Chapter 3

Question 1

Main formula of the Income statement?

Answer 1

Revenue- expenses = Net Income

Question 2

Altra formula per il Net Income

Answer 2

Revenue + OI + Gains - Expenses - Losses

Question 3

Formula Gross Profit

Answer 3

Revenue- Cost of sales

Question 4

Gross profit: Multi step- single ste

Answer 4

• Multi step: income statement shows gross profit subtotal
• Single step: I.S excludes gross profit subtotal

Question 5

Formula Operating Profit

Answer 5

Revenue- operating expenses

Question 6

Cosa è Operating Profit

Answer 6

Profits before deducting taxes and interest expense and before any other non operating items

Question 7

Ebit is equal to Operating profit?

Answer 7

NO, not necessary

Question 8

Accrual accounting principle

Answer 8

revenue is recognized in the period in which it is earned

Question 9

Five-step model for recognise revenue

Answer 9

-Identify the contract with a customer
-Identify the separate or distinct performance obligations in the contract
-Determine the transaction price
-Allocate the transaction price to the performance obligations within the contract
- Revenue recognise when the entity satisfies a performance obligation

Question 10

Factors to consider in assessing whether a customer has obtained control at a point in time include

Answer 10

• the entity bas a present right to payment
• the customer has legal title
• Customer has physical possession
• Significant risk and rewards of ownership have passed
  -Customer has accepted the test

Question 11

When an entity recognises a revenue?

Answer 11

When it is able t satisfy perorfamnce obligations by transferring control to the customer

Question 12

What happen for performance obligations satisfied over time?

Answer 12

Revenue is recognises over time by measuring progress towards satysfing the obligation. devi fare la % of completion

Question 13

Gross vs Net reporting for GAAP

Answer 13

-Report revenues gross if the company is the primary obligor under the contract
- otherwise report revenues net

Question 14

Expense recognition

Answer 14

A company recognises expenses in the period in which it consumes the economic benefits associated with the expenditure

Question 15

Matching principle

Answer 15

cost are matched with revenues

Question 16

COGS

Answer 16

beginning inventory + purchases - ending inventory

Question 17

Weighted average cost of capital process

Answer 17

• revenue =P*Q
• Avg cost =prendi unit a total cost e lo dividi per il numero di unità vendute
• Cogs= sale * avg cost
• End invetory= (Total unit - Cogs)*AVG Cost

Question 18

income statement by nature

Answer 18

by type of expenses, like row materials, transport costs, depreciation, staff cost

Question 19

income statement by function

Answer 19

cost of good sld, administrative so by AREA

Question 20

Income statement single step

Answer 20

it goes straight forward to the operating income

Question 21

Income statement multi step

Answer 21

with gross profit

Question 22

COGS when prices increases
Method:
- FIFO
-LIFO
-AVG.cost

Answer 22

-Lowest
-higher
-middle

Question 23

End inventory prices are rising
Method:
- FIFO
-LIFO
-AVG.cost

Answer 23

• highest
  -lowest
  -middle

Question 24

Straight line method

Answer 24

AVG cost- residual value/useful life

Question 25

Accelerate depreiciation method

Answer 25

1/n*acc factor

Question 26

EPS

Answer 26

net earn gins available to common stockholders for the period divided by the weighted average number of common shares outstanding. If firm has a complex structure all report basic and diluted EPS

Question 27

Basic EPS

Answer 27

Net income- pref.dividends/avg.of shares outstanding

Question 28

Diluted EPS

Answer 28

Net income/avg.of shares outstanding + new shares issued at conversion

Question 29

rule when calculating the eps diluted

Answer 29

EPS basic >= EPS diluted

Question 30

Treasury stock method for stock options diluted eps

Answer 30

net income- preff. dividend/avg.shares outstanding + new shares issued at options price- (shares in plan* exercise price/mkt price)
if the exercise price > mkt price shares are anti dilutive

Question 31

Convertible bond EPS

Answer 31

net income- preff. dividfens + int.expens*(1-tax rate)/avg.shars outstanding + shares converted

Question 32

Net profit margin

Answer 32

net income/revenue
the amount of income that a company is able to generate for each dollar of revenue
higher level = higher profitability

Question 33

Profitability ratios

Answer 33

Gross profit margin and operating profit margin and pretax profit margin

Question 34

Gross profit margin

Answer 34

gross profit/revenue

Question 35

operating profit margin

Answer 35

operating profit /revenue

Question 36

pretax profit

Answer 36

pretax profit/revenuue