CH 1. - Basic Concepts & F/S

Question 1

What are the Fair Value characteristics (MOST)?

Answer 1

Market-Based Measure
Orderly Transaction
Sale of Asset or Transfer of Liability (Exit Price)
Three Levels of input called the Fair Value Hierarchy

Question 2

What are the Fundamental Characteristics?

Answer 2

Relevance

• Predictive Value
• Confirmatory Value

Faithful Representation

• Completeness
• Neutral
• Free From Error

Question 3

What are Enhancing Characteristics?

Answer 3

They Help enhance Relevance and Faithful Represntation

Comparability
Understandability
Timeliness
Verifiability (Free From Error)

Question 4

What is considered a Current Asset?

Answer 4

Cash
A/R
Temporary Investments
Notes Receivables
Inventory
Prepaid Expenses

Question 5

What is Other Comprehensive Income (DENT)?

Answer 5

• Derivatives and Cash Flow Hedges
• Excess Adjustments of Pension Projected Benefit
  Obligation and Fair Value of Plan Assets at Year
  End
• Net Unrealized Gains or Losses (Noncredit Related)
• Translation Adjustments for Foreign Currency

Question 6

What is Physical Capital?

Answer 6

Is the concept that gains and losses related to assets and liabilities should be recognized when sold or settled.

Question 7

What is Financial Capital?

Answer 7

Is the concept that all changes in the value of an asset or liability should be recognized when sold or settled.

Question 8

What is the difference between Cash Basis and Accrual Basis?

Answer 8

Cash Basis

• Revenue when Cash received
• Expense when cash paid

Accrual Basis Recognizes

• Revenue when earned
• Expense when incurred

Question 9

What is the Price Earning Ratio?

Answer 9

Market Price / Earnings Per Share

Question 10

What are Current Liabilities?

Answer 10

Accounts Payable

Advances/Deposits from Customers

Accrued Expenses

Unearned Revenues

Short-Term Loans

Question 11

What is the Long-Term Debt-To-Equity ratio?

Answer 11

Total Long-Term Debt / Total Equity

(Solvency Ratio)

Question 12

What is Debt-to-Equity ratio?

Answer 12

Total Debt / Total Equity

(Solvency Ratio)

This shows company ability to sustain losses.

Question 13

What is Total Debt ratio?

Answer 13

Total Debt / Total Assets

(Solvency Ratio)

Question 14

What is Financial Leverage ratio?

Answer 14

Total Assets / Total Equity

(Solvency Ratio)

Question 15

What is an Asset?

Answer 15

1) Probable Future Benefit
2) Entity Controlled
3) Based on Past Transaction

Question 16

What is Quick Ratio?

Answer 16

Cash + Marketable Securities + A/R

\

Current Liabilities

*Remeber to remove Allowance for Credit Loses from AR to get the total A/R ( If avaibale)

Question 17

What is Cash Ratio?

Answer 17

Cash + Marketable Securities

/

Current Liabilities

Question 18

What is Acconts Recivables (A/R) Turnover?

Answer 18

Accounts receivable (A/R) turnover = Net credit sales / Average receivables*

Question 19

What is Comprehensive Income?

Answer 19

Measures economic performance by calculating an entity’s change in equity from nonowner transactions and events

Question 20

What is Times Interest Earned Ratio

Answer 20

Income Before Intrest Expense and Taxes / Intrest Expense

Question 21

What is Invetory Ratio?

Answer 21

Cost of Goods Sold / Average Inventory

Invetory Ratio determines how effectively a company manages its invetory.

For inventory turnover to increase, either

(1) COGS (the numerator) must increase with average inventory remaining constant, or
(2) average inventory (the denominator) must decrease with COGS remaining constant.

Question 22

Return on Assets?

Answer 22

Net Income / (Beg Assets + End Assets / 2)