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Mnemonics > BAR 2.0 > Flashcards

BAR 2.0 Flashcards

1
Q

What are the components of Enterprise Risk Management?

A

GO PRO

G - Governance and Culture
O - Objective and Strategy-Setting
P - Performance
R - Review and Revision
O - Ongoing information, communication, and reporting

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2
Q

What are the principles that make up Governance and Culture?

A

DEEAD

D - Defines Desired Culture
E - Exercises board oversight
E - Establishes operating structure
A - Attracts, develops, and retains competent employees
D - Demonstrates commitment to core values

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3
Q

What are the principles that make up Objective and Strategy-setting Culture?

A

F - Formulates business objectives
A - Analyzes business context
D - Defines risk appetite
E - Evaluates alternative strategies

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4
Q

What are the principles that make up Performance?

A

I PAID

I - Identify risks
P - Prioritize risks
A - Assess severity of risk
I - Implement risk response
D - Develop portfolio review

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5
Q

What are the principles that make up Review and Revision?

A

APR

A - Assess substantial change
P - Pursue improvement in ERM
R - Review risk and performance

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6
Q

What are the principles that make up Ongoing information, communication, and reporting?

A

LCR

L - Leverages IT
C - Communicates risk information
R - Reports on risk, culture, and performance

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7
Q

What are the types of risk responses?

A

SARA

Share: Buy insurance outsource

Avoid: Leaving the line of business/location

Reduce: Diversification, hedging

Accept: Do nothing towards the risk /

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8
Q

What are the two broad categories risks can be classified to?

A

DUNS

Diversifiable
Unsystematic (think firm specific)
Non-diversifiable
Systematic (think market)

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9
Q

What are the types of business combinations?

A

Horizontal - competitors join

Vertical - combination of companies at different stages of production process

Diagonal - company joins with other company who provides ancillary support

Circular - different business units with remotes connections join under single management

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10
Q

What are the types of divestitures?

A

Sell-offs: management sees no value in keeping the segment/company (generates cash)

Spin-off: there is some value in the segment/company

Equity Carve out: key word here is offering an IPO (generates cash)

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11
Q

What is the formula for the WACC?

A

WACC=
[(E/V)Re]+[(P/V)Rp]+[(D/V)*Rd(1-T)]

V = The summed market values of the individual components of the firm’s capital structure: common stock, preferred stock, and debt

R = Required rate of return AKA the cost

T = Corporate tax rate

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12
Q

What are the three different types of formulas used to calculate the Cost of Retained Earnings?

A

1) CAPM = Risk Free Rate +[Beta*(Market Return - Risk Free Rate)]

2) Discounted CF = (Dividend per share @ end of one year/Market Value)+ Growth Rate

**Dividend per share @
end of one year =
Dividend just paid(1+
growth rate)

3) Bond Yield Plus Risk Premium = Pretax cost of LT Debt + Market Risk Premium

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13
Q

What are the formulas Price Elasticity of Demand, Supply, Cross elasticity, and Income

A

Demand= % change in quantity demanded/$ change in price

Supply = % change in supply demanded/$ change in price

Cross = % change in number of units of x demanded (supplied)/% change in price of Y

Income = % change in number of units of x demanded (supplied)/% change in income

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14
Q

What is the formula to calculate the Effective Interest Rate

A

The difference between the Effective Interest Rate and Stated Interest Rate is the deduction of loan proceeds from the calculation

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15
Q

What are Porters Five Forces

A

BBB (big baller brand) ME

B - Barriers to Entry
B - Bargaining Power of Customers
B - Bargaining Power of Suppliers

M - Market Competitiveness
E - Existence of Substitute Products

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16
Q

What are the types of Risk Premiums added to the risk free rate to calculate Required Rate of Return?

A

Maturity Premium
Liquidity Premium
Default Risk Premium
Purchasing Power/Inflation Premium

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17
Q

What are the required Financial Statements for Defined Benefit and Defined Contribution Plans

A

Defined Benefit:
1. Statement of Net Assets Available for Benefits
2. Statement of Changes in Net Assets Available for Benefits
3. Statement of Accumulated Plan Benefits
4. Statement of Changes in Accumulated Plan Benefits

Defined Contribution
1. Statement of Net Assets Available for Benefits
2. Statement of Changes in Net Assets Available for Benefits

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18
Q

What are the factors that change Demand curves?

A

W - Change in Wealth
R - Change of Related goods
I - Change in Consumer income
T - Change in consumer Tastes
E - Change in consumer Expectation
N - Change in the Number of buyers served by the market

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19
Q

What are the factors that change Supply curves

A

E - Change in price Expectation of the supplying firm
C - Change in production Costs
O - Change in the price or demand for Other goods provided by the firm
S - Change in Subsidies or taxes
T - Change in production Technology

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20
Q

What are the motives to hold cash as it relates to Working Capital?

A

TCP

Transaction Motive
Speculative Motive
Precautionary Motive

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21
Q

What is the formula to calculate Economic Order Quantity and what does it measure?

A

EOQ= Square root of (2 x sales x cost per PO)/carrying cost per unit)

Intents to minimize total order and carrying costs

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22
Q

What are the formulas for marginal analysis?

A

DM Price Variance= Actual Q. Purchased x (Actual price - stdrd price)

DM Q. Usage Variance= Standard price x (Actual q. used - stdrd q. used)

DL Rate Variance= Actual hrs worked x (actual rate - standard rate)

DL efficiency variance= Standard rate (actual hrs worked - stdrd hrs)

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23
Q

What is the formula to calculate Reorder point Quantity and what does it measure?

A

Reorder point=Safety stock + (lead time x sales during lead time)

Measures when a company should order or manufacture additional inventory to meet demand and to avoid incurring stock out costs

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24
Q

What is the formula to calculate APR of quick payment discount and what does it measure?

A

APR = (360/Pay period - Discount Period) x (Discount %/100% - Discount %)

Measures the impact of not taking advantage of discount

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25
Q

What are Annuities and Ordinary Annuities due?

A

Annuity Due: Beginning of Period

Ordinary Annuity: End of the period

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26
Q

What are the different ways to calculate Return on Assets?

A

1) Return on Asset= Net Income/Average Total Assets
2) Profit Margin x Asset Turnover

Profit Margin= Net Income/Sales
Asset Turnover= Sales/Average Total Assets

27
Q

What are the methods used to value Tangible Assets?

A

CALM

Cost Method
Appraisal Method
Liquidation Method
Market Value Method

28
Q

What are the methods used to value Intangible Assets?

A

MIC

Market Method
Income Method
Cost Method

29
Q

What are critical success factors classified as?

A

FICA

F - Financial (CRPI)
I - Internal Business* Processes
C - Customer Satisfaction*
A - Advancement of innovation and HR development*

*Nonfinancial Measures

30
Q

What are the components of the Financial portion of the Balanced Scorecard in order from lowest to highest level of oversight?

A

CRPI

Cost Strategic Business Unit

Revenue Strategic Business Unit

Profit Strategic Business Unit

Investment Strategic Business Unit

31
Q

What is the Formula to Calculate Revenue Using the Percentage of Completion Method?

A

Step 1: Calculate GP

Contract Price - Estmt’d Total Cost

Step 2: Calculate %

Total Cost to Date/Total Estimate Cost of Contract

Step 3: Compute Profit To Date

Step 1 x Step 2

Step 4: Compute Profit Earned for CY:

CY GP - PY GP

32
Q

What is the five step approach to revenue recognition?

A

I STAR
I: Identify Contract With Customer
S: Determine the Separate Performance Obligations
T: Determine the Transaction Price
A: Allocate the Transaction Price to Difference Performance Obligations
R: Recognize Revenue

33
Q

How to calculate impairment of intangible assets (including Goodwill) with indefinite lives

A

If Carrying/Book Value is greater than the Fair Value, then the difference is considered the impairment and is recorded as a loss.

Note: remember that when calculating impairment regarding Goodwill, the impairment can only be as large as the actual Goodwill

34
Q

What are the journal entries recorded during 1) Construction Period and 2) When construction is completed using the percentage of completion method and the completed contract method?

A

During Construction Period:

-Percentage of Completion Method:

CIP
Materials, cash,etc..
(to record costs incurred)

AR
Progress Billing
(to record billings on contract)

Cash
AR
(to record payments received)

Cost of LT construction contracts
CIP
Revenue

-Complete Contract Method:

CIP
Materials, cash,etc..
(to record costs incurred)

AR
Progress Billing
(to record billings on contract)

Cash
AR
(to record payments received)

When construction is complete:

-Percentage of Completion Method:

Progress Billings
CIP
(to close construction accounts)

-Complete Contract Method:

Progress Billings
Revenue
(to close billings to revenue)

Cost of LT Construction Contracts
CIP
(to close CIP to expense)

35
Q

Non-compensatory and Compensatory stock options

A

Noncompensatory Compensation:

Expense is recognized when option is exercised

Compensatory** -

Compensation Expense is allocated over the service/vesting period

Remember that they are valued at Fair Value as of the Grant Date

36
Q

What are the entries to record Compensation Expense, Exercised Options, Expiration of Options under Compensatory method

A

Compensation Expense:

Compensation Expense
APIC - Stock Option

Exercised Option:

Cash
APIC - Stock Option
Common Stock
APIC - Excess of Par

Expired Option:

APIC - Stock Options
APIC - Expired Stock Options

37
Q

Research & Development Costs are expensed unless they meet the following criteria

A

1) Materials, equipment, or facilities have an alternate future use

2) R&D costs are incurred on behalf of others through a contractual agreement

3) R&D is in process as it is associated with the purchase of a company (acquisition)

38
Q

Under the assumption that you will Sell, Lease or License Computer Software, when should Computer Software Development Costs be capitalized?

A

After they have reached technological feasibility, otherwise, they are expensed.

Note: They are amortized using the greater of the following formulas:

% of Revenue: Total Capitalized amount x (Current Gross Revenue/Total Projected Gross Revenue)

OR

Straight line= Total Capitalized amount/Useful life

39
Q

What are the Criteria to Calculate the 10% size test for Revenue, P/L, and Assets?

A
  1. Revenue: The segments revenue (external and internal) must be >= to combined segment revenue (external and internal)
  2. P/L: Revenues - Directly Traceable Costs - Reasonable Allocated Costs
  3. Assets: 10% or more of Total Identifiable Assets
40
Q

What are the entries to record the acquisition of a company for cash and common stock?

A

Cash

Dr. Investment in Subsidiary

Cr. Cash

Common stock

Dr. Investment in Subsidiary
Cr. Common Stock (at Par)
Cr. APIC - Excess of Par

*** Remember to record the investment when the company is ACQUIRED

41
Q

What are the Consolidation Adjustments made when consolidation a parent and subsidiary?

A

CAR IN BIG

*CAR **IN **BIG

C - Common Stock - Subsidiary
A - Additional Paid-In Capital - Subsidiary
R - Retained Earnings - Subsidiary

I - Investment in Subsidiary
N- Noncontrolling interest (if not 100% owned)

B - Balance Sheet adjustments to FV
I - Identifiable intangible Assets to FV
G - Goodwill***

Dr. Balance
**Cr. Balance
**Goodwill if FV is less than what one pays otherwise, its treated as a gain

42
Q

Regarding Derivatives, what are the Underlying and Notional amounts and how is the Value/Settlement Amount determined?

A

Underlying: Specified price (strike price)

Notional Amount: specified unit of measure (currency units, shares, lbs)

Multiply both to get the Value/Settlement amount

***They might ask what the initial investment is: this is just the premium that one pays to be able to hedge in the future

43
Q

What are the two methods used when Translating foreign currency in relation to consolidating Financial Statements?

A

1) Translation Method**
2) Remeasurement Method

**Used only when the currency is considered a functional currency (when the subsidiary is using the country’s currency)

44
Q

How do I treat Balance Sheet and Income Statement transactions under both methods of translation?

A

Translation Method:

Income Statement - All weighted average

Balance Sheet -
1. Assets & Liabilities @ current rate
2. Common stock & APIC @ Historical Rate

Remeasurement Method:

Balance Sheet -
1. Monetary Items @ current rate
2. Nonmonetary items @ historical rate

Income Statement -
1. Non balance sheet related items @ weighted average
2. Balance sheet related items @ historical rate

45
Q

What are the three sets of books used by governmental funds?

A

BAE

Budget**
Activity
Encumbrances

**Remember that the entry for these are booked on the opposite side

46
Q

What are the Budgetary Accounting JEs for the beginning and ending of the year?

A

Beginning:

Dr. Estimated Revenue Control
Dr. Budgetary Control (if deficit)
Cr. Appropriations Control
Cr. Budgetary Control (if surplus)

Ending:

Dr. Appropriations Control
Dr. Budgetary Control (if surplus)
Cr. Estimated Revenue Control
Cr. Budgetary Control (if deficit)

Note: the entries are a zero sum game

47
Q

What are the JEs to set up the encumbrance and budgetary control, once an invoice is received, and to record actual expenditures?

A

JE to set up Encumbrance and Budgetary control:

Dr. Encumbrance
Cr. Budgetary Control

JE when an invoice is received:

Cr. Budgetary Control
Dr. Encumbrance

JE to record actual expense:

Dr. Expenditure
Cr. Vouchers Payable (cash)

48
Q

What are the types of Governmental funds and their purpose?

A

GSD CP

General Fund: its a catch all for administrative activities, provides interfund transfers to other Governmental funds

Special Revenue Fund: Revenues and expenditures that are legally restricted or committed for specific purposes

Debt Service Fund: accounts or resources accumulated to pay LT Debt (principal and interest) only for governmental funds - required when legally mandated

Capital Projects Funds: established for the construction, purchase, or leasing of significant fixed assets.

Permanent Funds: should be used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used to support government programs (similar treatment to endowment funds but instead of funding a not for profit’s operations, they fund government programs)

49
Q

What are the types of Proprietary funds and their purpose?

A

IE

Internal Service Fund: established to finance and account for services and supplies provided exclusively to other departments within a government unit.

Enterprise Fund: established to account for operations that are financed and operated in a manner similar to private businesses.

50
Q

What are the types of Fiduciary funds and their purpose?

A

CIPPOE

Custodial funds: to collect cash to be held temporarily for an authorized recipient to whom it will be later disbursed (catch all fund of all Fiduciary activity funds)

Investment Trust Funds: to keep record of external investment pools

Private purpose trust funds: designated fund for reporting all other trust arrangements under which principal and income are for specific individuals, private organizations, other governments

Pension and Other Employee Benefit Trust Funds: account for government sponsored defined benefit and defined contributions plans and other employee benefits

51
Q

What are the components of the ACFR?

A

1) Introductory Section (Unaudited)

2) Basic Financial Statements*

3) Statistical Section (Unaudited)

*Composed of:

Management Discussion and Analysis, Government-wide and Fund Financial Statements, and Required Supplementary Information

52
Q

What’s the criteria to be considered a Primary Government

A

Primary government reports by itSELF

Separately
Elected Governing Body
Legally Separate
Fiscally Independent

*Must meet all 3 otherwise it is considered a component unit

53
Q

What is the criteria to determine whether a component unit should be presented using the Blended approach

A

1) is the BOD of the primary government the same of the component unit?

2) Does the component unit serve the government exclusively?

3) Does the organization not qualify as a legal entity?

*Only one has to apply to use the blended approach

54
Q

What are the components of the Statement of Net Position?

A

Statement of Net Position - RUN

Restricted
Unrestricted
Net Investment in Capital Assets

55
Q

What are the Program Revenue and Expense category types in relation to the Government-wide financial statements?

A

Program Revenue - COC

Chargers for Services
Operating Grants and Contributions
Capital Grants and Contributions

Expense - reported by program

56
Q

What is the formula for NPV

A

Step 1: Calculate after-tax cash flow= Annual Net CF x (1- tax rate)

Step 2: Add depreciate benefit= Depreciation x Tax rate

Step 3: Multiply result by appropriate PV of annuity

Step 4: Subtract initial CF

*remember there might be a disposal but that CF is only factored in the last year of the asset

57
Q

What is the criteria a fund must meet to be considered a major fund and therefore reported on the Government-wide Financial statements?

A

1) 10% or larger of its corresponding fund and
2) 5% or larger of the total of corresponding fund and enterprise funds (or governmental depending on the call of the question)

*General funds are considered major regardless of whether it meets the test

58
Q

What are the transactions reconciled between the Government-wide financial statements and the Fund financial statements?

A

Statement of Net Position (Balance Sheet):

CAN I
+ Capital Assets
- Accumulated Depreciation
- Non-current liabilities
+ Internal Service fund net position

Statement of Revenues, Expenditures, and Changes in Fund balance (Income Statement):

CPAS RIDES

+ Capital outlay expenditures
+ Principal payment on debt
- Asset disposal (NBV)
- Sources (other than financing sourced)

+ Revenue
- Interest Expense
- Depreciation Expense
+ Internal service fund net revenue

59
Q

What is the mnemonic used to determine whether a lease classifies as a sales-type lease from the perspective of the lessor?

A

OWNES PC

Ownership of the asset transfers at the end of the lease term
Written option is reasonably certain to be exercised
Net present value of payments and any guaranteed residual value is equal to or greater than 90% of the asset’s fair value
Economic life of the asset represents at least 75% of the term
Specialized asset that doesn’t have another function

If none are met then the lease defaults to the following criteria:

Present value of the sum of the lease payments is equal to or substantially exceeds the asset’s fair value
Collections of payments are probable

*If all are met, then the lease is a Direct Finance Lease, if one or none, then its an Operating lease

60
Q

What are the formulas for Residual Income and Economic Value added

A

1) Residual Income = Net Income - (NBV x Hurdle Rate)

2) EVA = NOPAT - (Investment x WACC)

NOPAT = EBIT x (1-T)

61
Q

What is the formula to apply overheard?

A

Step 1 - Calculate OH Rate:

OH Rate= All Bdgtd OH Costs/Single Esmtd costs driver

Step 2 - Calculate Applied OH Rate: Actual Cost Driver x Step 1

62
Q

What are the formulas to calculate Raw Materials Used, Cost of Goods Manufactured, and Ending Finished Goods Inventory?

A

Raw Materials Used =
Beginning RM + RM Purchased - Ending RM

COG Manufactured = Beginning Work In Process + Manufacturing Costs*
-Ending Work in Process

Ending Finished Goods Inventory= Beginning FG Inventory + COG Manufactured - Cost of Goods Sold

*DM + DL + OH

63
Q

What is the formula for breakeven point in units and dollars

A

Units = Total FC/Contribution Margin per unit

Dollars = Total FC/Contribution Margin ratio

64
Q

What are the formulas for Target Profit in units and dollars?

A

Units = FC + Pretax profit/CM per unit

Dollars = VC + FC + Pretax profit OR

FC + Pretax profit/CM Ratio

Mnemonics (10 decks)

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