Financial Reporting & Analysis Flashcards
1
Q
In an inflationary environment, a LIFO firm has higher or lower COGS?
A
Higher
2
Q
In an inflationary environment, a LIFO firm has higher or lower EBT?
A
Lower
3
Q
In an inflationary environment, a LIFO firm has higher or lower Taxes?
A
Lower
4
Q
In an inflationary environment, a LIFO firm has higher or lower Net Income?
A
Lower
5
Q
In an inflationary environment, a LIFO firm has higher or lower Inventory?
A
Lower
6
Q
In an inflationary environment, a LIFO firm has higher or lower Working Capital?
A
Lower, because current assets are reduced
7
Q
In an inflationary environment, a LIFO firm has higher or lower Retained Earnings?
A
Lower
8
Q
In an inflationary environment, a LIFO firm has higher or lower Operating Cash Flows?
A
Higher
9
Q
In an inflationary environment, a LIFO firm has higher or lower Total Cash Flows?
A
Higher, because taxes paid are lower
10
Q
LIFO Reserve is calculated by…
A
subtracting total LIFO Inventory from FIFO Inventory (disclosed in firm’s footnotes)
11
Q
The LIFO Effect is calculated as…
A
the change in LIFO Reserve from one period to the next
12
Q
To adjust inventory when converting a LIFO firm to a FIFO firm…. FIFO Inventory =
A
LIFO Inventory + LIFO Reserve
13
Q
To adjust cash when converting a LIFO firm to a FIFO firm… FIFO Cash =
A
LIFO Cash - (Reserve x tax rate)
14
Q
To adjust Equity when converting a LIFO firm to a FIFO firm…. FIFO Equity =
A
LIFO Equity + [Reserve x (1 - tax rate)]
15
Q
To adjust COGS when converting a LIFO firm to a FIFO firm…. FIFO COGS =
A
LIFO COGS - change in Reserve
16
Q
To adjust Taxes when converting a LIFO firm to a FIFO firm…. FIFO Taxes =
A
LIFO Taxes + (Change in Reserve x tax rate)
17
Q
To adjust Net Income when converting a LIFO firm to a FIFO firm…. FIFO Net Income =
A
LIFO Net Income + [Change in Reserve x (1 - tax rate)]
18
Q
When adjusting LIFO to FIFO, the Current Ratio increases or decreases?
A
Increases
19
Q
When adjusting LIFO to FIFO, Inventory Turnover increases or decreases?
A
Decreases
20
Q
When adjusting LIFO to FIFO, the Long-Term Debt-to-Equity ratio increases or decreases?
A
Decreases
21
Q
When adjusting LIFO to FIFO, Gross Profit increases or decreases?
A
Increases
22
Q
When adjusting LIFO to FIFO, Net Profit increases or decreases?
A
Increases
23
Q
Capitalizing v. Expensing long-lived assets results in higher or lower Assets and Equity?
A
Higher
24
Q
Capitalizing v. Expensing long-lived assets results in higher or lower Net Income in the first year?
A
Higher
25
Capitalizing v. Expensing long-lived assets results in higher or lower Net Income in future years?
Lower
26
Capitalizing v. Expensing long-lived assets results in higher or lower Income variability?
Lower
27
Capitalizing v. Expensing long-lived assets results in higher or lower ROA and ROE in the first year?
Higher
28
Capitalizing v. Expensing long-lived assets results in higher or lower ROA or ROE in future years?
Lower
29
Capitalizing v. Expensing long-lived assets results in higher or lower Debt Ratio and Debt-to-Equity?
Lower
30
Capitalizing v. Expensing long-lived assets results in higher or lower Operating Cash Flows (CFO)?
Higher
31
Capitalizing v. Expensing long-lived assets results in higher or lower Investing Cash Flows (CFI)?
Lower
32
How does impairment of a long-lived asset effect the balance sheet?
reduces assets, liabilities (through deferred taxes) ,and stockholder's equity
33
How does impairment of a long-lived asset effect the income statement?
decreases current period net income; reduced depreciation results in higher net income in future periods
34
How does impairment of a long-lived asset effect cash flows?
It doesn't
35
How does impairment of a long-lived asset effect the fixed asset ratio and the total asset turnover ratio?
increase due to reduced assets
36
How does impairment of a long-lived asset effect the debt-to-equity ratio?
increases due to reduced equity
37
How does impairment of a long-lived asset effect the current year ROA and ROE?
decrease, because reduction in net income is greater than the reduction in assets/equity
38
How does impairment of a long-lived asset effect future ROA and ROE?
increase due to lower assets and equity, higher net income with lower depreciation
39
Finance Leases v. Operating Leases have higher or lower assets?
Higher
40
Finance Leases v. Operating Leases have higher or lower liabilities?
Higher
41
Finance Leases v. Operating Leases have higher or lower net income in early years?
Lower
42
Finance Leases v. Operating Leases have higher or lower net income in later years?
Higher
43
Finance Leases v. Operating Leases have higher or lower total net income?
total net income is the same
44
Finance Leases v. Operating Leases have higher or lower cash flow from operations?
Higher
45
Finance Leases v. Operating Leases have higher or lower cash flow from financing?
Lower
46
Finance Leases v. Operating Leases have higher or lower total cash flow?
total cash flow is the same
47
Finance Leases v. Operating Leases have higher or lower asset turnover?
Lower
48
Finance Leases v. Operating Leases have higher or lower return on assets in early years?
Lower
49
Finance Leases v. Operating Leases have higher or lower return on equity in early years?
Lower
50
Finance Leases v. Operating Leases have higher or lower Debt-to-Assets?
Higher
51
Finance Leases v. Operating Leases have higher or lower Debt-to-Equity?
Higher
52
What is recorded on the balance sheet for Trading Securities?
Fair Value
53
What is recorded on the balance sheet for Available-for-Sale Securities?
Fair Value
| Unrealized Gains & Losses
54
What is recorded on the balance sheet for Held-to-Maturity Securities?
Amortized Cost
55
What is recorded on the income statement for Available-for-Sale Securities?
Dividends
Interest
Realized Gains & Losses
56
What is recorded on the income statement for Trading Securities?
Dividends
Interest
Realized Gains & Losses
Unrealized Gains & Losses
57
What is recorded on the income statement for Held-to-Maturity Securities?
Interest
| Realized Gains & Losses
58
Full Goodwill (U.S. GAAP) is calculated how?
= total fair value of subsidiary - fair value of net identifiable assets
59
Total Fair Value of Subsidiary = ?
= Fair value of purchases price x 1/%owned
60
Minority Interest for Full Goodwill is calculated how?
= % not owned x total fair value of subsidiary
61
Partial Goodwill (IFRS) is calculated how?
= purchase price - (% owned x total fair value of net identifiable assets)
62
Minority Interest for Partial Goodwill is calculated how?
= % not owned x partial fair value of net identifiable assets
63
Under the Equity Method v. the Acquisition Method, Sales are higher or lower?
Lower
64
Under the Equity Method v. the Acquisition Method, Net Income is higher or lower?
Net Income is the same
65
Under the Equity Method v. the Acquisition Method, Assets and Liabilities are higher or lower?
lower
66
Under the Equity Method v. the Acquisition Method, Shareholder's Equity is higher or lower?
lower
67
Under the Equity Method v. the Acquisition Method, the Leverage ratio is higher or lower?
It depends on certain factors
68
Under the Equity Method v. the Acquisition Method, the Net Profit Margin ratio is higher or lower?
Higher
69
Under the Equity Method v. the Acquisition Method, the ROE ratio is higher or lower?
Higher
70
Under the Equity Method v. the Acquisition Method, the ROA ratio is higher or lower?
Higher
71
What are the components of PBO/PVDBO?
```
Beginning PBO
+ Service Cost
+ Interest cost
- actuarial gains
+ actuarial losses
+ plan amendments
- benefits paid
---------------------------------
= Ending PBO
```
72
What are the components that make up the Fair Value of Plan Assets for a DBP?
```
Beginning Fair Value
+ Actual return on plan assets
+ Employer contributions
- Benefits Paid
--------------------------------------
Fair value at end of year
```
73
How do you determine funded status of a DBP?
Funded Status = fair value of plan assets - PBO
74
Where does the funded status appear in the financial statements for a DBP?
funded status appears on the Balance Sheet as an Asset or Liability
75
What is the Total Periodic Pension cost of a DBP?
Total Periodic Pension Cost = contributions - change in funded status
OR
Service cost
+ Interest Cost
+ Plan amendments
+/- current period actuarial losses/gains
- actual return
--------------------------------------------------
= TPPC (true cost)
76
How do you calculate Pension Cost under US GAAP?
```
Service Cost (actual)
+ Interest Cost (actual)
- Expected return on plan assets
+/- amort. of actuarial gains/losses
+/- amort of past service cost
---------------------------------------------
= Periodic Pension Cost under US GAAP
```
77
Where do unamortized past service cost and actuarial gains and losses appear under US GAAP?
unamortized past service cost and actuarial gains and losses appear in OCI under US GAAP
78
How do you calculate Pension Cost under IFRS?
```
Service cost
+/- [beg funded status x discount rate]
+/- past service costs
-------------------------------------------------------
= Periodic Pension Cost under IFRS
```
79
How are monetary assets and liabilities translated using the temporal method?
current rate
80
how are monetary assets and liabilities translated using the current rate method?
current rate
81
how are non-monetary assets and liabilities translated using the temporal method?
historical rate
82
how are non-monetary assets and liabilities translated using the current rate method?
current rate
83
how is common stock translated under the temporal method?
historical rate
84
how is common stock translated under the current rate method?
historical method
85
how is equity (as a whole) translated under the current rate method?
current rate
86
how is equity (as a whole) translated under the temporal method?
mixed, because the change in retained earnings included net income and that is translated mixed.
87
how are revenues and SG&A translated under the temporal method?
average rate
88
how are revenues and SG&A translated under the current rate method?
average rate
89
how are COGS translated under the temporal method?
historical rate
90
how are COGS translated under the current rate method?
average rate
91
how is depreciation translated under the temporal method
historical rate
92
how is depreciation translated under the current rate method
average rate
93
how is net income translated under the temporal method?
mixed
94
how is net income translated under the current rate method?
average rate
95
where does the exchange rate gain or loss appear under the temporal method?
on the Income statement as a remeasurement gain/loss
96
where does the exchange rate gain or loss appear under the current rate method?
in Equity as Cumulative Translation Adjustment
97
How is exposure calculated under the current rate method?
exposure = shareholder's equity = assets - liabilities
98
how is exposure calculated under the temporal method?
exposure = (cash + AR) - (AP + current debt + LT debt) = net monetary asset/liability
99
what is Cumulative Translation Adjustment (CTA)?
under the current rate method, CTA is the accumulation of translation gains/losses on the balance sheet.
100
under the temporal method, if the exposure is a net monetary asset and the currency is appreciating is there a gain or loss?
gain
101
under the temporal method if there is a net monetary asset and the currency is depreciating is there a gain or loss?
loss
102
under the current rate method, if the exposure is a net asset and the currency is appreciating then is there a gain or loss?
gain
103
under the current rate method, if the exposure is a net asset and the currency is depreciating, is there a gain or loss?
loss
104
calculate economic value added (EVA)?
EVA = NOPAT - cost of capital
105
calculate enterprise value
EV = debt + equity + preferred equity - cash & investments
