Chap 5 Flashcards
Liquidity
Ability to pay for short-term obligations; nearness to cash
US GAAP balance sheet configuration
Most liquid to least
IFRS balance sheet configuration
Least liquid to most
Balance sheet with separately classified current and noncurrent assets/liabilities
Classified Balance Sheet
IFRS and GAAP require distinguishment between current and non-current
A True
B False
A True
Assets expected to be sold, used within 1 year
Current Assets
Assets expected to be sold, used greater than 1 year
Non Current Assets
Working Capital formula
current assets minus current liabilities
current assets minus current liabilities
Working Capital
Liabilities expected to be settled within 1 year
Current Liabilities
Liabilities expected to be settled greater 1 year
Non Current Liabilities
Working Capital defined
Tells an anlyst about the ability of the entity to meet liabilities as the come due.
Assets that are reported at amortized or fair market value
Financial Assets
Bank Overdrafts are considered
A. Investment
B. Expense
C. Financing
C Financing; presented in current borrowings and debt
Amounts owed to a company by its customers for products and services already delivered
Trade Receivables or Accounts Receivables
Trade Receivables or Accounts Receivables are reported at
- Historic cost
- NRV/FV
- Factoring price
- approximate fair value based on estimates of collectibility
Revelvant A/R metrics
- A/R relative to sales
- Allowance for doubtful accounts
- Concentration of credit risk
Contra Asset Account related to A/R
A. Allowance for doubtful accounts
B. Credit memo’s
C. DOH
A. Allowance for doubtful accounts. Netted against A/R balance to reach Net Receivables
Estimated % of credit sales uncollectible
Bad Debt Expense
Bad Debt Expense hits the P/L
A. True
B. False
A. True
Dr. Bad Debt Expense
Cr. Allowance for Doubtful Accounts
What improves Allowance for Doubtful Accounts A. Improved Economy B. Improved Credit Quality of Customer C. Stricter Credit Policy D. All
D. All
Inventory Flow
Beg Inv + Goods Purch =
Goods Available for Sale
Goods Available for Sale-Ending Inventory =
Cost of Good Sold
Cost of Good Sold affects the
A. B/S
B. I/S
C. O/E
B. Income Statement
Reversal of write-downs on Inventory are allowed under
A. GAAP
B. IFRS
C. Both
B. IFRS
GAAP does not allow reversals of write downs
Inventories are measured at Lower Cost or Market under
A. GAAP
B. IFRS
C. Neither
A GAAP
Inventories are measured at Lower Cost or Net Realizable Vlaue under
A. GAAP
B. IFRS
C. Neither
B. IFRS
If inventory falls below its XXX it must take a write down in value
A. Historic value
B. Market value
C. Carrying value
C. Carrying value
Costs of Goods Sold; Inventory Methods allowed under GAAP A. FIFO B. LIFO C. WAVG D. SPID E. All
E. All
Costs of Goods Sold; Inventory Methods allowed under IFRS A. FIFO B. LIFO C. WAVG D. SPID E. All
A. C. D. LIFO is not allowed under IFRS
PPE revaluation method is allowed under
A. GAAP
B. SEC
C. IFRS
C. IFRS
Not allowed under GAAP
PPE is a
A. Tangible Asset
B. Intangible Asset
C. Equity Instrument
A. Tangible Asset
PPE is reported at A. FMV B. Historic cost C. Historic cost less Dep D. FMV less DEP
C. Historic cost less dep
Depreciation means
systematic allocation of cost over the life of PPE
Impairments are
Unanticipated declines in asset value
X generally consists of an assets purchase price, its delivery cost and other costs incurred to make he asset usable
Historical cost
Impairement occurs when
Recoverable value is less than its carrying value
Impairment reversals are allowed under
A. GAAP
B. SEC
C. IFRS
C. IFRS. Not allowed under GAAP
Intangible assets are
A. Nonmonetary without physical substance
B. Monetary have physical substance
C. Neither
A.
Intangible Assets can be A. Goodwill B. Plants C. Copyrights D. Furniture
A. C.
Intangible Assets have
A. Finite Life
B. Idefinite Life
C. Both
Both
Intangible Assets with Finite Life
A. Amortize over useful life
B. Are tested for impairment each year
C. Are depreciated
A. Useful Life
Intangible Assets with Indefinite Life
A. Amortize over useful life
B. Are tested for impairment each year
C. Are depreciated
B. impairment tested; they do not amortize
Good will is an intangible asset
A. True
B. False
B. False. Not a separately identifiable asset. Arises when a company acquires another company for a price in excess of its fair market value
Impairement rules for PPE and Intangibles is the same
A. True
B. Fales
A. True
Impairment is a
A. Cash event
B. Credit event
C. Non Cash event
C. Non Cash event
Goodwill accounting for acquisitions is
A. Accrued
B. Expensed
C. Capitalized
C. Capitalized
Goodwill is
A. amortized over useful life
B. impairment tested each year
C. depreciated over useful life
B. Impairment tested each year
Fair Value
price that would be received if asset was sold in the market
Amortized Cost
the amount at which an asset was intially recognized minus any principal repayments, plus or minus any discount or premium, minus impairment
Current Liability Types A. Trade payable B. Note payable C. Accrued expenses D. Deffered Income E. All
E. All
Define Defered Income
also deferred revenue and unearned revenue. arises from receives payment in advance of delivery on goods or services
The difference between taxes payable and income tax expense equals
deferred tax liability
FCFE=
Net income + noncash charges - working capital - fixed capital investment + net new borrowing or minus net debt repayment
Free Cash Flow Equity
cash flow after investment in working capital and fixed capital, available to equity holders ONLY
Cash flow to Revenue
CFO / Net Revenue
Shows operating cash generated per dollar of revenue
Cash return on assets
CFO / Avg total assets
Shows operating cash generated per dollar of asset
Cash return on equity
CFO / Avg shareholder equity
Shows operating cash generated per dollar of owner investment
Cash to income
CFO / Operating Income
Shows cash generation ability of operations
Cash flow per share
(CFO - Preferred dividends) / # of common shares outstanding
Shows operating cash flow per share basis
Debt Coverage Ratio
CFO / Total Debt
Financial risk and finacial leverage
Interest Coverage Ratio
(CFO + Interest Exp Paid + Taxes) / Interest Exp Paid
Ability to meet interest obligations
Reinvestment Ratio
CFO / Cash Paid for LT Assets
Ability to acquire assets with operating cash flows
Debt Payment Ratio
CFO / Cash paid for LT debt
Ability to pay debts with operating cash flows
Dividend Payment Ratio
CFO / Dividends Paid
Ability to pay dividends with operating cash flows
Investing and Financing Ratio
CFO / Cash outflows fro investing and financing activities
CashFlow Coverage Ratios =
- Debt Coverage
- Interest Coverage
- Reinvestment
- Debt Payment
- Dividend
- Investing/Financing
CashFlow Performance Ratios =
- Cashflow to Rev
- Cash Return to Assets
- Cash return on equity
- Cash to income
- Cashflow per share
Liquidity Ratio’s
- Current
- Quick (Acid Test)
- Cash
Current Ratio / Working Capital Ratio
CA / CL (Working Capital)
Quick (Acid) Ratio
(Cash + Market Sec + Recv) / CL
Cash Ratio
(Cash + Mark Sec) / CL
Balance Sheet Analysis
- Liquidity
- Solvency
- Ratio
Solvency Ratios
- LT Debt to Equity
- Debt to Equity
- Total Debt
- Debt to Capital
- Financial Leverage
LT Debt to Equity
Total LT Debt / Total Equity
Debt to Equity
Total Debt / Total Equity
Total Debt (Debt to Assets)
Total Debt / Total Assets
Debt to Capital
Total Debt / (Total Debt + Total Equity)
Financial Leverage
Total Assets / Total Equity
