CPAexcel Notes

Question 1

90+ day CD’s are never cash

Answer 1

True

Question 2

Post-dated checks are not cash

Answer 2

True

Question 3

Name Components of Comprehensive Income

Answer 3

1. Unrealized gains and losses on AFS securities
2. Gains or Losses in Pension Obligations
3. Foreign Currency Translation Adjustments
4. Derivative Hedging Positions

***All Net of Tax

Question 4

Operating Activities in Cash Flow

Answer 4

1. Cash flows from actual operations
2. Interest Income or Dividend Income expense
3. Sale of Trading Securities - NOT INVESTMENT SECURITIES or AFS

Question 5

Investing Activities in Cash Flow

Answer 5

1. Sale/Purchase of PPE

2. Sale/Purchase of Long Term External Investment Security

Question 6

Financing Activities in Cash Flow

Answer 6

1. Sale/Purchase of own equity securities
2. Debt issued by the company
3. Dividends
4. Redemption of long term debt
5. Loan principal

Question 7

Indirect Method on CF Prep

Answer 7

Gives you cash flows from actual operations without illustrating the reconciliation.

Question 8

Working Capital

Answer 8

Working Capital = Current Assets-Current Liabilities

Lets you know if you have enough assets on hand to meet your needs.

Question 9

Current Ratio

Answer 9

Current Ratio=Current Assets/Current Liabilities

Provides comparison of liquidity as it relates to working capital.

Question 10

Quick Ratio/Acid Test

Answer 10

Quick Ratio=(Current Assets-(Inventory+prepaids))/Liabilities

Finer version of current ratio.

Question 11

Times Interest Earned

Answer 11

(Net Income+Interest Expense+Income Tax Expense)/Interest Expense

Measures ability of current earnings to cover interest cost.

Question 12

AR Turnover

Answer 12

Net Credit Sales/((Beginning AR+Ending AR)/2)

• Denominator is Avg AR Formula
• Gives calculation for collection

Question 13

of Days AR

Answer 13

365/AR Turnover

• More intuitive calculation for collection

Question 14

Inventory Turnover

Answer 14

COGS/((Beg. Inv. + End Inv.)/2)

• Denominator is Avg Inventory Formula
• Gives calculation for inventory turnover

Question 15

Days inventory

Answer 15

Inventory Turnover/365

• More intuitive calculation for comparison

Question 16

Profit Margin

Answer 16

Net Income/Sales

Question 17

Return on Assets

Answer 17

Net Income/((Beg Assets+End Assets)/2))

Question 18

Return on Equity

Answer 18

Net Income/((Beg Equity+End Equity)/2))

Question 19

Earnings Per Share

Answer 19

Net Income-Preferred Dividends/Weighted Avg. Shares Outstanding

Question 20

P/E Ratio - Price to Earnings Ratio

Answer 20

Price Per Share/Earnings Per Share

• Evaluates prospective future of the company

Question 21

Factor or Sale?

Answer 21

1. Assets are isolated from the transferor
2. Freedom of Transferor to pledge
3. Requirement of the transferee to eliminate control.

Question 22

Accounting for a Sale

Answer 22

D: Cash
C: AR
Difference: Gain or Loss = typically a loss for cost of sale

Question 23

Factoring (Non-continuing involvement)

Answer 23

D: Cash
C: Note Payable

Question 24

IFRS Receivable Transfers

Answer 24

Less likely to be a sale, more likely to be factor. “substantially all the risk”

Question 25

Discounting A Note

Answer 25

Maturity of the Note= principal+(principal*interest rate*x/12) Less: Discount=Maturity*Discount Rate*x/12 Equals: Discount

Question 26

Losses on Notes Receivable

Answer 26

Treated as Bad Debt Expense

Question 27

Costs in Inventory

Answer 27

1. Purchase Returns is included 2. Freight-in (NOT FREIGHT OUT - THIS IS A SELLING COST) 3. INVENTORY INTEREST IS FINANCING, NOT COI 4. Sales Tax is included 5. Packaging for items purchasing - yes 6. Insurance in transit is an inventory cost

Question 28

Weighted Average (periodic system)

Answer 28

Inventory and Purchases/Number of Units

Question 29

FIFO (periodic/perpetual system equal)

Answer 29

1. Oldest Costs are COGS 2. Most recent are ending inventory If prices rise, FIFO has lowest COGS and highest net income. Highest ending net inventory.

Question 30

LIFO (periodic system/perpetual differs)

Answer 30

Most recent costs are COGS, oldest to inventory. Highest COGS, lowest NI. Has best possible tax outcome.

Question 31

You must disclose tapping into a LIFO band in the footnotes

Answer 31

True

Question 32

Dollar Cost LIFO Conversion Index

Answer 32

Ending Inventory in Current Year Dollars/Ending Inventory in Base Year Dollars

Question 33

Lower Cost or Market: Ceiling/Floor

Answer 33

Ceiling: Net Realizable Value=selling price-cost to complete Floor: NRV-profit margin If replacement cost is between, use the replacement cost.