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Financial accounting exam > financial accounting > Flashcards

financial accounting Flashcards

1
Q

bond purchasers perpsective

A

investment (specifically a debt security investment)

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2
Q

what do people obtain from bonds

A

interest revenue

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3
Q

own 20-50% of a company’s stock

A

significant influence

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4
Q

when you have controlling influence what method do you use?

A

consolidate method

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5
Q

what do you do in the consolidate method

A

absorb financial statement into mine

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6
Q

debt securities

A

investing in bonds

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7
Q

when you have significance influence what method is used?

A

equity method

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8
Q

what do you do in the equity method?

A

% of net income into my financial statement

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9
Q

primary reason to invest into equity sequrity

A

receive dividend payment

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10
Q

how do we account for equity securities

A

depends on the degree and level of influence

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11
Q

future value

A

what an amount will grow to be

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12
Q

annuity

A

series of equal payment

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13
Q

bond issuers perspective

A

liability

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14
Q

own 0-20% of stock in another company

A

insignificant influence

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15
Q

own 50% or more of the stock

A

controlling influence

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16
Q

why do we invest in bonds

A

to get interest revenue

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17
Q

equity securities

A

owning stock of another company

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18
Q

why do we have equity securities

A

to earn money from dividend and buy low/ sell high

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19
Q

earnings quality

A

the ability of reported net earnings (NI) to predict a company’s future earning

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20
Q

compound interest

A

interest earned on previous interest and principle

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21
Q

liquidity

A

ability to pay short term debt/liab, most common

22
Q

horizontal analysis

A

trends/changes for one specific company over time

23
Q

formula for horizontal analysis

A

(current year - prior year) / prior year

24
Q

when do you use vertical analysis

A

comparing one company to another regardless of size

25
Q

conservative accounting practice

A

more expenses, Less net income… less assets, more liabilities

26
Q

earnings persistance

A

items that won’t continue/persist over time

27
Q

future value

A

how much an amount today will grow to be in the future

28
Q

present value

A

the value today of receiving some amount in the future

29
Q

aggressive accounting practice

A

less expenses, more net income … more assets, less liabilities

30
Q

3 ways to analyze a financial statement

A

vertical, horizontal, ratio

31
Q

vertical analysis in the balance sheet

A

express everything as a % of total assets

32
Q

vertical analysis in the income statement

A

express everything as a percent of sales

33
Q

example of earning persistence

A

companies net income increasing due to them selling land

34
Q

simple interest

A

interest only earned on the principle

35
Q

definition of current ratio

A

companies ability to pay short term debt

36
Q

which ratio is the most common

A

current ratio

37
Q

current ratio equation

A

current assets / Current liabilities

38
Q

what does the gross profit ratio indicate?

A

the portion of each dollar of sales above the cost of goods sold

39
Q

what does the debt to equity ratio relate to

A

relates to the solvency or a company’s ability to pay its long term liabilities

40
Q

debt to equity ratio

A

total liabilities / SHE

41
Q

what does price earnings ratio do?

A

compares a companys share price with its earnings per share

42
Q

gross profit ratio

A

gross profit / net sales

43
Q

one way to think of the price to earnings ratio

A

the investors expectation of earning growth

44
Q

price earnings ratio

A

stock price / earnings per share

45
Q

what method is used when you have insignificant influence

A

fair value method

46
Q

On equity securities, how can you earn returns?

A

through capital appreciation of the stock and receiving dividends

47
Q

On debt securities how can you earn returns

A

through periodic interest payments and receiving the principal payment at maturity

48
Q

In the SHE how do you find Total PIC

A

Preffered stock + Common stock + ADPIC

49
Q

How do you find ending retained earnings

A

Beginning RE + Net income - Dividends

50
Q

How do you find total SHE

A

Total PIC + End RE - Treasury Stock

51
Q

How do you find Net sales

A

Sales Revenue - Sales discounts - sales returns - sales allowance

52
Q

how do you find Gross profit

A

Net sales - Cost of goods sold

Financial accounting exam (3 decks)

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