CFA财务报表分析练习题"Financial Report":Tax rate

Questions 1:

In applying the principles of expense recognition,companies should:
A、record any estimates of uncollectible amounts as a direct reduction of revenues.
B、exclude costs of intangible assets with indefinite useful lives.
C、recognize credit losses on customer receivables when defaults occur.

【Answer to question 1】B

B is correct.The two main types of long-lived assets whose costs are not allocated over time are land and those intangible assets with indefinite useful lives.
A is incorrect because a company records an estimate of uncollectible amounts as an expense on the income statement,not as a direct reduction of revenues.
C is incorrect because,under the matching principle,at the time revenue is recognized on a sale,a company is required to record an estimate of how much of the revenue will ultimately be uncollectible.

Questions 2:

The following table summarizes income statement data for a manufacturing company:
Financial Report:Tax rate
Financial Report:Tax rate
Compared with 2020,the 2021 common-size income statement most likely indicates:
A、a lower tax rate.
B、cost cutting in selling,general and administration.
C、sale of a new,differentiated product.

【Answer to question 2】C

C is correct.Gross profit margin improved from 33.3%(€775/€2,325)to 35.6%(€930/€2,611).This may be reflective of selling a new,more highly differentiated product.
A is incorrect because the tax rate(which is expressed as tax paid as a percentage of net income)increased year over year,from 26.1%(€120/€460)to 26.7%(€155/€580).This is also true of tax paid as a percentage of revenue,which increased from 5.2%(€120/€2,325)to 5.9%(€155/€2,611)year over year.The company’s profitability was reduced because of the higher tax rate.
B is incorrect because SG&A as a percentage of revenue slightly increased year over year:2010=€260/€2,325=11.2%and 2011=€295/€2,611=11.3%.
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