FAR D1

Question 1

Accrual Basis Purchases Equation

Answer 1

Beginning AP + Accrual purchases—Cash payments = Ending AP

Question 2

Prepaid Expense Equation

Answer 2

Beginning prepaid balance + Premiums paid − Expense charges = Ending prepaid balance

Question 3

Determining Fair Value & Transaction Cost

Answer 3

FV is not adjusted for Transaction costs for assets in most advantageous market

Question 4

Indirect CF Method - bond discount is amortized

Answer 4

Added back to net income in Operating Activities section of the Indirect method

Question 5

4 sources of risk & Uncertainty

Answer 5

Nature of firm’s operation - products/services, geo location, principal markets
Use of estimates
Vulnerability to significant concentrations

Question 6

4 concentrations required disclosure

Answer 6

Concentration in revenue
Concentration in supply source
Concetration in market for firms product
Concentration in volume of business w/a particular clent

Question 7

Prepaid Insurance Equation

Answer 7

Beg PP + insurance pmt-insurance exp=End PPBal

Question 8

Monetary Items

Answer 8

Advances to unconsolidated subsidaries
Allowance for doubtful accounts
unamortized bond premiums

Question 9

Avg Days to Collect AR

Answer 9

365/AR Turnover

AR Turnover=Net Credit Sales/avg AR

Question 10

Days in Operating Cycle

Answer 10

Days Sales in Inventory + #Days Sales in AR

Question 11

Times Int Earned Ratio

Answer 11

Income b4 Int Exp & Inc Tax/Int Exp

Question 12

AR T/O in Days

Answer 12

365/AR T/O

Question 13

AR Turnover (T/O)

Answer 13

Net Cred Sales/AVG A/R

Question 14

Defensive Interval Ratio

Answer 14

Quik Assets/daily operating expenditures

Question 15

Avg Total Assets

Answer 15

(AR T/O / Asset T/O) X Avg AR

Question 16

Book Value per share

Answer 16

Total Owner Equity / #shares outstanding (O/S)

Question 17

Converting Cash Basis Sale to Accrual Basis Sales

Answer 17

Sales is adjusted for the Net Change in AR

Question 18

Calculate the Bond Premium or Bond Discount

Answer 18

The premium or discount on a bond investment is the difference between the par value of the bonds and the price paid for the bonds in the market.
If the price paid is more than par value, there is a premium on the bond investment.
If the price paid is less than par value, there is a discount on the bond investment.

Question 19

Simplified Hedge accounting approach

Answer 19

Variable int rate on the int rate swap and variable int rate on the hedged borrowing are linked to the same index.

Question 20

Private Company Council

Question 21

Steps to Compute DEPS using Treasury Stock Method

Answer 21

1. Compute the

Question 22

Treasury Stock Method

Answer 22

of unexercised stock options x $option price = $xxx,xxx
$xxx,xxx / $mkt price of stock = # shares to buy back
# of unexercised stock - #shares to buy back = amount to add to the denominator to calculate DEPS

Question 23

Interim Income Tax Expenses

Answer 23

Total Inc Tax til end of interim period at tax rate - Inc Tax exp recog in previous interim period for same year.

Question 24

Non Controlling Interest

Answer 24

FV NCI at acqisition + Share of NI - Share of dividends

Question 25

Days Sales AVG Inventories

Answer 25

Avg Inventory at Cost / Avg Sales per day

Question 26

cash collections from customers equal sales adjusted for the addition or deduction of the following amount

Answer 26

Under the terms of the question, accounts receivable increased during the year. Increase in AR = sales − cash collections − write-offs cash collections = sales − increase in AR − write-offs.

Question 27

LCM

Answer 27

Current market price is less than what I paid (cost) for the inventory then inventory is reported at Market Price If the Cost of the inventory is less that the current market price today then I record the inventory at the Cost I paid for the inventory.

Question 28

Overstating Inventory Error requires PPA

Answer 28

The overstatement of inventory caused UNDERSTATED cost of goods sold and OVERSTATED income

Question 29

Inventory Error

Answer 29

Use the equation BI + PUR = EI + CGS. When EI is understated, CGS must be overstated to maintain the equation. Net income, therefore, is understated (20x5). Then next year, BI is also understated because BI for 20x6 is EI for 20x5. Using the equation, if BI is understated, CGS is also understated to maintain the equation.

Question 30

Inventory Error

Answer 30

Beginning inventory + Purchases-Ending inventory = Cost of goods sold For example, if beginning inventory is understated, then the right hand side of the equation (cost of goods sold) must also be understated by the same amount.

Question 31

Understating Inventory Ending Balance

Answer 31

Understating ending inventory results in OVERSTATED cost of goods sold and UNDERSTATED net income.

Question 32

Interest Capitalization Basics

Question 33

Depreciation Method - Production or Use Method

Answer 33

Cost - Salvage Value / (Total ESTIMATED production)(Units produced each year)

Question 34

Double Declining Deprec Method at 150% or 1.50

Answer 34

Step 1: 1.50/useful life Double Decling Multiplier x Asset Cost (do not subtract salvage value = Accum deprec Step 2: Asset cost - Accum Depreciation x 1.50/useful life

Question 35

Double Declining Deprec Method at 200% or 2

Answer 35

Step 1: 2/useful life Double Decling Multiplier x Asset Cost (do not subtract salvage value = Accum deprec Step 2: Asset cost - Accum Depreciation x 2/useful life

Question 36

Gross Receivables Balance

Answer 36

AR BegBal + Credit Sales - Sales REturns - Write Offs - Collections = AR End Bal