Final Exam

Question 1

three lines that come after other income/expenses; gains and losses

Answer 1

Income from continuous operations before tax,
Income tax expense
Income from continuous operations, after tax

Question 2

categories that come after Income from continuous operations after tax

Answer 2

Discontinued operation
Net Income
OCI Items
Comprehensive income
EPS

Question 3

What is the EPS Equation

Answer 3

EPS=(Income - preferred Dividends) / WA outstanding common shares

Question 4

Row headers Statement of changes in equity

Answer 4

Beginning Balance, Net Income, OCI, Dividends, Shares Issued, Ending balance

Question 5

Column headers Statement of changes in equity

Answer 5

Common shares, Preferred shares, Contributed Surplus, Retained Earnings, AOCI, Total

Question 6

three sections in the statement of cash flows and describe the changes that occur in them

Answer 6

Operating activates, changes in working capital, income statement items
Investing, changes in non-current assets
Financing, changes in non-current liabilities and share capital

Question 7

Financial liquidity: Current cash debt coverage ratio

Answer 7

Net cash from operating activities / average current liabilities

Question 8

Financial flexibility: Cash debt coverage ratio

Answer 8

Net cash provided by operating activities / average total liabilities

Question 9

Free cash flow formula

Answer 9

Net cash provided by operating activities
Less: Capital expenditures
Less: Dividends
=Free cash flow

Question 10

basis for indirect cash flows

Answer 10

Start with Net Income
Adjust for Non-Cash Items
Changes in Working Capital
Net Cash Provided by Operating Activities

Question 11

What is a leverage ratio

Answer 11

Debt Equity ratio= Total liability/ Equity

Question 12

What is a liquidity ratio

Answer 12

Current ratio = Current assets/ Current liabilities

Question 13

What is a solvency ratio

Answer 13

Debt to asset ratio = Total Liabilities/ Total assets

Question 14

cash from customers

Answer 14

sales + A/R1-A/R2-Bad debt expense-Unearned Rev1 + Unearned rev2

Question 15

Cash paid to suppliers

Answer 15

-Cogs+inv1+inv2-A/P1+A/P2

Question 16

general rules for operating activates for direct cash flows

Answer 16

Assets – Add 1 Subtract 2
Liabilities – Subtract 1 Add 2

Question 17

five steps to approaching revenue recognition

Answer 17

1. Identify the contract with the customer
2. Identify the separate performance obligations
3. Determine the transaction price
4. Allocate the transaction price to performance obligations in the contract
5. Recognize revenue when each performance obligation is satisfied

Question 18

What are the four things that effect the Construction in progress T-Account

Answer 18

DR. Costs and revenue
CR. Billings and expenses

Costs and expenses usually cancel out

Question 19

What is the Journal entry at interest date of a note/loan receivable

Answer 19

Dr Cash (face value x stated interest rate)
Cr Interest revenue (CV x implicit int rate)
Dr/Cr note receivable (difference)

Question 20

When is stated interest rate used

Answer 20

Only used for cash flows

Question 21

When is the effective rate used

Answer 21

Used for all calculations other than cash

Question 22

Notes receivable “idea”

Answer 22

amortize the difference between the Carrying Value and face value so Carrying Value is equal to Face value at expiry date. Wind it up and then wind it down.

Question 23

share based payments should be measured using …

Answer 23

1.use fair value
2. if no fair value use value of shares

Question 24

3 Steps to revaluation model

Answer 24

1. Calculate and journalize depreciation
2. Empty accumulated depreciation into cost account (Dr. Accum Depr Cr. Equip)
3. Revise the cost account to fair value (if higher OCI: revaluation gain)

Question 25

Fair Value Model and types of assets that use it

Answer 25

Used for investment property and biological assets. No depreciation and remeasurements go through net income.

Question 26

4 Steps to derecognize an asset

Answer 26

1. depreciation 2. Revalue the assets where revaluation or fair value methods are used 3. Derecognize the asset 4. Transfer the balance of AOCI: Revaluation Surplus that is associated with the PPE item sold to Retained Earnings

Question 27

Depletion rate

Answer 27

(Cost-Residual Value) / Quantity available to be mined

Question 28

Liquidating Dividends

Answer 28

payments to shareholders that includes return of capital plus dividends. Dividend amount is greater than retained earnings. Dr RE to 0 then Common shares Cr cash the difference.

Question 29

Indicators of impairment

Answer 29

1.Changes in the tach market, economic, or legal environment that adversely affects entity. 2.Market rates of return have increased with a negative effect on assets value in use and recoverable amount. 3.Evidence of obsolescence or physical damage of the asset

Question 30

Cost Recovery impairment model (ASPE)

Answer 30

1. Test for Impairment, estimate future cash flows expected from use if less than CV, impair 2. Calculate impairment, find fair value of the asset

Question 31

Rational Entity Impairment Model (IFRS)

Answer 31

The lower of carrying amount or recoverable amount. Recoverable amount is the higher of the net selling price or the value in use Impairment will be required when recoverable amount is lower than carrying amount

Question 32

Impairment of several Items

Answer 32

1.If impaired assets can be specifically identified, reduce value of those assets first 2.Allocate to the most subjectively measured assets (goodwill) 3.Allocate the remaining impairment loss proportionally to remaining assets

Question 33

6 Criteria for Capitalization

Answer 33

1. Feasibility to complete the intangible asset 2. Intention to complete for use or sale 3. Ability to use or sell 4. Availability of resources to finish the asset 5. Future economic benefits, market for it or useful to entity 6. Reliably measure the costs

Question 34

Indefinite Assets - IFRS

Answer 34

Indefinite life assets are not amortized but are tested for impairment annually or when there is an indication of impairment

Question 35

Indefinite Assets - ASPE

Answer 35

Compare Carrying value to selling price as undiscounted cash flows approach infinity

Question 36

Legal Obligation

Answer 36

Obligation from a contract, legislation, or other law

Question 37

Constructive Obligation

Answer 37

Expectation that is created by an established pattern of the past practice (Ex a return policy or repair policy)

Question 38

Accumulating rights Journal Entry for employees

Answer 38

Dr Salaries and wages expense Cr Accrued Vacation payable

Question 39

Non-Accumulating rights Journal Entry for employees

Answer 39

Dr Employee benefit expense Cr Benefits payable, for payouts, Dr Benefits payable Cr cash

Question 40

Contingent Liabilities/ Provisions IFRS and ASPE

Answer 40

IFRS- recognize Provision when there is a probable outflow of resources to settle the obligation (>50%) ASPE- recognize provision when likely (80%)

Question 41

Rebates and Premium Steps - IFRS and extra step for ASPE

Answer 41

1. Purchase of prize merchandise 2. Record sales including unearned revenue 3. Prize redemption 4. (ASPE)Adjust and update the liability (no Unearned Rev in step 2)

Question 42

Accretion Expense

Answer 42

ARO is recorded at a discounted PV, the accretion expense is the gradual increase in the liability as time passes and the discount unwinds

Question 43

Onerous Contracts Options/ Provision

Answer 43

Provision = Net cost to exit contract Net cost to exit is lower of cost to finish the contract or the cost of penalties of failure Dr Loss on onerous contract Cr Provision for onerous contract

Question 44

Steps to a Bonds/notes payable question

Answer 44

1. Timeline 2. PV 3. Journalize at fair value 4. T-account for balance 5. Cash flows and interest

Question 45

Steps for changing the terms of a long term liability

Answer 45

1. Test for settlement vs modification: Value of old debt with PV of new debt with old rate, if the difference is greater than 10% settlement, less than 10% modify 2. When settlement, PV new debt with the new rate 3. Journalize derecognition of old debt and recognition of new debt “gain on restructure”

Question 46

Times interest earned Equation

Answer 46

EBIT/interest expense

Question 47

4 features of Pref Shares

Answer 47

Cumulative Convertible Redeemable Retractable

Question 48

Payout Ratio

Answer 48

cash dividends to common shareholders / (NI-Pref Dividends)

Question 49

PE Ratio

Answer 49

Market price of share / EPS