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Accounting > BIWS 3 Statement Impact > Flashcards

BIWS 3 Statement Impact Flashcards

1
Q

Prepaid expenses decrease $10. Show the impact. 20% tax rate.

A

IS:

(10) operating income
(2) taxes
(8) NI

CF:

(8) NI

10 prepaid expenses

2 cash increase

BS:

2 cash

(10) prepaid expenses
(8) R.E.

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2
Q

What happens when accrued expenses increase $10? Assume 40% tax rate

A

Income statement:

Operating income (10)

Taxes (4)

NI (6)

CF:

NI (6)

Accrued Expenses 10)

Cash 4

BS:

Cash 4

Accrued Expenses 10

R.E. (6)

Balance sheet balances

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3
Q

$100 “bailout” of a company through equity. Show me the impact. 20% tax rate.

A

IS:

No impact

CF:

100 cash

BS:

100 cash

100 preferred stock

Yes, it’s the same as a normal stock issuance!

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4
Q

A company sells PP&E for $120, with a current book value of $100. Show me the impact. 20% tax rate.

A

IS:

20 pre tax income

4 taxes

16 NI

CF:

16 NI

(20) Gain

120 sale

(116 cash increase)

BS:

116 cash

(100) PPE

16 R.E.

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5
Q

Non controlling interest represents what?

A

The portion of a subsidiary that the parent company does NOT own.

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6
Q

$100 write down of debt (cash the company owes). Show me the impact. 20% tax rate.

A

IS:

100 pre tax income

20 taxes

80 NI

CF:

80 NI

(100) write down
(20) cash

BS:

(20) cash
(100) bond payable/debt

80 NI

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7
Q

Investments in equity interests assumes what % ownership?

A

20% to 50%

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8
Q

Where is depreciation located on the income statement?

A

It’s own line item included in operating income, or hidden in COGS/SG&A expense.

It is included in COGS because depreciation can be capitalized as a part of inventory.

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9
Q

$100 stock issuance to employees at stock based compensation. Show me the impact. 20% tax rate.

A

IS:

(100) pre tax income
(20) taxes
(80) NI

CF:

(80) NI

100 stock compensation

20 cash

BS:

20 cash

100 CS/APIC

(80) R.E.

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10
Q

What happens when accrued expenses decrease by $10?

Assume 20% tax rate.

A

IS:

No impact

CF:

(10) cash

BS:

(10) cash
(10) accrued expenses

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11
Q
  1. What is the difference between working capital and operating working capital?
  2. How could operating working capital be negative?
A
  1. Working capital is current assets - current liabilities, which could include non operating current assets such as short term investments.

Operating working capital excludes non-operating balance sheet items

  1. If a company has a lot of deferred revenue. Or, if the company receives cash upfront but pays its suppliers on credit
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12
Q

Apple order $10 of inventory using cash. Show me the impact. 20% tax rate.

Then

Apple sells all of the inventory for $20 cash.

A

IS:

no impact

CF:

(10) inventory
(10) cash

BS:

(10) cash

10 inventory

Then

IS:

10 operating income

2 taxes

8 NI

CF:

8 NI

10 inventory

18 cash

BS:

18 cash

(10) inventory

8 NI

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13
Q

AR increases $10, show me the impact to the 3 financial statements.

Assume 20% tax rate

A

IS:

10 operating income

2 taxes

8 NI

CF:

8 NI

(10) AR
(2) cash

BS:

(2) cash

10 AR

8 R.E.

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14
Q

Other than revenue recognition and matching, what determines if something can go onto the income statement?

A

If it affects the company’s taxes

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15
Q

$100 dividends paid. Show me the impact. 20% tax rate.

A

IS:

no impact

CF:

(100) dividends

BS:

(100) cash
(100) R.E.

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16
Q

Apple buys $100 worth of factories with debt. Show me the initial impact. 20% tax rate.

Then:

Start of year 2: 10% interest (no principal paid off) and 10% depreciation. Only focus on year 2’s entries.

Then:

At the end of year 2, the factories break down and their value is written down to $0. Also, the loan must be paid back now. Show me the impact. Only show start year 2 to end year 2.

A

IS:

no impact

CF:

100 debt

(100) factories

BS:

100 factory

100 bond payable

Then

IS:

(20) pretax income
(4) taxes
(16) NI

CF:

(16) NI

10 depreciation

(6) cash

BS:

(6) cash
(10) AD
(16) R.E.

Then

IS:

(100) pre tax income
(20) taxes
(80) NI

CF:

(80) NI

80 impairment loss

10 depreciation

(100) NP
(90) cash

BS:

(90) cash
(10) AD
(80) factory
(100) NP
(80) retained earnings

17
Q

How does deferred revenue become a use of cash, thus becoming a liability?

A

Once recorded as revenue, taxes will increase. Also, goods/services must be performed to earn that revenue, thus utilizing cash.

18
Q

A company raises $100 of debt, at 5% interest and 10% principal repayment, to purchase $100 of short term securities with 10% interest attached. Show me the initial impact. 20% tax rate.

Then

Show the entries at the end of year 1, after the company has earned interest, paid interest and principal on the debt.

Then

At the end of year 1, the company sells the short term securities and gets $110 for them. It uses the proceeds to pay the $90 worth of debt. ONLY these changes.

A

IS:

no impact

CF:

100 debt

(100) short term securities

BS:

100 short term securities

100 debt

Then

IS:

(5) pre tax income
(1) tax
(4) NI

CF:

(4) NI

10 investment dividends

(10) debt repayment
(4) cash

BS:

(4) cash
(10) investment
(10) debt
(4) NI

Then

IS:

20 pre tax income

4 taxes

16 NI

CF:

16 NI

(20) gain

110 investment

(90) bond

16 cash

BS:

16 cash

(90) investment
(90) bond

16 R.E.

19
Q

Inventory goes up by $10. You paid with cash. Show the impact. 20% tax rate.

A

Clarify that it’s not a sales return and simply an inventory purchase.

IS:

no impact

CF:

(10) cash

BS:

(10) cash

10 inventory

20
Q

Asset write down of $100. Show me the impact. 20% tax rate.

A

IS:

(100) pre tax income
(20) taxes
(80) NI

CF:

(80) NI

100 loss

change in cash = 20

BS:

20 cash

(100) PP&E
(80) R.E.

21
Q

A company has recorded $100 in income tax expense on its income statement. All $100 is paid. Now, we change the statement to reflect $90 cash with $10 deferred to future periods. Show me the impact. 20% tax rate.

A

IS:

no impact

CF:

10 cash

BS:

10 cash

10 DTL

22
Q

Payment of capital lease principal is what type of cash flow?

A

Cash flows from financing

23
Q

Let’s say you have a non-cash expense, (Depreciation/Amortization) for example. Why do you add back the entire amount of depreciation?

A

NI is reduced due to the after tax effects of depreciaiton. You add back the whole amount of depreciation to show the savings from the reduction in taxes.

Accounting (11 decks)

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