#1 Flashcards
Which of the following inventory-costing methods will produce a lower inventory turnover ratio in an inflationary economy?
Inventory turnover is COGS/average inventory, so if inventory is increasing in cost during the year, FIFO would have the lowest COGS and the highest ending inventory. The highest-priced batches of inventory would make up ending inventory at the end of the year.
How do you record a non-controlling interest on the balance sheet?
1) When a company owns 50% or more of another company, you must consolidate F/S. 2) If ownership is less than <100%, you must report non-controlling interest in stockholders equity so readers know the investment is not 100% owned. 3)
Combine 100% of assets and liabilities on B/S.
What is GAAP?
General-purpose framework including broad guidelines and detailed policies, procedures such as conventions and rules. The framework defines the accounting practice at a particular time, it is not updated to stay current w/ changes in biz environment. The FASB (not AICPA) maintains GAAP
What is included in accumulated other comprehensive income?
DENT:
D - derivatives on CF hedges
E - excess adjustment for PBO and FV of plan assets
N - net unrealized holding gain/loss on AFS securities
T - currency translation
What has to be true for troubled debt restructuring?
1) debtor has financial difficulties
2) creditor grants a concession to debtor
What is an asset retirement obligation?
An ARO is an obligation associated with the retirement of a tangible long-lived asset, typically involving its removal or disposal in a manner prescribed by law or contract.
How do you treat interest expense if convertible bonds are determined to be dilutive?
If convertible bonds are determined to be dilutive, then interest expense (net of the tax effect) will be added back to net income.
How do you calc COGS?
Beg Inv
+ purchases
= Good available for sale
- ending inventory
= COGS
What are the sections of SoCF and what falls under them?
Operating - cash flows from normal operations
Investing - cash flows from investing in yourself and others (PP&E, AFS and HTM)
Financing - cash flow from issuing and repaying debt and equity
Where are treasury bills reported on SofCF?
Operating activities - Cash and cash equivalents
What are examples of financing activties?
issuance of C/S and P/S, treasury stock transactions, dividend payments, borrowing and repaying debt (principal payments). Interest paid on debt is reporting in operating section.
What are the differences in operating activities between direct method and indirect method?
Direct method: lists the sources and used of cash related to each account in net income (sales, COGS, interest). It EXCLUDES any non-cash items
Indirect method: reconciles net income to net CF by adjusting for changes in certain balance sheet operating accounts (e.g. A/R, inventory and A/P) and for non-cash and non-operating items.
How to treat sale of PPE on SOCF?
Cash proceeds from a disposal are inflows under investing. Any gain/loss on a disposal is included in net income.
If direct method is used - gain or loss is ignored.
Where are trading securities reported on CF?
They are ST so reported in operating section. Investing section of CS are LT
Where are dividends received, interest income earned record on CF?
Operating activities
How is cash for a LT bond payable for bond-sinking fund classified on BS?
Treated as a non-current asset until the bond matures.
What are combined F/S?
- F/S of a group or multiple entities that are commonly controlled or managed.
- Combined F/S present the entities as is they were a single economic entity.
- Combined F/S do not include the parent company.
- Combined entities equity accounts are aggregated, not eliminated.
Considerations for I/C sales of depreciable fixed assets
- I/C gain or loss is eliminated in consolidation in the year of sale
- I/C gain or loss are realized in consolidation over the remaining life of the asset through adjustments to depreciation expense
- Fixed asset cost is restored to original cost of selling entity
- A/D is restored to end of year balance of selling entity
When is goodwill recorded?
Goodwill is recognized when the fair value of the consideration transferred exceeds the fair value of the identifiable net assets.
How to convert service revenue from cash basis to accrual basis?
cash fees collected + End A/R - Beg A/R + Beg unearned fees - End unearned fees
DSO calculation
DSO = A/R/(Credit sales/365)
Acid test
(Cash + marketable securities+A/R)/current liabilities
Cash ratio
(cash + marketable securities)/current liabilities
A/R turnover
net credit sales/average A/R
Inventory turnover
COGS/average inventory
Average # of days in A/R
360/365 / A/R turnover
Dividends per share payout ratio
Dividends per share / earnings per share
Measures dividends distributed per share
Earnings per share
Net income - preferred dividends / WA common shares outstanding
Return on assets
Net income / average assets
