Financial Statements

Question 1

Income Statement-Single Step

Answer 1

Revenues 
\+ Other Income
= Total Revenues
Expenses
- COGS
- Operating Expenses
- Interest Expense
= Total Expenses

Total Revenues - Expenses = Net Income

Question 2

Income Statement-Multi Step

Answer 2

Net Revenue
- Costs of Goods Sold
= Gross Profit
- Operating Expenses
= Income from Operations
\+ Other Income
- Other Expenses
\+/- Unusual or Infrequent Events
= Income from Continuing Operations
- Tax expense
= Income from Continuing Operations net of tax
\+/- Discontinued Operations net of tax
= Net Income

Question 3

Income Statement-General & Administrative Expenses

Answer 3

Are expenses necessary to maintain daily operations

• Rent
• Utilities
• Insurance
• Executives wages and benefits
• The depreciation on office fixtures and equipment
• Legal counsel and accounting staff salaries
• Office supplies

Question 4

Income Statement-Selling Expenses

Answer 4

Literally anything to do with sales like salaries, commissions, advertising, freight out, etc.

Question 5

What’s included in Comprehensive Income

Answer 5

• Unrealized Gains & Losses from Available for Sale Securities
• Certain Gains & Losses from Pension Costs
• Foreign Currency Translation Adjustments
• Unrealized Losses from certain Derivative Transactions

Question 6

Working Capital Definition

Answer 6

Current assets minus Current liabilities

Question 7

Random things added back to Indirect Cash flows

Answer 7

Amortization of Premium on Bond Investment

Amortization of Discount on Bond Payable

Question 8

Random things deducted to Indirect Cash flows

Answer 8

Amortization of Discount on Bond Investment

Amortization of Premium on Bond Payable

Question 9

Concentration of Credit Risk

Answer 9

When most of company’s customers & suppliers operate in the same industry

Question 10

Sources of Risk & Uncertainty

Answer 10

• Nature of Operations
• Use of Estimates
• Certain Significant Estimates like loss contingencies
• Vulnerability to significant concentrations of operations

Question 11

Significant Concentrations

Answer 11

• Concentrations in the volume of business
• Concentrations of revenue
• Concentrations in specific sources
• Concentrations in market or geographical area of operations

Question 12

Issuance & Legal Fees in a consolidation

Answer 12

• Costs to register & issue stock to buy another company are netted against APIC
• Legal & consulting fees for consolidation are just expensed

Question 13

Disposal Activities & Gains

Answer 13

Gains are not recognized until the asset is actually sold

Question 14

Disposal Activities & Expected Losses

Answer 14

If a firm decides to sell a segment next year or whenever it “expects” to sell then you recognize a loss in year 1 for the difference in “Expected” selling price and carrying value

Question 15

Consolidation Equity Method Journal Entries

Answer 15

Parent’s share of Income/Loss
Dr: Investment in Sub
Cr: Income from Equity Investment

Parent’s share of dividends declared
Dr: Dividends Receivable/Cash
Cr: Investment in Sub

Amortization of difference between FV & BV of Assets
Dr: Income from equity investment
Cr: Investment in Sub

Question 16

Consolidation Inventory Table

Answer 16

———-Should Be—–Parent—–Sub—–Elimination
Sales
COGS
Inv.

Question 17

Consolidation Asset Table

Answer 17

----------Should Be-----What Is-----Difference
Equip
Accum Dep
Deprecation
Gain or R/E

Question 18

“Combined” Financial Statements Stockholders equity

Answer 18

You add the stockholder’s equity from all companies minus intercompany shit like if one company paid money for a share of the other company; that is deducted

Question 19

What constitutes are Variable Interest Entity Beneficiary

Answer 19

• Direct of indirect ability to make decisions about the entity through voting or other rights
• Have to absorb it’s losses
• Right to receive returns from entity if they occur

All most be true to be primary beneficiary

Question 20

SEC Divisions

Answer 20

• Corporate Finance: oversees compliance
• Enforcement: Investigates violations
• Trading & Markets: Oversees secondary markets
• Investment Management: Oversees investment advisors & companies
• Division of Economic & Risk Analysis: Integrates financial economics & data analytics

Question 21

SEC Pronouncements

Answer 21

• Financial Reporting Releases: highest authoritative source for public companies
• Staff Accounting Bulletins: SEC’s position on current issues
• Accounting & Auditing Enforcement Releases: reports enforcement actions

Question 22

Regulations S-X and S-K

Answer 22

S-X governs content of financial statements & S-K governs content of nonfinancial statements

Question 23

Dividends Subtracted in computing EPS

Answer 23

• Annual dividend commitment on cumulative preferred whether declared or not
• Declared dividends on noncumulative preferred whether paid or not

Dividend in Arrears never included because they were used last year

Question 24

Segment Reporting Note

Answer 24

Needs to be 10% of combined revenue, including intersegment revenue

External Customers is 75%

Question 25

Reporting Permanent losses & Discontinued operations for Interim financial statements

Answer 25

Should be recorded entirely in the quarter they occur and adjust if not