FAR 5 - General Purpose FS 1 - BS/IS Flashcards Preview

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Flashcards in FAR 5 - General Purpose FS 1 - BS/IS Deck (10):
1

How is retained earnings calculated?

Revenue - Expenses = NI before taxes
Subtract income taxes to arrive at Net income
Add retained earning beginning of year balance to arrive at retained earnings end of year balance

2

Which financial statement would an analyst primarily use to assess the entity's liquidity?

An entity's liquidity is usually assessed from the Balance Sheet, by calculating the liquidity ratios, such as Current Ratio [(current assets) / (current liabilities)]; Quick Ratio [(cash + accounts receivable + short-term or marketable securities) / (current liabilities)]; and Cash Ratio [(cash + short-term or marketable securities) / (current liabilities)].

3

Which of the following accounts is a contra account?
A. Accumulated depreciation, equipment.
B. Depreciation expense, office equipment.
C. Dividends.
D. Unearned revenue.

A. Accumulated depreciation is a contra account. The asset account Equipment is reported on the Balance Sheet as the net of accumulated depreciation. As such, the accumulated depreciation account has a credit balance, reducing the Equipment account from its historical cost balance to its carrying or book value.

4

Y/N: Could a firm with an operating cycle of three years in duration report as current a liability due two years from the balance sheet date?

Yes.
Operating cycle or one year, whichever is longer.

5

T/F: Account Form is the term applied to the balance sheet format that shows assets on the left and liabilities and equity on the right.

True

6

T/F: Intraperiod tax allocation requires that cumulative effects of accounting principle changes be reported net of tax.

True

7

T/F: Intraperiod tax allocation is the process that adjusts deferred tax accounts.

False.
Intraperiod tax allocation pertains to the tax effects for only one year. It is the allocation of the total tax consequence for that year among income from continuing operations, Discontinued operations, Other comprehensive income items, Adjustment for retroactive accounting principle changes, and Prior period adjustments.

8

T/F: Gross margin is subject to Intraperiod tax allocation.

False
Intraperiod tax allocation pertains to the tax effects for only one year. It is the allocation of the total tax consequence for that year among income from continuing operations, Discontinued operations, Other comprehensive income items, Adjustment for retroactive accounting principle changes, and Prior period adjustments.

9

Which of the following activities would Not be included in the company's net income calculation?
1 Gross sales
2 Cost of goods sold
3 Selling and administrative expense
4 Adjustment for a prior-year understatement of amortization expense
5 Sales returns
6 Gain on sale of available-for-sale securities
7 Gain on disposal of a discontinued business segment
8 Unrealized gain on available-for-sale securities

4 and 8 would Not be included in the company's net income calculation.

10

In a multi-step Income Statement:
A. Total expenses are subtracted from total revenues.
B. Gross profit (margin) is shown as a separate item.
C. Cost of sales and operating expense are subtracted from total revenues.
D. Other income is added to revenue from sales.

B. In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined. The focus is on the determination of operating profit rather than simply income from continuing operations. Gross profit (margin) is shown as a separate item.

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