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FINANCIAL MODELING EXAM QUESTIONS AND ANSWERS -1
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FINANCIAL MODELING EXAM QUESTIONS AND ANSWERS -1
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FINANCIAL MODELING EXAM QUESTIONS AND ANSWERS #1Accounting Principles and Standards
Which of the following best describes accounting principles in general? - correct answer
They outline the fundamental rules and concepts and establish the framework on which
detailed accounting standards are based.
A sound accounting framework allows for all of the following benefits except: - correct
answer Identical items being reported on the financial statements of different companies
3. - correct answer Conservatism principle:: It provides guidance on how to record
transactions when there is uncertainty.
Historical Cost:It states that assets and liabilities are recorded on the financial
statements at the cost at which they were acquired or assumed.
Objectivity; It states that financial statements must be free from bias and based on
verifiable evidence.
Economic Entity: It states that transactions carried out by a business are separated from
those conducted by its owner.
Matching:It states that the expenses of a business should be recorded in the periods in
which the corresponding revenues are earned.
On March 1st, Mr. Smithe signed up for a fitness program at Fit Co. And paid $960 for
the entire program upfront. The program includes a total of 12 sessions and two
sessions are delivered each month. How much revenue from Mr. Smithe should Fit Co.
Recognize at the end of March? - correct answer 160
Which of the following characteristics does not enhance the usefulness of financial
information? - correct answer Relevance
Identify the statement that is most accurate. - correct answer Financial information that
has confirmatory value provides feedback that either confirms or changes previous
evaluations.
Which of the following is not a correct description of how an operating lease is
recognized on the financial statements? - correct answer The amortization expense of
the right-of-use asset is calculated using the straight-line depreciation method over the
lease term.
Company Inc. Enters into a 10-year finance lease at the beginning of 2021 for a total of
$250,000. The annual lease payment is $25,000 (payable at the end of each year) and
the rate implicit in the lease is 5%. No initial direct costs are incurred. How much
interest expense should be recognized in 2021? - correct answer 9,652
,Which of the following statements about income taxes is not correct? - correct answer
Deductible temporary differences give rise to deferred tax liabilities, meaning that more
tax is payable in the future.
10. - correct answer Deductible Temporary differences
Generally arise when the tax base of the assets is greater than the carrying amount
Generally arise when there are differences that result in current accounting income
being greater than taxable income
Give rise to deferred tax assets
Taxable Temporary Diffferences
Arise when the tax base of the liabilities is greater than the carrying amount
Arise when the carrying amount of the liabilities is greater than the tax base
Taxable Temporary Differences
Calculate the deferred tax liability given the following items incurred in 2020 by
Company B. Bonuses are tax deductible only in the year in which they are paid. -
correct answer 372
Company Co. Has 1,000 employees and it decides to grant each of the employees 200
share options as part of its new rewards plan. The options are exercisable over 5 years
and subject only to the condition that the company's stock price must be at least 30%
higher than its original issue price. Company Co.'s share-based payments are subject
to: - correct answer Non-vesting condition
Company A has 800 employees, and it decides to grant each of the employees 50
share options as part of its new rewards plan. The options are exercisable over 5 years
and subject to a 3-year service condition. The fair value of each option at the grant date
is $16. The company estimates that 80% of its employees will meet the service
condition required for receiving the options. Calculate the total share-based payment
expense for Company A assuming that 80% of the employees actually meet the service
condition. - correct answer 512,000
Which of the following is not a required criterion for a transaction to be considered a
business combination? - correct answer Presence of outputs
Which of the following statements regarding the accounting for business combinations
is false? - correct answer Goodwill is the difference between the consideration
transferred by the acquirer to the acquiree and the fair value of identifiable assets
acquired.
Debt issuance costs are: - correct answer Amortized over the term of the related debt
liability
Scenario and Sensitivity Analysis - correct answer
, If you want to test how an increase in percentage of cost of good sold affects the
contribution margin, you would use ________. - correct answer Sensitivity Analysis
When performing a scenario analysis, which of the following tools/functions in Excel is
used to create a dropdown list where we can select the live case? - correct answer Data
Validation
You should perform sensitivity analysis when: - correct answer You need to determine
which assumptions matter the most
The formula contained in the yellow highlighted cell (I39) is = ( , I9,I24). This formula
can be copied over to the entire live scenario section without any manual modification.
(Hint: do not forget to use absolute references.) - correct answer Choose, $I$4
What is the share price when the discount rate is 13% and revenue growth is 15%? -
correct answer 36.70
What is the share price when COGS increases by 5%? - correct answer 29.29
The formula contained in the YELLOW cell (G179) is ___________ Hint: do not forget
the $ when using absolute references. Use absolute reference so this formula can be
copied over to other cells in this section without any manual modification. - correct
answer =SMALL($F$177:$F$180,E179)
The formula contained in the ORANGE cell (H178) is = ($A$177:$G$180, ( ,
$F$177:$F$180,0),MATCH($A$177,$A$177: $F$177,0))
Hint: do not forget the $ when using absolute references. - correct answer Index, match,
A177
What type of chart did we use to build a tornado chart? - correct answer Stacked bar
chart
Assumption Drivers in order - correct answer
Financial Analysis Fundamentals - correct answer
Which of the following items are not included when determining income from
operations? - correct answer Taxes
Which ratio would you use to determine the profitability of the goods sold by a
company? - correct answer Gross Profit
When performing a vertical analysis which income statement item do you use to
determine the cost contribution for each expense category? (What is the denominator?)
- correct answer Sales
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