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BAR CPA Exam > BAR Exam Deck 3 > Flashcards

BAR Exam Deck 3 Flashcards

1
Q

measures the proportion of the total variation in “y” or total cost that is explained by the total variation in the independent variable, x, or variable costs.

A

coefficient of determination

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2
Q

a measurement used in conjunction with standard deviation computations

A

standard error

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3
Q

What is the format of the balanced scorecard?

A

Financial
Internal Business process
Customer
Human Resource considerations
Learning and growth

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4
Q

encompasses all the activities that turn the raw materials into finished products that are produced to meet a planned demand

A

MAKE process of the SCOR Model of supply chain operations

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5
Q

How to calculate account profit?

A

Total revenue minus total explicit costs

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6
Q

What are implicit costs?

A

Opportunity costs

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7
Q

Formula for EBIT margin?

A

EBIT/Sales

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8
Q

Formula for Interest burden?

A

EBT/EBIT

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9
Q

Formula for Tax burden?

A

Net income/EBT

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10
Q

Asset Turnover formula?

A

Sales/Average total assets

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11
Q

Return on assets formula

A

Net income/average total assets

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12
Q

Return on Equity formula

A

Net income/Average total equity

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13
Q

What are four two way variances in variance analysis?

A

Price = Difference * Actual
Usage = Difference * Standard
Rate = Difference * Actual
Efficiency = Difference * Standard

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14
Q

How to calculate the flexible budget variance for sales, vc, fc, or operating income?

A

It is the difference between the actual budget and flexible budget for any line item.

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15
Q

assigns costs to activities or transactions and allocates them to products according to their use of each activity. This method means multiple cause and effect relationships may exist.

A

activity based costing

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16
Q

What are the first few steps in the process of strategic planning?

A

Defining the firm’s vision and mission statements
Setting the goals and objectives of the firm
Creation of the strategic plan

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17
Q

How to do the high low method to estimate the cost at a certain activity level?

A

Equation is y = mx + b
x = (High cost - low cost)/(High activity level - Low activity level)
Solve for the b at the high activity level and cost
Plug in the activity level you are trying to by at the m and then solve for y

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18
Q

Formula for Variable overhead rate (spending) variance

A

Actual Hours *(Actual Rate - Standard Rate)

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19
Q

Formula for Fixed overhead volume variance

A

Budgeted fixed overhead - Standard fixed overhead cost

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20
Q

What are way to tell how competitive an industry is based on Porter’s five forces?

A

R&D budgets
Advertising expenses
How quickly other firms respond to competitors

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21
Q

What are ways to tell the existence of substitute products in an industry?

A

Price elasticity of demand is low = low # of substitutes

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22
Q

Operating cash flow ratio

A

Cash flow from operations/Ending Current Liabilities

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23
Q

What are some signs that a trademark would have an indefinite useful life?

A

Cost to renew is very low

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24
Q

How to calculate Goodwill impairment under GAAP?

A

Compare Fair Value of reporting unit and Carrying Value of reporting unit
Carrying Value - Fair Value = Impairment Loss
Find out what the Goodwill is
Goodwill impairment cannot exceed the carrying value of Goodwill

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25
Q

How is equipment that will be only used for a specific project accounted for under GAAP?

A

You would expense the equipment cost immediately if the equipment does not have an alternative use after the project is completed.

You would capitalize and depreciate the equipment if it does have an alternative use.

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26
Q

When are research and development costs capitalized?

A

1)if materials, equipment or facilities developed have alternative future use
2) research and development costs are undertaken on behalf of others under a contractual arrangement

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27
Q

How are cost related to the planning, design, coding, and testing of software treated until technological feasibility has been reached?

A

They are recorded as research and development expenses.

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28
Q

the ability to develop a product using current technology and resources, and to meet its design specifications

A

technological feasibility

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29
Q

How are capitalized costs related to software projects amortized over the life of the software?

A

It is the greater of the straight line approach or percentage of revenue approach
Straight line = Software/useful life
Percentage of Revenue = Revenue generated in a specific year/Total Revenue expected to be generated

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30
Q

How to calculate break even point with a sale mix?

A

Find Product A contribution margin
Find Product B contribution margin
(Product A CM * Sales mix %)+(Product B CM * Sales Mix %)=X
Fixed Cost/X=Y
Y * Sales Mix percentage for Product A

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31
Q

A distinguishing feature of the Black-Scholes option pricing model is:

A

Stock options are exercisable only at maturity or as European Style options

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32
Q

How calculate the net cash outflow for the purchase of equipment

A

Initial Cash outflow
Less: Present value of the residual value

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33
Q

Days of payables outstanding formula

A

Ending accounts payable/(CoGS/365)

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34
Q

What cost remain constant within a relevant range?

A

fixed cost will remain fixed
cost per unit will not change

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35
Q

What is operating leverage and what is the formula?

A

the presence of fixed costs in operations, which allows a small change in sales to produce a larger relative change in profits.
FC/(FC+VC)

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36
Q

normally classifies activities of an organization into major headings and identifies the critical success factors and related strategic goals whose achievement will ensure meeting the requirements of those factors

A

balanced scorecard

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37
Q

used to evaluate the liquidity of the firm through the calculation of the cash conversion cycle

A

average collection period

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38
Q

represent a third party guarantee of obligations incurred by a company.

A

line of credit

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39
Q

exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country.

A

repatriation restrictions

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40
Q

How to calculate the after tax cash flow for a capital project

A

Find the pre tax cash flows
Pretax cash flows - tax expense = after tax income
Annual depreciation * tax rate
After tax income + (annual depreciation * tax rate) = after tax cash flow

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41
Q

How to calculate gross profit for a construction contract?

A

Contract Selling Price
Less Cost to complete
Total Gross profit (loss)
Cost to complete in X1/Total Cost=% completed
% completed * Total Gross profit

42
Q

What happens when you have an estimated gross loss for a project?

A

Recognize the loss immediately

43
Q

What do you do when revenue is recognized at a point in time for a construction project?

A

Recognize the revenue at the end of the project but if there is a loss then you recognize it in the year the loss is incurred.

44
Q

What happens when you recognize revenue at a point in time but you are expected to have a loss?

A

Contract Price
Less cost to this date
Less estimated cost to complete
Recognize this loss for the year

45
Q

What is the revenue rules in a principal agent relationship?

A

The agent records revenue based on their sales commission.

46
Q

When does a seller recognize a transaction as a financing arrangement?

A

When the repurchase price of the asset is greater than the selling price
When the expected market value is less than the repurchase price

47
Q

What type of expense is market research?

A

Selling expense under operating expenses

48
Q

Goodwill acquired in an arms-length transaction is ____________, but internally created goodwill is __________ because an objective measure of its value is difficult to obtain.

A

capitalized
expensed

49
Q

What are the journal entries when a company grants stock options and they are exercised in the same period that they are granted?

A

DR: Compensation expense for fair value of options
CR: Paid in capital stock options outstanding

DR: Cash for the exercise price * number of options
DR: Paid in Capital stock options oustanding
CR: Common stock at part value
CR: Paid in capital in excess of par

50
Q

What is vesting?

A

the process of earning ownership of an asset over time

51
Q

What is the total compensation expense formula?

A

Market price of the share on date of grant * number of restricted shares awarded

52
Q

What is the process for recording stock options for employee compensation?

A

There is not journal entry on the grant date but compensation expense is recognized over the vesting period
Record compensation expense over vesting period for each year

DR: Compensation expense = Fair value at grant date/vesting period
CR: APIC - stock option

J/E if stock options are exercised
DR: exercise price * number of shares exercised
DR: APIC-stock option for the proportion of shares exercised
CR: Common stock for par value
CR: APIC this is a plug figure

53
Q

What are SARs (stock appreciation rights) what is the journal entry

A

If a manager meets certain financial ratios then they will get awarded based off this
Journal Entry
DR: Compensation expense
CR: Liability for SARs plan

54
Q

How to calculate the break even point for sales dollar given fixed cost and the cm ratio?

A

Fixed cost/Contribution Margin Ratio = Total breakeven sales

55
Q

How to find the cost of retained earnings when you are given: current price of stock, growth rate, and dividend at the end of the first year?

A

P^0 = D^1/(cost of retained earnings - g)

56
Q

What is the affect of fees of finds and registration fees on the balance sheet and income statement?

A

Fees of finders would decrease net income because it would be an expense
Registration fees would decrease APIC and not affect the income statement

57
Q

What happens in consolidated financial statements to the retained earnings of the company acquired?

A

They are eliminated
Think of the CAR part which is a debit to stockholders’ equity accounts

58
Q

How do you accounts for acquisition costs with a business transaction?

A

They are expensed as incurred in the period they are incurred

59
Q

What is the journal entry for consolidation

A

DR: Common Stock at BV
DR: APIC at BV
DR: Retained earnings at BV
CR: Investment at purchase price
CR: Non-controlling intererest
DR: FV in excess of book value
DR: Intangible assets
DR: Goodwill which is a plug figure

60
Q

can be used to separate costs into fixed and variable components by means of least squares. This method mathematically fits a trend line to minimize the distance between the trend line and the actual observations.

A

regression analysis

61
Q

_________ ________ analysis is used to determine increases in efficiency or production as experience is gained. Both products have long production runs, making _______ _______ analysis the best method for estimating the cost of the competitive bid.

A

learning curve

62
Q

When do you account for an investment under equity method?

A

20-50% ownership
Ability to exercise significant influence: make up the board of directors

63
Q

When do you account for an investment under the cost method?

A

When we don’t exercise significant influence
Investment is in a debt security and not an equity security

64
Q

How to calculate a variable interest entity (VIE)?

A

Amount of contribution by investor/Total contributions by all investors
The primary beneficiary in a VIE needs to consolidate their financial statements

65
Q

What is the interpretation of the AR of quick payment discount formula: 360/(Pay period - discount period) * (Discount %/(1-Discount %)

A

The outcome of this formula is what it would cost the business if they did not take advantage of the discount
Based on my understanding if the result is high then you would want to pay during the discount % and borrow from the bank

66
Q

How to find the gain or loss when an investor goes from equity method to the consolidation method?

A

First find the current book value of the investment in investee
Multiply the original ownership percentage by the current fair value of the company
The difference between these two is the gain/loss

67
Q

What are the two key differences between the Black-Scholes pricing model and Cox-Ross Rubinstein model?

A

Cox considers option over a period of time
Cox factors in the period dividends

68
Q

What is the formula to calculate the ending non controlling interest balance?

A

Beginning Controlling interest
Add NCI share of subsidiary net income
Subtract NCI share of subsidiary dividends
Ending NCI

69
Q

How do you hedge against foreign currencies if you have a receivable versus a payable?

A

Receivable
You don’t want the price to go below the current spot rate so you would buy a put option
Payable
You don’t want the price to go above the current spot rate so you would buy a call option

70
Q

How are assets/liabilities, equity, and income statement items translated to the functional currency?

A

Assets/Liablities use current exchange rate
Equity/Capital accountsuse the histroical exchange rate
Income Statement items use the weighted average exchange rate

71
Q

How to determine a company’s functional currency?

A

The currency of the primary economic environment, this is usually called the local currency or the reporting currency

72
Q

Where are gains and losses reported for the remeasurement method under U.S. GAAP?

A

Income from continuing operations, at the gross amount

73
Q

What are the differences between the translation method and remeasurement method for assets/liabilities, equity accounts, income statement items?

A

Remeasurement happens when the subsidiary’s functional currency is not the same as the reporting currency of the parent.

Example: Ford owns Jaguar. Ford reporting currency is dollars, Jaguars’ functional currency is British pounds, but they do most their business in Japan so we need to remeasure

Translation happens when the parent company and the sub have different currencies so we need to translate directly
Example: Ford reports in Dollars and Jaguar’s functional currency is British pounds

74
Q

What are the rules for remeasurement?

A

Balance Sheet
Monetary items= year end(spot rate)
Non-monetary items = historical rate
Income statement = weighted average
Income statement B/S related = historical
Monetary items: A/R, long-term debt
Non-monetary items: inventory, fixed assets

75
Q

What are the rules for translation?

A

B/S Assets/Liabilities = year end(spot rate)
C/S=historical rate
I/S = weighted average

76
Q

When a multinational company issues its annual consolidated financial statements, they are always based on the:

A

reporting currency

77
Q

What is the difference between the direct method an indirect method for a U.S. Company?

A

Direct method: $1.50=1 euro
Indirect method: $1: 0.67 euros

78
Q

What are the characteristic of the primary beneficiary for a variable interest entity?

A

Power to direct the activities
Right to receive the expected residual returns
Obligation to absorb expected losses

79
Q

What happens to the retained earnings of the sub when a parent company owns 80% of the sub?

A

The entire retained earnings of the sub is eliminated

80
Q

How to find the effect annualized percentage cost of financing for commercial paper?

A

Face value - discounted price= discount
Discount +transaction cost = cost to issue
Cost to issue/Amount received=percentage rate
If this is only for 3 month then multiply the quarterly percentage rate by 4 to get the annual percentage rate

81
Q

What are the characteristics for a derivative to be designated and qualify as a fair value hedge?

A

Formula documentation of the hedging relationship between the derivative and the hedged item

The hedge must be expected to be highly effective in offsetting changes in the fair value of the hedged item and the effectiveness is assessed at least every three months.

The hedged item is specifically identified.

The hedged item presents exposure to changes in fair value that could affect income.

82
Q

What are some types of derivative financial instruments (3)?

A

interest rate swaps
currency futures
stock-index options

83
Q

How are derivatives valued on the balance sheet?

A

At fair value

84
Q

What are two characteristics of futures?

A

Contracts are made through a clearinghouse

Standardized notional amounts and settlement dates

A notional amount, also known as notional principal amount or notional value, is the face value of a financial instrument that is used to calculate payments

85
Q

What is the underlying in derivatives and what is an example?

A

The price that could occur
An example is the strike price of an option being $50

86
Q

What is the notional amount in derivatives and what is an example?

A

How many of the derivatives there are
An example would be 1,000 shares of AAPL

87
Q

What is the initial net investment for a derivative?

A

It is the premium paid/transaction cost
An example is the transaction cost of $1 a share to buy 1,000 options which would be $1000

88
Q

What is the settlement amount in derivatives?

A

Underlying * notional amount
An example is the underlying being $50 and the notional amount being 1,000 shares
50,000

89
Q

How to calculate the gain/(loss) when we sell a call?

A

P^0>exercise price
Loss=# of shares*(P^0-exercise price - transaction price)
P^0<exercise price
Buyer of the call will not exercise
Gain = transaction price * # of shares

90
Q

What is the formula for an efficiency variance?

A

Standard rate *( Actual Hours - Standard hours)

91
Q

Where are investments that are held for trading purposes and then sold for cash reported in the statement of cash flows?

A

Operating section

92
Q

What is the lease classification test?

A

Bargain (written) purchase option
Ownership transfers at the end of the lease
Net present value is > 90% of the fair value
Lease term is >75% of the economic life
Specialized in nature which means the lessor does not have use for it after the lease
Any of these yes means it is classified as a finance/sales type lease

93
Q

How to calculate the lease receivable for a lessor under a direct financing lease?

A

Minimum lease payments + residual value

94
Q

How to calculate the lease payments and total interest revenue over the life a a finance lease.

A

The lease receivable if the fair value of the equipment
Present value = pmt * pv factor
Given presetn value and pv factor you can calculate pmt
After you can get total lease payments and subtract this from the present value to get total interest revenue over the lease term

95
Q

How to calculate the gain/(loss) in a sales type lease?

A

Present value of lease payments
less carrying cost of equipment

96
Q

When is a sale-leaseback considered a failed sale?

A

When it is a finance lease

97
Q

What are the journal entries for an operating lease?

A

Initial Journal Entry
DR: Lease Receivable
CR: Unearned Rental Income
Jounral entry each payment
DR: Cash
CR: Rental Income
DR: Unearned Rental Income
CR: Lease Receivable
DR: Depreciation Expense
CR: Accumulated Depreciation

98
Q

What are the characteristics of an operating lease?

A

The lessor is acting as if they are keeping the asset on their books
This means they will recognize the depreciation expense over the life of the asset not just the lease term.
They will also recognize only rental income/lease income and they will not recognize interest income

99
Q

What are the journal entries for a financing lease from the lessor’s perspective?

A

Initial Journal entry
DR: Lease receivable at the pv of the lease payments
DR: Any cost incurred by the lessors
CR: Cash for the cost incurred
CR: The bv of the fixed asset that is being leased
CR: Gain or DR if it is a loss for the difference between the pv of lease payments and the book value of the asset
Payment journal entries
DR: Cash for the payment amount
CR: Interest income for lease receivable cv * interest %
CR: Amortization of the Lease receivable=Cash - interest income

100
Q

What bond will likely have a constant market value?

A

floating-rate bond
Floating-rate bonds would automatically adjust the return on a financial instrument to produce a constant market value for that instrument. No premium or discount would be required since market changes would be accounted for through the interest rate.

BAR CPA Exam (10 decks)

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