CPAexcel Notes Flashcards
90+ day CD’s are never cash
True
Post-dated checks are not cash
True
Name Components of Comprehensive Income
- Unrealized gains and losses on AFS securities
- Gains or Losses in Pension Obligations
- Foreign Currency Translation Adjustments
- Derivative Hedging Positions
***All Net of Tax
Operating Activities in Cash Flow
- Cash flows from actual operations
- Interest Income or Dividend Income expense
- Sale of Trading Securities - NOT INVESTMENT SECURITIES or AFS
Investing Activities in Cash Flow
- Sale/Purchase of PPE
2. Sale/Purchase of Long Term External Investment Security
Financing Activities in Cash Flow
- Sale/Purchase of own equity securities
- Debt issued by the company
- Dividends
- Redemption of long term debt
- Loan principal
Indirect Method on CF Prep
Gives you cash flows from actual operations without illustrating the reconciliation.
Working Capital
Working Capital = Current Assets-Current Liabilities
Lets you know if you have enough assets on hand to meet your needs.
Current Ratio
Current Ratio=Current Assets/Current Liabilities
Provides comparison of liquidity as it relates to working capital.
Quick Ratio/Acid Test
Quick Ratio=(Current Assets-(Inventory+prepaids))/Liabilities
Finer version of current ratio.
Times Interest Earned
(Net Income+Interest Expense+Income Tax Expense)/Interest Expense
Measures ability of current earnings to cover interest cost.
AR Turnover
Net Credit Sales/((Beginning AR+Ending AR)/2)
- Denominator is Avg AR Formula
- Gives calculation for collection
of Days AR
365/AR Turnover
- More intuitive calculation for collection
Inventory Turnover
COGS/((Beg. Inv. + End Inv.)/2)
- Denominator is Avg Inventory Formula
- Gives calculation for inventory turnover
Days inventory
Inventory Turnover/365
- More intuitive calculation for comparison
Profit Margin
Net Income/Sales
Return on Assets
Net Income/((Beg Assets+End Assets)/2))
Return on Equity
Net Income/((Beg Equity+End Equity)/2))
Earnings Per Share
Net Income-Preferred Dividends/Weighted Avg. Shares Outstanding
P/E Ratio - Price to Earnings Ratio
Price Per Share/Earnings Per Share
- Evaluates prospective future of the company
Factor or Sale?
- Assets are isolated from the transferor
- Freedom of Transferor to pledge
- Requirement of the transferee to eliminate control.
Accounting for a Sale
D: Cash
C: AR
Difference: Gain or Loss = typically a loss for cost of sale
Factoring (Non-continuing involvement)
D: Cash
C: Note Payable
IFRS Receivable Transfers
Less likely to be a sale, more likely to be factor. “substantially all the risk”
Discounting A Note
Maturity of the Note= principal+(principalinterest ratex/12)
Less: Discount=MaturityDiscount Ratex/12
Equals: Discount
Losses on Notes Receivable
Treated as Bad Debt Expense
Costs in Inventory
- Purchase Returns is included
- Freight-in (NOT FREIGHT OUT - THIS IS A SELLING COST)
- INVENTORY INTEREST IS FINANCING, NOT COI
- Sales Tax is included
- Packaging for items purchasing - yes
- Insurance in transit is an inventory cost
Weighted Average (periodic system)
Inventory and Purchases/Number of Units
FIFO (periodic/perpetual system equal)
- Oldest Costs are COGS
- Most recent are ending inventory
If prices rise, FIFO has lowest COGS and highest net income. Highest ending net inventory.
LIFO (periodic system/perpetual differs)
Most recent costs are COGS, oldest to inventory. Highest COGS, lowest NI. Has best possible tax outcome.
You must disclose tapping into a LIFO band in the footnotes
True
Dollar Cost LIFO Conversion Index
Ending Inventory in Current Year Dollars/Ending Inventory in Base Year Dollars
Lower Cost or Market: Ceiling/Floor
Ceiling: Net Realizable Value=selling price-cost to complete
Floor: NRV-profit margin
If replacement cost is between, use the replacement cost.
