Far 2

Question 1

What is the profit margin ration

Answer 1

Net income / net sales

Question 2

What is gross margin ratio?

Answer 2

Gross profit / net sales

Question 3

Earnings per share ratio

Answer 3

Net income / weighted average of common stock outstanding

Question 4

What is the purpose of the comprehensive income statement?

Answer 4

To show the full picture of all operating income, gains, and losses

Question 5

What five items are in comprehensive income

Answer 5

Net income
Unrealized gains/loss afs securities
Unrecognized gains loss on pension costs
Foreign currency translation adjustments
Gains and losses from certain derivatives

Question 6

What is AOCI?

Answer 6

Accumulated other comprehensive income

Question 7

Where is AOCI in the balance sheet?

Answer 7

Shareholders equity

Question 8

What is in the statement of changes in equity?

Answer 8

Common and preferred stock
Additional paid in capital
Retained earnings
Treasury stock
AOCI

Question 9

What section of the statement of cash flows does making a loan go to?

Answer 9

Investing

Getting a loan is in the financing section

Question 10

What section in the statement of cash flows does sting dividends go?

Answer 10

Financing section

Also paying bonds is here

Question 11

Dividends received are part of net income which is what kind of activity?

Answer 11

Operating

Question 12

What kind of activity is interest expense and interest income?

Answer 12

Operating activity

Question 13

What is included in the Financing Activities of Cashflow statement?

Answer 13

It includes all cash flows involving Liabilies and Equity other than operating items; such as bank borrowing, dividend payments, issuance of stock, bank loan payments

Question 14

What kind of expense excludes early stage production, legal fees for patents, and advertising?

Answer 14

Research and development.

Question 15

When there is an intercompany sale of goods how do you eliminate the inventory?

Answer 15

There is no profit or loss between the two. An entry must be calculated for the cost of the sale between the companies.

Question 16

In a business consolidation are transaction costs capitalized or expenses?

Answer 16

The are expenses. This includes legal fees, audit fees, finders fee

Question 17

After one year of a business consolidation how do you calculate net income?

Answer 17

You consolidate the parents net income and the subs net income after the consolidation

Question 18

If a contingent loss cannot be estimated then what do you do in the financial statement?

Answer 18

Put a description and a range of possible loss

Question 19

What circumstances will goodwill be recognized in a business combination carried out as a legal merger?

Answer 19

When the price paid is higher than the FV of the net assets (assets minus liabilities)

Question 20

What is the intrinsic value of a Call option dirrivitive?

Answer 20

The difference between the strike price and the market price

Question 21

Wht is the journal entry for the allowance of returns

Answer 21

A debit to Sales Returns and a credit to allowance for sales returns

Question 22

When a company sells an asset like a warehouse to replace it with a like kind asset, The excess of the proceeds to purchase the new warehouse would be reported as?

Answer 22

Part of continued operations. It is common to upgrade assets

Question 23

In weighted average number of shares do you use the number of months for dividends and stock issuance?

Answer 23

You do not use months for the dividedns, it is considered declared at the beginning of the year. Stock issuance is from the month they were declared

Question 24

What are the three ways that an operating segment would be deemed reportable?

Answer 24

They have 10% of Revenue
10% or more of total profit
Segment assets are 10% or more

Question 25

Software development: The costs before technological feasability are expensed or capitalized?

Answer 25

Expensed. Once it is determined that the product will be sold then the expenses are capitalized.

Question 26

What are the two most common items on other comprehensive income?

Answer 26

Unrealized gains or losses on available for sale securities and currency differences

Question 27

For financing activitires, who is the interaction with? What is the exception?

Answer 27

Owners and creditors. The exception is dividends received is an operating activity.

Question 28

Why is the gain on sale of equipment in the operating activities but the cash is in the investing activities?

Answer 28

That is because the Gain is included in the Net Income and it is necessary to remove it from net income to get to the cashflow balance. You have to negate the impact of a loss or gain in operating activities section of the statement of cashflows.

Question 29

What are the two most common noncash expenses?

Answer 29

Depreciation and Amortization

Question 30

How do you calculate the loss on the sale of an investment when you don’t use the FV method?

Answer 30

The loss is the difference between the purchased price of the investment and the selling price of the investment plus the fees and taxes. Do not forget the fees and taxes in the loss!