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CFA Level I > 18: Balance Sheet > Flashcards

18: Balance Sheet Flashcards

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CFA flashcards
1
Q

Equity equals?

A

The owner’s residual interest in the firm, after deducting liabilities

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2
Q

What are the uses of the balance sheet?

A
  1. asses a firms:
    liquidity
    solvency
    ability to make distributions to shareholders
  2. measure the firm’s capital structure
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3
Q

ability to meet long term obligations

A

solvency

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4
Q

ability to meet short term obligations

A

liquidity

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5
Q

the mix of debt and equity used to finance the firm

A

capital structure of firm

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6
Q

The balance sheet is limited in its ability to determine a company’s _____ value?

A

intrinsic market value

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7
Q

Under IFRS which BS format will be used?

A

liquidity based format
classified

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8
Q

Under GAAP which BS format can be used?

A

Classified

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9
Q

classified balance sheet separately reports _____ vs ______

A

current vs noncurrent assets & liabilities

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10
Q

Classified balance sheet is used to evaluate a firm’s _____?

A

liquidity

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11
Q

A classified balance sheet is used to evaluate a firm’s ____?

A

liquidity

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12
Q

A liquidity based presentation presents ____ & ____ in _____?

A

assets and liabilities in order or liquidity

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13
Q

Which BS presentation format is used by banks?

A

liquidity

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14
Q

Allowance for doubtful accounts is a _____ that _____ the balance of accounts receivable?

A

contra account
reduces

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15
Q

The carrying value of inventories under IFRS is?

A

the lower of:
historical cost
NRV

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16
Q

the carrying value of inventories under GAAP is?

A

the lower of:
historical cost
market cost

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17
Q

Expenses that have been reported but not yet paid

A

accrued expenses (liabilities)

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18
Q

arises when money has been collected for goods or services that has not been delivered

A

Deferred income/unearned revenue

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19
Q

expenses that have been recognized in the income statement, but are not yet due (paid)

A

Accrued liabilities/expenses

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20
Q

current assets and current liabilities occur in 1 year or 1 ______, whichever is less.

A

operating cycle

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21
Q

Working capital= ?

A

current assets - current liabilities

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22
Q

Too much or too little working capital indicates?

A

 Too much= inefficient use of assets
 Too little= liquidity issues

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23
Q

Current assets reveal ____ of the firm?

A

operating activities

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24
Q

non current asset reveal ___ of the firm?

A

investing activities

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25
Q

Non current liabilities reveal ____ of the firm?

A

long term financing activities

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26
Q

financial assets that are traded in a public market and whose value can be readily determined

A

marketable securities

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27
Q

financial asset, that represents amounts owed to the firm by customers for goods and services, sold on credit

A

Accounts receivable

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28
Q

Trade receivables are reported at?

A

NRV

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29
Q

NRV for accounts receivables is the ____ value based on _____

A

fair value based on estimates of collectibility

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30
Q

Measuring inventory costs by assigning predetermined amounts of materials, labor, and overhead to goods produced

A

Standard costing

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31
Q

Measuring inventory costs by measuring inventory at retail prices and then subtract gross profit in order to determine cost

A

Retail method

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32
Q

NRV for inventories includes ____ price & ___ costs

A

NRV= selling price - completion costs

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33
Q

An example of other current assets is?

A

prepaid expenses

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34
Q

What is reported for notes payables?

A

principal portion of the debt due within 1 year/1operating cycle

35
Q

In the cost model, PPE is reported at ____?

A

amortized cost

36
Q

Revaluation model is used by _____, when measuring _____ costs.

A

IFRS; PPE

37
Q

Under GAAP which reporting models for PPE are allowed?

A

cost model only

38
Q

Under IFRS which reporting models for PPE are allowed?

A

cost model
revaluation model

39
Q

Under GAAP, land is reported at it’s _____?

A

Historical cost

40
Q

= Purchase price + delivery costs + installation costs

A

historical cost

41
Q

Investment properties are recognized under which accounting principle?

A

IFRS

42
Q

Under US GAAP, internally created identifiable intangible assets are ?

A

expensed as incurred, not reported on income statement (internally generated Goodwill)

43
Q

Goodwill is a ____-term asset?

A

long term asset/noncurrent asset

44
Q

Goodwill = ?

A

purchase price - fair value of the identifiable net assets (assets-liabilities)

45
Q

Good will should be ____ , but not _____?

A

tested for impairment, but not amortized

46
Q

For financial assets classified as trading securities, how are unrealized gains and losses reported?

A

Income statement

47
Q

How does the income statement flow to shareholder’s equity?

A

to shareholders’ equity as part of retained earnings.

48
Q

For financial assets classified as available for sale, how are unrealized gains and losses measured?

A

on OCI

49
Q

For financial assets classified as held to maturity, how are unrealized gains and losses measured?

A

They are not measured

50
Q

Held to maturity assets are reported on balance sheet at ?

A

amortized cost

51
Q

Trading assets are reported on balance sheet at?

A

fair value

52
Q

available for sale assets are reported on balance sheet at?

A

fair value

53
Q

The interest and dividends from trading securities are reported where?

A

income statement

54
Q

Deferred tax liabilities are a ______?

A

non current liability

55
Q

How are financial long term liabilities measured, when not issued at face value?

A

Reported at amortized cost

56
Q

How are held for trading liabilities, derivate liabilities, non-derivative liabilities with exposures hedged by derivates measured?

A

Fair value

57
Q

non-controlling (minority) interest in consolidated subsidiaries is presented on the balance sheet _____?

A

Separately, but a part of shareholder’s equity

58
Q

The item “retained earnings” is a component of

A

Shareholder’s equity

59
Q

Treasury stock is reported as a ______ to ____ on the ______ .

A

reduction to shareholder’s equity on the balance sheet

60
Q

Treasury stock = ?

A

issued shares - outstanding shares

61
Q

Shares that have been repurchased and not cancelled by the company that issued them

A

Treasury stock

62
Q

portion in consolidated subsidiaries that is owned by others, i.e., shares in subsidiaries not owned by the parent

A

Non-controlling interest

63
Q

cumulative amount of earnings recognized on a company’s income statements that have not been distributed as dividends to the company’s owners

A

retained earnings

64
Q

Equity interest of of minority shareholders in subsidiaries that have been consolidated

A

non-controlling interest

65
Q

Vertical common-size analysis involves stating each balance sheet item as a percentage of total ____?

A

assets

66
Q

Common size balance sheet provides information on the company’s ______?

A

increase or decrease of financial leverage

67
Q

determines how much of a company’s near-term obligations can be settled with existing amounts of cash and marketable securities

A

cash ratio

68
Q

An investor worried about a company’s long-term solvency would most likely examine its

A

debt to equity ratio

69
Q

Under GAAP, Equipment is measured at?

A

Historical Cost= Historical cost - accumulated depreciation

70
Q

Trading securities
BS:
Income Statement

A

BS: fair value
Income Statement:
-unrealized gains and losses
-realized gains and losses
-interest & dividends

71
Q

Held to maturity
BS:
Income Statement

A

BS: amortized cost
Income Statement:
-realized gains/losses
-interest

72
Q

Available for sale
BS:
Income Statement:

A

BS:
-fair value
-unrealized gains/losses (OCI- part of stockholder’s equity)
Income Statement:
-realized gains/losses
-interest
-dividends

73
Q

A company that reports under IFRS has developed a new product which required research costs of $2 million and development costs of $4 million. The maximum amount the company can record as the value of the new product on its balance sheet is?

A

4 million= 6 million total - 2 million research costs incurred
_____________________________________`
6million total cost
2 million in research (must be expensed as incurred)
4 million in development (capitalized)

74
Q

Declaring a dividend _____ shareholders’ equity

A

decreases

75
Q

Under IFRS, firms may report an investment in the equity securities at fair value through?

A

Income statement or OCI
GAAP says only income statement

76
Q

Identifiable, intangible assets are measured at?

A

amortized over their useful lives

77
Q

The statement of changes in equity shows a firm’s _______________ and ________.

A

-comprehensive income (net income and other comprehensive income)
-transactions with shareholders, such as dividends paid and issuance or repurchases of stock

78
Q

The amount the corporation receives from the issuance of common stock is equal to ?

A

par value + the additional paid-in-capital (proceeds in excess of par)

79
Q

stated or nominal value assigned to the common stock

A

The par value of common stock

80
Q

What are the two models for measuring PPE?

A

cost model
revaluation

81
Q

measure the firm’s ability to satisfy long-term obligations

A

solvency ratios

82
Q

Measures liquidity relative to current liabilities

A

Liquidity ratios

83
Q

Held for trading (trading securities): are expected to be sold ______,
Unrealized gains/losses are reflected how?

A

expected to be sold in the near term
therefore, their unrealized gains and losses are reported on the income statement and flow to shareholder’s equity as part of RE

CFA Level I (45 decks)

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