Deck11

Question 1

How to figure the number of days in the Operating Cycle (Approximate)

Answer 1

of days sales in inventory + # of days sales in receivables

Question 2

Successful “Leverage” is used when it can borrow at a particular rate of interest and then:

Answer 2

Make more money for its stockholders(contributed capital) than it has to pay back.

Question 3

Book Value Per share =

Answer 3

Total owners equity(less treasury stock)/Number of Shares Outstanding

Question 4

Return On Assets (ROA)=

Answer 4

Net Income/Average Assets

Question 5

Profit Margin =

Answer 5

Net Income/Sales

Question 6

When using ratios, when do you use averages for balance sheet accounts?

Answer 6

When they are being measured against income statement accounts.

Question 7

Return on Equity uses (a) Common Stock (b) Preferred Stock (c)both

Answer 7

(a)Common Stock only ROE=NI/Average Common Stock

Question 8

Earning Per Share (EPS) =

Answer 8

NI-Preferred Stock Div/(Weighted Average Common Stock Outstanding)

Question 9

Price-Earnings Ratio (PE Ratio) =

Answer 9

Stock Price Per Share/EPS

Question 10

Debt-Equity Ratios = Leverage Ratios Use the main accounting equation to figure these out

Answer 10

A = L + E - Use the equation to organize your thoughts and solve problems on the CPA exam

Question 11

When using Cash Basis of Accounting, which what title should “Income Statement” be replaced with?

Answer 11

Statement of Cash Receipts and Cash Disbursements

Question 12

The modified cash basis of accounting does not employ any of the elements of accrual accounting? T or F

Answer 12

False

Question 13

When using the Income Tax Basis for Accounting some things are recognized that would not be recognized on Income Tax Statements. T or F

Answer 13

T - eg. Life Insurance Proceeds, Life Insurance Premiums

Question 14

For personal financial statement, Assets and liabilities should be measured at:

Answer 14

Fair Value(estimated current amount)

Question 15

Which of the following is/are included in a personal financial statement? Income Statement, Balance Sheet, Statement of Cash Flows

Answer 15

Balance Sheet

Question 16

On personal financial statements, stock(asset), stock should be valued at _________.

Answer 16

Fair Value (market) - Not purchase price, and do not include dividends received

Question 17

When figuring personal Net Worth, should you include Net Income?

Answer 17

No

Question 18

On personal financial statements, estimated income taxes on the amount of Current Value of Tax Basis Values should be reported where?

Answer 18

Separate line item between liabilities and net worth

Question 19

On a personal financial statement, the amount a person has “vested” means:

Answer 19

The amount the person has a claim on. Contributions from an employer (401K) are not considered “vested” because the person does not have a claim on them.

Question 20

Life insurance policies should be reported at:

Answer 20

Cash surrender value - Any loans against it

Question 21

What does the Private Company Council (PCC) Do?

Answer 21

Work with FASB to set Private Company accounting standards.

Question 22

How does the PCC set standards?

Answer 22

Relevance vs. Cost Benefit By weighing the Relevance of the information vs. the Cost Benefit

Question 23

Under liquidation basis of accounting, are Notes Payable valued at the amount of cash expected to be paid or received?

Answer 23

No. Liabilities are measured under GAAP and are not written as “expectations” unless forgiven.