F2

Question 1

An understatement of ending inventory results in

Answer 1

an overstatement of cost of goods sold and an understatement of net income.

To correct the understatement of prior period net income, beginning retained earnings must be increased on an after-tax basis for the amount of the ending inventory understatement.

Question 2

Interest expense on a bond is

Answer 2

for premium lower due to amortized amount being subtracted from the coupon interest

for discount higher due to amortized amount being added to the coupon interest

Question 2

Accrued salaries payable (via balance sheet calculation) would be

Answer 2

B.A.S.E
Beginning Bal Add: Salaries expense for year less: salaries paid during year = ending balance.

Question 3

Return on equity is calculated as:

Answer 3

Net income – Preferred dividends / Average common equity

Question 4

The “principal” market is the market with

Answer 4

the greatest volume of activity for the particular asset for which fair value is being determined.

Question 5

Are Transaction Costs Considered in determining principle markets?

Answer 5

No - but Yes - only for most advantageous market, if no principal market exists

If so, Fair value reflects the price in the principal (or most advantageous) market, without deducting transaction costs.

The net price (price minus transaction costs) is considered only to determine the most advantageous market, not to adjust the fair value itself.

Question 6

Are Transportation Costs Considered in determining principle markets?

Answer 6

Yes — if location is a key characteristic of the asset
Fair value reflects the price in the principal (or most advantageous) market, with transportation costs.
FairValue=Priceinprincipalmarket−Transportationcoststothatmarket

Question 8

Cash based revenue to accrual

Answer 8

Cash basis revenue + ending AR - beginning AR - ending unearned rev + beginning unearned rev

Question 9

Cash for purchases to COGS (cash-accrual)

Answer 9

Cash purchases + ending AP - beginning AP - ending inventory + beginning inventory

Question 10

Cash paid for operating expenses to accrual operating expenses

Answer 10

Cash paid for operating expenses + ending accrued liabilities - beginning accrued liabilities - ending prepaid expenses + beginning prepaid expenses

Question 11

Gross (profit) margin = (Profitability ratio)

Answer 11

Sales(net) - COGS / Sales(net)

Question 12

Profit margin = (Profitability ratio)

Answer 12

Net income / Sales(net)

Question 13

Return on Asset = (Profitability ratio)

Answer 13

Net income / average total assets

Question 14

Dupont ROA = (Profitability ratio)

Answer 14

profit margin * asset turnover

Question 15

Return on Sales = (Profitability ratio)

Answer 15

IBIT / Sales(net)

Question 16

Return on equity = (Profitability ratio)

Answer 16

net income / average total equity

Question 17

operating cash flow = (Profitability ratio)

Answer 17

cash flow from operations / current liabilities

Question 18

current ratio = (liquidity ratio)

Answer 18

current assets/current liabilities

Question 19

quick ratio = (liquidity ratio)

Answer 19

ca and ca equiv + short term mark sec + receivables(net) / current liabilities

Question 20

cash ratio = (liquidity ratio)

Answer 20

cash + MS / CL

Question 21

AR turnover = (liquidity ratio)

Answer 21

Sales(net) / Aver. AR(net)

Question 22

Inventory turnover = (liquidity ratio)

Answer 22

COGS / Aver. inventory

Question 23

AP turnover = (liquidity ratio)

Answer 23

COGS / Aver. AP

Question 24

Day sales in AR = (liquidity ratio)

Answer 24

end AR / sales(net)/365

Question 25

Days in inventory = (liquidity ratio)

Answer 25

end inv / COGS/365

Question 26

Day of payables outstanding = (liquidity ratio)

Answer 26

end AP / COGS/365

Question 27

cash conversion cycle =

Answer 27

days sales AR + days in inven - days of payable

Question 28

debt-equity ratio = (solvency ratio)

Answer 28

total liabilities / total equity

Question 29

total debt ratio = (solvency ratio)

Answer 29

total liabilities / total assets

Question 30

equity multiplier = (solvency ratio)

Answer 30

total assets / total equity

Question 31

times interest earned = (solvency ratio)

Answer 31

IBIT / interest expense

Question 32

P-E ratio = (performance)

Answer 32

Price per share / basic earnings per share

Question 33

dividend payout = (performance)

Answer 33

cash dividends / net income

Question 34

asset turnover = (performance)

Answer 34

Sales(net) / aver. total assets

Question 35

Disclosure requirement related to risks and uncertainties under U.S. GAAP:

Answer 35

1- Disclosure of the relative importance of each business when an entity operates multiple businesses 2- a statement that actual results could differ from the estimates included in the financial statements 3- Estimates of the effects of changes in significant estimates

Question 36

Identified concentrations only need to be disclosed if all of the following criteria are met:

Answer 36

1- The concentration exists at the financial statement date. 2- The concentration makes the entity vulnerable to the risk of a near-term severe impact. 3- It is at least reasonably possible that the events that could cause the severe impact will occur in the near-term.

Question 37

Disclosures should be provided for all

Answer 37

recognized subsequent events.

Question 38

CIP > Progress billing or Progressing Billing > CIP :

Answer 38

CIP>PB = Current asset PB>CIP = Current liability

Question 39

CIP account includes: OT vs PIT

Answer 39

Overtime = cost incurred and estimated gross profit earned to date. Point in Time = only cost incurred to date.

Question 40

Repurchase agreement based on whether it must (forward) or can (call) repurchase asset for:

Answer 40

less than original price (lease) equal to/more than original price (financing)

Question 41

Disclosure of the estimated effect of a change in an estimate used in the preparation of financial statements must be disclosed if

Answer 41

it is reasonably possible that the estimate will change in the near term and if the change in the estimate would be material. It is not necessary that the actual result is different from the estimate