Area 1

Question 1

To remain in compliance with GAAP what based may a nongovernmental not for profit report on?

Answer 1

ACCRUAL

Question 2

Book to bank reconciliation

Answer 2

Cash balance per book
+ Interest paid by bank
+ Deposits not yet recorded in books
- Bank Charges
- Returned Checks
- Withdrawals not yet recorded in books
+/- Recording errors
= Net Cash Balance

Question 3

Debt to equity ratio

Answer 3

Total Debt
—————
Total Equality

Question 4

Earnings per share

Answer 4

Net income -preferred dividends
———————————————-
Weighted average number of shares outstanding

Question 5

Asset turnover

What ?
———-
What?

Answer 5

Net sales
—————————
Average total assets

Question 6

Allocation of partnership net income (loss) to partners

Answer 6

Partnership net income (loss) to be allocated - special allocations (ex. Bonuses) and allowances (ex salary and interest) granted to individual partners = remaining net income (loss) to be allocated to partners

Question 7

Treatment of partner contributions to a partnership

Answer 7

Assets-> valued at fair value -> increases partners capital

Non cash assets subject to liability (ex mortgage)-> valued assets fair value less present value of liability -> increases partners capital

Liabilities assumed by partnership -> valued at present value -> increases partnership liabilities

Question 8

How should a transaction be accounted for in interim financial statements (such as a large workers compensation claim received)

Answer 8

Recognize in the quarter it was received.

For example if large workers comp received in Q3 recognize the full amount received in Q3

Question 9

What is reported as part of cash flows provided by investing activities

Answer 9

Collection of principal loans made by entity

Acquisitions and disposal of long term assets (ex PP&E, intangibles, AFS debt securities, HTM securities

Proceeds from a corporate owned life insurance policy

Major repairs (capitalized) to plant or equipment

Question 10

Interim period income tax expense

Answer 10

(Cumulative taxable income * estimated annual effective tax rate) - previously recognized tax expense

Question 11

Grants to other organizations but not depreciation should be included in total expenses for what type of organization

Answer 11

No-for-profit organization

Question 12

Effective Tax Rate (ETR)

Answer 12

Total income tax expense / pretax book income

Question 13

Items that affect ETR

Answer 13

1. Statutory tax rates (federal, state, international)
2. Permanent differences (no deductible meals and entertainment)
3. Income tax credits (research and development credit)

Question 14

Bank to Book Reconciliation

Answer 14

Bank Statement Balance
+ Deposits in transit
- Checks outstanding
+/- Bank errors
= Net Cash Balance

Question 15

Quick Ratio

Answer 15

Cash + Marketable securities + Accounts Receivable/ Current Liabilities

Question 16

Inventory Turnover

Answer 16

COGS/ Avg Inventory

Question 17

Qualitative Characteristics

Answer 17

Relevance: Predictive Value, Completeness

Faithful Representation: Confirmatory Value, Neutrality, Free from error

Both:
Comparability Understandability Timeliness Verifiability

Question 18

Price to Earnings ratio

Answer 18

Price per share/ earnings per share

Question 19

Cash basis to accrual basis

Answer 19

When converting from Cash Basis to Accrual Basis for net income, cash basis NI is adjusted for changes in payables, unearned revenue, prepaid expenses, and receivables

Question 20

4 areas to disclose for risk and uncertainties are:

Answer 20

1. Nature of operations
2. Use of estimates
3. Certain significant estimates
4. Current vulnerabilitiy

Question 21

Times interest earned

Answer 21

(Net Income + Interest Expense + Income Tax Expense) / Interest Expense