Chapter 4

Question 1

Gains or Losses

Answer 1

Increase or decrease equity

Question 2

Earnings Quality

Answer 2

The ability of current reported earnings to predict future earnings

Question 3

Permanent earnings

Answer 3

Routines (continuing and operating sections of the income statement)

Question 4

Temporary

Answer 4

Unlikely to happen again ( Discontinued and other income of the income statement.

Question 5

Permanent item in other income

Answer 5

interest

Question 6

Discontinued Operations

Answer 6

Major shift away from a component of the business

Question 7

Basic EPS

Answer 7

(Net income - Preferred stock dividend)/(weighted-average #of common shares outstanding)

Question 8

comprehensive income

Answer 8

Net income + Other comprehensive income

Question 9

Accumulated Other comprehensive income

Answer 9

reported in BS as a part of shareholders equity

Question 10

Exampled of OCI

Answer 10

Gains/loses
Deferred gains
Foreign currency
Net unrealized holdings

Question 11

Asset Turnover Ratio

Answer 11

Net sales/ Avg Total Assets Want higher

Question 12

Receivables turnover ratio

Answer 12

Net sales/ Average AR(Net) Want higher

Question 13

Average Collection Period

Answer 13

365/ Receivables turnover ratio Want lower

Question 14

Inventory turnover ratio

Answer 14

C.O.G.S./ Avg inventory Want higher

Question 15

Average days in inventory

Answer 15

365/ Inventory turnover ratio

Question 16

Profit Margin on sales

Answer 16

Net Income/ Net sales Want higher

Question 17

Return on assets

Answer 17

Net income/ Average total assets Want higher

Question 18

Return on shareholder’s equity

Answer 18

Net income/ Avg shareholders’ equity Want higher

Question 19

Statement of Cash flows

Answer 19

Provides information about the cash receipts and cash disbursements. Helpful for future profitability. liquidity, and long term solvency

Question 20

Operating Activities

Answer 20

If it affects income statement it is operating

Question 21

Investing Activities

Answer 21

Related to acquisition and disposition of long-lived assets used for investments

Question 22

Financing activities

Answer 22

related to external financing of the company with the owners and creditors

Question 23

IFRS V GAAP

Answer 23

Gaap- Op= dividends received interest received, and interest paid
IFRS- Inv= dividends and interest received
Fin= interest paid

Question 24

Retospective

Answer 24

Restate all prior periods

Question 25

Modified retrospective

Answer 25

Cumulative prior period effect reported in RE

Question 26

Propective

Answer 26

Change current period only

Question 27

Voluntary change to Accounting principle

Answer 27

Always Retrospective

Question 28

FASB mandated changed

Answer 28

FASB gets to decide the implementation method