CFAi is notorious for mistakes in mocks… considering how much revenue they generate you would think they would hire adequate people to deliver ERROR FREE mocks…
to clarify re ready power, lifo liquidation takes place when goods manufactured > goods sold? i thought that too initially, but their reasoning makes sense, you sell more than you manufacture, so you look to your older inventory to cover your extra sales, which would lead to a lifo liquidation.
Regarding Ready Power Q6: Liquidity = Current Assets/Current Liabilities. The generators are stock for them so leasing them out would take them out of current assets and into long term recievables and therefore reduce the ratio.
Look at the BB example for this one (the lessor side)
Say , if its a 5 yr lease (4 yrs worth of lease receiveable gets moved to long term assets), only the current portion is recognised under the Current Assets so it goes down for the Lessor.
Not sure if I’m mistaken, but for the Piezo case question #4 of the CFAI mock that begins with the LeCompte Ethics case, I think the answer should be A rather than C.
In the answer they used $66 as the amount of capitalized interest to add to the Interest paid denominator, but it should be $34. I can;t seem to figure out how if could be $66 instead. Thoughts?
66 = interest capitalized in 2013 (=value for B/S)
34 = part of capitalized interest allocated to I/S as part of depreciation expense
Interest Coverage Ratio = EBIT/interest expense
adj EBIT: + 34
adj interest expense: + 66 (if you add 34, you only add the part that was “depreciated” this year instead of the whole amount of capitalized interest in 2013, that is 66).