22

Question 1

how do you calculate price-to-earnings ratio?

Answer 1

mkt price/sh / EPS = ratio

Question 2

how are speculative forward contracts treated?

Answer 2

they do not qualify as hedges and change in FV is recog’d immediately in NI

*forward rate entrance price is compared to other forward rate exit price

Question 3

what amount do you recognize for a cont. L that is probable and estimable?

Answer 3

the lowest amount in the range of measurement if all are equally likely

Question 4

what is the formula for box top redemptions?

Answer 4

total est. box top redemptions
- box tops redeemed
= box tops to be redeemed

*divide by box tops per glass, then multiply by amt of cost to get est’d L

Question 5

how are related party transactions reported?

Answer 5

they are always disclosed, even if the cont. L is remote

Question 6

how are gain contingencies reported?

Answer 6

they are not accrued til the trans. generating the gain is complete

Question 7

what is the cont. L for a discounted N/R?

Answer 7

its maturity value

Question 8

how are insurance proceeds to cover a loss contingency reported?

Answer 8

they are treated as a gain contingency and not recorded til received

Question 9

what is the JE when a co. incurs warranty costs under the expense warranty accrual method?

Answer 9

Dr: warranty L
Cr: inventory

Question 10

what is the reporting for a cont. L that is prob. but not reas. est’d?

Answer 10

only disclosure req’d

Question 11

does threatened litigation being known to mgt. determine whether an accrual is necessary?

Answer 11

no

• loss cont. is charged to income if
  (1) probable it has incurred as of FS date and
  (2) amt is reas. est’d

Question 12

what is the equation for PV?

Answer 12

PV = future amt * PV factor

Question 13

what is the JE for a N/R sold at a discount?

Answer 13

Dr: N/R
Dr: def’d charge
Cr: cash
Cr: disc. on N/R

*def’d charge is charged to discount

Question 14

what is the treatment for the discount resulting from det. of a N/P’s PV on the BS?

Answer 14

treat the discount as a direct reduction from the face amt of the note

Question 15

how is int. rev. calc’d?

Answer 15

total cash to be rec’d
- PV of note
= total int. rev.

Question 16

how is interest income calculated?

Answer 16

*face amt of loan - nonrefund fee = CV

**CV * effective yield * months O/S = interest income

Question 17

how is the CV of a note calculated?

Answer 17

*payment - int. = “P”

** face of note - “P” = CV

***int = face * rate * months O/S

*also, face - discount = proceeds

**proceeds + amort. of disc = CV

Question 18

is imputed int. on non-int. bearing note reported as int exp?

Answer 18

yes

• int incurred to fin. constr of FA for own use is cap’d
• pen cost incurred = comp. of pen plan exp
• post retirement ben int = part of post retirement ben exp.

Question 19

how is PV of a note calculated?

Answer 19

*“P” + int = maturity value

** maturity value * PV factor = PV of note

Question 20

what does the effective int. rate include?

Answer 20

all costs charged by the bank

*(stated rate + loan fee%) / (100% face of N/P - loan fee %) = effective rate

Question 21

what is the trick with notes with payment on the date it is rec’d?

Answer 21

the PVOA will be 1 less period

Question 22

what is the JE for the purch. of a FA in exchange for cash and a non int. note w/ a disc?

Answer 22

Dr: FA
Dr: discount on N/P
Cr: N/P
Cr: cash