Excel Exam 1

Question 1

measure the relationship between two or more components of financial statements

Answer 1

Ratios

Question 2

Ratios standardize numbers and facilitate comparisons to assess financial….

Answer 2

health, performance, and corporate value

Question 3

Ratios allows _____________ to make informed decisions about investment, lending, and operational strategies

Answer 3

Stakeholders

Question 4

Expresses line items as a percentage

Answer 4

Common-Size Analysis

Question 5

• A method used to simplify financial comparison.
• Simplifies comparison over time to identify trends.
• Simplifies comparison between companies of different sizes or against industry averages to identify strengths and weaknesses.

Answer 5

Common size analysis

Question 6

Common-size analysis is not required for financial reporting (GAAP), but a vital tool for __________ and ____________

Answer 6

internal (management) external (investors and analysts

Question 7

Common set of accounting rules, requirements, and practices issued by the Financial Accounting Standards Board and the governmental accounting standards board. _________ sets out to standardize the classifications, assumptions and procedures used in accounting in industries across the U.S

Answer 7

Generally accepted accounting principles (GAAP)

Question 8

• Each item is expressed as a percentage of total assets or total liabilities and equity.
• Provides insight into the asset and capital structure.

Answer 8

Common size balance sheet

Question 9

• Each item is expressed as a percentage of total revenue.
• Allows for analysis of cost structures and profit margins.

Answer 9

Cost of Goods Sold (COGS)

Question 10

who uses the asset and makes the lease, or rental, payments.

Answer 10

Lessee

Question 11

who owns the asset and receives the rental payments

Answer 11

Lessor

Question 12

Note that the lease decision is a __________ decision for the lessee and an ________ decision for the lessor.

Answer 12

financing; investment

Question 13

For accounting purposes, leases are classified as either ___________ or __________

Answer 13

capital (finance); operating

Question 14

Owning a piece of property

Answer 14

Capital lease

Question 15

Renting a property

Answer 15

Operating lease

Question 16

The lease agreement specifies that ownership of the asset will transfer to the lessee by the end of the lease term.

Answer 16

Ownership transfer

Question 17

The lessee has the option to purchase the leased asset at a price that is expected to be significantly lower than the fair value at the date the option becomes exercisable, and it is reasonably certain that the option will be exercised.

Answer 17

Bargain Purchase option

Question 18

the major part of the economic life of the asset, even if title is not transferred. Under U.S. GAAP, this is often interpreted as 75% or more of the asset’s useful life.

Answer 18

Lease Term

Question 19

payments amounts to at least substantially all of the fair value of the leased asset at the beginning of the lease term. Under U.S. GAAP, “substantially all” is often interpreted as 90% or more of the fair value.

Answer 19

Present Value of Lease Payments

Question 20

If a lease meets any of these criteria, it is treated as a capital lease, meaning the lessee records the leased asset as if it has been purchased, including it on the _________ ______ as an asset and a corresponding liability.

Answer 20

balance sheet

Question 21

If a lease does not meet any of the above criteria, it is classified as an operating lease. For operating leases, the lessee does not record the asset on the balance sheet. Instead, lease payments are recognized as _______ _________on a _______-____ _____over the lease term, reflecting the use of the asset without assuming the risks and rewards of ownership.

Answer 21

Rental expense on a straight-line basis

Question 22

refers to the total monetary savings that would potentially result from a person or a business choosing to lease an asset as opposed to purchasing it outright.

Answer 22

Net Advantage to Leasing

Question 23

These are the upfront costs associated with purchasing or leasing the asset. For purchasing, this would include the purchase price and any initial fees. For leasing, it would typically be the first lease payment and any security deposits.

Answer 23

Initial Costs

Question 24

What type of payments are often fully deductible as a business expense in the year they are made

Answer 24

Lease payments

Question 25

What type of payments allows for capital depreciation deductions over the asset’s useful life

Answer 25

Purchasing payments

Question 26

This refers to the estimated value of the asset at the end of the lease term or its useful life if purchased.

Answer 26

Residual value