FAR Review Cards

Question 1

Translating foreign currency: Gains and Losses

Answer 1

A US company will book a gain if the US dollar appreciates versus the foreign currency. The US company will book a loss if the US dollar depreciates to the foreign currency.

Question 2

Comprehensive income: What it does not consist of.

Answer 2

Excludes changes in equity that result from owner investments (shareholders) and distributions to owners (dividend payouts)

Question 3

Transactions denominated in foreign currency

Answer 3

Will be recorded on a US companies’ books at the spot rate on the date of transaction.

Question 4

What can cause comprehensive income to decrease, ignoring taxes?

Answer 4

Unrealized losses on trading securities will cause comprehensive income to decrease.

Question 5

Antidilution rule. Diluted EPS:

Answer 5

The exercise of common stock options is excluded from the diluted EPS equation if they increase EPS.

Question 6

Number of days an accelerated filer has to file the form 10-K?

Answer 6

Accelerated filers have 75 days to file form 10-K with the SEC

Question 7

Number of days a large accelerated & accelerated filer has to file form 10-Q?

Answer 7

Accelerated filers & large accelerated have 40 days to file form 10-Q with the SEC

Question 8

EPS formula:

Answer 8

(NI - Preferred dividends) / Weighted shares O/S

Question 9

True or False. The sale of treasury stock at less than its original cost will cause an increase to stockholders equity.

Answer 9

True. The original cost of the treasury stock is credited; any additional paid-in-capital- treasury stock is debited; and any excess over the additional paid-in-capital would reduce retained earnings.

Question 10

Property dividends will be recorded in retained earnings at it’s…

Answer 10

market value at the date of declaration.

Question 11

When computing EPS, are convertible securities included in the equation?

Answer 11

No, convertible securities are completely ignored when computing the weighted average common shares.

Question 12

Are treasury stock transactions included in comprehensive income?

Answer 12

No, treasury stock transactions are owner transactions, and they are not part of comprehensive income. Comprehensive income only includes changes in equity from investments by owner or distributions to owners.

Question 13

5 Step Model for Revenue Recognition

Answer 13

1. Identify the contract with the customer
2. Identify the performance obligations within the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations within the contract
5. Recognize revenue when (or as) the entity satisfies a performance obligation

Question 14

What are the 6 types of financial statement ratios?

Answer 14

1. Liquidity ratios
2. Solvency ratios
3. Profitability ratios
4. Efficiency ratios
5. Market Value ratios
6. Cash Flow ratios

Question 15

What are Liquidity Ratios & what are the 2 ratios?

Answer 15

These ratios measure a company’s ability to meet its short-term obligations.
1. Current Ratio = current assets / current liabilities
2. Quick Ratio (Acid test Ratio) = (current assets - Inventory) / current liabilities

Question 16

What are Solvency Ratios & what are the 2 ratios?

Answer 16

These ratios asses a company’s ability to meet long-term obligations and its financial leverage.
1. Debt-to-Equity Ratio: Total liabilities / Shareholders’ Equity
2. Interest Coverage Ratio: Earnings before interest and taxes (EBIT) / Interest Expense

Question 17

What are Profitability Ratios & what are the 3 ratios?

Answer 17

These ratios will evaluate a company’s ability to generate earnings relative to its revenue, operating costs, and shareholders’ equity.
1. Net Profit Margin = NI / Revenue
2. Return on Assets (ROA) = NI / Total Assets
3. Return on Equity (ROE) = NI / Shareholders Equity

Question 18

What are Efficiency Ratios & what are the 2 ratios?

Answer 18

These ratios indicate how well a company utilizes its assets and liabilities internally.
1. Asset Turnover Ratio = Net Sales / Avg. Total Assets
2. Inventory Turnover Ratio = Cost of goods sold / Avg. Inventory

Question 19

What are Market Value Ratios & what are the 2 ratios?

Answer 19

These ratios provide insight into the stock market’s valuation of the company.
1. Earnings Per Share (EPS) = Net Income / Number of common shares outstanding
2. Price-to-Earning (P/E) Ratio = Market price per share / Earning per share

Question 20

What are Cash Flow Ratios & what are the 2 ratios?

Answer 20

These ratios use the data from the cash flow statement to assess the company’s cash flow health.
1. Operating Cash Flow Ratio = Operating Cash Flow / Total Debts
2. Free Cash Flow to Equity (FCFE) = Cash Flow from Operations - Cap Exp. - Debt Payments + New Debt Issued