving notice of
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termination to his current employer, Leopold undertakes preparations to start his own firm,
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including procuring the appropriate regulatory approvals, leasing office space, and hiring an
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office manager. Has Leopold most likely violated the Standards?

A. No.

B. Yes, the Standard relating to loyalty.

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C. Yes, the Standard relating to misconduct.

5. Claus Holm, CFA, directs most of his clients' trades to RRT Company (RRT), despite RRT's

higher-than-average commissions. In return, RRT refers individual clients to Holm for asset

management services. Holm does not disclose the arrangement to his clients or prospective

clients. Holm has most likely violated the Standard(s) relating:

A. only to referral fees.

B. only to loyalty, prudence, and care.

C. both to referral fees and to loyalty, prudence, and care

6. Agnes Trimbach, CFA, works at an investment firm that serves individual investors. Trimbach

recommends the purchase of German government bonds to a client. She tells the client: “The

government guarantees that you will receive the promised principal and interest on the bonds.

In addition, interest rate fluctuations could add to your gains or cause losses.” Has Trimbach

most likely violated the Standards?

A. No.

B. Yes, the Standard relating to misrepresentation.

C. Yes, the Standard relating to communication with clients and prospective clients.

7. In the absence of regulatory guidance, CFA Institute recommends that members maintain their

investment research records for at least:

A. 3 years.

B. 5 years.

C. 7 years.
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8. Maria Perez, CFA, is a portfolio manager for an advisory firm that utilizes external mutual
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funds. The firm has a committee that selects external funds, using an analytical model to
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determine their choices. Although Perez has no reason to question the committee's research
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process, she does not like the committee's choice for a bond fund because it is not appropriate

for all her clients. She researches and selects a different bond fund that better meets her clients'

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 needs, but her manager tells her that she is not permitted to make independent fund purchase

decisions. She then invests in the fund chosen by the committee for all of her clients. Has Perez

most likely violated the Standards?

A. No.

B. Yes, the Standard relating to suitability.

C. Yes, the Standard relating to diligence and reasonable basis

9. A member's firm uses a third-party broker to execute trades. Commissions from trades are used

to purchase research which benefits the firm's clients. This practice is disclosed to clients, along

with the information that commissions are higher than average because of the purchase of the

research. Has the member most likely violated the Standards?

A. No.

B. Yes, the Standard relating to fair dealing.

C. Yes, the Standard relating to loyalty, prudence, and care.

10. Peter Chang, CFA, spreads rumors on social media about a potential acquisition of Advanced

Electronics Company (AEC) after buying the stock for his personal account. Despite the

rumors, AEC's stock price declines and Chang closes his position at a significant loss. Has

Chang violated the Standards?

A. No

B. Yes, the Standard relating to market manipulation only

C. Yes, both the Standard relating to market manipulation and the Standard relating to misconduct

11. Kush Shah, CFA, is the chief investment officer of an investment firm. Shah discovers during

a routine review of the firm's trading system that the firm erroneously bought shares of IY Steel
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(IYS) for several clients. Shah immediately sells IY shares and realizes significant profits for
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the clients. Later, Shah outsources a portion of the clients' portfolios to an external manager.
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Shah does not notify the firm's clients about the external manager because the fund's stock
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selection process remains unchanged. Shah has violated the Standards because he failed to

notify the clients:

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A. only about the erroneous purchase of IY shares.

B. only about outsourcing a portion of the clients' portfolios to an external manager.

C. about the erroneous purchase of IY shares and about outsourcing a portion of the clients'

portfolios to an external manager.

12. Jonas Balsys, CFA, has a prospective client, Edith Clancy, who mentions that she donates to

environmental causes. Balsys mentions Clancy to a friend who works for an environmental

agency. The next week, Balsys prepares an IPS for Clancy. Clancy does not disclose

information about assets outside of her ESG investments. Balsys prepares the IPS based on the

partial information provided by Clancy and enters into a formal agreement with her. Balsys has

most likely violated the Standard relating to:

A. suitability.

B. preservation of confidentiality.

C. diligence and reasonable basis.

13. Meghna Shah, CFA, manages a small-cap fund. Applying mosaic theory, Shah concludes that

AK Tech (AKT) is overpriced and sells the fund's significant holding in AKT for a profit. Shah

is aware that her transaction could impact AKT's price because the position is large enough to

require disclosure to stock exchanges. A blog tracking stock exchange news reports Shah's

transaction, which leads to 8% decline in AKT's price, causing losses to other investors. Has

Shah violated the Standards?

A. No.

B. Yes, the Standard relating to market manipulation.

C. Yes, the Standard relating to material nonpublic information.

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14. A member works in a country where there is no regulation relating to investment performance
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standards. In the absence of any regulatory guidance, the member is required to communicate
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investment performance information to her clients in accordance with:

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A. the GIPS standards.

B. the Code and Standards.

C. stricter of the GIPS standards and the Code and Standards.

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15. Shika Agarwal is a Level I candidate in the CFA program. Immediately after taking the exam,

Agarwal posts in a social media group for CFA candidates arguing that the move to computer-

based testing would have an adverse impact on the quality of the CFA program. She also states

how surprised she was that the exam did not have quantitative questions on portfolio

management. Has Agarwal violated the Standards?

A. No.

B. Yes, by stating that the exam did not have quantitative questions on portfolio management.

C. Yes, by arguing that the move to computer-based testing would have an adverse impact on the

quality of the CFA program.

16. According to the Standard relating to additional compensation arrangements, a member must

not accept a benefit offered by a third party that might create a conflict of interest with his

employer’s interest unless he obtains written consent:

A. only from his employer.

B. only from the third party offering the benefit.

C. both from his employer and from the third party offering the benefit.

17. Yun Hae, CFA, is a portfolio manager at Citadel Capital (CC). Hae’s brother maintains a fee-

paying retirement account at CC. Hae has no beneficial ownership in her brother’s account.

Whenever an IPO becomes available that is suitable for her clients, Hae first allocates shares

to other clients before placing any remaining shares in her brother’s account. She adopts this

procedure to avoid potential conflicts of interest. Hae's actions violate the Standard(s) relating:

A. only to fair dealing.

B. only to priority of transactions.

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C. both to fair dealing and to priority of transactions.

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18. According to the Standards, if a member cannot discharge supervisory responsibilities due to
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an inadequate compliance system, the member is:

A. only required to decline in writing to accept supervisory responsibility.

B. only required to report the inadequate compliance system to the CFA Institute.
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C. both required to decline in writing to accept supervisory responsibility and to report the

inadequate compliance system to the CFA Institute.

19. Marianne Lynn is registered for the CFA Level I exam. A few weeks after registration, she

realizes that she is unable to prepare for the exam due to work commitments, so she informs

CFA Institute that she declines to sit for the exam. Afterwards, shortly before the exam date,

she posts on social media that she is a CFA candidate. Separately, Thomas Petrov, CFA, posts

his investment views anonymously on social media and tags his post using "#CFAcharter."

Who has violated the Standards?

A. Lynn only

B. Petrov only

C. Both Lynn and Petrov

20. Which of the following is among the recommended procedures for compliance with the

Standard relating to disclosure of conflicts?

Procedure 1 Members should disclose to their prospective clients any referral fee

arrangements with third parties.

Procedure 2 Members should disclose in their research report the outstanding options the

firm holds to buy the covered company's stock as part of the compensation package for

corporate financing activities.

A. Procedure 1 only

B. Procedure 2 only

C. Both Procedure 1 and Procedure 2

21. According to the Standard relating to fair dealing, when members disseminate investment
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recommendations, they are most likely required to make every effort to treat individual clients
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in a(n):
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A. fair and equal manner.

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B. fair and impartial manner.

C. equal and impartial manner.

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22. Tim Herndon, CFA, is a senior analyst working with Brad Welch, CFA. They work for a large

brokerage firm and co-author all their research reports. Herndon believes Welch is in violation

of the CFA Institute Standards of Professional Conduct concerning reasonable basis for a

company under their coverage. Herndon has had several discussions with Welch, as his

supervisor, and has discussed the issue with the firm’s compliance department. Both Welch

and the compliance department appear to have dismissed his concerns. Which of the following

actions should Herndon most likely take to avoid being in violation of the CFA Institute

Standards of Professional Conduct?

A. Threaten to leave the firm.

B. Continue discussing the matter with Welch.

C. Have his name removed from further research reports.

23. Florence Zuelekha, CFA, is an equity portfolio manager at Grid Equity Management (GEM),

a firm specializing in commodities. Zuelekha, who previously focused on alternative energy,

recently attends her first commodity conference, sponsored in large part by GEM. Independent

industry experts argued that commodities would increase in value and recommended that

investors hold at least 10% of their portfolio assets in commodities based on consistent

increases in their values over the previous two years. Without doing any additional research,

Zuelekha recommends to all her clients an immediate allocation of 5% of their portfolio into

commodities. Over the next few weeks, Zuelekha moves her own portfolio to a 10%

commodity allocation. Which of the CFA Standards did Zuelekha most likely violate?

A. Priority of Transactions.

B. Independence and Objectivity.

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C. Diligence and a Reasonable Basis.

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24. Benefits of compliance with the CFA Institute Global Investment Performance Standards
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(GIPS®) least likely include:

A. strengthening of internal controls.

B. participation in competitive bidding.

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C. elimination of in-depth due diligence for investors.

25. Who is most likely responsible for claiming and maintaining compliance with the CFA Institute

Global Investment Performance Standards (GIPS®)?

A. The firm claiming compliance

B. Independent verification firms

C. The performance measurement department

26. A 12-year-old investment firm adopts the GIPS standards. To claim compliance with the GIPS

standards, the firm is initially required to present GIPS-compliant performance history:

A. for at least five years.

B. for at least ten years.

C. since the firm's inception date.

27. A firm claiming compliance with the GIPS standards:

A. can claim compliance on specific composites.

B. is responsible for maintaining that compliance.

C. must have the verification of its claim of compliance performed by an independent third party.

Questions 28~45 Relate to Quantitative Methods

28. An individual can invest $19,000 today and receive $20,000 in one year's time. If her required

rate of return is 5%, the rate of return on the investment is:

A. less than the required rate of return.

B. equal to the required rate of return.

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C. greater than the required rate of return.

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29. A bank account has a stated annual interest rate of 3.5% with quarterly compounding. If the
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current value of the account is $100,000, the future value of the account two years from now

is closest to:

A. $107,123.
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B. $107,207.

C. $107,218.

30. A dataset consisting of 10 years of annual returns for each stock within a single industry is best

described as:

A. panel data.

B. time-series data.

C. cross-sectional data.

31. A bubble line chart without any color-coding can represent a maximum of:

A. two dimensions of data.

B. three dimensions of data.

C. four dimensions of data.

32. The 'box' in a box and whisker plot represents the:

A. interquartile range.

B. range between the median and the arithmetic average.

C. range between the highest and lowest values of the distribution.

33. With regard to probability concepts, an event represents:

A. a single outcome only.

B. a set of outcomes only.

C. both a single outcome and a set of outcomes.

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34. A portfolio manager gathers the following information about her fund:
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⚫ Allocation of corporate bonds 20%

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⚫ Allocation of bonds that are both corporate and high-yield 10%

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If the portfolio manager randomly picks a corporate bond, the probability that the bond is high

yield is closest to:

A. 0.02.
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B. 0.10.

C. 0.50.

35. When two random events X and Y are independent:

A. X and Y are mutually exclusive.

B. the conditional probability of X given Y is less than the unconditional probability of X.

C. the joint probability of X and Y equals the product of the individual probabilities of X and Y.

36. A discrete random variable X has the following probability distribution:

Probability Outcome

0.20 35

0.30 50

0.50 80

The standard deviation of X is closest to:

A. 18.73.

B. 20.00.

C. 22.91.

37. Which of the following is a continuous random variable?

A. The number of trades at a stock exchange

B. The price of a stock that is quoted in increments of $0.01

C. The rate of return on an investment over a six-month period

38. Any normal distribution:

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A. has a kurtosis of zero.

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has a skewness of zero.

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B.
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C. is symmetric around zero.

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39. An analyst gathers the following information about three portfolios:

Portfolio X Portfolio Y Portfolio Z

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 Expected annual return 10% 12% 14%

Standard deviation of returns 12% 16% 20%

If the shortfall level is 5%, which portfolio has the largest safety-first ratio?

A. Portfolio X

B. Portfolio Y

C. Portfolio Z

40. Sampling error is the difference between the observed value of a statistic and the:

A. mean of the sample.

B. quantity it is intended to estimate.

C. observed value of the random variable.

41. The central limit theorem is best described as stating that the sampling distribution of the

sample mean will be approximately normal for large-size samples:

A. if the population distribution is normal.

B. for populations described by any probability distribution.

C. if the population distribution is symmetrical.

42. The lower bound of a confidence interval for a population parameter is equal to the point

estimate minus the reliability factor multiplied by the:

A. variance of the sample statistic.

B. standard error of the sample statistic.

C. standard deviation of the sample statistic.

43. Which is the first step in the standard process of hypothesis testing?
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A. Collect data
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B. State the hypothesis

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C. Specify the level of significance

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44. Two populations are normally distributed with unknown variances that are assumed to be equal.

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 If a large independent random sample is drawn from each population, the most appropriate test

statistic for testing the difference between the population means is the:

A. t-statistic.

B. z-statistic.

C. F-statistic.

45. An analyst runs a simple linear regression to test whether the variation in the demand for corn

explains the variation in the supply of wheat. In this model, the demand for corn is a(n):

A. indicator variable.

B. Explained variable.

C. independent variable.

Questions 46~63 Relate to Economics

46. A college student’s monthly demand for pizza is given by the equation:
𝐷
𝑄𝑃𝑖𝑧𝑧𝑎 = 11 – 0.50 × P𝑃𝑖𝑧𝑧𝑎 + 0.01 × I – 0.20 × 𝑃𝐶𝑜𝑙𝑎

Where
𝐷
𝑄𝑃𝑖𝑧𝑧𝑎 = the number of pizzas ordered per month

P𝑃𝑖𝑧𝑧𝑎 = the price of a pizza

I = her monthly food budget

P𝐶𝑜𝑙𝑎 = the price of cola per bottle

The student’s current monthly food budget is $540, the price of a pizza is $6, and the price of

a bottle of cola is $2. If the student’s monthly food budget were to increase to $740, the slope

of her demand curve for pizza would be closest to:

A. –2.0.
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B. –2.3.
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C. –0.5.
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47. A gourmet pizza restaurant did very well in the first six months it was open, with tables full

and waiting lines during peak periods. The owner realized that if the table turnover rate were

higher, he could serve more dinners every evening and increase profits. He added two servers,
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 and both revenues and profits increased. Adding an additional two servers, however, did not

increase revenues and profits proportionately, because the serving staff now had to wait longer

for the kitchen to cook the orders. Which of the following best describes the problem the

restaurant is experiencing and the potential solution? The restaurant is experiencing

diminishing returns to:

A. labor and should expand the kitchen capacity.

B. capital and should expand the kitchen capacity.

C. labor and should reduce the number of servers.

48. Firms operating under a monopolistic competition market structure most likely:

A. have few competitors.

B. benefit from high barriers to entry.

C. sell products that are close substitutes for those offered by other firms.

49. If a firm's supply curve equals its long-run marginal cost schedule, the firm most likely operates

in a market structure of:

A. oligopoly.

B. monopoly.

C. perfect competition.

50. The following data apply to a country in its domestic currency units:

Consumer spending on 875,060 Government spending on goods 305,600

goods and services and services

Business gross fixed 286,400 Government gross fixed 84,120

investment investment
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Change in inventories –68,500 Capital consumption allowance 8,540

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Transfer payments 9,300 Statistical discrepancy –2,850

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Exports 219,800 Imports 250,980

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Using the expenditures approach, the country’s GDP is closest to:

A. 1,466,490.

B. 1,451,500.
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C. 1,448,650.

51. Which of the following is most likely to cause a shift to the right in the aggregate demand

curve?

A. Boom in the stock market

B. Increase in taxes

C. Decrease in real estate values

52. With respect to the production function approach to analyzing sources of economic growth,

total factor productivity best reflects the portion of growth related to:

A. labor.

B. capital.

C. technology.

53. Credit cycles tend to be:

A. shorter than business cycles.

B. of the same length as business cycles.

C. longer than business cycles.

54. The liability of a borrower most likely rises in real terms during:

A. deflation.

B. disinflation.

C. hyperinflation.

55. Both monetary and fiscal policies can most likely be used by a government to:

A. redistribute income and wealth.

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B. affect the level of interest rates.

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C. influence the level of economic activity.

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56. In theory, money neutrality holds in the long run if:

A. the money supply is positively related to the velocity of circulation of money.

B. increases in the money supply do not influence output and employment.

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C. price levels are unaffected by changes in the money supply.

57. According to the Fisher effect, which of the following rates is stable over time?

A. Expected inflation

B. Real rate of interest

C. Nominal rate of interest

58. Which of the following monetary policy regimes most likely imports the inflation of a foreign

economy?

A. Inflation targeting

B. Interest rate targeting

C. Exchange rate targeting

59. The structural deficit is equal to the budget deficit:

A. adjusted for inflation.

B. that would exist at full employment.

C. excluding the impact of automatic stabilizers.

60. Globalization is primarily the result of:

A. political cooperation.

B. political non-cooperation.

C. economic and financial cooperation.

61. The production of goods by foreigners within a country is included in that country's:

A. GNP only.
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B. GDP only.
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C. GNP and GDP.

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62. Assume the percentage increases in each of the following listed items:

Percentage Increase

Real domestic exchange rate (USD/EUR) 5

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 Eurozone price level 2

US price level 1.5

The predicted change in the nominal US spot exchange rate is closest to:

A. 4.5%.

B. –0.5%.

C. 5.5%

63. The NZD/EUR (amount of NZD per 1 EUR) spot rate is 1.5453. If the 3-month forward

discount is 24 points, the 3-month forward rate is closest to:

A. 1.54290.

B. 1.54770.

C. 1.54901.

Questions 64~90 Relate to Financial Statement Analysis

64. Which of the following statements is most accurate? The role of financial statement analysis is

to:

A. provide assurance that the audited financial statements are free from material error.

B. provide information about a company’s performance, financial position, and changes in

financial position.

C. evaluate the performance and financial position of a company for making investment, credit,

and other economic decisions.

65. The objective of general purpose financial reporting is best described as:

A. providing information about financial performance to a wide range of users.

facilitating resource allocation decisions by current and potential investors and creditors.
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C. reporting an entity’s economic resources and claims, and changes therein, to shareholders.
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66. Which of the following best describes a component of the income statement?
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A. Amounts that a company owes its vendors for purchases of goods and services

B. Outflows or depletions of assets in the course of a business's activities

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C. Obligations from past events that are expected to result in an outflow of economic benefits

67. If practical, retrospective application is required for a change in accounting:

A. policies only.

B. estimates only.

C. policies and estimates.

68. An analyst gathers the following information about a company for the fiscal year ended 31

December:

Net income $3,100,000

Cash dividends paid on common stock $775,000

Cash dividends paid on preferred stock $500,000

Common shares outstanding on 1 January 1,000,000

If a 2-for-1 stock split occurred on 1 July, basic earnings per share for the fiscal year is closest

to:

A. $0.91.

B. $1.30.

C. $1.73.

69. Using a common-size income statement to compare a company to its peers, an analyst can

determine the company’s:

A. relative performance.

B. size.

C. revenue recognition policies.

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70. Obligations arising from past events that are expected to result in an outflow of economic
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benefits from an entity are most likely known as:

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A. expenses.
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B. liabilities.

C. operating activities.

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71. An analyst gathers the following information (in ¥ billions) about a company:

Interest received 100

Repurchase of stock 200

Principal repayment of the company's debt 300

The net cash used for financing activities (in ¥ billions) is:

A. 300.

B. 400.

C. 500.

72. With respect to the cash flow statement, under US GAAP, interest paid is reported as a(n):

A. investing activity.

B. financing activity.

C. operating activity.

73. An analyst gathers the following information (in € millions) about a company:

Cost of sales 800

Decrease in inventory 250

Increase in accounts payable 100

Cash paid to suppliers (in € millions) is:

A. 450.

B. 950.

C. 1,150.
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74. An analyst gathers the following information (in € millions) about a company:
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Net income 125

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Depreciation expense 22
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Interest expensed and paid 20

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Capital expenditures 50

Working capital expenditures 25

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 Dividends declared and paid 11

The income tax rate is 25%. Free cash flow to the firm (in € millions) is:

A. 87.

B. 92.

C. 98.

75. An analyst collects the following information about a company:

Net profit margin 4%

Return on average assets 8%

Return on average equity 16%

Revenue €2,500,000

The company's:

A. total asset turnover is 4.

B. financial leverage ratio is 4.

C. average shareholders' equity is €625,000.

76. All else being equal, cash dividends paid to common shareholders result in a:

A. lower ROA than if no dividends were paid.

B. higher ROE than if no dividends were paid.

C. lower net profit margin than if no dividends were paid.

77. An analyst gathers the following information about a company for its fiscal year:

Net profit margin 8%

Total asset turnover 1.5

:

Financial leverage 1.2

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EPS €0.15
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Dividend per common share €0.10

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The sustainable growth rate is closest to:

A. 3.2%.

B. 4.8%.

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C. 9.6%.

78. A company has operated at full capacity throughout the year, and a review of its inventory

records for that period indicate that the following costs were incurred:

Fixed production overhead $500,000

Direct material and direct labor $300,000

Storage costs incurred during production $25,000

Abnormal waste costs $30,000

The total capitalized cost to inventory during the year are closest to:

A. $800,000.

B. $855,000.

C. $825,000.

79. The choice of a periodic or a perpetual inventory system could affect ending inventory and cost

of sales under the:

A. FIFO inventory valuation method.

B. specific identification inventory valuation method.

C. weighted average cost inventory valuation method.

80. The reversal of an inventory write-down:

A. reduces cost of sales.

B. increases other comprehensive income.

C. is permitted under both IFRS and US GAAP.

81. Under US GAAP, which of the following is least likely a disclosure concerning inventory?
:

A. The amount of inventories recognized as an expense during the period

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The carrying amounts of inventories carried at fair value less costs to sell
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B.
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C. The amount of the reversal of any write-down of inventories

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82. On 1 January, a company that prepares its financial statements according to International

Financial Reporting Standards (IFRS) arranged financing for the construction of a new plant.

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 The company

⚫ borrowed NZ$5,000,000 at an interest rate of 8%,

⚫ issued NZ$5,000,000 of preferred shares with a cumulative dividend rate of 6%, and

⚫ temporarily invested NZ$2,000,000 of the loan proceeds during the first six months of

construction and earned 7% on that amount.

The amount of financing costs to be capitalized to the cost of the plant in the first year is closest

to:

A. NZ$400,000.

B. NZ$630,000.

C. NZ$330,000.

83. The following information applies to a capital asset of a company:

Year Ending Year 3 Year 2 Year 1

Capital asset €2,500 €2,500 €2,500

Accumulated depreciation 375 250 125

Net book value 2,125 2,250 2,375

This company uses the straight-line depreciation method for this capital asset.

At the end of year 3, the expected remaining life of the capital asset, in years, is closest to:

A. 17.

B. 20.

C. 6.

84. An analyst gathers the following information (in £ thousands) about equipment owned by a

company:
:

Carrying amount prior to impairment 36

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Fair value 34
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Selling costs 4
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Undiscounted expected future cash flows 38

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Discounted expected future cash flows 32

The equipment is considered impaired under:

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A. IFRS only.

B. US GAAP only.

C. both IFRS and US GAAP.

85. A company has announced that it is going to distribute a group of long-lived assets to its owners

in a spin-off. The most appropriate way to account for the assets until the distribution occurs is

to classify them as:

A. held for sale with no depreciation taken.

B. held for use until disposal with no deprecation taken.

C. held for use until disposal with depreciation continuing to be taken.

86. Deferred tax assets could arise when:

A. taxable income is greater than accounting profit.

B. the carrying amount of an asset exceeds its tax base.

C. the carrying amount of a liability is lower than its tax base.

87. Deferred tax liabilities could arise when:

A. accounting profit is greater than taxable income.

B. the tax base of equipment is greater than its carrying value.

C. tax authorities do not allow an expense item for tax purposes.

88. If a fixed-rate bond is issued at a premium and carried at amortized historical cost, the:

A. annual interest expense increases over the bond's lifetime.

B. interest expense is less than the interest paid over the bond's lifetime.

C. market interest rate at issuance is higher than the coupon rate of the bond.
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89. Which of the following companies would most likely be considered to have the lowest financial
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reporting quality, other things equal?

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A. A company that provides high quality, decision-useful information under GAAP but delays its
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reports.

B. A company that reports significant profits due to a favorable exchange rate movement.

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C. A company that reports the results from two different segments as a combined entity.

90. A company has consistently and significantly increased its cash balance over the past three

years. The least likely explanation for the increase in cash is a:

A. forthcoming issue of new equity.

B. potential acquisition.

C. planned increase in the dividend.

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