(2) Financial Reporting and Disclosures

Question 1

Times Interest Earned definition

Answer 1

The ability an entity has to cover interest charges. The greater the times interest earned, the less risk of bankruptcy.

Question 2

Return on Assets

Answer 2

Net Income / Average Total Assets

Question 3

What information should a public company present about revenues from its reporting segment?

Answer 3

Disclose separately the amount of sales to unaffiliated customers and the amount if intracompany sales.

Question 4

Return on Equity

Answer 4

NI / Average Common Equity

Question 5

Reportable segment “reporting sufficiency” test threshold

Answer 5

the reporting sufficiency test requires that all repartable segments (looking at external sales only), have at least 75% of total external sales of the entity.

Question 6

A/R Turnover

Answer 6

Net sales / Avg. AR

Question 7

Days sales in AR

Answer 7

Ending AR / Net Sales X 365

Question 8

What is the earliest period that a component could be reported as discontinued operations?

Answer 8

When the component meets that held for sale criteria:

1. Management commmits to plan to sell component
2. Component is ready for immediate sale
3. Program to locate buyer is in action
4. Sale is probable and expected to be completed in one year
5. Sale of component is being actively marketed
6. Unlikely that significant change to the plan will be changed

Question 9

Record purchase of land

Answer 9

When recording the purchase of land, costs incurred to purchase land and make ready for use are capitalized.