Term
| What is the percentage range to have passive minority ownership in a stock |
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Definition
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Term
| What is the percentage range to have significant minority influence? |
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Definition
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Term
| What is the percentage range to have majority control in a stock? |
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Definition
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Term
| What determines if a passively owned stock is mark-to-market and shown as income or not? |
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Definition
| Whether or not it is trading stock (buy and hold) versus available for sale. |
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Term
| Between available-for-sale and trading investments, which is immediately reported on the income statement? |
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Definition
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Term
| Between available-for-sale and trading investments, which is posted to AOCI? |
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Definition
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Term
| Between available-for-sale and trading investments, which one would you report dividends received as income? |
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Definition
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Term
| Between available-for-sale and trading investments, which has an effect on retained earnings before selling the investment? |
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Definition
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Term
| What effect does the sale of trading investments have on retained earnings? |
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Definition
| None, it would have touched retained earnings at the end of the prior reporting period. |
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Term
| Does the Equity Method Investments apply to passive investments? |
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Definition
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Term
| Does the Equity Method Investments apply to significant influence investments? |
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Definition
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Term
| Does the Equity Method Investments apply to control investments? |
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Definition
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Term
| With Equity Method Investments, are investments marked-to-market? |
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Definition
| No, only on passive investments |
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Term
| Under Equity Method Investments, are dividends paid recorded as income? |
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Definition
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Term
| What's the process of determining and calculating impairment of goodwill? |
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Definition
1) First determine if the current market value is less than book value. If not, stop.
2) Calculate implied goodwill If it is less than previous goodwill balance then write down the difference. |
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Term
| How do you calculate net assets (which is often used in calculating the impairment of goodwill)? |
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Definition
| Assets (sometimes appraised) - Liabilities |
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Term
| Which part of the balance sheet and income statement does goodwill impact? |
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Definition
| Assets (goodwill) and retained earnings and revenue. |
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Term
| Why is the pre-consolidated balance sheet inferior to the consolidate balance sheet during a 100% acquisition? |
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Definition
| It understates both assets and liabilities (assets don't show appraised gains as well as good will) and liabilities don't show the acquired liabilities from the company. |
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Term
| What is IPR&D and is it expensed? |
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Definition
| In-Process R&D. No, it is capitalized and amortized. Abandoned projects will be written off. |
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Term
| What are the three bond investment classifications? |
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Definition
1) Held-to-maturity
2) Available-for-sale
3) Trading |
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Term
| Which of the three bond investment classifications report interest on the income statement? |
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Definition
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Term
| How do you reconcile the beginning and ending balance of an allowance account? |
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Definition
1) Add bad debt expense to beginning balance
2) Subtract write-offs from the above which gives you the ending balance |
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Term
| What does a write-off on an uncollectible account represent? How does a write-off impact a balance sheet? |
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Definition
| The identification of a specific account (e.g. customer who owes a company money). The write-off doesn't change the accounting equation since the allowance has been already expensed. Instead A/R gross is reduced and the allowance is reduced. |
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Term
| How do you calculate working capital? |
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Definition
| Current assets - current liabilities |
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Term
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Definition
| The calculation of expected uncollectible accounts. |
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Term
| What impact does an allowance account have on the statement of effects template? |
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Definition
1) Reduces accounts receivable
2) Reduction of retained earnings
3) An expense on income statement (bad debt expense) |
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Term
| How do you calculate Accounts Receivable Turnover? |
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Definition
| Sales / Average Accounts Receivable |
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Term
| How do you calculate the average collection period? |
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Definition
| Ending Accounts Receivable / (sales / 365) |
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Term
| What is the accounting equation? |
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Definition
| Assets = Liabilities + Equity |
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Term
| What's tracked on the statement of effects template? |
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Definition
| Cash Assets + Non-cash asset = Liabilities + Contributed Capital + Earned Capital | Revenues - Expenses = Net Income |
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Term
| What are the financing portions of the accounting equation |
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Definition
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Term
| What are the two main sources of financing? |
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Definition
| Non-owner financing and equity (owner) financing |
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Term
| What are the three main financial statements our class has focused on this first half? |
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Definition
| Balance Sheet, Income Statement, Statement of Cash Flows |
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Term
| How do you reconcile the difference in retained earnings from one period to another. |
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Definition
1) Start with ending balance of retained earnings from the previous period.
2) Add in net income to the above
3) Subtract dividends paid from the above leaving you with the ending balance for the current period. |
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Term
| How do you reconcile the difference in retained earnings from one period to another. |
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Definition
1) Start with ending balance of retained earnings from the previous period.
2) Add in net income to the above
3) Subtract dividends paid from the above leaving you with the ending balance for the current period. |
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Term
| What are the three components of the statement of cash flows? |
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Definition
1) Net cash flows from operating activities
2) Net cash flows from financing activities
3) Net cash flows from investing activities |
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Term
| How do you calculate Return on Assets (ROA)? |
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Definition
1) Net Income / Avg Total Assets
2) Net profit margin / total asset turnover
3) (Net Income / Sales) * (Sales / Avg Total Assets) |
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Term
| When calculating ROA, how do you calculate the average assets? |
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Definition
| (Beginning Asset Balance + Ending Asset Balance) / 2 |
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Term
| How do you calculate inventory turnover? |
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Definition
| Cost of goods sold / Average Inventory |
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Term
|
Definition
| International Financial Reporting Standards |
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Term
|
Definition
| Generally Accepted Accounting Principles |
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Term
| Does accrual accounting emphasis cash transactions? |
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Definition
| No, hence the need for the statement of cash flows |
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Term
| What is accrual accounting? |
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Definition
| The recognition of revenues when earned and the matching of expenses when incurred. |
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Term
| What order are assets listed on the balance sheet |
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Definition
| In order of liquidity (most liquid first) |
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Term
| What order are liabilities listed on the balance sheet |
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Definition
| In order of maturity (most recent first) |
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Term
| What are current liabilities? |
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Definition
| Liabilities that come due within on year |
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Term
| How do you calculate the working capital ratio? |
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Definition
| Net Sales / Avg Working Capital |
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Term
| What are the two components of equity? |
|
Definition
1) Contributed Capital
2) Earned Capital |
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Term
| What are the two components of paid-in capital? |
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Definition
1) Par (common stock)
2) Additional paid-in capital |
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Term
| What are the two components of earned capital? |
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Definition
1) retained earnings
2) Other Accumulative Comprehensive Income (AOCI) |
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Term
| How do you calculate gross profit? |
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Definition
| Sales - Cost of Goods Sold (COGS) |
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Term
| How do you calculate operating income? |
|
Definition
| Net sales - operating expenses |
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Term
| How do you calculate net profit margin? |
|
Definition
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|
Term
| How do you calculate the debt to equity ratio? |
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Definition
| Total liabilities / Stockholder's equity. |
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Term
| Does a company recognize profit as the market of it's own stock rises (or fallse)? |
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Definition
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Term
| Does a company recognize proits (or losses) on transaction in its own stock? |
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Definition
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Term
| Is there a correlation between net income and net cash flow? |
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Definition
| No, you can show good net income and poor cash flow. |
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Term
| Which of the three activities on the statement of cash flows does buying inventory show up on? |
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Definition
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Term
| Which of the three activities on the statement of cash flows does buying equipment show up on? |
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Definition
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Term
| Which of the three activities on the statement of cash flows does borrowing via accounts payable show up on? |
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Definition
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Term
| Which of the three activities on the statement of cash flows does borrowing via long term notes payable show up on? |
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Definition
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Term
| Which of the three activities on the statement of cash flows does selling your own stock show up on? |
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Definition
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Term
| Which of the three activities on the statement of cash flows does selling stock of another firm show up on? |
|
Definition
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Term
| Which of the three activities on the statement of cash flows does buying your own stock show up on? |
|
Definition
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Term
| Which of the three activities on the statement of cash flows does buying stock of another company show up on? |
|
Definition
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Term
| Which of the three activities on the statement of cash flows does paying your own dividends show up on? |
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Definition
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Term
| Which of the three activities on the statement of cash flows does receiving dividends from another company show up on? |
|
Definition
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Term
| Which of the three activities on the statement of cash flows does loans to other companies show up on? |
|
Definition
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Term
| What are the two formats for the statement of cash flows? What are their alternative names? |
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Definition
1) Direct method (schedule A)
2) Indirect method (schedule B) |
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Term
| Between the two formats for the statement of cash flows, which one is the most used? |
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Definition
| Indirect method (Schedule B) |
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Term
| How do you reconcile the difference between net income and net cash flows from operating activities? |
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Definition
1) Starting with net income add back depreciation and amortization expense
2) Add/Subtract gains and losses in assets and liabilities
3) Add/subtract asset sales giving you the net cash flows form operating activities |
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Term
| Which of the three activities on the statement of cash flows does interest payments on liabilities show up on? |
|
Definition
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Term
| Which of the three activities on the statement of cash flows does the purchase of a new plant via a loan show up on? |
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Definition
| Financing (the loan) and Investing (the purchase). |
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Term
| Which of the three activities on the statement of cash flows does the purchase of a new plant via issuing stock? |
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Definition
| None. No cash is involved. |
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Term
| How do you calculate Free Cash Flow (FCF) |
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Definition
| Net cash flows from operations - Capital Expenditures |
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Term
| How do you calculate the earnings per share ratio? |
|
Definition
| Market Value per Share / Earnings per Share |
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Term
| Give the complete cost of goods available for sale equation (the one that gives you two methods of calculating it. |
|
Definition
| Beginning Inventory + Inventory = COGS = Ending Inventory - COGS |
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Term
| What are the three inventory costing methods? |
|
Definition
1) FIFO
2) LIFO
3) Avg Cost |
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Term
| What is one reason a company might use LIFO for inventory costing? |
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Definition
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|
Term
| Of the three inventory costing methods, which gives you higher gross profit? |
|
Definition
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Term
| Of the three inventory costing methods, which gives you higher cost-of-goods sold? |
|
Definition
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Term
| What are the two depreciation methods? |
|
Definition
1) Straight line depreciation
2) Double-declining-balance (DDB) |
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Term
| How do you calculate the annual straight-line depreciation amount |
|
Definition
| (Cost - Estimated Salvage Value) / Estimated Useful Life |
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Term
| How do you calculate the annual double-declining-balance (DDB) depreciation amount |
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Definition
| 2 x straight-line depreciation amount |
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Term
| How do you calculate the book value of an asset? |
|
Definition
| Purchase prices - Cumulative Depreciation Expense (e.g. depreciation expenses on asset to date). |
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|
Term
| How do you calculate PP&E turnover? |
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Definition
|
|
Term
| Are land assets depreciated? |
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Definition
|
|
Term
| How do you calculate percent used up? |
|
Definition
| Accumulated Depreciation / Acquisition cost of depreciable assets |
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Term
| How do you calculate the acquisition cost of a depreciable asset? |
|
Definition
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|
Term
| How do you determine if an asset is impaired? |
|
Definition
| See if the sum of future expected cash flows is less than the current book value |
|
|
Term
| How do you calculate interest expense? |
|
Definition
| Principal * interest rate * portion of year outstanding |
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Term
| How much is a dollar worth a year from now if you have a 12% annual interest rate? |
|
Definition
| X * 1.12 = 1.00, thus x = 1.00 / 1.12 = 0.89 |
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Term
| How do you calculate the future value of an investment X at rate r for period t? Conversely how do you calculate present value? |
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Definition
1) CF = PV * (1 * r) ^ t
2) PV = CF / (1* r) ^ t |
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|
Term
| How do you calculate the present value factor? |
|
Definition
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|
Term
| Given a bond issued at 15% what's compounded semiannually, what's the coupon rate applied every 6 months? |
|
Definition
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|
Term
| Given a bond issued at a rate of 15% with a market rate of 10% what's the interest rate applied to each 6 month period |
|
Definition
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|
Term
| How do you calculate the per-period interest expense applied to a bond |
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Definition
| Take the maturity value X times the coupon rate |
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Term
| How do you know if an issued bond is premium or discounted? |
|
Definition
| If the bond payable is reduced each period it is a premium other wise it is discounted. |
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Term
| What are the three types of bond issuance? |
|
Definition
1) premium
2) discount
3) par |
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Term
| How do you calculate the gain or loss on a bond repurchase? |
|
Definition
| Bond payable net - retirement price (aka repurchase payment) |
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|
Term
| How do you calculate bond payable net? |
|
Definition
| Issuance amount * (1+market rate) - amortization |
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|
Term
| How do you calculate cash paid out for a bond for a given period |
|
Definition
| Issuance amount * coupon rate (e.g. semiannual it is the stated coupon rate divided by two) |
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Term
| What are the three values you need to adjust a statement of effects template for a bond retirement (repurchase) |
|
Definition
1) retirement amount
2) net book value
3) net book value at retirment |
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|
Term
| Discuss how a premium or discount bond that is retired effects the net book value |
|
Definition
1) For premium bonds you subtract it from the net book value
2) For discount bonds you add it to the net book value |
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|
Term
| How do you calculate the market price of a bond given the face value, coupon rate and market rate? |
|
Definition
1) Calculate the present value of principal repayment using market rate: face value * (1 / (1+r)^t)
2) Calculate the present value of the interest payments using market rate:
single interest payment * present value factor for stream of payments |
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Term
| What effect does depreciation have on the balance sheet |
|
Definition
1) Reduce non-cash assets
2) Reduce retained earnings. |
|
|
Term
| Between the income statement and the balance sheet which one gives you a financial position in a point in time and which gives you a company's performance over a period of time? |
|
Definition
1) Balance sheet - point in time
2) Income statement - over time. |
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Term
| If a company pays out a dividend, does it show up on the income statement? Why? |
|
Definition
| No. Because they aren't an expense, they are a distribution of net income, thus having no effect. |
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Term
| What should the relationship between capital expenditures on PPE be to the depreciation expense |
|
Definition
| Companies should be continuously be reinvesting in PPE to stay competitive so capex should exceed depreciation expense. |
|
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Term
| Why might a company pay dividends and repurchase stock? |
|
Definition
| When they feel the investor can better use the money. This is particularly true with brick-and-mortar companies. |
|
|
Term
| How do you calculate implied good will? |
|
Definition
| Market value - net assets (minus good will) |
|
|
Term
| What's another term for net assets? |
|
Definition
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