Exam 4

Question 1

noncash activities

Answer 1

activities that do not directly pay or receive cash

Question 2

example of noncash activities

Answer 2

A company that takes out a loan for a piece of equipment

Question 3

What are the 3 types of cashflows

Answer 3

1.Operating
2.Investing
3.Financing

Question 4

Operating Activities include…

Answer 4

-The calculation of and including net income
-Normal operations

Question 5

Examples of Operating Activities include (6 things)

Answer 5

-Change in AR, Inventory, Prepaids
-Change in AP and Unearned Revenue
-Interest Receivables
-Gains and Losses
-Depreciation Expense
-Interest Expense

Question 6

Investing activities include…

Answer 6

-Purchase or sale of PP&E
-Company investing in someone else

Question 7

Examples of investing activities include… (4 things)

Answer 7

-Change in PP&E
-Change in Intangible Assets
-Change in short term investments
-Change in Notes Receivables (buying a bond)

Question 8

Financing Activities include…

Answer 8

-Contribution from or distributions to owners
-Someone else investing in the company (someone invests in me)

Question 9

Examples of financing activities include…(4 things)

Answer 9

-Dividends
-Common, Preferred, Treasury Stock
-Bonds Payable
-Short term and long-term notes payable

Question 10

Classification and (+-) for:
Collection of AR

Answer 10

Operations, (+)

Question 11

Classification and (+-) for:
Issuance of Bonds

Answer 11

Financing,(+)

Question 11

Classification and (+-) for:
Purchase of new equipment

Answer 11

Investment, (-)

Question 12

Classification and (+-) for:
payment of dividends

Answer 12

Financing , (-)

Question 13

Classification and (+-) for:
Receipt of interest on loan receivables

Answer 13

Operating,(+)

Question 13

Classification and (+-) for:
Receipt of principal of loan receivable

Answer 13

Investing (+)

Question 14

Formula for calculating total change in cash:

Answer 14

Operating + Investing + Financing

Question 15

Ending Balance of Cash formula:

Answer 15

Beginning balance of cash + Total change in cash

Question 16

In the Statement of cash flows, where is Net Income located? (Operating, Investing, Financing)

Answer 16

Operating Activities

Question 17

Quality of Income Ratio:

Answer 17

Cash flow from operations / Net Income

Question 18

Do you want the Quality of income ratio to be low or high?

Answer 18

High

Question 19

What does the quality of income ratio explain?

Answer 19

how much each dollar of NI generates

Question 20

What is the SEC?

Answer 20

Securities and exchange commission
-govern publicly traded companies
-enforce the GAAP

Question 21

what is GAAP?

Answer 21

Generally accepted accounting principals
-written by FASB

Question 22

what is the FASB?

Answer 22

Financial Accounting Standards Board
-wrote the GAAP

Question 23

what is the AICPA?

Answer 23

American Institute of Certified Public Accountants

Question 24

what is the PCAOB?

Answer 24

Public Company Accounting Oversight Board -oversee accounting professionals who provide independent audit reports for publicly traded companies

Question 25

Common external professional services include: (3)

Answer 25

-Auditors -Tax Professionals -Advisors

Question 26

What are the 3 conditions for fraud to occur?

Answer 26

1. Incentive 2. Opportunity 3. Rationalization

Question 27

Net Profit Margin

Answer 27

Net Income / Net Sales

Question 28

Total Asset TO

Answer 28

Net Sales / Avg Total Assets

Question 29

Return on Assets

Answer 29

Net Income / Average Total Assets

Question 30

Financial Leverage

Answer 30

Avg Total Assets / Avg Total SE

Question 31

Return on Equity

Answer 31

Net Income / Avg Total SE - Want to be low

Question 32

DuPont Model

Answer 32

(Net Profit Margin * Total Asset TO) * Financial Leverage = ROE

Question 33

Quick Ratio

Answer 33

(Cash and Cash equivalents + Net AR + Short Term Investments) / Current Liabilities

Question 34

Cash Ratio

Answer 34

Cash and Cash Equivalents / Current Liabilities -Want it to be high

Question 35

Time Interest Earned

Answer 35

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense -Want it to be high

Question 36

Cash Coverage Ratio

Answer 36

Cash flow from Operating activities / Interest Paid -Want it to be high

Question 37

Debt to equity ratio

Answer 37

Total Liabilities / Total Stockholder Equity - want this to be low