All Bar Deck 06/14/24 Flashcards
No action is taken to change the severity of the risk
risk acceptance
Action is taken to remove the risk
risk avoidance
action is taken that accepts increased risk to achieve improved performance
pursue risk
action is taken to reduce the severity of the risk through risk mitigation techniques
risk reduction
action is taken to reduce the severity of the risk through outsourcing and insurance
risk sharing
how to calculate the real price
nominal price/(1+inflation rate)
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
How to calculate the market rate of interest for a U.S. t-bill?
risk free rate of interest + inflation premium
What does self-insure mean?
It means to cover the costs of damages instead of getting an insurance policy and this means to accept the risk
How to calculate residual risk?
Residual risk = Inherent risk - impact of management’s action
the risk to an entity in the absence of any direct or focused actions by management to alter its severity
inherent risk
what remains after action has been taken by management to reduce inherent risk.
residual risk
the amount of risk an entity prefers to assume in pursuing its goals and objectives.
target residual risk
Who comes up with the objectives for the COSO ERM system?
management/board of directors come up with them
What is the gross profit formula?
Sales - CoGS
What is the gross margin formula?
(Sales - CoGS)/Sales
How to calculate the sales mix percentage?
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
How is the information about plan members’ accounts typically presented in a defined contribution pension plan’s financial statements?
As a combined total of all members’ account balances.
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.
monitoring
Why must there be a formal designation and documentation at the inception of a hedging relationship?
To ensure transparency and alignment with the entity’s risk management strategy.
How to find elasticity in economics?
% change in quantity/%change in price
How to find unit elastic quantity demanded?
1 = % change quantity demanded/supplied/% change in price
occurs when an investor’s certainty equivalent is less than the expected rate of return. The investor seeks higher returns for more risk.
risk averse behavior
occurs when an investor’s certainty equivalent is equal to the expected return on the investment.
risk indifferent behavior
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
referred to as firm-specific or non-market risk. ________ risk can be reduced by diversification, investing in other companies.
unsystematic risk
refer to risks that can not be mitigated by investment in different securities.
There are three names for this
systematic
market
non-diversifiable
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
_________ _______encompasses the political risk, economic risk, transfer risk, sovereign risk, and exchange rate risk associated with engaging in business with foreign countries
country risk
___________ ___________generally refer to content or value added limits on the percentage of labor or materials used in imported products
sourcing requirements
_______ ___________ 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
the use of a worldwide supply chain
global sourcing
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
the risk that the settlement of a specific transaction in a foreign currency will result in a translation loss.
transaction risk
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.
What does horizontal merger mean?
When two companies are in the same industry and they merge together think of Titleist and Callaway merging.
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.
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
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
An outright sale of a subsidiary. Subsidiary’s core competencies do not align with the overall company’s core competencies.
sell-off
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
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
two similar asset size companies combining to create a new legal entity.
merger
when one company offers to buy the shares of the other company.
tender offer
one company buying the other company with the acquirer remaining after the transaction and no new company being formed.
acquisition
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
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
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
What happens to the supply curve when the wages for labor decreases?
The supply curve shifts to the right
the theoretical balance between an entity’s willingness to accept risk and the return/growth goals that the entity wishes to achieve.
risk appetite
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
The state of not knowing how or if potential events may manifest.
uncertainty in enterprise risk management
undermines competitive pricing and maintains prices to external customers at levels higher than they would be in a competitive market place.
collusive pricing
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
involves appropriately assigning different prices to the same product in different market settings.
dual pricing
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
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: (3,000,0000.04)-(3,000,000*0.05) = 30,000 loss
funds that have been set aside for a specific future expense in state and local governments
encumbrance
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.
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
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
Under hedge accounting, what happens if a hedging relationship ceases to be highly effective?
Hedge accounting must be discontinued prospectively
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)
What is the weighted average cost of capital (WACC) formula?
WACC = (cost of equity * weight) + (after tax cost of debt * weight)
What is the formula for the capital asset pricing model (CAPM)?
Cost of retained earnings = Risk-free rate + [Beta * (Market return - Risk-free rate)
How to calculate the market risk premium?
Market return - risk free rate
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
What is 100 basis points equal to?
This is equal to one percent
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
How to calculate cost of retained earnings using bond yield plus risk premium?
Pre-tax cost of long term debt + market premium
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
What is the formula for market capitalization?
Market price per share * # of shares outstanding
How to calculate the number of shares outsanding?
Common stock value on balance sheet/par value per share
How to calculate the value of equity using sector price to earnings?
Net income/ P/E multiple
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
How to calculate equity using dividend discount model?
((Current Dividends * (1+growth rate of dividend))/(Cost of Equity)+(Growth Rate of Dividends)
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)
When a derivative is designated in a cash flow hedge, where are the effective portions of gains and losses reported?
Other comprehensive Income
What statement is unique to proprietary funds and not typically found in governmental fund financial statements?
Statement of cash flows
Formula for Annual Cost of Credit
(365/(Pay period - discount period)) * ((discount % /(100-discount %))
The 365 might vary and be 360
What three factors affect the optimal level of inventory?
Lead time
Carrying Cost
Cost to place an order
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
__________ _____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
What is a characteristic of short-term financing in regards to the interest rate?
The interest rate tends to be higher for the borrower
gives its owner the right to sell a specific security at fixed conditions of price and time.
put option
gives its owner the right to purchase a specific security at fixed conditions of price and time.
call option
What is the formula for the dividend growth model?
D1+g
P0
(D1/P0)+growth rate of dividend
What is the formula for the debt ratio?
Total liabilities/total assets
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
What is the best hedge investment against a high inflation rate?
Precious metals like gold
How to calculate the direct labor rate variance?
(standard cost - actual cost) * actual hours used
What is the formula for the cash conversion cycle?
Days sales in accounts receivable + Days in inventory - Days of payables outstanding
How to calculate operating cycle?
Days sales in accounts receivable + Days in inventory
In consolidated financial statements, how is the income attributable to noncontrolling interests presented?
As part of the consolidated net income on the income statement.
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)
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)
How to calculate expected return for a stock?
(Dividend payout + stock growth)/Current price of stock
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.
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
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
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
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
describes a firm’s generalized exposure to reduced buying power as a result of inflation.
purchasing power risk
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.
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.
How to calculate a flexible budget?
Use actual sales units
Use all the same prices per unit as the master budget
Formula to calculate APR of quick payment discount?
360/(pay period - discount period)
Multiply by
Discount/(1 - Discount)
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.
a series of budgets based on different activity levels within the relevant range.
flexible budget
an overall budget, consisting of many smaller budgets, that is based on one specific level of production
Master budget
What cost are not affected by inflation rates?
Depreciation expense
Interest expense
List the order in which the four types of budgets must be prepared.
Sales
Production
Direct Materials purchases
cash disbursements
methodology used to determine the transaction price charged between related parties
transfer pricing
How to calculate the price earnings to growth (PEG)?
PEG = (Current price of stock/current earnings)/(Growth rate * 100)
This could be solved algebraicly if you are trying to solve for P^0
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
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)
What are the four steps of the SCOR model for supply chains?
Plan
Source
Make
Deliver
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)
How to calculate the growth rate for a stock?
(ROA * Retention rate)/
1-(ROA * Retention rate))
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
How to calculate the forward eps?
Current price of stock/Projected EPS
How to calculate the forward P/E based on the Gordon Growth model?
Dividend payout ratio/(required return - growth rate)
How to calculate the price of a stock based on the PEG ratio?
PEG * Current Earnings * growth rate of stock
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
How to calculate the net realizable value of an asset?
Selling price - cost to sell
How to calculate the market value of an asset using the replacement cost method?
replacement cost + any transportation and assembling cost
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
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
How to calculate beta?
% change in stock price/
% change in market price
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
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
represents the risk associated with the unique circumstances of a particular company, as they might affect the shareholder value of that company
business risk
relates to the exposure of lenders to the failure of borrowers to repay principal and interest on debt.
financial risk or default risk
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
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
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
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
How to calculate the net cost of debt?
Effective interest rate of bonds/(debt * weight of debt)
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
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
What do conversion costs consist of?
Direct labor
overhead
What do prime costs consist of?
direct materials
direct labor
What is the FIFO method equivalent for units?
Units Completed + % Ending Inventory - %Beginning Inventory
What is the weighted average method for equivalent units?
Units Completed during the period
Add Ending WIP * % completed
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
How to calculate net realizable value in cost accounting?
Sales value
Less separable costs
How to calculate cost of goods manufactured?
CoGS
Add (Ending inventory - beginning inventory)
Are utilities expense a product or period cost?
product cost
Are custodial staff salaries a product or period cost?
They are a product cost because it is considered indirect labor
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
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
What is the formula for CoGS in cost accounting?
Beginning finished goods
Add cost of goods manufactured
Subtract ending cost of goods sold
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
Which cost is fixed per unit?
Variable cost is fixed per unit
The range over which cost relationships are valid.
relevant range
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
What are the types of ways to allocate joint costs?
Physical quantity
NRV allocation
NRV - transaction costs after split
What are examples of internal failure costs?
rework
scrap
reinspection
retesting
What is an example of an external failure cost?
Responding to customer complaints
What are example of appraisal costs?
product testing
statistical quality checks
inspection for completed product to be shipped
Rank the Strategic Business Units (SBUs) from most to least responsibility
Investment
Profit
Revenue
Cost
associated with performance reports and a focus on revenues and costs that are within the control of the manager being evaluated
responsibility accounting
What are examples of prevention costs?
Employee training
preventive matainenance
supplier education expense
What are conformance costs?
prevention and appraisal costs
What are non-conformance costs?
internal and external failure costs
Period cost or inventoriable cost for normal spoilage and abnormal spoilage?
Normal spoilage - inventoriable cost
Abnormal spoilage - period cost
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
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
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
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
What is the relationship between NPV, IRR, and required rate of return?
When NPV>0
IRR>Required rate of return
When NPV<0
IRR<Required rate of return
How to calculate the partial productivity ratio?
Quantity of units produced/Certain raw material
Example
Quantity of units produced/quantity of iron used
How to calculate total productivity ratio?
total units produced/(raw material unit of a * price of a)+(raw material unit b * price of b)
How to calculate economic value added?
Cost of machine * cost of capital= required return
Net operating profit after taxes - required return
How to calculate contribution margin
Selling price
Less: Direct labor, Direct materials, and Variable overhead
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
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
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
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
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
Formula for CoGS under absorption costing
Direct Materials
Direct Labor
Variable Overhead
Fixed Overhead
Formula for CoGS under variable costing
Direct Materials
Direct Labor
Variable Overhead
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
What is the contribution margin ratio?
Contribution Margin/Selling Price
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)
used to establish the product cost allowed to ensure both profitability per unit and total sales volume
target costing
accounts for variable costs only
direct costing
tracks costs to individual products/jobs
job costing
assigns costs in a mass production environment
process costing
counts materials costs as product costs
throughput costing
What is the journal entry for a cash advance made to a divisional office?
DR: Receivable
CR: Cash
How to calculate the operating profit margin?
EBIT/Sales
EBIT = Net Income + Interest expense + Taxes
What is the formula for profit margin?
Net Income/Sales
What is the formula for dales sales outstanding?
Ending A/R/(Sales/365)
a data mining technique that identifies similar data
clustering
uses the data mining technique of prediction.
forecasting
a data mining technique that looks for sequential patterns. It can often help discover similar patterns in transaction data over time.
sequencing
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
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.
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
a measurement used in conjunction with standard deviation computations
standard error
What is the format of the balanced scorecard?
Financial
Internal Business process
Customer
Learning and growth
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
How to calculate account profit?
Total revenue minus total explicit costs
What are implicit costs?
Opportunity costs
Formula for EBIT margin?
EBIT/Sales
Formula for Interest burden?
EBT/EBIT
Formula for Tax burden?
Net income/EBT
Asset Turnover formula?
Sales/Average total assets
Return on assets formula
Net income/average total assets
Return on Equity formula
Net income/Average total equity
What are four two way variances in variance analysis?
Price = Difference * Actual
Usage = Difference * Standard
Rate = Difference * Actual
Efficiency = Difference * Standard
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.
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
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
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
Formula for Variable overhead rate (spending) variance
Actual Hours *(Actual Rate - Standard Rate)
Formula for Fixed overhead volume variance
Budgeted fixed overhead - Standard fixed overhead cost
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
What are ways to tell the existence of substitute products in an industry?
Price elasticity of demand is low = low # of substitutes
Operating cash flow ratio
Cash flow from operations/Ending Current Liabilities
What are some signs that a trademark would have an indefinite useful life?
Cost to renew is very low
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
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.
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
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.
the ability to develop a product using current technology and resources, and to meet its design specifications
technological feasibility
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
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
A distinguishing feature of the Black-Scholes option pricing model is:
Stock options are exercisable only at maturity or as European Style options
How calculate the net cash outflow for the purchase of equipment
Initial Cash outflow
Less: Present value of the residual value
Days of payables outstanding formula
Ending accounts payable/(CoGS/365)
What cost remain constant within a relevant range?
fixed cost will remain fixed
cost per unit will not change
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)
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
used to evaluate the liquidity of the firm through the calculation of the cash conversion cycle
average collection period
represent a third party guarantee of obligations incurred by a company.
line of credit
exist when a company invests money in a foreign company but is restricted from bringing that money back to its home country.
repatriation restrictions
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
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
What happens when you have an estimated gross loss for a project?
Recognize the loss immediately
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.
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
What is the revenue rules in a principal agent relationship?
The agent records revenue based on their sales commission.
When does a seller recognize a transaction as a financing arrangement?
Repurchase Price > Selling Price
Expected Market Value<Repurchase Price
What type of expense is market research?
Selling expense under operating expenses
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
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
What is vesting?
the process of earning ownership of an asset over time
What is the total compensation expense formula?
Market price of the share on date of grant * number of restricted shares awarded
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
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
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
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)
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
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
How do you accounts for acquisition costs with a business transaction?
They are expensed as incurred in the period they are incurred
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
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
_________ ________ 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
When do you account for an investment under equity method?
20-50% ownership
Ability to exercise significant influence: make up the board of directors
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
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
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
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
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
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
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
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
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
Where are gains and losses reported for the remeasurement method under U.S. GAAP?
Income from continuing operations, at the gross amount
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
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
What are the rules for translation?
B/S Assets/Liabilities = year end(spot rate)
C/S=historical rate
I/S = weighted average
When a multinational company issues its annual consolidated financial statements, they are always based on the:
reporting currency
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
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
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
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
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.
What are some types of derivative financial instruments (3)?
interest rate swaps
currency futures
stock-index options
How are derivatives valued on the balance sheet?
At fair value
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
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
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
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
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
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<exercise price
Buyer of the call will not exercise
Gain = transaction price * # of shares
What is the formula for an efficiency variance?
Standard rate *( Actual Hours - Standard hours)
Where are investments that are held for trading purposes and then sold for cash reported in the statement of cash flows?
Operating section
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
How to calculate the lease receivable for a lessor under a direct financing lease?
Minimum lease payments + residual value
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
How to calculate the gain/(loss) in a sales type lease?
Present value of lease payments
less carrying cost of equipment
When is a sale-leaseback considered a failed sale?
When it is a finance lease
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
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
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
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.
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
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
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
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
_________ _______ 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
Employee training, Inspection expenses-preproduction, process redesign, and product redesign costs
Prevention costs
Inspection expenses-postproduction, lab maintenance, product testing
appraisal costs
Rework, Scrap, tooling changes
Internal failure costs
cost of returning goods, liability claims, warranty costs
external failure costs
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
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
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
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
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
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
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
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
(190000.12)-(2100*2)
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
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
What are things that are considered expenditures for governmental fund financial statements?
Capital purchases
debt service payments
operating expenditures
What are considered other financing sources for governmental funds?
Transfer in from other funds
How to close the estimated revenues control account at year end?
DR: Appropriations control
CR: Estimated revenues control for initial amount
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
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
What are examples of derived tax revenues
personal income tax
sales tax
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
a contract that conveys ownership of the underlying asset to the lessee in a financed purchase.
contract that transfers ownership for GASB
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
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
What is the journal entry for a purchase order of supplies for a government?
DR: Encumbrances
CR: Budgetary control
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
includes interfund loans and interfund services provided and used.
reciprocal interfund activity
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
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
Encumbrance accounting is used in the ________ ____________. What are they?
Governmental funds
General Fund
Debt Service Fund
Permanent fund
Special Revenue Fund
Capital Projects fund
How to calculate the Encumbrances outstanding amount?
Total Purchase orders charged to encumbrances - (received goods and related invoices)
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
Where is non-controlling interest reported on the consolidated balance sheet?
In the equity section but separated from the parent’s equity
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
What is an example of foregoing revenues?
Property taxes
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
What is an example of a company that uses process costing?
Coco Cola because of the mass production of a single product
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.
What are the three budgets that the master(static) budget consist of?
Capital Expenditure Budget
Operating Budget
Financial Budget
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
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
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
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
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
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
What is another name for Budget in cost accounting?
Standard
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
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
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
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
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
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
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
accounts for the accumulation of resources for, and the payment of, general long-term liability principal and interest.
debt service fund
provide goods or services to the general public,
enterprise funds
provide goods or services to other departments on a cost-reimbursement basis.
internal service funds
How is interest due on bond treated for governmental funds?
Interest expenditures is not accrued and is not reported until it is actually due
How are items are not extraordinary ( both unusual and infrequent) reported in the financial statements of governmental funds?
As an expenditure
All “expenditures” from (almost) every “operating” fund are debited to an account called “___________ ________.”
expenditure control
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
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
What is the best way to measure liquidity position of a company?
The current ratio
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)
Evaluates alternative strategies, Formulates business objectives, analyzes business context, defines risk appetite
Strategy and Objective setting part of ERM
Develops portfolio view, Assesses severity of risk, prioritizes risk, identifies risks, implements risk responses
Performance part of ERM (DAPII)
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
minor products of relatively small value that incidentally result from the manufacture of the main product
by-product
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
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
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
What type of revenue is shared revenues by an enterprise fund?
Non-operating revenues
How long does a capital project fund last?
The life of the construction period, usually 1-3 years
What does having a perfect hedge mean?
There is no future gain or loss
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
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
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
What is a custodial fund?
a fund that hold money for a government until it is distributed to the legal owner or beneficiary
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
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
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
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
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
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
What type of derivative is when a bond that can be converted into shares if the price reaches a certain level?
embedded derivative
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
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
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
What is the purpose of the statement of activities for government-wide financial statements?
Operational accountability
What are the three section of the ANNUAL COMPREHENSIVE FINANCIAL REPORT (ACFR)
INTRODUCTORY SECTION
BASIC FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION
STATISTICAL SECTION
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
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
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
What is the goal of setting standards and preparing budgets for a business?
To motivate employees to achieve the strategic goals of the organization.
What is the biggest type of risk associated with derivative contracts?
Credit Risk because the losing party will fail to perform their duty
What is the purpose of fund financial statements when it comes to accountability for a government?
FISCAL ACCOUNTABILITY
national currency based on the location
local currency
primary economic environment currency
functional currency
presentation of financial statements currency
reporting currency
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
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
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
What is the formula for the equity ratio?
Total equity divided by
Total Assets
What are some examples of capital expenditures
Land
Building
Patents
Machinery
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
How is property that is retained by the government capitalized?
Lower of the cost or market value of the asset
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
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
How do government wide financial statements report expenses?
By their function
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
What is the journal entry to reflect expired compensatory stock options for employees?
DR: APIC stock options
CR: APIC expired stock options
What are factory foremen and would it be direct or indirect labor?
A supervisor for employees in a factor
Indirect labor
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
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
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
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.
What type of costs are included in activity based costing?
variable overhead
DM and DL are already allocated directly
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
How to find the activity rate in activity based costing?
Cost Pool/Cost driver of cost pool
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)
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.
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
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
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
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
How are capital asset purchases reported in the statement of cash flows for pro funds?
Financing activities
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
What are included in operating activities for pro funds?
Receipts from customers
Payment to suppliers
Payments to employees
What are included in the investing activities for pro funds SCF?
Proceeds from sales and maturities of investments
Interest
dividends
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
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
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
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
The successful and profitable launch of a new product line by an entity represents:
value creation
What type of entity in required to report on business segments?
publicly traded enterprises
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
What are included in noncapital financing activities for pro funds SCF?
Operating subsidies and transfer to other funds
national currency based on the location
local currency
primary economic environment currency
functional currency
presentation of financial statements currency
reporting currency
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
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
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
What is the formula for the equity ratio?
Total equity divided by
Total Assets
What are some examples of capital expenditures
Land
Building
Patents
Machinery
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
How is property that is retained by the government capitalized?
Lower of the cost or market value of the asset
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
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
How do government wide financial statements report expenses?
By their function
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
What is the journal entry to reflect expired compensatory stock options for employees?
DR: APIC stock options
CR: APIC expired stock options
What are factory foremen and would it be direct or indirect labor?
A supervisor for employees in a factor
Indirect labor
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
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
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
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.
What type of costs are included in activity based costing?
variable overhead
DM and DL are already allocated directly
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
How to find the activity rate in activity based costing?
Cost Pool/Cost driver of cost pool
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)
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.
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
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
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
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
How are capital asset purchases reported in the statement of cash flows for pro funds?
Financing activities
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
What are included in operating activities for pro funds?
Receipts from customers
Payment to suppliers
Payments to employees
What are included in the investing activities for pro funds SCF?
Proceeds from sales and maturities of investments
Interest
dividends
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
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
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
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
The successful and profitable launch of a new product line by an entity represents:
value creation
What type of entity in required to report on business segments?
publicly traded enterprises
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
What are included in noncapital financing activities for pro funds SCF?
Operating subsidies and transfer to other funds
What are the fund balance classifications for governmental funds?
Non-spendable
Restricted
Committed
Assigned
Unassigned
How to adjust governmental funds change in net position to government - wide change in net position?
C: Capital Outlay
P: Principal payments
A: Asset disposals
S: Sources (other financing)
R: Revenue - sales tax
I: Interest Expense
DE: Depreciation expense
S: Internal Service fund
Change in net position for governmental wide f/s
What is the formula when reconciling the gov’t fund financial statements to the gov’t wide financial statements for the sale of an asset?
Selling price of the assets
Less Gain from the sale/Add loss from the sale
Equal to the adjustment that is subtracted
Why would a firm choose to finance their operations by equity?
They don’t have to pay dividends and there is not increase in financial risk
Downfall is higher cost
Why would a firm choose to finance their operations by debt?
Debt is less costly because the tax shield
Downfall is they are required to make principal and interest payments each period
What is the highest and best use assumption?
The use of an asset that maximizes its value
What is the market participant assumption?
The transaction takes place between a hypothetical market participant that is knowledgeable, willing, and unforced?
What is the unit of account assumption?
How the asset or liability will be described: individually or grouped with other assets
What is a required part of a local government’s management discussion and analysis (MD & A) section?
Comparing current year results to the prior year with emphasis on the current year
What is the minimum budgetary information required to be reported in the Basic Financial Statement MD&A state and local government section?
A schedule that shows the following
Original Budget
Final appropriations budget
Actual Inflow, outflows, and balances on a budgetary basis
Management’s Discussion and Analysis is a required component of the required supplementary information ___________ the basic financial statements for general-purpose governments.
preceding
Which of the following information is needed to prepare the budgetary comparison schedules for a local government?
original budget
What is the rule when it comes whether to use cash, modified accrual, or fully accrual for budgets?
Whatever the entity legally has adopted is the same method that is used for their budgets
How to calculate inventory turnover?
COGS/(AVERAGE INVENTORY)
What is the formula for the annual operating cash flow?
PRETAX CASH FLOW * (1- TAX RATE) + (DEPRECIATION * TAX RATE)
What type of cost is redesign of a product prerelease?
Research and development expense
What is the rule for amortization of goodwill?
It is not amortized but itis subject to an impairment test
What is the process for determining whether factory overhead is overapplied or underapplied?
Calculate the budgeted factory overhead: In the question it was a certain perdentage of direct labor cost
Compare this to actual budgeted overhead
If it is overapplied then the cost is to high, so you credit the expense to reduce it
What is the setup for calculating Goodwill and non controlling interest in excel for the test under the consolidation method?
DR: CAR AT BOOK VALUE
CR: Investment for the amount paid
CR: Non controlling interest = (Investment/% acquired)-amount paid
DR: Book Value to Fair Value of Net Assets
DR: Intangibles @ FV
DR: Goodwill this is a plug figure
How to calculate total manufacturing costs?
Direct Materials
Direct Labor
Overhead applied
This is the A in the roll forward for the WIP
What is the lease agreement called when it does not extend beyond 12 months and does not transfer ownership to the city at the end of the lease term for a government?
Agreement other than a short-term lease and contract that transfers ownership
How to calculate the after-tax present value of a lease?
PVOA(Cash Inflow per year)
LESS; PV(Cash Inflow per year - per annum tax basis lease amortization) * Tax Rate
Equals After Tax Present Value
What does the special revenue fund do?
Accounts for revenues from taxes or other earmarked sources that are designated for specific activities of government
How to calculate whether the Investment Strategic Business Unit had a favorable year?
Return on Assets
REVENUE-COSTS
TOTAL ASSETS
How to calculate net income in cost accounting?
TOTAL SALES
LESS COST OF GOODS SOLD
LESS SELLING, GENERAL, & ADMINISTRATIVE
What is the days sales outstanding formula?
(AVG ACCOUNTS RECEIVABLE/SALES) * 365
How to find total manufacturing cost when given beginning/ending raw materials, WIP, and FG?
It is the sum of A in the BASE acronym for WIP
Where are unrealized changes in fair value for speculative derivates reported on the financial statements?
They are reported in the income statement.
What are the two exceptions when research and development cost are capitalized instead of expensed?
ALTERNATIVE FUTURE USE
WORK IS UNDERTAKEN ON BEHALF OF OTHER UNDER A CONTRACTUAL AGREEMENT
What is one type of risk that companies using derivatives don’t have to be worried about?
Volatility risk because companies buy derivatives in order to reduce volatility
What is the effect of inflation on debt?
Inflation reduces the present value of future fixed payments
Do a quick example for a principal owed in 1 year for $1,000.
What happens when the discount rate is 5% versus 2.5%
What is the effect of inflation on future expenses?
It will raise the price of future expenses
What is the formula to calculate the future expense?
Future expense = current expense * (1+inflation)^# of years
What are the three main types of books for governmental fund accounting?
BAE
Budgetary
Activity
Encumbrance
What is the beginning of the year journal entry for budgetary accounting?
DR: Estimated Revenue Control
CR: Appropriations Control
Budgetary Control can either be a debit or credit to balance journal entry and this is similar to an equity account for a for-profit entity
What is the end of the year journal entry for budgetary accounting?
DR: Appropriations control
CR: Estimated Revenue Control
Budgetary Control can either be a debit or credit to balance journal entry depending on the beginning of the year J/E
What is a simple way to know how much gross profit to recognize for a construction contract during a given year?
CONTRACT PRICE
COST INCURRED IN THE PAST
COST INCURRED IN THE CURRENT YEAR
COST THAT ARE ESITMATED TO BE INCURRED
EQUALS THE TOTAL GROSS PROFIT
Next thing is to calculate the current year gross profit
SUM COST INCURRED IN THE PAST AND COST INCURRED IN THE CURRENT YEAR
Divide this by the total cost
Multiply this by the GROSS PROFIT
Subtract out gross profit that has already been recognized
What happens when you are the lessee and you have to amortize an ROU asset?
Present value of lease/estimated useful life of the asset
I was confused if it was useful life or lease term, but it’s useful life
What is the journal entry to recognize amortization expense for a finance lease of a lessee?
DR: Amortization expense
CR: Accumulated Amortization - ROU Asset
When would be the earliest period in which a company would exercise a call option that they have bought?
The period were the market price is high enough to cover their transaction cost
EXAMPLE
STRIKE: 20, FMV: 25, TRANSACTION COST 2
Gain=(25-20-2)=3
What are two types of derived tax revenues?
Sales Tax
Income Tax
What are two types of non-exchange revenues?
Fines
Property Taxes
What are the journal entries for the purchase method for expenditures?
Buying an Item
DR: Expenditure
CR: Vouchers Payable
On hand at year end
DR: Supplies Inventory
CR: No spendable fund balance - Inventory
What are the journal entries for the consumption method for expenditures
Buying an item
DR: Supplies Inventory
CR: Vouchers Payable
Use of Item(Consumption)
DR: Expenditure
CR: Supplies Inventory
A governmental fund purchases a new police car. What is the journal entry?
DR: Expenditure - Capital Outlay
CR: Vouchers payable (Or cash)
A governmental unit receives the proceeds of a bond issue of $1,000,000. What is the journal entry recorded?
DR: Cash 1,000,000
CR: Other financing sources - bonds issued 1,000,000
A muni pays 125,000 in principal and 100,000 in interest on its general long term debt. What is the journal entry?
DR: Expenditure - principal 125,000
DR: Expenditure - interest 100,000
CR: Cash 225,000
What is the initial journal entry for lessee accounting in governmental funds?
DR: Expenditure - capital outlay
CR: Other financing sources
What is the journal entry for a lessee when making principal and interest payments for a governmental fund?
DR: Expenditure - principal
DR: Expenditure - interest
CR: Cash
What are the focus of governmental wide-financial statements?
operational accountability
What is the focus of fund financial statements?
Fiscal accountability
When are property tax revenues, public parking revenues, income tax revenues, and sales tax revenues recognized for a state or local governmental body?
When the are measurable and available or if they are collected within 60 days of year end for governmental fund F/S
The reconciliation of governmental fund financial statements to a government-wide presentation would most likely be found in a city’s:
Basic Financial Statements
What are reciprocal activities for governmental accounting?
This is just like an exchange transaction
You do something and you get something in return
What are examples of reciprocal activities?
Payments for purchases of goods and services
Loans and repayments of loans
What are examples nonreciprocal activities?
transfer of cash when there is not good or service
Interfund reimbursements
How to calculate the goodwill that a company recognizes when acquiring another company?
Investment amount/Investment % = What the company thinks the fair value is
Company estimate of fair value - Actual Fair value of company = Goodwill
The range for which the assumptions of the cost driver are valid
relevant range
How is a refundable security deposit recorded?
The deposit would be all refundable
Money that is set aside for specific government departments, agencies, and programs. This is the amount that is authorized to be expended by the governmental unit in a given time period
appropriations
money that is forecasting as financial resource inflows from governmental revenues
estimated revenues
The general rule is that measurable and available criterial indicates that the revenues collection period will not exceed a ______ day time period
60
Imposed non-exchange revenue examples
Property taxes
fines and penalties
How to calculate the net cash flow when there is acquisition of a capital asset with inflows and depreciation expense?
Calculate the annual inflow
Annual inflow * (1-tax rate)
Add: (Depreciation expense * tax rate)
After tax cash flow
utilizes a taxonomy with tags that identify and define data found within the financial statements and supporting footnotes.
XBRL
What is the transaction called when a company wants to divest by an initial public offering (IPO)?
Equity carve-out
What does a perfectly inelastic supply curve look like?
P is on the y axis Q is on the x axis
The supply curve would be vertical while the demand curve would be sloped downward
Quantity supplied does not change as a result of the change in price
How to calculate variable overhead efficiency variance?
Usually related to direct labor hours as the driver
(Actual hours used less budgeted hours based on actual units) = difference
difference * budgeted rate
a formal agreement that allows the supplier (seller) to convert amounts owed by the buyer into a negotiable instrument.
trade acceptance
How to calculate the fair value of an intangibles with an indefinite life?
Estimated future gross revenue less estimated future cost of disposing
Compare this amount to the current carrying value to find if there is impairment loss
How to calculate free cash flow?
Operating Cash Flow Less Capital expenditures
How to calculate core earnings?
earnings derived from the company’s primary business activities
What does a supply/demand curve with a price ceiling look like?
Supply is upward sloping
Demand is downward sloping
The price ceiling is a horizontal line below the equilibrium point
This causes a shortage
The incremental costs of obtaining a contract are costs incurred that would not have been incurred if the contract has not been obtained, these costs are ___________________ if the entity expects that it will recover these costs
capitalized
What are examples of incremental costs of obtaining a contract?
legal fees for drawing up the contract
commissions to sales employee
How to calculate the margin of safety?
Current sales - Breakeven sales
What are storage, insurance, obsolescence, and spoilage associated with holding inventory associated with?
carrying costs
unsecured debt issued by a corporation and maturing in 270 days or less. Proceeds used to finance current assets or to meet short-term obligations
commercial paper
What rate is used when remeasuring inventory?
The weighted average because inventory is sold throughout the year
Do you start with the balance sheet or the income statement with remeasurement and translation?
Remeasurement starts with the balanance sheet and retained eanrings is a plug
Translation starts with the income statement and this calculates AOCI
How can a company reduce transaction risk when they have an A/R in a foreign currency.
Enter into a forward contract to sell that currency
What is the cash conversion cycle and what is the formula for each part?
DAYS IN RECEIVABLES
Ending A/R
(Sales/365)
DAYS IN INVENTORY
Ending Inventory
(CoGS/365)
DAYS IN A/P
Ending A/P
(CoGS/365)
How to find out how much a government can spend on capital purchases?
Original Apprroriatoions
Less current expenditures
less encumbrances
Equals amount the government has left to spend on additional purchases
The decision rule for the company to follow in order to maximize shareholders’ wealth is to invest in all projects having a (n):
Net present value greater than zero
What is the formula to calculate number of units to sell to equal desired profit
X = (Fixed Cost + (Selling price * desired profit ))/(Selling Price - Variable Costs)
What is a major line item in the statement of accumulated plans benefits and statement of changes in accumulated plan benefits?
Actuarial present value of accumulated plan benefits
What is a major factor when considering what rate of return investors require?
The inflation rate
If inflation is expected to be lower in the future, the RRR will be lower as well.
What are two examples of noncapital financing activities (This was a bookmark MCQ example)?
Property tax receipts to subsidize operations
Operating transfers out
a third party guarantee, generally by a bank, of obligations incurred by a company.
letter of credit
How are construction in progress expenditures reported in governmental fund and governmental wide financial statements?
They are closed out in government funds and only reported in governmental wide financial statements
What do gross margin and contribution margin relate to?
Gross Margin: Absorption costing
Contribution Margin: Variable Costing
How to calculate the sales mix variance if there are two products?
(Actual units - budgeted units) * budgeted cm
Calculate this for both products and add them up
Example is from producing two cars in an MCQ question
The impact of a government price support program would most likely result in which of the following?
Lead to surpluses
This will lead to an increase in supply which causes a surplus
The collective or composite view of different risks (e.g., default and liquidity risks, etc.) at a particular level of the entity (e.g., length of loan) that position management to consider the types, severity, and interdependencies of risk and how they may affect performance relate to strategy and business objective
risk profile
Goodwill should be tested for value impairment at which of the following levels under U.S. GAAP?
Each reporting unit
Nonexchange revenues in support of governmental activities, such as taxes for improvements to roads, are classified as “_________ __________” on the government-wide statement of activities.
general revenues
The competitive model of supply and demand predicts that a surplus can only arise if there is a:
minimum price is above the equilibrium price
How to calculate the annual financing cost
(interest + fees)/usable funds
* 360/days maturity
A qualified derivative may be used (designated) to hedge exposure to variability in cash flow associated with what three things
asset
liability
forecasted transaction
