FASB

Question 1

Operating expenses

Answer 1

Liability (accrued expense)

Question 2

Accounts receivable

Answer 2

Asset (accrued revenue)

Question 3

Unearned revenue

Answer 3

Liability

Question 4

Accrued expense

Answer 4

Liability (accrued expense)

Question 5

Prepaid expense

Answer 5

Asset (deferred expense)

Question 6

Sales on account

Answer 6

Asset (accrued revenue)

Question 7

Supplies not on account

Answer 7

Asset (deferred expense)

Question 8

Interest expense

Answer 8

Liability (accrued expense, salaries)

Question 9

Interest revenue

Answer 9

Asset (accrued revenue)

Question 10

Taxes

Answer 10

Liability (accrued expense)

Question 11

Accrual to Cash basis

Answer 11

Cash = L + E - other assets

Question 12

Cash basis to accrual

Answer 12

E = A - L

Or opposite sign of cash basis

Question 13

Qualitative characteristics of accounting

Answer 13

Primary

Enhancing

Question 14

Primary characteristics of accounting

Answer 14

Relevance
Faithful representation

(FAR)

Question 15

3 characteristics of relevant

Answer 15

Predictive value
Confirmatory value
Materiality

Question 16

3 characteristics of faithful representation

Answer 16

Completeness
Neutrality
Free from error

Question 17

4 enhancing characteristics

Answer 17

Comparability
Verifiability
Timeliness
Understandability

Question 18

Negative economic consequences means

Cost of complying with GAAP
inability to raise capital
Cost of government intervention
Failure of internal controls

Answer 18

Inability to raise capital

Question 19

Choose the correct statement about GAAP

GAAP are laws

Only publicly traded companies must comply

It’s a violation of SEC regs to depart from GAAP

Firms may not restate FIN STATE already issued

Answer 19

Violation of SEC. regs for public ally traded companies to depart from GAAP

Question 20

Level 1 hierarchy

Answer 20

Quoted prices in active markets for identical assets or liabilities

Question 21

Level 2 hierarchy

Answer 21

Inputs such as quoted prices on similar assets or liabilities or observable for the asset or liability, such as interest rates and yield curves

Question 22

Level 3 hierarchy

Answer 22

Unobservable inputs for the asset or liability that reflect the reporting entity’s own assumptions about the assumption that market participants would use in pricing in the asset or liability (including assumptions about)

Question 23

Fair value option

Answer 23

An Election to value certain financial assets and financial liabilities at fair value is available. Entities may not elect to measure certain items such as investments in entities to be consolidated

Question 24

IFRS elements

Answer 24

Assets
Liabilities
Equity
Income
Expense

Question 25

Which of the following is a contra account Accumulated depreciation, equipment Depreciation expense, office equipment Dividends Unearned revenue

Answer 25

Accumulated depreciation, equity

Question 26

Which of the following is a component of other comprehensive income Minimum accrual of vacation pay Cumulative currency-translation adjustments Changes in market value of inventory Unrealized gain/loss on equity securities at FV

Answer 26

Currency translation adjustments

Question 27

Which of the following is not disclosed in the statement of cash flows when prepared under the direct method Major classes of gross cash receipts and cash payments Amount of income taxes paid Reconciliation of net income to net cash flow from operations Reconciliation of ending RE to net cash flow from operations

Answer 27

Reconciliation of ending RE to net cash flow from operations

Question 28

The unamortized bond discount account decreased by $25,000. How should it be reported in statement of cash flows Financing cash inflow Financing cash outflow Addition to net income in operating activities Subtraction from net income in operating activities

Answer 28

Addition to net income

Question 29

AR turnover

Answer 29

Net credit sales/ average AR

Question 30

Current ratio

Answer 30

Assets/liabilities

Question 31

Quick ratio

Answer 31

Cash+AR / current liabilities

Question 32

Debt to equity ratio

Answer 32

Liabilities/equity

Question 33

Ratio of quick assets to daily operating expenditures that indicates the length of time in days a firm can operate with its present liquid resources

Answer 33

Defensive interval ratio

Question 34

Ratio of income to average owners equity, profitability ratio

Answer 34

Return on stockholders equity

Question 35

Measurement at a fixed unchanging amount. Examples are lands, cash, prepaid, current liabilities, contributed capital accounts, and treasury stock.

Answer 35

Historical cost

Question 36

Reflect remaining portion at a fixed unchanging amount. Examples include property, plant, equipment, intangibles, natural resources

Answer 36

Depreciated/amortized cost

Question 37

Selling price of assets and amount currently required to retire a liability. Examples include Marketable securities like stocks and bonds

Answer 37

Fair value/market value

Question 38

Another type of current value, amount the firm expects to receive from the sale or collection of an item. Examples include AR, and inventory.

Answer 38

NRV

Question 39

Discounted value, measure of current sacrifice when extinguishing the debt at the balance sheet date. Examples include bonds and long term debt

Answer 39

Present value

Question 40

Added to balance sheet

Answer 40

Adjunct

Question 41

Subtracted from balance sheet

Answer 41

Contra

Question 42

Calculate retained earnings

Answer 42

Revenue - expenses - taxes = NI NI + RE beg of year = RE end of year

Question 43

Reporting AR at NRV is a departure from the accounting principle of Conservatism FV Market Value Historical Cost

Answer 43

Historical cost

Question 44

Income statement format

Answer 44

Net sales - COGS =gross margin - operating expenses +/- miscellaneous gains/losses +/- unusual items = income from continuing operations before tax - income tax expense = income from continuing operations +/- income from discontinued operations = net income EPS: Income from continuing operations Income from discontinued operations Net income

Question 45

How do you calculate the cash balance at the end of the year provided operating, investing, and financing activities

Answer 45

Operating - investing + financing + beginning cash

Question 46

Calculate operating activities

Answer 46

Net income

Question 47

Cash flows from operating activities - direct method

Answer 47

Inflow: From customers Dividends Interest received ``` Outflows: To suppliers for op exp, goods To employees for payroll Interest paid Income taxes ```

Question 48

Cash flows from investing activities

Answer 48

Inflows: Sale of LT assets Collection of loan principal Disposal of debt and equity (AVS security) Sale of other productive asset (not inventory) ``` Outflows: Purchase of LT assets Lending Investment in debt and equity security Purchase of other productive assets (not inv) ```

Question 49

Cash outflows from financing activities

Answer 49

Inflows: Sale of own stock Proceeds from borrowings (bonds notes) Outflows: Repurchase of treasury stock Paying back lenders (principals only) Payment of dividends

Question 50

Prepaid interest

Answer 50

Asset

Question 51

Unamortozed bond discounts

Answer 51

Assets

Question 52

Working capital

Answer 52

Current assets - current liabilities

Question 53

Working capital ratio

Answer 53

Current assets/ current liabilities

Question 54

Acid test ratio, aka quick ratio

Answer 54

(Cash + net receivables + marketable securities)/current liabilities

Question 55

Times interest earned ratio

Answer 55

(Net income + interest expense + income tax)/interest expense

Question 56

AR turnover

Answer 56

Net credit sales / average AR

Question 57

Number of days in average receivable

Answer 57

365/ AR turnover

Question 58

Inventory turnover

Answer 58

COGS/average inventory

Question 59

Number of days supply in inventory

Answer 59

365/inventory turnover

Question 60

Profit margin

Answer 60

Net income/ sale

Question 61

Total asset turnover

Answer 61

Sales/average total assets

Question 62

ROA

Answer 62

Net income / avg total assets

Question 63

ROE

Answer 63

Net income / avg shareholders equity

Question 64

Leverage

Answer 64

Avg total assets/ avg shareholders equity

Question 65

COGS

Answer 65

Beg inventory + purchases - ending inventory