esercizi chapter 4 Flashcards
- IF a company’s current ratio is less than 1.0x, which of the following accounting actions will increase its current ratio?
A. Accruing direct labor costs.
B. Making a cash payment on accounts payable.
C. Using a short-term revolving credit facility to pay down long-term debt.
Ans: A
Accruing direct labor costs increases current asset (inventory) and current liabilities by the same amount. Since the initial current ratio is less than 1.0x, adding equal amounts to the numerator and denominator causes a larger percentage in crease to the numerator and the ratio will increase.
B. Paying accounts payable results in an equal reduction of current assets and current liabilities. Since the initial current ratio is less than 1.0x, equal decrease of the numerator and the denominator would decrease the ratio.
C. Borrowing on a short-term revolving credit facility will increase the current liability which is the denominator, thus reducing the current ratio.
At the beginning of the year, a firm sold half of its accounts receivable at book value without recourse and used the proceeds to pay down a long-term bank loan. Assuming that the transaction has met all conditions to constitute a sale of the receivables, this transaction will:
A. Increase the current ratio.
B. Reduce the debt-to-equity ratio.
C. Reduce the interest coverage ratio.
Ans. B.
By using the proceeds from the sale of the accounts receivable without recourse to reduce total debt, the debt- to-equity ratio will fall, as the numerator is now lower. Additionally, since the interest expense associated with the total debt is now lower, net income and equity (the denominator) will be higher.
A is incorrect. The current ratio will decrease rather than increase because the current assets were reduced as a result of the sale of the accounts receivable (cash received was used immediately to permanently pay down the long- term loan) while the current liabilities remained unchanged (the debt that was paid down did not represent a short-term liability).
C is incorrect. The reduction of debt from the transaction will result in lower interest expense and an increase in, rather than a reduction of, the interest coverage ratio.
Lonic Company purchased 10,000 shares of its common stock for the treasury at $30 per shares at the end of 20x2. The par value of the stock is $1 and the shares were originally issed at $10 per share. The effect of the repurchase on common stockholders’ equity and return on equity are a decrease in stockholders’ equity of:
A. $300,000 and a higher return-on equity. B. $300,000 and a lower return-on equity C. $200,000 and a lower return-on equity
Ans: A.
The treasury stock was recorded at the purchase price (10,000 shares *$30). Since the balance in the treasury stock is deducted from the total of common stock, additional paid-in capital, and retained earnings to determine stockholders’ equity, the purchase reduces stockholders’ equity by the same amount of the purchase price. Return on equity for 20x2 is higher since the equity is lower.
- To gain insight into what portion of the company’s assets is liquid, an analyst will most likely use:
A. the cash ratio.
B. the current ratio.
C. common-size balance sheets.
Ans: C.
A common-size balance sheet expresses all balance sheet accounts as a percentage of total assets and provides insight into what portion of a company’s assets is liquid.
A is incorrect.
Cash ratios measure liquidity relative to current liabilities, not relative to total assets.
B is incorrect.
Current ratios measure liquidity relative to current liabilities, not relative to total assets.
classification of securities held for trading and available for sale
Whether securities are classified as held for trading or available for sale, they are measured at their fair value on the balance sheet, but all gains/losses on held for trading securities are reported on the income statements. The unrealized gains/losses on available for sale securities are reported in equity. However, this treatment is the same for both IFRS and U.S. GAAP reporting.
treasury stock is non-voting and receives no dividend?
Treasury stock is stock that has been reacquired by the issuing firm but not yet retired. Treasury stock reduces stockholders’ equity. It does not represent an investment in the firm. Treasury stock has no voting rights and does not receive dividends.
in the receivable you should count the allowance for doubtful accounts?
yes.
Un credito inesigibile in finanza è un credito ovvero un importo dovuto che è altamente improbabile che potrà essere pagato dal debitore. Il caso tipico è ad esempio quello di una società messa in liquidazione
held for trading, available for sale securities and held to maturity securities. which of these are carried at market value and at amortised cost?
Held-for-trading and available-for-sale securities are carried at market value, whereas held-to-maturity securities are carried at amortized cost. If the investment is reclassified as available-for-sale in 2010, the carrying amount should be adjusted to its market value, which is $10,000. Compared with the amortized cost of $20,000, it’s a decrease of $10,000.
Which of the following is the least appropriate accounting treatment for marketable securities under IAS No. 39?
A. B. C.
-. Measurement Method
-,Realized Gains & Losses Reported In
Trading : -.fair value -,income statement
Held to maturity: -.Amortized Cost -,Income Statement
Available for sale: -.Fair Value .,Equity
Ans: C.
All categories treat realized gains or losses in the same way - they are reported on the income statement. It is the unrealized gains and losses that are included in other comprehensive income (in equity) for available for sale securities carried at market value.
Under International Financial Reporting Standards (IFRS) a bank, or other financial institution, would normally use which type of balance sheet format?
A. Classified
B. Liquidity-based
C. Market-value based
Ans: B.
Liquidity-based format presents assets and liabilities in the order of liquidity. Under IAS No. 1 liquidity-based presentation is recommended when it provides information that is more relevant and reliable than the current/noncurrent format, such as in the case of banks and financial institutions
redeemable preferred shares are reported as?
debt; dividend on such stocks must be reported as interest expense which will lower the interest coverage ratio
guardare domanda 19 esercizi
Which of the following statements about balance sheets is most accurate? Under:
A. U.S.GAAP, intangibles must be valued at historical cost.
B. IFRS, a commercial real estate company should use a liquidity based presentation.
C. IFRS, a classified balance sheet must present current assets before non-current assets.
A.
Under U.S.GAAP, intangibles must be valued at historical cost, where under IFRS, they can be valued at cost or revaluation.
B is incorrect. Under IFRS, firms can choose to use a liquidity-based format if the presentation is more relevant and reliable. Liquidity-based presentations, which are often used in the banking industry, present assets and liquidities in the order of liquidity.
C is incorrect. Both IFRS and U.S.GAAP require firms to separately report their current assets and noncurrent assets and current and noncurrent liabilities. The current/noncurrent format is known as a classified balance sheet and is useful in evaluating liquidity.
But the current assets are not necessarily presented before non-current assets.
rifare 24-26 esercizio
The item “noncontrolling interest” included as a component of equity represents the:
A. firm’s ownership of less than 50% of a subsidiary.
B. portion of a subsidiary the firm does not own.
C. firm’s ownership of less than 30% of a subsidiary.
Ans: B.
When a firm has a controlling interest (>50%) in a subsidiary, but less than 100% ownership, it includes (consolidates) the assets and liabilities of that firm on its own balance sheet. Noncontrolling (or minority) interest in the equity section of the balance sheet represents the portion of the subsidiary that is not owned by the reporting firm.
