Financial Reporting & Analysis Flashcards
In an inflationary environment, a LIFO firm has higher or lower COGS?
Higher
In an inflationary environment, a LIFO firm has higher or lower EBT?
Lower
In an inflationary environment, a LIFO firm has higher or lower Taxes?
Lower
In an inflationary environment, a LIFO firm has higher or lower Net Income?
Lower
In an inflationary environment, a LIFO firm has higher or lower Inventory?
Lower
In an inflationary environment, a LIFO firm has higher or lower Working Capital?
Lower, because current assets are reduced
In an inflationary environment, a LIFO firm has higher or lower Retained Earnings?
Lower
In an inflationary environment, a LIFO firm has higher or lower Operating Cash Flows?
Higher
In an inflationary environment, a LIFO firm has higher or lower Total Cash Flows?
Higher, because taxes paid are lower
LIFO Reserve is calculated by…
subtracting total LIFO Inventory from FIFO Inventory (disclosed in firm’s footnotes)
The LIFO Effect is calculated as…
the change in LIFO Reserve from one period to the next
To adjust inventory when converting a LIFO firm to a FIFO firm…. FIFO Inventory =
LIFO Inventory + LIFO Reserve
To adjust cash when converting a LIFO firm to a FIFO firm… FIFO Cash =
LIFO Cash - (Reserve x tax rate)
To adjust Equity when converting a LIFO firm to a FIFO firm…. FIFO Equity =
LIFO Equity + [Reserve x (1 - tax rate)]
To adjust COGS when converting a LIFO firm to a FIFO firm…. FIFO COGS =
LIFO COGS - change in Reserve
To adjust Taxes when converting a LIFO firm to a FIFO firm…. FIFO Taxes =
LIFO Taxes + (Change in Reserve x tax rate)
To adjust Net Income when converting a LIFO firm to a FIFO firm…. FIFO Net Income =
LIFO Net Income + [Change in Reserve x (1 - tax rate)]
When adjusting LIFO to FIFO, the Current Ratio increases or decreases?
Increases
When adjusting LIFO to FIFO, Inventory Turnover increases or decreases?
Decreases
When adjusting LIFO to FIFO, the Long-Term Debt-to-Equity ratio increases or decreases?
Decreases
When adjusting LIFO to FIFO, Gross Profit increases or decreases?
Increases
When adjusting LIFO to FIFO, Net Profit increases or decreases?
Increases
Capitalizing v. Expensing long-lived assets results in higher or lower Assets and Equity?
Higher
Capitalizing v. Expensing long-lived assets results in higher or lower Net Income in the first year?
Higher
Capitalizing v. Expensing long-lived assets results in higher or lower Net Income in future years?
Lower
Capitalizing v. Expensing long-lived assets results in higher or lower Income variability?
Lower
Capitalizing v. Expensing long-lived assets results in higher or lower ROA and ROE in the first year?
Higher
Capitalizing v. Expensing long-lived assets results in higher or lower ROA or ROE in future years?
Lower
Capitalizing v. Expensing long-lived assets results in higher or lower Debt Ratio and Debt-to-Equity?
Lower
Capitalizing v. Expensing long-lived assets results in higher or lower Operating Cash Flows (CFO)?
Higher
Capitalizing v. Expensing long-lived assets results in higher or lower Investing Cash Flows (CFI)?
Lower
How does impairment of a long-lived asset effect the balance sheet?
reduces assets, liabilities (through deferred taxes) ,and stockholder’s equity
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
How does impairment of a long-lived asset effect cash flows?
It doesn’t
How does impairment of a long-lived asset effect the fixed asset ratio and the total asset turnover ratio?
increase due to reduced assets
How does impairment of a long-lived asset effect the debt-to-equity ratio?
increases due to reduced equity
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
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
Finance Leases v. Operating Leases have higher or lower assets?
Higher
Finance Leases v. Operating Leases have higher or lower liabilities?
Higher
Finance Leases v. Operating Leases have higher or lower net income in early years?
Lower
Finance Leases v. Operating Leases have higher or lower net income in later years?
Higher
Finance Leases v. Operating Leases have higher or lower total net income?
total net income is the same
Finance Leases v. Operating Leases have higher or lower cash flow from operations?
Higher
Finance Leases v. Operating Leases have higher or lower cash flow from financing?
Lower
Finance Leases v. Operating Leases have higher or lower total cash flow?
total cash flow is the same
Finance Leases v. Operating Leases have higher or lower asset turnover?
Lower
Finance Leases v. Operating Leases have higher or lower return on assets in early years?
Lower
Finance Leases v. Operating Leases have higher or lower return on equity in early years?
Lower
Finance Leases v. Operating Leases have higher or lower Debt-to-Assets?
Higher
Finance Leases v. Operating Leases have higher or lower Debt-to-Equity?
Higher
What is recorded on the balance sheet for Trading Securities?
Fair Value
What is recorded on the balance sheet for Available-for-Sale Securities?
Fair Value
Unrealized Gains & Losses
What is recorded on the balance sheet for Held-to-Maturity Securities?
Amortized Cost
What is recorded on the income statement for Available-for-Sale Securities?
Dividends
Interest
Realized Gains & Losses
What is recorded on the income statement for Trading Securities?
Dividends
Interest
Realized Gains & Losses
Unrealized Gains & Losses
What is recorded on the income statement for Held-to-Maturity Securities?
Interest
Realized Gains & Losses
Full Goodwill (U.S. GAAP) is calculated how?
= total fair value of subsidiary - fair value of net identifiable assets
Total Fair Value of Subsidiary = ?
= Fair value of purchases price x 1/%owned
Minority Interest for Full Goodwill is calculated how?
= % not owned x total fair value of subsidiary
Partial Goodwill (IFRS) is calculated how?
= purchase price - (% owned x total fair value of net identifiable assets)
Minority Interest for Partial Goodwill is calculated how?
= % not owned x partial fair value of net identifiable assets
Under the Equity Method v. the Acquisition Method, Sales are higher or lower?
Lower
Under the Equity Method v. the Acquisition Method, Net Income is higher or lower?
Net Income is the same
Under the Equity Method v. the Acquisition Method, Assets and Liabilities are higher or lower?
lower
Under the Equity Method v. the Acquisition Method, Shareholder’s Equity is higher or lower?
lower
Under the Equity Method v. the Acquisition Method, the Leverage ratio is higher or lower?
It depends on certain factors
Under the Equity Method v. the Acquisition Method, the Net Profit Margin ratio is higher or lower?
Higher
Under the Equity Method v. the Acquisition Method, the ROE ratio is higher or lower?
Higher
Under the Equity Method v. the Acquisition Method, the ROA ratio is higher or lower?
Higher
What are the components of PBO/PVDBO?
Beginning PBO \+ Service Cost \+ Interest cost - actuarial gains \+ actuarial losses \+ plan amendments - benefits paid --------------------------------- = Ending PBO
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
How do you determine funded status of a DBP?
Funded Status = fair value of plan assets - PBO
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
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)
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
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
How do you calculate Pension Cost under IFRS?
Service cost \+/- [beg funded status x discount rate] \+/- past service costs ------------------------------------------------------- = Periodic Pension Cost under IFRS
How are monetary assets and liabilities translated using the temporal method?
current rate
how are monetary assets and liabilities translated using the current rate method?
current rate
how are non-monetary assets and liabilities translated using the temporal method?
historical rate
how are non-monetary assets and liabilities translated using the current rate method?
current rate
how is common stock translated under the temporal method?
historical rate
how is common stock translated under the current rate method?
historical method
how is equity (as a whole) translated under the current rate method?
current rate
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.
how are revenues and SG&A translated under the temporal method?
average rate
how are revenues and SG&A translated under the current rate method?
average rate
how are COGS translated under the temporal method?
historical rate
how are COGS translated under the current rate method?
average rate
how is depreciation translated under the temporal method
historical rate
how is depreciation translated under the current rate method
average rate
how is net income translated under the temporal method?
mixed
how is net income translated under the current rate method?
average rate
where does the exchange rate gain or loss appear under the temporal method?
on the Income statement as a remeasurement gain/loss
where does the exchange rate gain or loss appear under the current rate method?
in Equity as Cumulative Translation Adjustment
How is exposure calculated under the current rate method?
exposure = shareholder’s equity = assets - liabilities
how is exposure calculated under the temporal method?
exposure = (cash + AR) - (AP + current debt + LT debt) = net monetary asset/liability
what is Cumulative Translation Adjustment (CTA)?
under the current rate method, CTA is the accumulation of translation gains/losses on the balance sheet.
under the temporal method, if the exposure is a net monetary asset and the currency is appreciating is there a gain or loss?
gain
under the temporal method if there is a net monetary asset and the currency is depreciating is there a gain or loss?
loss
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
under the current rate method, if the exposure is a net asset and the currency is depreciating, is there a gain or loss?
loss
calculate economic value added (EVA)?
EVA = NOPAT - cost of capital
calculate enterprise value
EV = debt + equity + preferred equity - cash & investments
