Financial Statements

Question 1

Gross Profit =

Answer 1

net sales - cost of goods sold

Question 2

Basic Accounting Formula

Answer 2

Assets = Liabilities + Equity

Question 3

Current assets in descending order of liquidity

Answer 3

1. Cash and cash equivalents
2. certain individual trading, available for sale and held to maturity debt securities
3. receivables
4. inventories
5. prepaid expenses
6. Certain individual investments in equity securities

Question 4

Current Liability examples

Answer 4

trade acounts payable, short-term borrowing, current portion of a long term debt

Question 5

Short-term obligations can be moved to non-current if the ability to refinance is shown by

Answer 5

1. the agreement does not expire within the longer of 1 yr or the operating cycle
2. it is noncancelable by the lender
3. no violation of the agreement exists at the balance sheet date
4. the lender is financially capable of honoring the agreement

Question 6

general & admin expneses include

Answer 6

They include accounting, legal, and other fees for professional services; officers’ salaries; insurance; wages of office staff; miscellaneous supplies; utilities costs; and office occupancy costs

Question 7

Intraperiod tax allocation includes

Answer 7

1. continuing operations
2. discontinued operations
   3 other comprehensive income
3. items debited or credited directly to shareholders’ equity

Question 8

Cost of manufactured goods =

Answer 8

Cost of manufactured goods = cost of sales - beginning finished goods + ending finished goods

Question 9

Retained earnings =

Answer 9

Retained earnings = beg retained earnings + (revenues - expenses)(1-tax rate)

Question 10

Interim financial statements emphasize timeliness over reliability.
They cover periods less than 1 year because

Answer 10

1)The seasonality of some businesses
2) the need for allocations of costs and expenses among interim periods
3) the need fo increased us of estimates
4)Other factors
So the usefulness of the information may be limited

Question 11

The financial statement that provides a summary of the firm’s operations for a period of time

Answer 11

Income Statement

Question 12

A transaction that is unusual in nature or infrequent in occurrence should be reported as a(n)

Answer 12

Component of income from continuing operations, but not net of applicable income taxes.

Question 13

In analyzing a company’s financial statements, which financial statement will a potential investor primarily use to assess the company’s liquidity and financial flexibility

Answer 13

Balance sheet

Question 14

Foreign currency items included in OCI

Answer 14

1) a gain or loss on a hedging derivative in certain cash flow hedges
2) the gain or loss on a hedging derivative or nonderivative in a hedge of a net investment in a foreign operation (treated as a translation adjustment)
3) translation adjustments.

Question 15

OCI includes

Answer 15

1) unrealized holding gains and losses on available-for-sale debt securities
2) certain foreign currency items, gains or losses on adjustements
3) gains or losses on a derivative designated and qualifying as a cash flow hedge.

Question 16

Two allowed formats for reporting comprehensive income

Answer 16

1. Two seperate but consecutive statements, first income statement, followed by the statement of OCI
2. Once continuous statement with two sections, net income and other comprehensive income (OCI)

Question 17

A comprehensive basis of accounting other than GAAP may be

Answer 17

1) a basis of accounting used to comply with the requirementa & provisions of a regulatory agency
2) a basis of accounting used for tax purposes
3) the cash basis, and modifications of the cash basis
4) a definite set of criteria having substantial support that is applied to all material items, for example, the price-level basis.

Question 18

Under U.S. GAAP, the set of basic financial statements is

Answer 18

(1) the balance sheet (the statement of financial position), (2) the statement of income (the statement of operations), (3) the statement of comprehensive income, (4) the statement of changes in equity, and (5) the statement of cash flows.

Question 19

A net increase in AR does what to the net income comparison of cash basis and accrual basis

Answer 19

More revenue would be recognized in accrual basis. Cash basis only recognizes revenue when payment is received.

Question 20

Large accelerated filers [companies with a public float (the market value of shares held by the public) of $700 million or more] must file Form 10-K when?

Answer 20

within 60 days of the last day of the fiscal year.

Question 21

Interim period tax expense equals

Answer 21

the estimated annual effective tax rate, times year-to-date “ordinary income,” minus the tax expense recognized in previous interim periods.

Question 22

Gains from extinguishment of debt are most likely classified in

Answer 22

Income from continuing operations

Question 23

Lease improvements are classified as

Answer 23

Property, plant and equipment

Question 24

Cash restricted to payment of pension plans is classified as

Answer 24

Investments and Funds

Question 25

Are deferred tax liabilities classified in the balance sheet as current or noncurrent?

Answer 25

Deferred tax liabilities arising from interperiod allocation are classified as noncurrent liabilities

Question 26

How is the cost of goods manufactured (COGM) calculated?

Answer 26

Beginning work-in-process (WIP) inventory + Sum of periodic manufacturing costs (Direct materials + Direct labor + Manufacturing overhead) – Ending WIP inventory = Cost of goods manufactured

Question 27

What are the items of other comprehensive income (OCI)?

Answer 27

Items of OCI include 1. Unrealized holding gains and losses on investments in available-for-sale debt securities 2. Gains and losses on derivatives designated and qualifying as cash flow hedges 3. Foreign currency translation adjustments for a foreign operation (translation gains and losses) 4. Changes in the fair value attributable to the instrument-specific credit risk of financial liabilities for which the fair value option is elected

Question 28

How is foreign currency transaction gain or loss accounted for?

Answer 28

Foreign currency transaction gains or losses are included in the income statement (net income).

Question 29

How is income available to common shareholders calculated?

Answer 29

Income statement amount – Dividends on preferred stock for the current period (cumulative or declared noncumulative) = Income available to common shareholders

Question 30

What are dilutive potential common shares (PCS) when calculating diluted earnings per share (DEPS)?

Answer 30

PCS are securities or other contracts that may entitle the holder to obtain common stock. Examples include convertible securities and options. PCS are included in the DEPS calculation only if they are dilutive.