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334 multiple-choice questions and 266 flashcards on Financial analysis, about 82% of the CPA BAR bank. Every one carries a written rationale.
Financial analysis is one of 5 chapters in CoStudy's CPA — Business Analysis & Reporting (BAR) [Discipline] bank, and it holds 334 of the bank's 405 multiple-choice questions — roughly 82% of the total. That proportion is not arbitrary: chapters follow the certifying body's published exam outline, and the number of questions in each is set by that domain's published weight, so the share of your practice time this chapter takes matches the share of the real exam it accounts for.
Studying by chapter is worth doing once you have a diagnostic score. A single overall percentage tells you whether you are close; it does not tell you which domain is dragging. Working a weak chapter in isolation, and re-testing it in isolation, is the fastest way to move a score that has stalled — and it is why the mock exams in CoStudy report by domain rather than as one number.
10 questions drawn from this chapter, with the full rationale shown — the controlling principle behind the right answer, and why each wrong option tempts and fails.
Under ASC 220, comprehensive income includes:
Answer: A — Net income plus other comprehensive income
A) Correct — CI = NI + OCI (translation, hedges, etc.). B) Wrong — that's EPS numerator. C) Wrong — CI includes non-operating. D) Wrong — CI uses net income, not EBITDA.
Under ASC 855, subsequent events are classified as either:
Answer: A — Recognized (adjusting) or non-recognized events
A) Correct — Type I (recognized) or Type II (disclosure only). B) Wrong — that's a materiality issue. C) Wrong — not the classification framework. D) Wrong — subsequent events aren't prior-period.
Under ASC 275, risks and uncertainties disclosures include:
Answer: D — Nature of operations, estimates, concentrations
A) Wrong — no 1% quantitative threshold. B) Wrong — broader than environmental.C) Wrong — broader than geographic segments. D) Correct — nature, use of estimates, and concentrations.
Dividend irrelevance theory (Modigliani-Miller) concludes that, in a perfect capital market with no taxes or transaction costs, a firm's dividend policy:
Answer: D — Has no effect on firm value, since investors can create their own dividend policy through homemade dividends
A) Wrong — under MM assumptions, dividend policy does not drive the cost of equity in this framework. B) Wrong — the irrelevance conclusion is presented as general under the stated perfect-market assumptions, not limited to no-growth firms. C) Wrong — MM's theory implies no particular payout ratio maximizes value under its assumptions. D) Correct — MM's irrelevance proposition holds that, absent market imperfections, investors can replicate any desired dividend stream by buying or selling shares, so firm value is unaffected by the payout choice.
If a cash flow hedge's forecasted transaction is no longer probable of occurring, the appropriate accounting treatment is to:
Answer: B — Immediately reclassify the deferred gain or loss from OCI into current earnings
A) Wrong — once the forecasted transaction is no longer probable, continuing to defer the amount in OCI is no longer appropriate since there's no future earnings event to match it to. B) Correct — ASC 815 requires immediately reclassifying the deferred gain or loss into current earnings once the hedged forecasted transaction is no longer probable of occurring. C) Wrong — this is a current-period event requiring current-period recognition, not retrospective restatement of prior periods. D) Wrong — additional paid-in capital is unrelated to cash flow hedge OCI reclassification; the amount goes through earnings, not equity contribution accounts.
A company-specific risk premium in the build-up method is intended to capture:
Answer: C — Risks unique to the specific subject company not already reflected in the size premium or general equity risk premium, such as key-person dependence or customer concentration
A) Wrong — general market volatility is already captured in the equity risk premium component. C) Correct — the company-specific premium addresses idiosyncratic risks (key-person dependence, customer/supplier concentration, limited management depth) unique to that particular business. B) Wrong — the risk-free rate is the base starting point, not something the company-specific premium represents. D) Wrong — beta-driven systematic risk is a CAPM concept and isn't the mechanism used in the build-up method, which has no beta term.
GASB 87 requires most government leases to be:
Answer: C — Recognized on balance sheet if term exceeds twelve months
A) Wrong — GASB 87 removed off-balance-sheet leases. B) Wrong — short-term leases exempt. C) Correct — 12+ month leases on balance sheet. D) Wrong — recognition, not just disclosure.
A company's diluted EPS calculation must incorporate dilutive stock options (treasury stock method), dilutive convertible bonds (if-converted method), and NCI-related net income attribution simultaneously. The correct order of operations is to:
Answer: A — Apply the treasury stock and if-converted adjustments to the denominator and numerator respectively, starting from net income already attributable to the parent (after NCI allocation)
A) Correct — the correct approach starts with net income attributable to the parent (i.e., NCI has already been removed), then applies the treasury stock method's incremental shares to the denominator and the if-converted method's after-tax interest add-back to the numerator, layering the dilutive security adjustments onto the parent-attributable base. B) Wrong — NCI allocation should be addressed at the outset (determining the correct starting numerator), not deferred until after all dilutive adjustments are complete. C) Wrong — NCI must still be properly excluded from the parent's EPS calculation even when dilutive securities are present; its presence doesn't override the NCI allocation requirement. D) Wrong — this reverses the standard mechanics: the if-converted method affects both the numerator (interest add-back) and denominator (as-converted shares), while the treasury stock method affects only the denominator (net incremental shares) — not the swapped roles described here.
Compared to the perpetuity growth method, the exit multiple method for terminal value:
Answer: D — Relies on a market-based multiple (e.g., EV/EBITDA) observed from comparable companies or transactions, introducing market-derived risk rather than a purely intrinsic growth assumption
A) Wrong — the exit multiple method depends heavily on market data (comparable multiples). D) Correct — using an observed market multiple ties the terminal value to current market pricing conventions rather than a purely theoretical long-term growth assumption. C) Wrong — which method produces a higher or lower value depends on the specific inputs; there's no universal directional rule. B) Wrong — the exit multiple method is a standard, widely used alternative terminal value approach within DCF models.
Under ASC 606, contract liability represents:
Answer: B — An obligation to transfer goods for consideration received
A) Wrong — vague; contract liability is specifically for prepayment. B) Correct — deferred revenue for consideration received. C) Wrong — that's a contract asset or AR. D) Wrong — variable consideration is different.
4 cards from the 266 in this chapter.
Cash ratio formula?
(Cash and cash equivalents + marketable securities) ÷ current liabilities — the most conservative liquidity ratio.
Interpretation of rising COGS % of revenue over time?
Signals margin compression, potentially from rising input costs, pricing pressure, or unfavorable product mix.
Effect of rising DSO on forecasted free cash flow?
Increases forecasted A/R and reduces forecasted free cash flow, all else equal.
ASC 842 modification that increases lease scope at standalone price?
Accounted for as a separate new lease; the original lease's accounting is unaffected.
These are a sample. The full Financial analysis chapter runs 600 items with per-chapter progress tracking, on the web and in the iOS app.