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Cards From 9/15 Corporate Finance Class
Chapter 6
41
Business
Graduate
09/21/2010

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Cards

Term
What is aging analysis?
Definition
The estimation of uncollectible accounts.
Term
Does the allowance for uncollectible accounts effect gross accounts receivable?
Definition
No
Term
Does an increase in uncollectable accounts reduce accounts receivable?
Definition
No, but it does represent an expense on the balance sheet (reducing non-cash assets and retained earnings)
Term
Does a write-off of an uncollectible account impact accounts receivable?
Definition
Yes. Additionally it both reduces and increases non-cash assets (A/R reduction, Allowance Uncollectable Accounts Increase)
Term
What is income shifting?
Definition
Borrowing income from future year(s) to show higher income in the current year.
Term
What two problems do allowances introduce?
Definition
Income Shifting and Cookie Jars
Term
What is a cookie jar?
Definition
Using allowances to move income from the current period to future periods.
Term
Who determines how to calculate aging analysis?
Definition
Management
Term
What is the opposite of a cookie jar?
Definition
Income Shifting
Term
Overestimating bad debt expense can lead to what negative situation?
Definition
Cookie Jar
Term
Underestimating bad debt expense can lead to what negative situation
Definition
Income shifting
Term
How do you calculate accounts receivable turnover?
Definition
Sales / Avg Gross Account Receivable
Term
How do you calculate the average collection period?
Definition
Account Receivable (gross) / Avg Daily Sales
Term
How do you calculate average daily sales?
Definition
Sales / 365, fool
Term
What is capitalization?
Definition
A cost recorded on a balance sheet that is not immediately expense.
Term
How do you calculate gross profit?
Definition
Sale - Cost of Goods Sold
Term
What are the two ways to calculate cost of goods available for sale?
Definition
1) Beginning Inventory + Inventory acquired
2) Ending Inventory + Cost of Goods Sold
Term
What are the three inventory costing methods?
Definition
FIFO, LIFO, Average Cost (AC)
Term
What is lower cost of market?
Definition
The process of writing down inventory when it's cost is lower than the market (replacement) value
Term
What expense account does writing down inventory due to lower cost of market go towards?
Definition
Costs of goods sold
Term
Are cost of goods sold shown in Selling, General or Administrative?
Definition
No, again, it shows up under cost of goods sold
Term
What are stock-outs?
Definition
Process of minimizing inventory without causing problems with holding insufficient inventory
Term
Assuming the same level of sales, which inventory costing method gives you higher gross profit?
Definition
FIFO
Term
Assuming the same level of sales, which inventory costing method gives you the highest cost of goods sold?
Definition
LIFO
Term
While FIFO has been shown to show minimal impact on gross profit, when might the gross profit effect occur?
Definition
In companies who are subject to high inflation or slow inventory turnover.
Term
Does the inventory costing method effect a company's taxable income?
Definition
Yes
Term
What is LIFO reserve?
Definition
The difference between the LIFO costing method and the FIFO costing method
Term
For companies using LIFO, how would you calculate FIFO inventory?
Definition
LIFO Inventory + LIFO Reserve
Term
How do you calculate gross profit margin?
Definition
Gross profit / sales
Term
How do you calculate inventory turnover?
Definition
Cost of Goods Sold / Avg Inventory
Term
How do you calculate the depreciation base?
Definition
Actual cost of an asset - salvage value.
Term
How do you calculate the depreciation rate under the straight line method?
Definition
1 / Useful Life (yrs)
Term
How do you calculate the annual depreciation amount under the straight line method?
Definition
Depreciation Base / Useful Life (yrs)
Term
If an asset cost $15,000 and has a salvage value of 5,000 what would be the initial net book value before you start depreciation?
Definition
$15,000
Term
How do you calculate the net book value of an asset?
Definition
Cost - accumulated depreciation
Term
How do you calculate the gain/loss of an asset sold?
Definition
Sale price - Net Book Value
Term
When do you write down or "impair" an asset?
Definition
If the sum of the expected cash flow is less than the net book value of the asset.
Term
If future cash flow from an asset is 1,000 and it's net book value is 1,100 would you write it down? If so, how much?
Definition
Yes, by $100.
Term
How do you calculate PPE turnover?
Definition
Sales / Avg PPE assets (*net*)
Term
How do you calculate the percent used up an asset is?
Definition
Accumulated Depreciation / Depreciable Asset Cost
Term
What two things do you exclude on total depreciable PPE?
Definition
Land and construction in progress
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