All BAR Deck 05/16/24 Flashcards

1
Q

No action is taken to change the severity of the risk

A

risk acceptance

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2
Q

Action is taken to remove the risk

A

risk avoidance

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3
Q

action is taken that accepts increased risk to achieve improved performance

A

pursue risk

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4
Q

action is taken to reduce the severity of the risk through risk mitigation techniques

A

risk reduction

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5
Q

action is taken to reduce the severity of the risk through outsourcing and insurance

A

risk sharing

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6
Q

how to calculate the real price

A

nominal price/(1+inflation rate)

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7
Q

the additional compensation demanded by investors for bearing the risk that the security issuer will fail to pay interest and/or principal due on a timely basis

A

default risk

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8
Q

How to calculate the market rate of interest for a U.S. t-bill?

A

risk free rate of interest + inflation premium

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9
Q

What does self-insure mean?

A

It means to cover the costs of damages instead of getting an insurance policy and this means to accept the risk

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10
Q

How to calculate residual risk?

A

Residual risk = Inherent risk - impact of management’s action

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11
Q

the risk to an entity in the absence of any direct or focused actions by management to alter its severity

A

inherent risk

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12
Q

what remains after action has been taken by management to reduce inherent risk.

A

residual risk

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13
Q

the amount of risk an entity prefers to assume in pursuing its goals and objectives.

A

target residual risk

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14
Q

Who comes up with the objectives for the COSO ERM system?

A

management/board of directors come up with them

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15
Q

What is the gross profit formula?

A

Sales - CoGS

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16
Q

What is the gross margin formula?

A

(Sales - CoGS)/Sales

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17
Q

How to calculate the sales mix percentage?

A

Find the total units sold during the year
Divide the amount sold of a certain product by the total units sold to find the sales mix percentage for this product

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18
Q

How is the information about plan members’ accounts typically presented in a defined contribution pension plan’s financial statements?

A

As a combined total of all members’ account balances.

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19
Q

The ____________ component of the COSO ERM framework contributes to the ongoing management of risk/opportunity scenarios in an entity by evaluating the effectiveness of the entity’s risk management activities.

A

monitoring

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20
Q

Why must there be a formal designation and documentation at the inception of a hedging relationship?

A

To ensure transparency and alignment with the entity’s risk management strategy.

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21
Q

How to find elasticity in economics?

A

% change in quantity/%change in price

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22
Q

How to find unit elastic quantity demanded?

A

1 = % change quantity demanded/supplied/% change in price

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23
Q

occurs when an investor’s certainty equivalent is less than the expected rate of return. The investor seeks higher returns for more risk.

A

risk averse behavior

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24
Q

occurs when an investor’s certainty equivalent is equal to the expected return on the investment.

A

risk indifferent behavior

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25
If an investor's certainty equivalent, the point at which the investor is indifferent to risk, exceeds the expected return on an investment, then the investor is actually seeking lower return for higher risk.
risk seeking behavior
26
referred to as firm-specific or non-market risk. ________ risk can be reduced by diversification, investing in other companies.
unsystematic risk
27
refer to risks that can not be mitigated by investment in different securities. There are three names for this
systematic market non-diversifiable
28
What disclosure related to segment assets is required in a public company's financial statement notes?
The total assets for each segment must be disclosed
29
_________ _______encompasses the political risk, economic risk, transfer risk, sovereign risk, and exchange rate risk associated with engaging in business with foreign countries
country risk
30
___________ ___________generally refer to content or value added limits on the percentage of labor or materials used in imported products
sourcing requirements
31
_______ ___________ involves setting prices for a product or service when exchanges occur between different units within the same organization. One of the goals of _______ __________ is to minimize the amount of taxes paid by the overall organization
transfer pricing for both blanks
32
the use of a worldwide supply chain
global sourcing
33
the general risk that fluctuations in exchange rates could have a negative impact on a company that either consistently sells to foreign customers or consistently buys from foreign vendors
economic risk
34
the risk that the settlement of a specific transaction in a foreign currency will result in a translation loss.
transaction risk
35
A significant decline in the exchange rate of the U.S. dollar generally will have which of the following effects
A decline in the exchange rate means the U.S. currency is becoming weaker Think of foreign companies purchasing more because their currency is worth more now compared to the U.S. dollar and this means U.S. exporters are able to sell more.
36
What does horizontal merger mean?
When two companies are in the same industry and they merge together think of Titleist and Callaway merging.
37
What does a vertical merger mean?
When a company merges with its supplier. An example of this would be a rubber supplier for golf balls merging with Titleist.
38
when two companies that provide support services combine to make them one company. The main objective in a ____________ __________ ________ is to make the support service larger and self sufficient.
diagonal business combination
39
a business combination of companies that are engaged in different businesses and those producing different products. For example, if a cell phone company bought a car manufacturing company,
circular business combination
40
An outright sale of a subsidiary. Subsidiary's core competencies do not align with the overall company's core competencies.
sell-off
41
Creates a new, independent company. Stock dividend to existing shareholders or exchange for their stock in the parent company. Unit is less profitable and/or unrelated to the core parent business.
spin-off
42
Creating a new publicly list company (IPO). The sale of shares in the new company generates cash for the parent. Provides the parent with a controlling interest in the subsidiary.
equity carve-out
43
two similar asset size companies combining to create a new legal entity.
merger
44
when one company offers to buy the shares of the other company.
tender offer
45
one company buying the other company with the acquirer remaining after the transaction and no new company being formed.
acquisition
46
When a company is interested in buying only a certain segment of another company, what business combination should they pursue?
purchase of assets for a business combination
47
What are the four principles for the strategy and objective-setting component of the COSO Enterprise Risk Management framework?
Strategies formulates business Objectives Analyzes business context Defines risk appetite The acronym is SOAR
48
How to calculate the effective interest rate for a discounted note
Step 1: Find the amount of interst owed on the principle Step 2: Subtract the interest owed from the principle Step 3: Divide the interest owed/(Principle - interest owed) to find the effective interest rate
49
What happens to the supply curve when the wages for labor decreases?
The supply curve shifts to the right
50
the theoretical balance between an entity’s willingness to accept risk and the return/growth goals that the entity wishes to achieve.
risk appetite
51
the additional compensation demanded by investors for bearing the risk that the security issuer will fail to pay interest and/or principal due on a timely basis.
default risk premium
52
The state of not knowing how or if potential events may manifest.
uncertainty in enterprise risk management
53
undermines competitive pricing and maintains prices to external customers at levels higher than they would be in a competitive market place.
collusive pricing
54
undertaken by larger organizations that can absorb losses and deliberately do so in an attempt to drive smaller, less capitalized, competitors from the market place.
predatory pricing
55
involves appropriately assigning different prices to the same product in different market settings.
dual pricing
56
What is an interest rate swap?
There is going to be a principle amount The business pays a certain amount The business when initially receive another percentage and there will also be a ending percentage The difference between ending and beginning will be the gain/loss
57
A corporation has a $3,000,000 notional amount interest rate swap as a fair value hedge, paying a fixed rate of 6% annually and receiving a floating rate based on the central bank rate, initially at 5%. At the end of the year, the central bank rate decreases to 4%. What is the impact on the income statement due to the swap?
Pays: 3,000,000 *0.06 = 180,000 Receives: (3,000,000*0.04)-(3,000,000*0.05) = 30,000 loss
58
funds that have been set aside for a specific future expense in state and local governments
encumbrance
59
When should a company start capitalizing costs for software developed for sale? When should a company start capitalizing costs for software developed for sale?
When technological feasibility has been established.
60
This type of credit facility allows the company to draw funds up to a predetermined limit, providing a buffer against liquidity shortfalls and ensuring that the company has access to funds when required.
revolving credit facility
61
In a financial statement analysis, which of the following visualization techniques is most appropriate for comparing an entity's performance across multiple financial metrics, such as revenue, net income, and total assets?
bar chart
62
Under hedge accounting, what happens if a hedging relationship ceases to be highly effective?
Hedge accounting must be discontinued prospectively
63
How to calculate economic value added for a project in finance?
Multiply the initial investment by the company's cost of capital Compare the after tax operating income to the number from step 1 Economic value added = after tax operating income - (Cost of Capital * Initial investment)
64
What is the weighted average cost of capital (WACC) formula?
WACC = (cost of equity * weight) + (after tax cost of debt * weight)
65
What is the formula for the capital asset pricing model (CAPM)?
Cost of retained earnings = Risk-free rate + [Beta * (Market return - Risk-free rate)
66
How to calculate the market risk premium?
Market return - risk free rate
67
Rank these four from most to least risk: Banker's acceptances, Negotiable CDs, Commercial paper, U.S. treasury bills
commercial paper banker's acceptances negotiable CDs U.S. treasury bills The greater the return the greater risk
68
What is 100 basis points equal to?
This is equal to one percent
69
How to estimate the cost of retained earnings with the discounted cash flow method?
Cost of retained earnings = (Year end dividend per share/current market price of share) + the expected growth rate
70
How to calculate cost of retained earnings using bond yield plus risk premium?
Pre-tax cost of long term debt + market premium
71
What is the formula for cost of preferred stock?
Preferred stock dividends(% multiplied by the par value of p/s)/net proceeds of preferred stock(market value less any transaction cost) What I paid out/What I paid in
72
What is the formula for market capitalization?
Market price per share * # of shares outstanding
73
How to calculate the number of shares outsanding?
Common stock value on balance sheet/par value per share
74
How to calculate the value of equity using sector price to earnings?
Net income/ P/E multiple
75
What does beta measure?
How volatile a stock price is Beta>1 our stock price is more volatile than the market Beta<1 our stock price is less volatile than the market
76
How to calculate equity using dividend discount model?
((Current Dividends * (1+growth rate of dividend))/(Cost of Equity)+(Growth Rate of Dividends)
77
How to calculate the market value of bonds?
(Par value of bonds) * (Current market value per bond/1,000 or the par value of each bond)
78
When a derivative is designated in a cash flow hedge, where are the effective portions of gains and losses reported?
Other comprehensive Income
79
What statement is unique to proprietary funds and not typically found in governmental fund financial statements?
Statement of cash flows
80
Formula for Annual Cost of Credit
(365/(Pay period - discount period)) * ((discount % /(100-discount %)) The 365 might vary and be 360
81
What three factors affect the optimal level of inventory?
Lead time Carrying Cost Cost to place an order
82
How to calculate the reorder point for inventory?
Caclulate the weekly sales Multiply the weekly sales by the lead time Add this number from step 2 in the process to the safety stock of inventory to get the reorder point
83
__________ _____is the loan extended by one trader to another when the goods and services are bought on credit. ______ ______ facilitates the purchase of supplies without immediate payment. ________ _____ is commonly used by business organizations as a source of short-term financing.
trade credit for all
84
What is a characteristic of short-term financing in regards to the interest rate?
The interest rate tends to be higher for the borrower
85
gives its owner the right to sell a specific security at fixed conditions of price and time.
put option
86
gives its owner the right to purchase a specific security at fixed conditions of price and time.
call option
87
What is the formula for the dividend growth model?
D1+g P0 (D1/P0)+growth rate of dividend
88
What is the formula for the debt ratio?
Total liabilities/total assets
89
What are Porter's five forces?
Bargain power of suppliers Bargining power of buyers Existence of substitute products Barrier of entries into the market Competition in the market
90
What is the best hedge investment against a high inflation rate?
Precious metals like gold
91
How to calculate the direct labor rate variance?
(standard cost - actual cost) * actual hours used
92
What is the formula for the cash conversion cycle?
Days sales in accounts receivable + Days in inventory - Days of payables outstanding
93
How to calculate operating cycle?
Days sales in accounts receivable + Days in inventory
94
In consolidated financial statements, how is the income attributable to noncontrolling interests presented?
As part of the consolidated net income on the income statement.
95
How to calculate how many units need to be sold if a certain profit number wants to be hit?
Fixed cost + desired profit/(Selling price per unit - Variable cost per unit)
96
What is the formula for the constant growth dividend discount model?
(Current dividend *( 1+ % of dividend growth)^number of years)/(Required return - growth rate of stock)
97
How to calculate expected return for a stock?
(Dividend payout + stock growth)/Current price of stock
98
What do higher P/E ratios indicate for a stock?
The investors think that the stock has potential to grow with earnings. The market price is a lot higher than the earnings per share.
99
How to calculate free cash flow?
Net income + Noncash expenses - Increase in working capital - capital expenditures Think of the operating section of the statement of cash flows
100
How to calculated the expected price of the stock under the zero growth model?
Stock price = Dividend payout/Discount rate Discount rate is also called desired rate of return
101
How to calculate the effect interest rate of a loan when there a company is required to maintain a certain balance at a bank and they can earn interest on the balance?
Loan value * interest rate = interest owed Minimum account balance * interest rate earninged Interest owed - interest earned = Net interest Net interest/(Loan - minimum balance required) = effective interest rate
102
The risk exposure faced by an entity that encounters the possibility that the currency in which a transaction is denominated will be adversely affected by the currency in which the transaction is settled
transaction exposure risk
103
describes a firm's generalized exposure to reduced buying power as a result of inflation.
purchasing power risk
104
How to calculate the flexible budget variance?
Actual operating income - flexible operating income This is the opposite of the volume variance because we are looking at the differences caused by the price changes.
105
How to calculate the volume variance?
It is the difference between the flexible budget and the master budget. The reason why behind this is we are looking at the difference caused not by prices but by volume changes.
106
How to calculate a flexible budget?
Use actual sales units Use all the same prices per unit as the master budget
107
Formula to calculate APR of quick payment discount?
360/(pay period - discount period) Multiply by Discount/(1 - Discount)
108
Which of the following effects would a lockbox most likely provide for receivables management
minimized collection float A lockbox system expedites cash inflows (minimizes collection float) by having a bank receive payments from a company's customers directly, via mailboxes to which the bank has access. Payments that arrive in these mailboxes are deposited into the company's account immediately.
109
a series of budgets based on different activity levels within the relevant range.
flexible budget
110
an overall budget, consisting of many smaller budgets, that is based on one specific level of production
Master budget
111
What cost are not affected by inflation rates?
Depreciation expense Interest expense
112
List the order in which the four types of budgets must be prepared.
Sales Production Direct Materials purchases cash disbursements
113
methodology used to determine the transaction price charged between related parties
transfer pricing
114
How to calculate the price earnings to growth (PEG)?
PEG = (Current price of stock/current earnings)/(Growth rate * 100)
115
What is the underlying assumption to the Black-Scholes option-pricing model?
There are no transaction costs for buying and selling the stock or option
116
What are the inputs for the Black-Scholes pricing model?
Current price of stock option exercise price risk free interest rate time to expiration volatility of stock(measure of risk)
117
What are the four steps of the SCOR model for supply chains?
Plan Source Make Deliver
118
What is the formula for the economic order quantity?
EOQ = square root((2 * annual sales quantity * cost per purchase order)/Annual cost of carry one unit in stock for one year)
119
How to calculate the growth rate for a stock?
(ROA * Retention rate)/ 1-(ROA * Retention rate))
120
How to calculate current dividends by a company?
It is the company's earnings per share and you multiply that by either the retention rate of earnings or the dividend payout rate. EPS * Dividend payout rate
121
How to calculate the forward eps?
Current price of stock/Projected EPS
122
How to calculate the forward P/E based on the Gordon Growth model?
Dividend payout ratio/(required return - growth rate)
123
How to calculate the price of a stock based on the PEG ratio?
PEG * Current Earnings * growth rate of stock
124
How to calculate the price to sales ratio?
Figure out the price of stock by dividing the market capitalization by the total number of shares outstanding Multiply the current sales by the sales growth rate Divide the future sales by the number of shares outstanding Divide price the the sales/share outstanding
125
How to calculate the net realizable value of an asset?
Selling price - cost to sell
126
How to calculate the market value of an asset using the replacement cost method?
replacement cost + any transportation and assembling cost
127
What are things included using the cost approach for a patent?
Materials Labor Applicable overhead Development costs legal costs opportunity costs Not included: sunk costs because they have already been incurred
128
How to calculate the value of a company's patent using the income approach?
Multiply the probability by each discount factor to determine the discount factor Use the applicable discount factor Multiple the discount factor by the expected cash flows each year
129
How to calculate beta?
% change in stock price/ % change in market price
130
How to calculate economic value added?
Caclulated the after tax income Calculate the required return based on the WACC Subtract after tax income from the required rate of return
131
How to calculate the annual savings needed based on an investment?
Find the present value of the residual value Subtract the initial cost from the pv of the residual value Pv= pmt * pv factor Cost of project = pmt * pv factor which is given We are solving for the pmt
132
represents the risk associated with the unique circumstances of a particular company, as they might affect the shareholder value of that company
business risk
133
relates to the exposure of lenders to the failure of borrowers to repay principal and interest on debt.
financial risk or default risk
134
an unsecured, short-term debt instrument issued by corporations. It's typically used to finance short-term liabilities such as payroll, accounts payable, and inventories.
commercial paper
135
How to calculate profitability index for a project?
Calculate the present value of the cash inflows for the project PV of cash inflows/the initial cash outflow of the project
136
How to calculate the minimum cost per unit of a special order when a company is operating below production capacity?
It is the amount that would cover the variable cost
137
How to calculate the minimum cost per unit of a special order when a company is operating at production capacity?
Variable cost per unit Add contribution margin per unit
138
How to calculate the net cost of debt?
Effective interest rate of bonds/(debt * weight of debt)
139
How to calculate whether to sell a product or process further?
Process further selling price - current selling price Subtract the incremental cost of processing further Determine whether it would be a gain/loss
140
How to calculate the split off break even point on when determining whether to process further?
Current Split off selling price + incremental costs of processing further
141
What do conversion costs consist of?
Direct labor overhead
142
What do prime costs consist of?
direct materials direct labor
143
What is the FIFO method equivalent for units?
Units Completed + % Ending Inventory - %Beginning Inventory
144
What is the weighted average method for equivalent units?
Units Completed during the period Add Ending WIP * % completed
145
How to calculate the unit cost of materials per unit using the weighted average method?
Beginning cost of material + Ending costs of Materials Units Completed during the period + (Ending WIP * % completed) Divide the cost of material by the units completed during the period
146
How to calculate net realizable value in cost accounting?
Sales value Less separable costs
147
How to calculate cost of goods manufactured?
CoGS Add (Ending inventory - beginning inventory)
148
Are utilities expense a product or period cost?
product cost
149
Are custodial staff salaries a product or period cost?
They are a product cost because it is considered indirect labor
150
What is the formula to find raw materials used?
Beginning raw materials Add purchases of raw materials Subtract Ending Raw materials Raw materials used is the final part and this is similar to a roll forward
151
What is the formula to calculate cost of goods manufactured?
raw material used Add Direct Labor (actual) Add Overhead applied Subtract ending Work in process
152
What is the formula for CoGS in cost accounting?
Beginning finished goods Add cost of goods manufactured Subtract ending cost of goods sold
153
How to allocate joint costs based on Relative NRV when there is no sales value known at split off?
Number of units * Sellling price after further process Subtract the further processing cost Allocate the cost based on this value
154
Which cost is fixed per unit?
Variable cost is fixed per unit
155
The range over which cost relationships are valid.
relevant range
156
an accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers
activity-based costing
157
What are the types of ways to allocate joint costs?
Physical quantity NRV allocation NRV - transaction costs after split
158
What are examples of internal failure costs?
rework scrap reinspection retesting
159
What is an example of an external failure cost?
Responding to customer complaints
160
What are example of appraisal costs?
product testing statistical quality checks inspection for completed product to be shipped
161
Rank the Strategic Business Units (SBUs) from most to least responsibility
Investment Profit Revenue Cost
162
associated with performance reports and a focus on revenues and costs that are within the control of the manager being evaluated
responsibility accounting
163
What are examples of prevention costs?
Employee training preventive matainenance supplier education expense
164
What are conformance costs?
prevention and appraisal costs
165
What are non-conformance costs?
internal and external failure costs
166
Period cost or inventoriable cost for normal spoilage and abnormal spoilage?
Normal spoilage - inventoriable cost Abnormal spoilage - period cost
167
a method of allocating production costs to products and services by averaging the cost over the total units produced. Costs are usually accumulated by department rather than by job.
process costing
168
a hybrid system that allows the company to use job order costing for some costs of production and process costing for other costs.
operation costing
169
a method of allocating production costs to products and services that are identifiable as separate units and require greater or lesser amounts of work to complete.
job order costing
170
a system that accumulates all costs of overhead for each of the activities of the organization and then allocates those activity costs to the cost objects that caused the activity
activity based costing
171
What is the relationship between NPV, IRR, and required rate of return?
When NPV>0 IRR>Required rate of return When NPV<0 IRR
172
How to calculate the partial productivity ratio?
Quantity of units produced/Certain raw material Example Quantity of units produced/quantity of iron used
173
How to calculate total productivity ratio?
total units produced/(raw material unit of a * price of a)+(raw material unit b * price of b)
174
How to calculate economic value added?
Cost of machine * cost of capital= required return Net operating profit after taxes - required return
175
How to calculate contribution margin
Selling price Less: Direct labor, Direct materials, and Variable overhead
176
The coefficient of determination, R2, in a multiple regression equation is the
percentage of variation in the dependent variables explained by the variation in independent variables
177
How to calculate estimated cost for handing using the high low method?
(Cost at high - Cost at low)/(Quantity at high - Quantity at low) equation for slope y = a + bx First step helped you calculate the b which is the slope Use the given numbers to calculate the a which is the intercept
178
What is the formula for the variable costing approach to find contribution margin?
Selling price Less the following Direct matierals Direct Labor Variable manufacturing overhead Variable selling and administrative Equals Contribution Margin * # of Units sold
179
What is the difference between variable costing and absorption costing?
Fixed manufacturing overhead is treated at a product cost for absorption Fixed manufacturing overhead is treated at a period cost for variable costing
180
How to calculate the breakeven point in units?
Find the fixed cost per unit Selling price per unit - Variable cost per unit=contribution margin Multiple units sold * fixed cost per unit to get total fixed costs Total fixed cost/Contribution margin
181
Formula for CoGS under absorption costing
Direct Materials Direct Labor Variable Overhead Fixed Overhead
182
Formula for CoGS under variable costing
Direct Materials Direct Labor Variable Overhead
183
When looking at the reward to risk ratio between types of investments, what do you do?
Compare the mean return to the standard deviation of the investment Example US T Bills Mean Return: 4% Standard deviation: 3% Common Stocks Mean Return: 12% Standard deviation: 20% 4:3 versus 3:5
184
What is the contribution margin ratio?
Contribution Margin/Selling Price
185
How to calculate number of units to sell to reach a desired profit?
Pretax desired profit+fixed cost/(Contribution Margin) If it is after tax then solve for pretax After tax = Pretax * (1-tax rate)
186
used to establish the product cost allowed to ensure both profitability per unit and total sales volume
target costing
187
accounts for variable costs only
direct costing
188
tracks costs to individual products/jobs
job costing
189
assigns costs in a mass production environment
process costing
190
counts materials costs as product costs
throughput costing
191
What is the journal entry for a cash advance made to a divisional office?
DR: Receivable CR: Cash
192
How to calculate the operating profit margin?
EBIT/Sales EBIT = Net Income + Interest expense + Taxes
193
What is the formula for profit margin?
Net Income/Sales
194
What is the formula for dales sales outstanding?
Ending A/R/(Sales/365)
195
a data mining technique that identifies similar data
clustering
196
uses the data mining technique of prediction.
forecasting
197
a data mining technique that looks for sequential patterns. It can often help discover similar patterns in transaction data over time.
sequencing
198
a data mining technique that discovers links between two items. It can often find hidden patterns in data, like which products are often purchased together.
association
199
Why would a firm offer favorable credit terms like 2/10 net 30?
It is a response to competitiors in the market or to improve their cash flow This means that if a customer pays within 10 days they will receive a 2% discount and if they don't they must pay within 30 days.
200
measures the proportion of the total variation in "y" or total cost that is explained by the total variation in the independent variable, x, or variable costs.
coefficient of determination
201
a measurement used in conjunction with standard deviation computations
standard error
202
What is the format of the balanced scorecard?
Financial Internal Business process Customer Learning and growth
203
encompasses all the activities that turn the raw materials into finished products that are produced to meet a planned demand
MAKE process of the SCOR Model of supply chain operations
204
How to calculate account profit?
Total revenue minus total explicit costs
205
What are implicit costs?
Opportunity costs
206
Formula for EBIT margin?
EBIT/Sales
207
Formula for Interest burden?
EBT/EBIT
208
Formula for Tax burden?
Net income/EBT
209
Asset Turnover formula?
Sales/Average total assets
210
Return on assets formula
Net income/average total assets
211
Return on Equity formula
Net income/Average total equity
212
What are four two way variances in variance analysis?
Price = Difference * Actual Usage = Difference * Standard Rate = Difference * Actual Efficiency = Difference * Standard
213
How to calculate the flexible budget variance for sales, vc, fc, or operating income?
It is the difference between the actual budget and flexible budget for any line item.
214
assigns costs to activities or transactions and allocates them to products according to their use of each activity. This method means multiple cause and effect relationships may exist.
activity based costing
215
What are the first few steps in the process of strategic planning?
Defining the firm's vision and mission statements Setting the goals and objectives of the firm Creation of the strategic plan
216
How to do the high low method to estimate the cost at a certain activity level?
Equation is y = mx + b x = (High cost - low cost)/(High activity level - Low activity level) Solve for the b at the high activity level and cost Plug in the activity level you are trying to by at the m and then solve for y
217
Formula for Variable overhead rate (spending) variance
Actual Hours *(Actual Rate - Standard Rate)
218
Formula for Fixed overhead volume variance
Budgeted fixed overhead - Standard fixed overhead cost
219
What are way to tell how competitive an industry is based on Porter's five forces?
R&D budgets Advertising expenses How quickly other firms respond to competitors
220
What are ways to tell the existence of substitute products in an industry?
Price elasticity of demand is low = low # of substitutes
221
Operating cash flow ratio
Cash flow from operations/Ending Current Liabilities
222
What are some signs that a trademark would have an indefinite useful life?
Cost to renew is very low
223
How to calculate Goodwill impairment under GAAP?
Compare Fair Value of reporting unit and Carrying Value of reporting unit Carrying Value - Fair Value = Impairment Loss Find out what the Goodwill is Goodwill impairment cannot exceed the carrying value of Goodwill
224
How is equipment that will be only used for a specific project accounted for under GAAP?
You would expense the equipment cost immediately if the equipment does not have an alternative use after the project is completed. You would capitalize and depreciate the equipment if it does have an alternative use.
225
When are research and development costs capitalized?
1)if materials, equipment or facilities developed have alternative future use 2) research and development costs are undertaken on behalf of others under a contractual arrangement
226
How are cost related to the planning, design, coding, and testing of software treated until technological feasibility has been reached?
They are recorded as research and development expenses.
227
the ability to develop a product using current technology and resources, and to meet its design specifications
technological feasibility
228
How are capitalized costs related to software projects amortized over the life of the software?
It is the greater of the straight line approach or percentage of revenue approach Straight line = Software/useful life Percentage of Revenue = Revenue generated in a specific year/Total Revenue expected to be generated
229
How to calculate break even point with a sale mix?
Find Product A contribution margin Find Product B contribution margin (Product A CM * Sales mix %)+(Product B CM * Sales Mix %)=X Fixed Cost/X=Y Y * Sales Mix percentage for Product A
230
A distinguishing feature of the Black-Scholes option pricing model is:
Stock options are exercisable only at maturity or as European Style options
231
How calculate the net cash outflow for the purchase of equipment
Initial Cash outflow Less: Present value of the residual value
232
Days of payables outstanding formula
Ending accounts payable/(CoGS/365)
233
What cost remain constant within a relevant range?
fixed cost will remain fixed cost per unit will not change
234
What is operating leverage and what is the formula?
the presence of fixed costs in operations, which allows a small change in sales to produce a larger relative change in profits. FC/(FC+VC)
235
normally classifies activities of an organization into major headings and identifies the critical success factors and related strategic goals whose achievement will ensure meeting the requirements of those factors
balanced scorecard
236
used to evaluate the liquidity of the firm through the calculation of the cash conversion cycle
average collection period
237
represent a third party guarantee of obligations incurred by a company.
line of credit
238
exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country.
repatriation restrictions
239
How to calculate the after tax cash flow for a capital project
Find the pre tax cash flows Pretax cash flows - tax expense = after tax income Annual depreciation * tax rate After tax income + (annual depreciation * tax rate) = after tax cash flow
240
How to calculate gross profit for a construction contract?
Contract Selling Price Less Cost to complete Total Gross profit (loss) Cost to complete in X1/Total Cost=% completed % completed * Total Gross profit
241
What happens when you have an estimated gross loss for a project?
Recognize the loss immediately
242
What do you do when revenue is recognized at a point in time for a construction project?
Recognize the revenue at the end of the project but if there is a loss then you recognize it in the year the loss is incurred.
243
What happens when you recognize revenue at a point in time but you are expected to have a loss?
Contract Price Less cost to this date Less estimated cost to complete Recognize this loss for the year
244
What is the revenue rules in a principal agent relationship?
The agent records revenue based on their sales commission.
245
When does a seller recognize a transaction as a financing arrangement?
Repurchase Price > Selling Price Expected Market Value
246
What type of expense is market research?
Selling expense under operating expenses
247
Goodwill acquired in an arms-length transaction is ____________, but internally created goodwill is __________ because an objective measure of its value is difficult to obtain.
capitalized expensed
248
What are the journal entries when a company grants stock options and they are exercised in the same period that they are granted?
DR: Compensation expense for fair value of options CR: Paid in capital stock options outstanding DR: Cash for the exercise price * number of options DR: Paid in Capital stock options oustanding CR: Common stock at part value CR: Paid in capital in excess of par
249
What is vesting?
the process of earning ownership of an asset over time
250
What is the total compensation expense formula?
Market price of the share on date of grant * number of restricted shares awarded
251
What is the process for recording stock options for employee compensation?
There is not journal entry on the grant date but compensation expense is recognized over the vesting period Record compensation expense over vesting period for each year DR: Compensation expense = Fair value at grant date/vesting period CR: APIC - stock option J/E if stock options are exercised DR: exercise price * number of shares exercised DR: APIC-stock option for the proportion of shares exercised CR: Common stock for par value CR: APIC this is a plug figure
252
What are SARs (stock appreciation rights) what is the journal entry
If a manager meets certain financial ratios then they will get awarded based off this Journal Entry DR: Compensation expense CR: Liability for SARs plan
253
How to calculate the break even point for sales dollar given fixed cost and the cm ratio?
Fixed cost/Contribution Margin Ratio = Total breakeven sales
254
How to find the cost of retained earnings when you are given: current price of stock, growth rate, and dividend at the end of the first year?
P^0 = D^1/(cost of retained earnings - g)
255
What is the affect of fees of finds and registration fees on the balance sheet and income statement?
Fees of finders would decrease net income because it would be an expense Registration fees would decrease APIC and not affect the income statement
256
What happens in consolidated financial statements to the retained earnings of the company acquired?
They are eliminated Think of the CAR part which is a debit to stockholders' equity accounts
257
How do you accounts for acquisition costs with a business transaction?
They are expensed as incurred in the period they are incurred
258
What is the journal entry for consolidation
DR: Common Stock at BV DR: APIC at BV DR: Retained earnings at BV CR: Investment at purchase price CR: Non-controlling intererest DR: FV in excess of book value DR: Intangible assets DR: Goodwill which is a plug figure
259
can be used to separate costs into fixed and variable components by means of least squares. This method mathematically fits a trend line to minimize the distance between the trend line and the actual observations.
regression analysis
260
_________ ________ analysis is used to determine increases in efficiency or production as experience is gained. Both products have long production runs, making _______ _______ analysis the best method for estimating the cost of the competitive bid.
learning curve
261
When do you account for an investment under equity method?
20-50% ownership Ability to exercise significant influence: make up the board of directors
262
When do you account for an investment under the cost method?
When we don't exercise significant influence Investment is in a debt security and not an equity security
263
How to calculate a variable interest entity (VIE)?
Amount of contribution by investor/Total contributions by all investors The primary beneficiary in a VIE needs to consolidate their financial statements
264
What is the interpretation of the AR of quick payment discount formula: 360/(Pay period - discount period) * (Discount %/(1-Discount %)
The outcome of this formula is what it would cost the business if they did not take advantage of the discount Based on my understanding if the result is high then you would want to pay during the discount % and borrow from the bank
265
How to find the gain or loss when an investor goes from equity method to the consolidation method?
First find the current book value of the investment in investee Multiply the original ownership percentage by the current fair value of the company The difference between these two is the gain/loss
266
What are the two key differences between the Black-Scholes pricing model and Cox-Ross Rubinstein model?
Cox considers option over a period of time Cox factors in the period dividends
267
What is the formula to calculate the ending non controlling interest balance?
Beginning Controlling interest Add NCI share of subsidiary net income Subtract NCI share of subsidiary dividends Ending NCI
268
How do you hedge against foreign currencies if you have a receivable versus a payable?
Receivable You don't want the price to go below the current spot rate so you would buy a put option Payable You don't want the price to go above the current spot rate so you would buy a call option
269
How are assets/liabilities, equity, and income statement items translated to the functional currency?
Assets/Liablities use current exchange rate Equity/Capital accountsuse the histroical exchange rate Income Statement items use the weighted average exchange rate
270
How to determine a company's functional currency?
The currency of the primary economic environment, this is usually called the local currency or the reporting currency
271
Where are gains and losses reported for the remeasurement method under U.S. GAAP?
Income from continuing operations, at the gross amount
272
What are the differences between the translation method and remeasurement method for assets/liabilities, equity accounts, income statement items?
Remeasurement happens when the subsidiary's functional currency is not the same as the reporting currency of the parent. Example: Ford owns Jaguar. Ford reporting currency is dollars, Jaguars' functional currency is British pounds, but they do most their business in Japan so we need to remeasure Translation happens when the parent company and the sub have different currencies so we need to translate directly Example: Ford reports in Dollars and Jaguar's functional currency is British pounds
273
What are the rules for remeasurement?
Balance Sheet Monetary items= year end(spot rate) Non-monetary items = historical rate Income statement = weighted average Income statement B/S related = historical Monetary items: A/R, long-term debt Non-monetary items: inventory, fixed assets
274
What are the rules for translation?
B/S Assets/Liabilities = year end(spot rate) C/S=historical rate I/S = weighted average
275
When a multinational company issues its annual consolidated financial statements, they are always based on the:
reporting currency
276
What is the difference between the direct method an indirect method for a U.S. Company?
Direct method: $1.50=1 euro Indirect method: $1: 0.67 euros
277
What are the characteristic of the primary beneficiary for a variable interest entity?
Power to direct the activities Right to receive the expected residual returns Obligation to absorb expected losses
278
What happens to the retained earnings of the sub when a parent company owns 80% of the sub?
The entire retained earnings of the sub is eliminated
279
How to find the effect annualized percentage cost of financing for commercial paper?
Face value - discounted price= discount Discount +transaction cost = cost to issue Cost to issue/Amount received=percentage rate If this is only for 3 month then multiply the quarterly percentage rate by 4 to get the annual percentage rate
280
What are the characteristics for a derivative to be designated and qualify as a fair value hedge?
Formula documentation expected to be highly effective in offsetting changes in the fair value of the hedged item and the effectiveness is assessed at least every three months. specifically identified. presents exposure to changes in fair value that could affect income.
281
What are some types of derivative financial instruments (3)?
interest rate swaps currency futures stock-index options
282
How are derivatives valued on the balance sheet?
At fair value
283
What are two characteristics of futures?
Contracts are made through a clearinghouse Standardized notional amounts and settlement dates A notional amount, also known as notional principal amount or notional value, is the face value of a financial instrument that is used to calculate payments
284
What is the underlying in derivatives and what is an example?
The price that could occur An example is the strike price of an option being $50
285
What is the notional amount in derivatives and what is an example?
How many of the derivatives there are An example would be 1,000 shares of AAPL
286
What is the initial net investment for a derivative?
It is the premium paid/transaction cost An example is the transaction cost of $1 a share to buy 1,000 options which would be $1000
287
What is the settlement amount in derivatives?
Underlying * notional amount An example is the underlying being $50 and the notional amount being 1,000 shares 50,000
288
How to calculate the gain/(loss) when we sell a call?
P^0>exercise price Loss=# of shares*(P^0-exercise price - transaction price) P^0
289
What is the formula for an efficiency variance?
Standard rate *( Actual Hours - Standard hours)
290
Where are investments that are held for trading purposes and then sold for cash reported in the statement of cash flows?
Operating section
291
What is the lease classification test?
Bargain (written) purchase option Ownership transfers at the end of the lease Net present value is > 90% of the fair value Lease term is >75% of the economic life Specialized in nature which means the lessor does not have use for it after the lease Any of these yes means it is classified as a finance/sales type lease
292
How to calculate the lease receivable for a lessor under a direct financing lease?
Minimum lease payments + residual value
293
How to calculate the lease payments and total interest revenue over the life a a finance lease.
The lease receivable if the fair value of the equipment Present value = pmt * pv factor Given presetn value and pv factor you can calculate pmt After you can get total lease payments and subtract this from the present value to get total interest revenue over the lease term
294
How to calculate the gain/(loss) in a sales type lease?
Present value of lease payments less carrying cost of equipment
295
When is a sale-leaseback considered a failed sale?
When it is a finance lease
296
What are the journal entries for an operating lease?
Initial Journal Entry DR: Lease Receivable CR: Unearned Rental Income Jounral entry each payment DR: Cash CR: Rental Income DR: Unearned Rental Income CR: Lease Receivable DR: Depreciation Expense CR: Accumulated Depreciation
297
What are the characteristics of an operating lease?
The lessor is acting as if they are keeping the asset on their books This means they will recognize the depreciation expense over the life of the asset not just the lease term. They will also recognize only rental income/lease income and they will not recognize interest income
298
What are the journal entries for a financing lease from the lessor's perspective?
Initial Journal entry DR: Lease receivable at the pv of the lease payments DR: Any cost incurred by the lessors CR: Cash for the cost incurred CR: The bv of the fixed asset that is being leased CR: Gain or DR if it is a loss for the difference between the pv of lease payments and the book value of the asset Payment journal entries DR: Cash for the payment amount CR: Interest income for lease receivable cv * interest % CR: Amortization of the Lease receivable=Cash - interest income
299
What bond will likely have a constant market value?
floating-rate bond Floating-rate bonds would automatically adjust the return on a financial instrument to produce a constant market value for that instrument. No premium or discount would be required since market changes would be accounted for through the interest rate.
300
How to determine whether a business segment is reportable?
Find the total revenue which includes unafficiliated and intercompany sales Individual Segment Revenue/Total Revenue If it is greater than 10% then report it The coverage test has to be met as well which is 75% of sales to unaffiliated customers
301
How to determine whether a segment of an enterprise should be reported in the enterprise's financial statements for assets/liabilities?
The segment's assets constitute more than 10% of the combined assets of all operating
302
What is the key thing to remember when it comes to operating profit by segments?
It is based on the profit reported to the chief operating decision maker
303
How to determine whether to to disclose major customer data in the financial statements?
If sales to a single customer are greater than 10% of total sales
304
_________ _______ is computed as contribution margin net of controllable costs. Controllable costs represent those fixed costs that managers can impact in less than one year.
controllable margin
305
Employee training, Inspection expenses-preproduction, process redesign, and product redesign costs
Prevention costs
306
Inspection expenses-postproduction, lab maintenance, product testing
appraisal costs
307
Rework, Scrap, tooling changes
Internal failure costs
308
cost of returning goods, liability claims, warranty costs
external failure costs
309
Financial statemements required for a defined benefit pension plan
Statement of Net Assets Available for Benefits Statement of Changes in Net Assets Available for Benefits Statement of Accumulated Plan Benefits Statement of Changes in Accumulated Plan Benefits
310
What type of costs do businesses use a flexible budget?
When the costs are variable Examples: Marketing expense, direct materials Fixed cost would not use a flexible budget because the total cost would be the same regardless of the units produced or price
311
What are two types of way for a business to create a budget and which one is faster?
Participative budgeting requires more people in the organizationt to participate Authoritative budgeting is top down which is faster
312
What happens to the quantity of labor demanded and the quantity of labor supplied when the minimum wage increases?
Draw a demand/supply curve for this and where the price would increase Imagine it being a horizontal line where the price would increase This would increase the quantity of labor supplied It would decrease the quantity of labor demanded
313
How do you account for stock registration fees?
Registration fees will redcue the APIC account CR: C/S = par value * # of shares issued CR: APIC = (Issue price - par value * # of shares issues) - registration fees
314
What are these types of risks related to: Purchasing power, Translation Exposure, Economic exposure, Transaction exposure
Purchasing power: inflation Translation exposure: gains or losses on f/s based on exchange rates differences Transaction exposure: transactions settled in different currency
315
Is variable costing or absorption costing used by GAAP and what happens when you produce more than you sale?
Absorption costing Inventoriable cost for absorption costing included fixed manufacturing overhead When you produce more than you sale variable costing cost of sales will be higher The reason for this is because foh is a period cost and is always included in cost of sales for variable costing
316
How to calculate variable overhead efficiency variance?
Budgeted variable overhead based on standard hours - budgeted variable overhead based on actual hours? Example: Actual # of units manufactured: 19,000 Actual Direct Labor hours: 2,100 Direct labor hours budgted per frame: 0.1 VOH cost: $2 per direct labor hour (19000*0.1*2)-(2100*2)
317
What is the journal entry to record estimated revenues, appropriations control, and budgetary control for a gov't fund at the beginning of the year?
DR: Estimated Revenues CR: Appropriations control CR: Budgetary control
318
What is the rule for when to recognize revenue for fund financial statements?
Collections during the year plus the collection within 60 days of year end
319
What are things that are considered expenditures for governmental fund financial statements?
Capital purchases debt service payments operating expenditures
320
What are considered other financing sources for governmental funds?
Transfer in from other funds
321
How to close the estimated revenues control account at year end?
DR: Appropriations control CR: Estimated revenues control for initial amount
322
What is the beginning of the year journal entry: Estimated revenues: 80 Appropriation 100
DR: Estimated Revenues 80 CR Appropriations 100 DR: Budgetary Control (plug figure) 20
323
What is the journal entry to close out estimated revenues, appropriations control, when control exceeds revenues estimated?
DR: Appropriations control CR: Estimated revenues CR: Budgetary control
324
What are examples of derived tax revenues
personal income tax sales tax
325
an agreement to convey the right of use of another entity's nonfinancial assets for a maximum period of less than 12 months.
short term lease for GASB
326
a contract that conveys ownership of the underlying asset to the lessee in a financed purchase.
contract that transfers ownership for GASB
327
How to calculate the minimum price that is acceptable when a company is operating at full capacity
Variable cost of product Add: Contribution margin to produce an alterative product
328
How to calculate the cost of savings in a year when you have CoGS and inventory turnover?
Find the current and new inventory based on the inventory turnover formula Subtract these two values Multiply these values by short term interest rates to find cost of savings
329
What is the journal entry for a purchase order of supplies for a government?
DR: Encumbrances CR: Budgetary control
330
What would the journal entries for when a government purchases supplies and then receives them?
INITIAL JOURNAL ENTRY DR: Encumbrances (estimated amount) CR: Budgetary control RECEIVING JOURNAL ENTRY DR: Budgetary control original amount CR: Encumbrances DR: Expentitures (actual amount) CR: Vouchers Payable
331
includes interfund loans and interfund services provided and used.
reciprocal interfund activity
332
include interfund transfers (which are displayed as either other financing sources or uses on the governmental fund financial statements or purely as transfers in proprietary fund financial statements) and interfund reimbursements (which are not shown on the face of the financial statements).
nonreciprocal transfers
333
represent resources whose use has been limited by external sources such as creditors (e.g., debt covenants), contributors, other governments, laws, constitutional provisions, or enabling legislation.
restricted fund balances
334
Encumbrance accounting is used in the ________ ____________. What are they?
Governmental funds General Fund Debt Service Fund Permanent fund Special Revenue Fund Capital Projects fund
335
How to calculate the Encumbrances outstanding amount?
Total Purchase orders charged to encumbrances - (received goods and related invoices)
336
Interfund transfers received by a governmental-type fund should be reported in the Statement of Revenues, Expenditures, and changes in Fund balance as a (an):
Other financing source
337
Where is non-controlling interest reported on the consolidated balance sheet?
In the equity section but separated from the parent's equity
338
What is the primary difference between the purchase method of accounting for inventory and the consumption method of accounting for inventory?
The purchase method initially records additions to inventory as expenditures
339
What is an example of foregoing revenues?
Property taxes
340
What is the journal entry when a governmental fund receives fixed assets like land, building, and equipment that they have purchased?
DR: Expenditures CR: Vouchers payable
341
What is an example of a company that uses process costing?
Coco Cola because of the mass production of a single product
342
Would net income be higher under absorption costing or variable costing when more unit a sold than produced??
Absorption costing because we include the fixed manufacturing cost in the inventory that is not sold and does not hit the income statement yet.
343
What are the three budgets that the master(static) budget consist of?
Capital Expenditure Budget Operating Budget Financial Budget
344
What budgets does the operating budget consist of?
Sales Budget: Foundation of all budgets Production Budget Cost of Production Budget Selling and Administrative Expense Budget Think of this as the first part of the income statement for the operation section
345
What is an example of the Sales Budget?
Unit sold per quarter Selling price per unit Total Sales Calculating the cash collections based on this
346
How to calculate the production budget?
USE THE BASE ROLLFORWARD B: Beginning Inventory A: Budgeted Production S: Budgeted Sales E: Desired ending Inventory (S+E)-B=Budgeted Production
347
What are the four major types of variance analysis?
Direct Materials variance Direct Labor Variance Manufacturing Overhead: Variable Overhead & Fixed Overhead Sales Price Variance & Sales Volume Variance
348
What is the direct materials price variance formula and who is responsible for this in the organization?
(Actual price - budgeted price) * Actual Units The purchasing manager would want to find direct materials that are lower in cost
349
What is the direct materials usage variance formula and who is responsible for this in the organization?
(Actual units - budgeted units) * Budgeted Units The production manager would want to actually use less units for direct materials
350
What is another name for Budget in cost accounting?
Standard
351
What is the formula for the direct labor rate variance and who is responsible within the organization?
(Actual Rate - Budgeted Rate) * Actual number of hours used HR manager is responsible for the rate and they would want a lower rate
352
What is the formula for the Direct Labor efficiency variance and who is responsible within the organization?
(Actual hours used - budgeted hours used) * Budgeted Rate The production manager is responsible for this variance and he would want the actual hour used to be less than the budgeted amount
353
How to calculate the variable overhead spending variance and who is responsible for this within the organization?
(Actual Variable Overhead rate - Budgeted Variable Overhead Rate) * Actual Quantity The actual quantity will be the driver which could be direct labor hours or direct materials used The production manager would want the VOH rate to be lower than the budgeted
354
How to calculate the variable overhead efficiency variance and who is responsible for this within the organization?
(Actual Quantity - Budeted Quantity) * Budgeted VOH Rate The quantity will be the driver which will likely be the direct labor hours The production manager is responsible for this variance and he would want the actual quantity to be less than the budgeted quantity
355
How to calculate the fixed overhead spending variance and who is responsible within the organization?
Actual fixed overhead - Budgeted Fixed Overhead The production manager would want to the actual to be less than the budgeted
356
How to calculate the fixed overhead volume variance and who is responsible for this within the organization?
(Fixed overhead applicaiton rate * Actual units producted) - Budeted Fixed Overhead Fixed overhead application rate = Budgeted Fixed Overhead/Total budgeted Production The production manager, It is favorable when it is positive because we produced more than we expected
357
How to calculate the Sales Volume Variance based on contribution margin or selling price??
(Actual Sales Volume - Budgeted Sales Volume) * Budgeted contribution margin You could also you the budgeted selling price per unit
358
accounts for the accumulation of resources for, and the payment of, general long-term liability principal and interest.
debt service fund
359
provide goods or services to the general public,
enterprise funds
360
provide goods or services to other departments on a cost-reimbursement basis.
internal service funds
361
How is interest due on bond treated for governmental funds?
Interest expenditures is not accrued and is not reported until it is actually due
362
How are items are not extraordinary ( both unusual and infrequent) reported in the financial statements of governmental funds?
As an expenditure
363
All "expenditures" from (almost) every "operating" fund are debited to an account called "___________ ________."
expenditure control
364
The debt service fund which uses the modified accrual basis of accounting will accrue interest only when it is ____ ______, not at interim dates
legally due
365
What are two things that would be included in the capital projects fund for other financing sources for the current year?
Proceeds from debt issuance Transfer from general fund
366
What is the best way to measure liquidity position of a company?
The current ratio
367
The five components of COSO's Enterprise Risk Management System?
GOPRO ACRONYM Governance and Culture Objective-Setting and strategy Performance Review and Revision Information, Communication, and Reporting (Ongoing)
368
Evaluates alternative strategies, Formulates business objectives, analyzes business context, defines risk appetite
Strategy and Objective setting part of ERM
369
Develops portfolio view, Assesses severity of risk, prioritizes risk, identifies risks, implements risk responses
Performance part of ERM (DAPII)
370
two or more products of significant value that are generated from a common input
Joint product, one process produces two outputs and the total cost for this process needs to be allocated
371
minor products of relatively small value that incidentally result from the manufacture of the main product
by-product
372
How do you allocate joint costs when there is no sales value at the split off point?
YOU MUST FIRST CALCULATE THE SALE VALUE AT SPLIT OFF Sales value at split off = final selling price - separable cost after the split off Sales value at split off * # of units to allocate the percentage of joint costs
373
What is the journal entry for an internal service fund to record revenues from other units within the government?
DR: Due from other funds CR: Operating revenues control This is similar to a for-profit entity except their journal entry would debit A/R and credit Revenue
374
How do you calculate the net investment in capital assets for an proprietary fund?
Book Value of Capital Assets Less: Accumulated Depreiciation of Capital Assets Less: Debt that is for the acquisition of capital assets
375
What type of revenue is shared revenues by an enterprise fund?
Non-operating revenues
376
How long does a capital project fund last?
The life of the construction period, usually 1-3 years
377
What does having a perfect hedge mean?
There is no future gain or loss
378
How to calculate the sales mix variance and was is the explanation behind it?
(Actual Units sold - Budgeted Units sold) * budgeted contribution margin If it is positive than it is favorable
379
What is an easy way to remember the difference between a defined benefit plan and a defined contribution plan?
Defined contribution plans are similar to 401(k) and they are a lot easier to account for. Some key attributes for a defined benefit plan that differentiate themselves from a defined contribution plan ACTUARIAL ASSUMPTIONS COMPLEX TO ACCOUNT FOR CAN BE OVER OR UNDERFUND BASED ON PLAN ASSETS
380
How to find the equivalent unit conversion cost using the FIFO method? (PUT INTO YOUR OWN WORDS SO YOU CAN UNDERSTAND IT FOR TEST DAY)
FIRST: Find current conversion cost which is Direct Labor + Factory Overhead SECOND: Find equivalent units for FIFO method Units Completed during the period Add Ending WIP * % of conversion costs Less Beginning WIP * % of conversion costs TOTAL CONVERSION COSTS/EQUIVALENT UNITS
381
What is a custodial fund?
a fund that hold money for a government until it is distributed to the legal owner or beneficiary
382
What would the journal entry be to record the principal payment and interest expense for a lease of a governmental fund?
DR Expenditures Control = Principal Payment + Interest Payment CR: Cash
383
How to calculate the amount of non controlling interest for a parent company?
FIRST CALCULATE THE INVESTMENT AMOUNT IF THEY ACQUIRED 100% OF THE SUB Investment amount/% acquired=Book Value of Sub Total Book Value of sub * (1-% acquired) = non controlling interest
384
What are the gains or losses of fair value hedges reported in the financial statements? What are examples of fair value hedges
Always in the INCOME STATEMENT Options Interest rate swaps
385
What are the characteristics of a forward contract?
Nature: Over the counter (PRIVATELY TRADED) Liquidity: (less liquid than future contracts) Contract Terms: Customized Settlement date: End of period
386
What are the characteristics of a future contract
Nature: Traded on organized exchange (publicly traded) Liquidity: More liquid when compared when forwards Contract terms: Industry standard Settlement date: Can be settled daily
387
What are the gains or losses of cash flow hedges reported in the financial statements? What are examples of cash flow hedges?
THE EFFECTIVE PORTION IS ALWAYS REPORTED IN THE OTHER COMPREHENSIVE INCOME STATEMENT Forwards Futures
388
What type of derivative is when a bond that can be converted into shares if the price reaches a certain level?
embedded derivative
389
Have one or more underlyings and one or more notional amounts Required no initial net investment Have their terms requiring or permitting net settlement
Freestanding derivative
390
What is the difference between regulation s-k and s-x?
S-K related to nonfinancial info statement disclosures S-X relates to the financial statements that are required
391
How is a change in fair value of a contingent consideration accounted for when a company accounts another?
The change is reported as either a gain or loss in the income statement Example: A company with pay a certain amount if the company they acquires meets a certain revenue goal The change in fair value of this contingency is the part that is reported
392
What is the purpose of the statement of activities for government-wide financial statements?
Operational accountability
393
What are the three section of the ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR)
INTRODUCTORY SECTION BASIC FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION STATISTICAL SECTION
394
What are included in the basic financial statements for a state or local government?
GOVERNMENT-WIDE FINANCIAL STATEMENTS (statement of net position, statement of activities) FUND FINANCIAL STATEMENTS: Governmental funds, proprietary funds, Fiduciary funds NOTES TO THE FINANCIAL STATEMENTS
395
What are the three criteria for a primary government?
SEPARATELY ELECTED GOVERNING BODY LEGALLY SEPARATE FISCALLY INDEPENDENT OF OTHER STATE AND LOCAL GOVERNMENTS SELF acronym If these are not met then the unit would be considered a component unit
396
How to determine whether a component unit is blended or discretely presented?
GOVERNING BODY IS THE SAME AS THE PRIMARY GOVERNMENT SERVICES THE PRIMARY GOVERNMENT ONLY TOTAL DEBT OUTSTADNIGN IS EXPECTED TO BE REPAID BY THE PRIMARY GOVERNMENT'S RESROUCES If all of these conditions are met then the component unit is blended
397
What is the goal of setting standards and preparing budgets for a business?
To motivate employees to achieve the strategic goals of the organization.
398
What is the biggest type of risk associated with derivative contracts?
Credit Risk because the losing party will fail to perform their duty
399
What is the purpose of fund financial statements when it comes to accountability for a government?
FISCAL ACCOUNTABILITY
400
national currency based on the location
local currency
401
primary economic environment currency
functional currency
402
presentation of financial statements currency
reporting currency
403
When does remeasurement of a currency occur for a company?
When a subsidiary company needs to remeasure their financial statements from the local currency to functional currency LOCAL CURRENCY ------> FUNCTIONAL CURRENCY
404
When does translation occur for a company?
When a subsidiary reports their currency in a functional currency that is different then the parent company's reporting currency FUNCTIONAL CURRENCY ---> REPORTING CURRENCY
405
How to determine the cost driver for activity based costing (denominator)?
Choose the cost driver with the highest correlation or coefficient of determination Change in dependent variable that can be explained by the independent variable
406
What is the formula for the equity ratio?
Total equity divided by Total Assets
407
What are some examples of capital expenditures
Land Building Patents Machinery
408
How do governmental wide financial statements recognize tax revenue?
GOVERNMENTAL WIDE FINANCIAL STATEMENTS USE FULL ACCRUAL Calculation LEVIED PROPERTY TAXES * (1-UNCOLLECTIBLE AMOUNT)=REVENUE RECOGNIZED
409
How is property that is retained by the government capitalized?
Lower of the cost or market value of the asset
410
What is the journal entry that government wide statements use to record property tax revenue?
DR: Property Taxes receivable CR: Allowance for uncollectible taxes CR Property Taxes Revenue
411
What are the three types of program revenues for a government?
SOC ACRONYM S Charges for services O Operating grants and contributions C Capital grants and contribution
412
How do government wide financial statements report expenses?
By their function
413
What is the thing to remember when it comes to the fiduciary funds in governmental wide financial statements?
They are not included in the statements
414
What is the journal entry to reflect expired compensatory stock options for employees?
DR: APIC stock options CR: APIC expired stock options
415
What are factory foremen and would it be direct or indirect labor?
A supervisor for employees in a factor Indirect labor
416
Which of these cost would be in inventory under absorption costing: Fixed Manufacturing Cost, Variable Manufacturing Cost, Fixed SG&A cost, Variable SG&A costs
Variable Manufacturing Costs Variable SG&A Cost Fixed Manufacturing Costs Under Variable costs it would only be the first 2
417
Who assumes the risk under a defined benefit pension plan and why?
The employer They have to cover the fixed annuities that are owed to the employee
418
What are the financial statements that are required for a defined benefit pension plan?
Statement of Net Assets Available for Benefits Statement of Changes in Net Assets Availaable for Benefits Statement of Accumulated Plan Benefits Statement of changes in accumulated plan benefits
419
What is an interest rate swap?
It is literally when two companies have to owe interest on a loan and are unsatisfied with their current terms so they trade their interest rate agreement with another company.
420
What type of costs are included in activity based costing?
variable overhead DM and DL are already allocated directly
421
What are the three things that make up activity based costing
Total overhead Cost pools: assembly cost, processing order costs, Cost drivers: # of units, # of orders
422
How to find the activity rate in activity based costing?
Cost Pool/Cost driver of cost pool
423
Why is it after tax cost of debt when calculating the WACC?
There is a tax shield because interest is tax deductible Formula: Pre tax cost of debt * (1-tax rate)
424
What is the internal rate of return?
It is the discount rate of a project that makes the net present value of the project equal to 0.
425
How to determine if a fund is considered a major fund in governmental accounting?
THRESHOLDS 10% times total governmental funds 10% times enterprise funds 5% times combined governmental and enterprise funds See if the funds are above these thresholds and report them The General fund is always a major fund and will be reported
426
What is the formula for the governmental statement of financial position?
Assets Add deferred outflows Equals Liabilities Add Deferred Inflows Add fund balance Balance sheet format
427
What is the format of the statement of cash flows for proprietary funds?
Operating Activities Capital and related financing activities Noncapital financing activities Investing Activities
428
How is interest income/cash receipts reported in the statement of cash flows for pro funds?
Investing activities For profit entities report it in operating activities
429
How are capital asset purchases reported in the statement of cash flows for pro funds?
Financing activities
430
The reconciliation of ________ _________ to net cash provided by operations includes depreciation and changes in current assets and liabilities, but does not include adjustments for _____ and _____ because ___ and _____ and nonoperating items are not included in operating income.
Operating income Gains Losses
431
What are included in operating activities for pro funds?
Receipts from customers Payment to suppliers Payments to employees
432
What are included in the investing activities for pro funds SCF?
Proceeds from sales and maturities of investments Interest dividends
433
What are included in captial and related financing activities for pro funds SCF?
Proceeds from capital debt purchases of capital assets principal paid on capital debt interest paid on capital debt proceeds from the sale of assets
434
How to calculate the cash flows from operating activities for a proprietary fund?
Operating Income Add non cash expenses: D/E and Amortization Less Increase in current assets Add increases in current liabilities except for long term debt Gains are not included
435
What is the presentation of the statement of financial position for a fiduciary fund
Assets Add deferred outflows Minus Liabilities Deferred Inflows Equals Net position Net position format
436
When a company acquires another company with intangible assets, are the cost related to valuing the assets from a consulting firm capitalized with the assets or expensed during the same period?
They are expensed during the period they are incurred and are not included in the value of the asset
437
The successful and profitable launch of a new product line by an entity represents:
value creation
438
What type of entity in required to report on business segments?
publicly traded enterprises
439
When it comes to working capital and specifically accounts payable, how does paying them off affect the current ratio and liquidity?
Not paying them means cash would stay the same Paying them off means a decrease in current liabilities but also a decrease in cash. This is not necessarily a bad thing
440
What are included in noncapital financing activities for pro funds SCF?
Operating subsidies and transfer to other funds