Final Exam

Question 1

How to calculate goodwill

Answer 1

Purchase price - (net assets - liabilities)

Question 2

Accounts Receivables turnover

Answer 2

= net sales / average AR

Question 3

What are the elements of a financial statement?

Answer 3

• Assets
• Liabilities
• Equity
• Investments by owners
• Distributions to owners (dividends)
• Revenues
• Expenses
• Gains
• Losses
• Comprehensive Income = net income + OCI

Question 4

Different methods of depreciation

Answer 4

• Double-declining balance
• Straight line
• Units of production
• Sum of years’ digits
• Declining balance

Question 5

Book Value Calculation

Answer 5

= cost of assets - AD

Question 6

Steps in recognizing revenue

Answer 6

1. Identify the contract.
2. Identify the performance obligations.
3. Determine the transaction price.
4. Allocate the transaction price.
5. Recognize revenue when or as each performance obligation is satisfied.

Question 7

Perpetual Inventory System Journal Entry

Answer 7

Dr. Inventory
Cr. Accounts Payable

Question 8

Perpetual Inventory

Answer 8

• Freight costs are included in inventory
• continuously recorded

Question 9

Conceptual framwork

Answer 9

Fundamental:
* Relevance
- Predictable
- Confidentiality
- Materiality

• Faithful Representation
• Neutrality
• Free from error
• Complete

Enhanced:
- Timeliness
- Understandability
- Comparability
- Verifiability

Question 10

How to calculate sum of the years’ digit (Ch 10)

Answer 10

= n (n+1) / 2

Question 11

How to calculate partial year double declining balance (Ch 10)

Answer 11

Straight-line rate * 2
(if partial year, multiply by months/12)

Question 12

How to report gain or loss on the disposal of depreciable assets using the units of production method…

Answer 12

JE: (is same for every method)

Dr. Cash received
Dr. Accumulates depreciation
Dr. Loss on disposal
Cr. Asset
Cr. Gain on disposal

(Gain and loss are opposite of what makes sense)

Question 13

Cash basis accounting

Answer 13

measures income as the difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers.

Question 14

Accrual basis accounting

Answer 14

measures income according to the entity’s accomplishments and resource sacrifices during the period from transactions related to providing goods and services to customers, regardless of when cash is received or paid.

Question 15

Trading Securities (TS)

Answer 15

• used for debt that is held in an active trading account for immediate resale
• reported at fair value
• unrealized profit/loss will be reported on the income statement
• the main difference between AFS and TS is intent!

Question 16

Held-to-Maturity

Answer 16

• used for debt for which the investor has the positive intent and ability to HTM
• reported on the balance sheet at amortized cost
• classified as investing activities on the statement of cash flows

Question 17

Available-for-Sale

Answer 17

• used for debt that doesn’t qualify for HTM or TS
• reported at fair value on balance sheet
• unrealized profit/loss is reported on the statement of OCI

Question 18

HTM investments

Answer 18

gains/losses are NOT recognized

Question 19

Are AFS investments reported on the income statement

Answer 19

NO

Question 20

Journal Entry for reporting adjusting entry for AFS (#2 on Ch. 12 handout)

Answer 20

Dr. Loss on investments
Cr. Fair Value Adjustment

Question 21

What percentage does an investor need to have significant influence?

Answer 21

20%

Question 22

How much percentage of ownership does one need to have CONTROL?

Answer 22

50%

Question 23

Consolidated Financial statements are

Answer 23

of the investor and investee are combined as if they are a single company

Question 24

If Cost is GREATER than fair value adjustment it will be a…

Answer 24

Loss on investment (debit)

Question 25

If cost is LESS than fair value it will be a...

Answer 25

Gain on investment (debit)

Question 26

Transaction price allocation

Answer 26

stand-alone price/ bundle price * total stand alone price

Question 27

How to calculate income from continuing operations

Answer 27

=revenue - operating exp - interest exp - taxes

Question 28

When do you prepare consolidated financial statements?

Answer 28

When a parent company controls one or more subsidiaries, control is 50% or more of voting shares

Question 29

Working capital formula

Answer 29

CA - CL

Question 30

Recoverability test is when you compare...

Answer 30

future cash flows and carrying amount

Question 31

Measurement test is when you..

Answer 31

subtract fair value from carrying amount

Question 32

Journal Entry for impariment

Answer 32

Dr. Impairment loss Cr. Asset

Question 33

Current ratio

Answer 33

CA/CL

Question 34

Quick Ratio

Answer 34

Current Assets - Inv - PPE / CL

Question 35

Cash Ratio

Answer 35

Cash + Cash equivalents + marketable securities / CL

Question 36

How to calculate bad debt using percentage of sales method & percentage of AR

Answer 36

....

Question 37

Examples of Operating Activities:

Answer 37

Cash received, cash paid to employees, interest received, interest paid, income tax paid, dividends received.

Question 38

Examples of Investing Activities

Answer 38

Purchase of PPE, proceeds form sale of equipment, collection on loans, proceeds of intangible assets

Question 39

Examples of Financing Activities

Answer 39

Proceeds from issuing shares of bonds, borrowing, dividends paid, purchase of treasury stock

Question 40

For gain on investments, AFS is ...

Answer 40

unrealized, OCI

Question 41

For gain on investments, TS are...

Answer 41

Unrealized, NI

Question 42

AFS unrealized gain/loss ..

Answer 42

OCI

Question 43

AFS realized gain/loss...

Answer 43

NI