M2 Pillars Flashcards
(25 cards)
What is Net profit margin
Net income (/) Sales
Times Interest Earned
EBIT (/) Interest Expense dont forget to ADD BACK interest expense and income tax from NI. DO NOT SUBTRACT.
Days In Inventory
Ending Inventory (/) Cogs/365
Days in sale of AR
AR (/) Sales/365. We take AR at ending not average
AR Turnover & AR Turnover “Ratio”
Average AR (x) Turnover ratio
AR Turnover Ratio is net sales (/) Average AR.
Return on assets
NI (/) Average assets
Return on Equity
NI (/) Average Equity
How do you adjustment corrections of periods?
Adjust for correction NET OF TAX on RE
What happens when Inventory is understated?
NI is understated, we have to increase RE by amount NET OF TAX
Per GAAP what happens when F/S have a change in reporting entity
F/S that have a change in reporting entity should have a restatement of all periods
What type of measurement is Fair Value?
Market based measurement
Is fair value an exit price or a selling price?
FMV is the price that would be received when selling in an ORDERLY transaction
What is the principle market?
Most active market by ALL suppliers
How do you find accrued Interest? or interest payable as of
Take the interest rate of loan times the principle to get Interest expense
Take interest expense multiply by WASCO if there are months remaining in the year.
If a payment is made in July, Interest payable is from July to Dec therefore 6/12 WASCO times Interest expense is the payable.
What are trading securities considered?
Both CA and quick ratio assets
Main difference between a payable and expense
Expense is what the company owes, payable is actual cash exchanged for that expense which may not always be the same.
How are effects of a change in principle that cant not be separated from estimate treated?
They are treated as a change in estimate in continuing operations.
Task: convert fact pattern into an accrual basis and set up entries for them.
You are given a TB and a fact pattern, Use the TB to know what accounts are going to be effect. Use the fact pattern to know how much.
How do a JE for Equipment that was fully expensed?
DR Equip: CR Tools expense
DR DEP expense; CR Accum dep
Removing tools expense, setting up asset and deprecating the asset.
How do a JE for inventory left over? Assume what is left over is bought on account.
Assume some of the inventory left over has been sold but still owed on account
DR Inventory ; CR AP
DR COGS; CR AP
How do a JE for a sale on account
DR AR ; CR Cash
How do a JE for prepaid insurance that was fully expensed?
DR Prepaid ; CR Admin expense
Set up prepaid, remove from expense account
Task: what is the tax payable from this fact pattern
Determine accrual NI, take tax rate and factor in prepayments.
How do you report property, land, and goodwill
All at historical assuming no impairment
