Free Online CFA Level 1 Mock Exam 3

Economics

7. Firms involved in a cartel enter into collusive agreements. Collusion can be successful in some cases, but not in all. Which of the following factors is most likely to cause collusion to be suppressed?

A Homogenous products.

B Few firms having similar market shares.

C Similar cost structures.

Correct Answer: B

Answer Explanation:

When a few firms have similar market shares, the benefits of collusion are overshadowed by competitive forces. However, collusion succeeds when products are homogeneous and cost structures are similar; only differentiation is an obstacle to successful collusion.

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8. Which of the following companies has the lowest quality of financial reporting?

A. A company that combines the results of the two segments it operates in: healthcare and retail.

B. A company that reports good performance due to favorable exchange rate movement.

C. A company that provides delayed reports, but ones that are GAAP-compliant and decision-useful.

Correct Answer: A

Answer Explanation:

It would be difficult to assess the profitability of each segment if it were consolidated. This is an example of biased accounting choices.

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9. The following situations are likely to require a separate procurement account by:

A. the periodic inventory system.

B. the perpetual inventory system.

C. the specific identification valuation method.

Correct Answer: A

Answer Explanation:

The periodic inventory system requires a separate procurement account.

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