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For interim statements, what would affect ALL quarters? Pg. 20-1

What would be included for only one quarter?

*What about INVENTORY loss in quarter 2?
a) Expect to recover it by quarter 4 and you do?
b) If you DONT expect to recover it by quarter 4 and you
c) If you expect to recover it by quarter 4 and you DONT
recover it?

Revenues, expenses, and depreciation; make sure you DIVIDE them into 4 equal for each quarter

Inventory, Discontinued operations (disposal), Extraordinary gain/loss, Income tax expense => include the whole gain/loss and recognize all in that quarter; DONT DIVIDE, and recognize whole thing

a) Then wash => even though recovery exceeded expected
b) Hit it in quarter 2
c) Hit it in quarter 4


What is segment reporting? Pg. 21-1

*What tests for segment reporting?

*What type of company is required to report key information about key segment in their business?

A publicly held company has a customer that makes up greater than or equal to 10% of something (ie revenue, assets, and profits) => management approach

Therefore, it must be disclosed

*This doesnt include non-public

*If segment's portion is greater than or equal to 10% of...
1) Revenue
2) Profit/Loss: number calculated by using operating
income, which is sales - COGS - SGA; expenses
incurred at the overall CORPORATE LEVEL are not
3) Segments asset test

*Public company


What is the characteristics of an installment sale? Pg. 22-2 Def? When would you consider using it?

a) How do you calculate gross profit recognized (realized)?
b) How do you calculate deferred gross profit?
c) Gross Profit equation
d) Gross Profit %

*What about Cost Recovery Method

Def: when a client makes a sale in which payments will be spread out over more than one accounting period

Recognize as cash is collected because not sure will get money (substantial doubt as to the collectability of the receivable); used for tax purposes

a) Cash collected x gross profit percentage
b) Receivable balance (sales) x gross profit percentage
*For receivables balance remember to take away
c) Sales - COGS or gain
d) Gross Profit / Sales Price

*MOST conservative


What is the cost recovery method? Pg. 22-4

All collections are applied to the cost of sales, with no gross profit realized until collections exceed costs; this is the most conservative approach


What is a personal financial statement? Pg. 24-1

*What do personal financial statements usually consist of?

*What would be not included in a personal financial statement?

Non-GAAP for individual or family to apply for loans, obtaining credit and for tax, estate and retirement planning; bank only cares how much you owe and what its worth => they dont care how much you paid for it

Look at the asset and liabilities only at CURRENT value

*A statement of financial condition, and a statement of changes in net worth => not considered balance sheet because it is non-GAAP

*Events that are "to be paid"


For personal financial statements how do you treat? Pg. 24-1
a) Life insurance policy
b) Pension benefits
c) Liabilities
d) Assets

a) Cash value of policy - how much borrowed
b) Look at what is vested (ie 401k)
c) Reported at current amounts
d) Reported at current amounts


Ratio Analysis Pg. 27-4
Liquidity: Measures short-term ability to pay its maturing obligations
a) Working Capital
b) Current Raito
c) Quick or acid-test ratio

a) Current assets - current liabilities
b) Current assets / Current liabilities
c) Cash, marketable sercurities, and receivables (net) / current liability


Ratio Analysis Pg. 27-4
Activity: Measures how effectively the company uses its assets
a) Receivables turnover
b) Inventory turnover
c) Asset turnover
d) Number of days sales in average receivables; def?

a) Net credit sales / Average trade receivables
b) COGS / Average receivables
c) Net sales / Average total assets
d) 360 / Receivables turnover; how long will it take to collect receivables


Ratio Analysis Pg. 27-4
Profitability: Measure the degree of success or failure
a) Profit margin on sales (gross margin)
b) Rate of return on assets
c) Rate of return on common stock (return on equity)
d) Earnings per share
e) Payout ratio

a) Net income / Net sales
b) Net income / Average total assets
c) Net income - preferred dividends / Avg common stockholder's equity
d) Net income - preferred dividends / Wtd shares outstanding
e) Cash dividends / Net income


Ratio Analysis Pg. 27-4
Coverage: Measure degree of protection for long-term investors
a) Debt to equity
b) Debt to total assets
c) Book value per share

a) Total debt / stockholder's equity
b) Total debt / Total assets
c) Common stockholders' equity / Outstanding shares

*Debt = Liabilities


What assets are included in the quick / acid test ratio?
Pg. 27-4

What assets are included for current assets?

Cash, marketable securities, and receivables
*For receivables use net A/R and not net credit sales

Cash, marketable securities, receivables, and INVENTORY


Which financial statement would help measure a company's liquidity? Pg. 27-4

Which financial statement would be used to determine if a company obtained financing during the year by issuing deby or equity securities?

Balance sheet

Statement of cash flows


What are maketable sercurities? Pg. 5-1

Name 3 examples

An investment made in securities (debt or equity) that are publicly traded, and the investment in not large enough to provide the investor significant influence

*1) Trading securities
2) Available for sale
3) Held to maturity


What is the equation of gross profit %?

What is the equation for return on assets?

(Sales - COGS) / Sales

Income / Avg assets


Conceptually for interim statements, what is emphasized?

Timeliness over reliability