Financial Accounting Single Step Questions Flashcards
Walk me through how depreciation going up by £10 would affect the statements
IS: operating income down £10, and assuming 40% tax rate, net income down £6
CFS: net income down by £6, but the £10 depreciation is added back so cash flow from operations up by £4 overall
BS: PPE down £10 and cash up £4 from CFS so net £6 down for assets. Equity down £6 because net income fown £6
What happens when accrued expenses increase by £10?
IS: operating income down £10 and assuming 40% tax rate net income down £6
CFS: net income down £6 in top line, then accrued expense increases cash flow by £10 so overall cash flow from operations up by £4 (10 minus the down 6 net income)
BS: cash is up by £4 from CFS. Accrued expenses is a liability thus liabilities up £10 and shareholders equity down 6 due to net income from IS down 6
What happens when accrued expenses decrease by £10?
IS: no change
CFS: net income is the same but cash flow down £10 overall
BS: assets decrease by £10 due to cash being down. Liabilities are also down £10 as liability is reduced
Accounts receivable increases by £10 what happens
IS: operating income up £10 and assuming 40% tax net income is up £6
CFS: net income top line is up £6. Cash flow is down £10 because havent received the money from accounts receivabke by definition and so net cash down £4
BS: assets - cash is down £4 and AR up £10 so assets are up £6. Shareholders equity is uo £6 due to net income being up £6
Prepaid expenses decreases by £10 what happens to statements
IS: since they decrease it means the company has received what they pre paid for so it does get recorded on IS. Thus, pretax income down £10 and net income down £6 assuming 40% tax
CFS: top line income statement down £6. Since prepaid expenses is an asset a decrease of £10 is an increase of £10 in CFS so net cash up £4
BS: assets - cash up £4 and prepaid expenses down £10 so net down £6. Shareholders equity is down £6 because of net income from IS
Inventory up £10 assuming you pay cash effect on statements
IS: no change as inventory only on IS as COGS when good actually sold
CFS: asset increase = decrease of cash flow by £10 so net cash down £10
BS: assets - up £10 from inventory but cash down £10
A company sells some PPE for £120. On the balance sheet, the PPE is worth £100. How do the statements change
IS: gain of £20 boosts pre tax income by 20 and net income up £12 assuming 40% tax rate
CFS: net income up £12 top line. Then subtract £20 gain so cash flow from operations is down £8. Then add £120 in cash flow from investing so cash is up net £112
BS: assets - cash is up £112 but inventory down £100 so assets up £12 net. Shareholders equity up £12 from net income
Walk me through what happens on the three statements when there is an asset write-down of £100
IS: Pre tax income down by £100. Assuming 40% tax rate, net income down by £60
CFS: net income is down by £60 top line. Write down is non cash expense so add it back so net cash increase is £40
BS: assets - cash is up £40 but write down of an asset down 100 so net down £60. Net income also down 60 so shareholder equity down £60
What happens to statements when a company issues £100 of shares to investors
IS: no changes since doesnt affect taxes
CFS: cash flow from financing up £100 so net cash up £100
BS: cash up £100 so assets up £100, shareholders equity up £100
Company issues £100 of stock to employees as compensation what happens
IS: now is tax dedictible so pre tax income falls £100 and assuming 40% tax rate net income down £60
CFS: net income down £60 but add back SBC of £100 since its non cash so net cash up £40
BS: cash up £40 so assets up £40. Common stock up £100 but retained earnings down £60 so up net £40
Company issues dividends of £100 how do the statements change
IS: no changes as dividends are not tax dedictible and counts as financing
CFS: cash flow from financing down £100 and so net cash down £100
BS: cash down £100 so assets down 100. Sharesholders equity down £100
Company has recorded £100 in income tax expense on its IS. All £100 is payed in cash in current period. Now we change it and only £90 is paid in cash with £10 deferred to future periods. How do the statements change
IS: no change as both current and deferred taxes are recorded simply as taxes and net income remains the same. Net income only changes if the total amount of taxes changes
CFS: same net income but add the £10 in cash flow from operations so net cash up £10
BS: cash up £10 so assets up 10 but liability deferred tax up £10 as well
Walk me through a £100 bailout of a company and how it affects the statements
IS: no changes
CFS: cash flow from financing up £100 to reflect this new investment so cash up £100 net
BS: cash up £100 so assets up £100 and shareholders equity also up £100
Walk me through a £100 write down of debt ie owed debt
IS: When a liability is written down you add to income statement so ore tax income up £100 and assuming 40% tax rate net income up £60
CFS: net income up £60 and then subtract 100 write down as it is non cash so cash flow from operations is down £40 and overall net cash down £40
BS: cash down £40 so assets down £40. Debt down £100 but shareholders equity up £60
