1

Question 1

Multiple Step Income Statement Formula

Answer 1

Net Sales (includes goods, sales, and rentals)
-cost of sales
=Gross Margin
-selling expense
-G&A
-Depr exp
= Other income (loss) from operations

Other rev/Gains:
Interest Rev
+Gain on Sale of fixed assets
+other Rev

Other Expenses and losses:
Interest Expense
-Loss on sale of fixed assets
=Income before unusual items and income tax
-loss on sale of available for sale securities
=Income before tax expense
- income tax expense
=Net Income

Question 2

Consigner

Answer 2

In a consignor/consignee relationship, the consignor maintains the inventory on the books. The consignee does not record the full revenue amount, but rather a commission based on the agreement with the consignor.

Question 3

To be relevant, information should have the following:

Answer 3

predictive and confirming value, as well, should be material.

Question 4

Other Comprehensive income formula

Answer 4

Pension Adjustments

Unrealized G&L on available for sale debt securities

Foreign currency Items (translation method = CTA & OCI. Remeasurement method G&L on IS and not on OCI. Instrument specufic credit risk

Effective portion of CF hedgets

Recaluation surplus

Question 5

SFAC Elements of PV Measurement

Answer 5

The Price for Bearing Uncertainty.

Expectations about Timing Variations of Future Cash Flows.

Other Factors (e.g., Liquidity Issues and Market Imperfections).

Time Value of Money (the Risk-free Rate of Interest).

Estimate of Future Cash Flow.

Question 6

Convert cash to accrual (Revenue)

Answer 6

SPEAR-BAR
Sales 
Plus
Ending
AR
-
Beginning 
AR

• Ending unearned revenue

+Beginning unearned revenue

Question 7

COGS from Cash to Accrual Basis

Answer 7

CRAPI
Cash Remitted
+increase AP
-increase Inventory

Or

Purchases 
\+ ending AP
-Beg AP
-Ending Inventory
\+Beg inventory

Question 8

Qualitative characteristics of financial reporting

Answer 8

Relevance: predictive and confirming value, and materiality

Faithful representation: completeness, neutrality, freedoms from error

Question 9

Enhancing Qualitative characteristics of financial reporting

Answer 9

Comparability, verifiability, timeliness, understandability

Question 10

Dupont return on Assets Formula

Answer 10

Net Profit MArgin “X” Total Asset Turnover

Question 11

REtun on Equity Formula

Answer 11

Net Income - Preferred Dividends “/” Average Common Equity

Question 12

Times Interest Earned Ratio Formula

Answer 12

Income before interest expense and taxes “/” Interest Expense

OR

EBIT “/” Interest Expense

Question 13

Converting expenses from cash to accrual basis

Answer 13

Cash paid for operating expenses
\+Ending accrued liabilities
- Beg accrued liabilities
-Ending prepaid exp 
\+Beg prepaid expenses

Question 14

Impairment Gain and Loss formula For discontinued segments (note that this is recognized in the year that the segment is considered in the market to sell.

Answer 14

Total Assets - Total Liabilities - Estimated Sale Price

Question 15

Operating Gain/Loss Formula:

Answer 15

Income before income taxes. (this goes after the following income statement sections: GP, Operating Expenses, Other revenue/gains and Expenses/Losses)

Question 16

Gain of Loss on Disposal

Answer 16

The Gain or loss on disposal is only allocated to the entity in the period disposed., and not in the period that the entity considered selling.

Question 17

Income tax benefit/Expense from disposal

Answer 17

Total gain/loss from discontinued operations “X” income tax rate.

Question 18

Is changing from FIFO to LIFO inventory practical when trying to re-compute prior periods?

Answer 18

This is not considered practical and the changes are handled prospectively.