- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 3. Expense Recognition - Long-Lived Assets
CFA Practice Question
Select the correct statement(s).
II. Expensed interest reduces operating cash flows.
III. Analysts should include capitalized interest when calculating a firm's interest coverage ratios.
I. Capitalized interest appears as part of investing cash inflows.
II. Expensed interest reduces operating cash flows.
III. Analysts should include capitalized interest when calculating a firm's interest coverage ratios.
Correct Answer: II and III
I: Capitalized interest appears as part of investing cash outflows, not inflows.
User Contributed Comments 19
| User | Comment |
|---|---|
| bundy | Read carefully Outflows not inflows!!! |
| soorajiyer | Yes, it tricked me :( |
| rocyang | same here. gotta read more carefully |
| cfaajay | when will i stop making these kind of mistakes :-( |
| investoprenuer | Nice one. Got tricked! |
| jonan203 | inflows, i see what you did there... |
| Shaan23 | Thats an ass kicker... |
| Timothy90 | inflows... thats just dirty |
| enetis | nasty! outflows!!!! |
| robbiecow | Just plain mean! |
| Yrazzaq88 | NASTYYYYYY!! |
| praj24 | god dammit! |
| alejandroc | Shows you I'm falling asleep over the laptop :,) |
| leeboy | im gonna fail this |
| ashish100 | lmao! the most depressing comment section on analyst notes. |
| choas69 | OMG!@ |
| Rudger | how does expensed interest reduce operating cash flow? It has to be paid either rway, therefore in both cases the Company will have to pay the interest right? |
| UcheSam | That question caught me off-guard. One just need to be extra careful reading the question. |
| UcheSam | @Rudger expensed interest is treated as operating not investing cash flow. It would have been investing had it been it was capitalized but that's not the case. Besides, its an outflow thereby reducing CFO. |