Final Exam

Question 1

Fundamental accounting equation

Answer 1

Assets= Liabilities + Equity

Question 2

Current ratio

Answer 2

=CA/CL, Liquidity

Question 3

Quick Ratio

Answer 3

=CA-Inventory / CL , Liquidity

Question 4

Debt to total assets

Answer 4

=Total Liabilities/ Total assets , solvency

Question 5

Gross margin

Answer 5

Gross profit/ sales

Question 6

Operating margin

Answer 6

operating income/sales

Question 7

Profit margin

Answer 7

net income/ sales

Question 8

Cash From customers

Answer 8

= net sales + A/R beginning – A/R ending –
unearned revenue beginning + unearned revenue
ending

Question 9

Cash paid to suppliers

Answer 9

= - cost of goods sold + inventory beginning –inventory ending – A/P beginning + A/P ending

Question 10

Cash paid to employees

Answer 10

= - salaries and wages expense – salaries payable
beginning + salaries payable ending

Question 11

A/R Turnover

Answer 11

Sales/ (𝐴𝑅 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟 + 𝐴𝑅 𝑡ℎ𝑖𝑠 𝑦𝑒𝑎𝑟)⁄2

Question 12

Days in A/R

Answer 12

365/A/R Turnover

Question 13

Inventory Turnover

Answer 13

COGS/(𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑝𝑒𝑟𝑖𝑜𝑑 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 + 𝑝𝑟𝑖𝑜𝑟 𝑝𝑒𝑟𝑖𝑜𝑑 𝑖𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)⁄2

Question 14

Average days in inventory

Answer 14

365/ inventory turnover

Question 15

Straight line depreciation

Answer 15

(cost - residual value) / useful life

Question 16

Declining balance deprecation

Answer 16

=NBV * 1/useful life * multiple

Question 17

Units of production depreciation

Answer 17

(Cost-residual value / total units to be produced ) * units in year

Question 18

3 criteria of an asset

Answer 18

controlled by the firm, results from a past event, and the assets has future economic benefits to the firm

Question 19

3 criteria of a liability

Answer 19

present liability, arises from past events, will result in an outflow of a firms resources

Question 20

Layout of an income statement

Answer 20

Sales, COGS, Gross Profit, Operating expenses, operating Income, Other income/expenses; gains and losses, Income before taxes, income tac expense, net income

Question 21

Debt to Equity

Answer 21

TL/TE leverage

Question 22

Times interest was earned

Answer 22

Operating income/ Interest expense

Question 23

Left side of a bank Reconciliation

Answer 23

Balance per bank
Plus deposits in transit
Less outstanding cheques
etc
Adjusted balance per bank

Question 24

Right side of the bank reconciliation

Answer 24

Balance per books
plus EFT
less bank fees
less NSF cheque
etc
Adjusted balance per bank

Question 25

what are the 5 main cash controls

Answer 25

separation of duties and supervision, job rotation, maximum bank balance, two signatures on cheques, maintaining a safe for cash and cheques

Question 26

Layout of statement of changes in equity

Answer 26

Top: common shares, RE, Total Side: Beginning balance, Net income, Dividends declared, ending balance

Question 27

Layout of statement of cash flows except last 3 lines

Answer 27

Operating activities Cash provided by (used in) operating activities investing activities Cash provided by (used in) investing activities Financing activities Cash Provided by (used in) financing activities

Question 28

Last 3 lines of a cash flow statement

Answer 28

Net change in cash Cash balance beginning Cash balance ending

Question 29

What is the direct method

Answer 29

cash flow method that follows the income statement order of items to find operating activities

Question 30

What is indirect method

Answer 30

starts with net income and backs out all non cash amounts and accruals

Question 31

Who pays for shipping in FOB Shipping Point

Answer 31

Receiver is responsible for the shipped item as soon as it leaves suppliers hands

Question 32

Who pays for shipping in FOB destination?

Answer 32

Supplier is responsible for goods transit until it gets to the receiver

Question 33

Indirect methodology

Answer 33

Net income +/- Income statement adjustments Add back losses and expenses and deduct gains +/- Working capital adjustments Add back decreases in assets Deduct increases in assets Add back increases in Liabilities Deduct decreases in Liabilities

Question 34

What are the journal entries a sale

Answer 34

DR AR/cash CR sales DR COGS CR Inventory

Question 35

What is the perpetual inventory system

Answer 35

always shows the current value of inventory that is up to date FIFO and Weighted average

Question 36

What is a periodic inventory system

Answer 36

inventory changes periodically, using the purchases account where COGS=beginning Inventory + purchases - ending Inventory

Question 37

Pros and cons of issuing share

Answer 37

Pros: no interest, less cash flow risk, shareholders may bring expertise, flexible cash flows Cons: less control over firm, split profits, no end to shares holder relationship

Question 38

Pros and cons of loans

Answer 38

Pros: keep control over company, keep all profits, gone after paid off after certain amount of time, faster to get Cons: Interest must be paid, risky for cash flows