MIDTERM 1 terms

Question 1

consolidated balance sheet

Answer 1

all branches of the firm + what the company owns

Question 2

cash equivalents

Answer 2

i.e bonds

Question 3

balance sheet normally are released few months before/after the highest revenue

Answer 3

after

Question 4

net

Answer 4

depreciation

Question 5

GOODwill

Answer 5

when one company acquires another company

Question 6

assets

Answer 6

1 probable & quantifiable future economic benefits (excludes R&D expenses)

2. as a result of past transaction or events (exchange of money must take place in the past –> excludes all promises and future contracts + all assets that have not been purchased + most anticipated profits)
3. eventual cash flow to the entity
4. company must have control to the assets

Question 7

short-term marketable securities

Answer 7

asset

Question 8

current asset vs. noncurrent asset

Answer 8

whether an asset can be turned into cash within one year

Question 9

economic asset

Answer 9

not purchased - logo, brand name, reputation

benefit must be quantifiable — R&D expenses, anticipated profits

Question 10

fair market value (marketable securities)

Answer 10

the price that a person reasonable interested in buying a given asset would pay to a person reasonably interested in selling it for the purchase of the asset or asset would fetch in the market place

Question 11

historical cost = inventories + prepaid costs + land

depreciated historical cost = pp& e

Answer 11

will be less than FMV, therefore they will not be counted

Question 12

notes receivable is a () term asset

account receivable is a () term asset

Answer 12

long

short

Question 13

apple bought a company for 18b, and put 5b of the market price into good will. the company is only worth 15b right now. what is the current value of goodwill

Answer 13

5 - (18-15) = 2b

Question 14

the firm sends a check for $600,000 to a landlord for two months’ rent in advance (asset?)

Answer 14

prepaid expense - no

Question 15

the firm purchases a patent on a laser printer (asset?)

Answer 15

intangible assets – yes

Question 16

(asset? ) a firm spent 6000 on developing a new computer system

Answer 16

r&d expense –> unquantifiable –> no

Question 17

how to estimate account receiveable

Answer 17

past statistics, credit scores

Question 18

how to estimate inventories

Answer 18

labor, cost of production etc

Question 19

how to increase the value of PP&E

Answer 19

move things around + adjust depreciation

Question 20

prepaid expense is an asset, and is a kind of deferred expense —> assets

Answer 20

these are the expense already paid for but have not yet incurred

Question 21

liability (probable future sacrifices of assets or services where the amounts and timing of the economic resource are known and estimable)

Answer 21

conditions
1. past transactions must take place (excludes all future promises / liabilities / contracts)

2. the amount to be sacrificed must be quantifiable and probable (excludes all unsettled lawsuits)

Question 22

accrued expenses

Answer 22

liability term
expense has been incurred but not paid because money is paid after its used (i.e utility bill, taxes, wages etc.)

2. also includes interests on debt

Question 23

deferred revenue

Answer 23

liability

cash is received before services are provided (we owe customers our services)

Question 24

accrued revenue

Answer 24

previously recorded in the asset account

services / products are delivered but cash is not received

Question 25

deferred expense

Answer 25

previously recorded as an asset | prepaid expenses, supplies etc. of which cash is paid before services are provided

Question 26

commercial paper

Answer 26

borrowing money from another company liability

Question 27

economic liabilities

Answer 27

firm needs to receive something today excludes contracts quantifiable sacrifices excludes unsettled lawsuits

Question 28

monetary value VS. Present Value

Answer 28

accounts payable + accrued expenses + deferred revenue VS. borrowings (commercial paper + long-term debt + leases_

Question 29

contingencies

Answer 29

reasonable possible and/or loss cannot be reasonably estimated

Question 30

firm receives --- firm owes 1. cash in --- cash out 2. product in -- cash out 3. cash in -- product out 4. service in -- cash out

Answer 30

1. borrowing (notes payable, commercial paper) 2. accounts payable 3. deferred revenue 4. accrued expenses

Question 31

the company issuses bonds to investors and it will owe creditors

Answer 31

cash in - cash out --> bonds payable (it will owe creditors the amount of present value rather than the value of 10 years later)

Question 32

shareholder's equity = contributed capital ( the amount invested by shareholders) + retained earnings + accumulated comprehensive income + additional paid-in capital

Answer 32

xx

Question 33

statement of cash flows

Answer 33

how cash and cash equivalents from the balance sheet changed over time

Question 34

operating activities

Answer 34

related to earnings, supplies

Question 35

investing activities

Answer 35

related to acquiring or selling pp&e or investments

Question 36

financing activities

Answer 36

related to borrowing or lending, or to cash receipts or payments to investors (stocks & dividends)

Question 37

cash must take place and be present in order for the transaction to be accounted as a statement of cashflow

Answer 37

purchasing something on credit X

Question 38

Accounts payable = receiving products today but paying the money tomorrow

Answer 38

to suppliers --> operating expense

Question 39

market -to-book ratio = MV/BV

Answer 39

for every dollar on the book, the company spends MTB value to the stock price

Question 40

working capital = current assets - current liabilities current ratio = current assets (CA) / current liabilities (CL)

Answer 40

1. if CR >1, the company has positive working capital

Question 41

working capital = current assets - current liabilities current ratio = current assets (CA) / current liabilities (CL)

Answer 41

1. if CR >1, the company has positive working capital because CA>CL --> CA-CL >0 2. there is no ideal current ratio 3. what matters is the year-to-year direction of the firm's current ratio

Question 42

working capital = current assets - current liabilities current ratio = current assets (CA) / current liabilities (CL)

Answer 42

1. if CR >1, the company has positive working capital because CA>CL --> CA-CL >0 2. there is no ideal current ratio 3. what matters is the year-to-year direction of the firm's current ratio

Question 43

when Chipotle issued stocks, which two SE accounts are affected?

Answer 43

common stock & additional paid-in capital

Question 44

income statement

Answer 44

revenues + expenses (COGS) --> net income

Question 45

revenues = actual or expected cash inflows that have occurred or will occur as a result of the entity's ongoing major operations

Answer 45

conditions 1. must be EARNED (what does the company do?) 2. cash collection is "reasonably assured" - REALIZED 3. no self-dealing, price is known, arrangement is in place 4. actual & expected cash flows

Question 46

an order by DKNY from Saks for clothes (revenue ?)

Answer 46

no because products are not delivered --> not earned

Question 47

the sale of tickets in February by Sox for a ball game in April (revenue?)

Answer 47

no because the product is not delivered

Question 48

expenses = outflows from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing operations

Answer 48

conditions 1. are NOT recognized as cash basis 2. in the same time period that the related revenues are recognized (use expenses to generate more revenue)

Question 49

operating expense

Answer 49

1. relates to the generation of revenues or sales 2. COGS + depreciation & amortization expenses + R&D+ advertising + wages + selling, general ,administrative expenses (SG&A)

Question 50

Tax expense / PROVISION FOR INCOME TAXES

Answer 50

income tax = taxes owed now + taxes owed later - taxes paid in advance

Question 51

factory machine is depreciated throughout year --> () expense

Answer 51

SG&A

Question 52

other income (non-operating)

Answer 52

income earned from non-company-business

Question 53

is dividends an expense? Does it reduce income?

Answer 53

NOOOOO & NOO

Question 54

what account does Dividends affect

Answer 54

retained earnings

Question 55

what account does Dividends affect

Answer 55

retained earnings

Question 56

A= L + paid-in capital + revenues - expenses - dividends

Answer 56

revenue - expenses --> income statement

Question 57

EPS (earnings per share) = (net income - dividends) / weighted # of shares outstanding

Answer 57

basic EPS = uses actual numbers | diluted EPS = hypothetical ( everything you own that can possibly be shares is counted as shares)

Question 58

what does EPS represent

Answer 58

price is the present value of firm's future EPS 1. If EPS drops --> price drops 2. if EPS increases --> price increases

Question 59

paying off an interest expense -- ( ) expense

Answer 59

operating