Bonds, Debt and inventory Analysis

Question 1

Recording Bonds issued at a discount

Answer 1

Book Value= amount the bond sold at (discounted value)
Interest expense calculation:
Effective interest rateX BV
Cash interest payment:
Stated interest rateX face amount on bond (bond b/f discount)
AMORT of discount on bond:
Interest expense-cash interest payment
EOY BV= BV+ years AMORT on discount

Question 2

Bonds issued at a premium

Answer 2

initial book value is what the bond is sold at
interest expense= effective interest rate X BV
Cash interest= Stated interest rate X BV
AMORT of premium= Cash interest payment-interest expense
EOY book value= BV-the amortization of premium

Question 3

Bonds issued with Debt issuance cost using the effective interest rate method

Answer 3

Book value= par value of the bond-issuance costs
Interest expense= effective interest rate X BV
Cash interest payment= Coupon rate X the par value
AMORT of issuance cost= interest expense- cash payment
EOY BV= BV+ amortization of issuance cost

Question 4

Change of accounting principle

Answer 4

applied retrospectively and require a restatement. Switching inventory methods or changing presentation of the financial statements.

Question 5

Change of accounting estimate

Answer 5

These are changed going forward

Question 6

Dollar Value LIFO

Answer 6

Inventory measured in dollars and adjusted for changing price levels. Not based on the inventory units.
Ending inventory at current year cost/inventory at base year cost.

Question 7

LIFO

Answer 7

Last cost that are inventoried are the first cost transferred to COGS therefore ending inventory includes the oldest cost. In periods of inflation the FIFO method results in highest inventory, lowest COGS and the highest net income.

Question 8

Weighted average inventory

Answer 8

The average cost of each item is the weighted average inventory

Question 9

Gross profit method of inventory

Answer 9

This is used on interim financial statements as part of a periodic inventory system. Inventory is valued at retail and the average gross profit percentage is used to determine the inventory cost for the interim financial statements. (grossprofit/ netsales revenue) X 100

Question 10

FIFO

Answer 10

in periods of rising costs the FIFO method results in the highest ending inventory the lowest COGS and highest net income

Question 11

Average pricing method

Answer 11

Calcultat the amount of ending inventory and multiply it by the average price

Question 12

Trade credits

Answer 12

Terms 2/10 N/30
“2/10 net 30” is a trade credit term that means a buyer receives a 2% discount if they pay an invoice within 10 days, and the full amount is due within 30 days otherwise

Question 13

Operating Cash flows (CFO)

Answer 13

Selling products/collecting receivables

Purchasing inventory/paying vendors

Paying taxes

Purchasing/selling trade securities

Collecting interest on an investment

Collecting dividends on investment

Paying interest on debt

Question 14

Investing Cash flows (CFI)

Answer 14

Purchasing long term assets or long term investment for cash

Question 15

Investing Cash flow (CFI)

Answer 15

Selling long term assets or investments

Question 16

Financing Cash flows

Answer 16

Borrowing funds (loans, issuing debt)

Paying principal on debt

issuing common or preferred stock

paying dividends on common or preferred stock

repurchasing stock (treasury)

prepaying debt or paying debt extinguishment costs

Question 17

No net cash flow

Answer 17

Depreciation, amort, or depletion (just eliminate effect) (add back)
/ subtract addition of asset

Question 18

Temporary Tax differences

Answer 18

These are tax differences that will eventually be reversed.

EX Revenues or gains that are taxable after they are recognized as financial income

Expenses or losses that are deductible after they are recognized in financial income

Question 19

Permanent tax difference

Answer 19

The differences between book tax expense and the actual tab owed. which is caused by an item that does NOT reverse over time.

Question 20

Current Tax expense

Answer 20

Result of multiplying taxable income from the tax return by the tax rate

Question 21

Deferred Tax expense

Answer 21

The balance sheet must be adjusted at the end of each year to reflect the appropriate amount of deferred tax liability and the appropriate amount of deferred tax asset

Question 22

Deferred tax asset

Answer 22

This occurs when the amount of taxes paid in the current period exceeds the amount of income tax expense in the current period

Question 23

Permanent differences examples

Answer 23

Items of revenue or expenses that either: Enter into pretax GAAP financial income but NEVER into taxable income (interest income on (state municipal obligation), OR enter into taxable income but never enter into pretax GAAP financial income (dividends - received deduction)

Question 24

What is entered into taxable income but never into pretax GAAP financial income

Answer 24

Dividends received deduction

Question 25

What do permanent tax differences effect?

Answer 25

They only effect the period in which they occur in.

Question 26

Temporary tax differences

Answer 26

Enter into pretax GAAP financial income in a period BEFORE they are supposed to be entered into taxable income OR enter into pre tax GAAP financial income in a period AFTER they enter into taxable income.

Question 27

Temporary differences affect which computation

Answer 27

deferred tax

Question 28

Turn Around on temporary differences

Answer 28

Items that are first recognized for tax purposes will eventually be recognized for GAAP purposes (OR VISE VERSA) therefore the differences are temporary and will eventually turnaround

Question 29

PV

Question 30

FV

Question 31

Imputed interest rate

Answer 31

Principal X minimum interest rate X number of years

Question 32

Filling requirements for the 10-Q

Answer 32

LAF 40 days
AF 40 days
NAF 45 days

Question 33

10K

Answer 33

LAF 60 days
AF 75 days
NAF 90 days