Financial Statement Analysis Flashcards
The main concerns of the regulators and oversight committees include…
Antifraud Provisions, Basis for Presentation, Timing of the Report (Reconciliation)
Announcements and releases issued by the FASB are normally distributed in the form of…
Statements of Financial Accounting Standards (SFAS)
Aggressive Accounting
Refers to a method of accounting that is used to report lower expences and higher income, or to overstate assets while understanding (not recognizing) liabilities.
Current IRS Regulations, _________________________, require that the entire cost of asset to be written off over its depreciable life with no ______________.
Modified Accelerated Cost Recovery System (MACRS); salvage value
With few exceptions, the only accelerated depreciation method allowed by the IRS is the _______________ balance or _______________ balance method.
double declining; 200% declining
The cost method of investment in stock…
When Company A owns < 20% of Company B’s outstanding shares. Company A is presumed to have little control over Company B and dividends are the only returns recognized. However, if Company B’s shares experience a significant or a perceived permanent decline, Company A should recognize a loss by reducing the carrying value of its investment
The equity method of investment in stock…
When Company A owns 20-50% of Company B’s shares, Company A has considerable influence over Company B and will record Company B’s earnings on its P&L.
Goodwill created after acquisition:
Offer Value - Net Tangible Assets [Total Assets - Liabilities - Existing Goodwill - Intangibles]
According to GAAP, the depreciable base of an asset includes…
The assets, installation, transportation, legal costs, commisions paid, taxes, and any costs necessary to prepare the asset for use.
FASB interpretation _____ requires firms to __________ the interest incurred during the period of construction of noncurrent assets, such as buildings or machinery.
34; capitalize
Operating Lease
Short-term contract where cash payment made by the lessee to rent the use of the asset is recorded as a rent expense. The PV of the lease commitments for the next five years must be disclosed in the footnotes to the financial statements.
Capital Lease
Contract for the entire life of the asset where the lessee recieves the title at the end of the lease term. The lease term is >= 75% of the useful life of the asset. The PV of the minimum lease payments is > 90% of the fair market value of the leased asset.
_________ leases do not appear on the __________________ and result in higher ______________.
Operating; Balance Sheet; operating expenses
Two methods of recognizing revenue:
Percentage-of-Completion; Completed Contract
Defined Contribution Plan
Employer makes a set annual contribution (% of employee’s annual salary), to a deferred account managed by a trustee.
Defined Benefit Plan
Guaruntees an employee a certain pension benefit, tied to the length of employment at the firm and the employee’s salary.
Normal Service Cost:
The ammount that current employees earn toward their pensions, the PV of which is expensed by the firm.
Interest of the Projected Benefit Obligation
The liability associated with the accumulated normal service cost, incorporating various actuarial assumptions such as years to retirement and rate of salary increases.
Prior Service Cost:
Amortization of changes to defined benefit plan over the life of the firm’s work force.
If interest rates decrease, pension fund assets will…
increase as the portfolios are comprised of bonds
Working capital is _________ when a cash dividend is _________ not when the dividend is ______.
reduced; declared; paid
After a 2:1 stock split, the shares ______ and par is reduced by _____, and the dollar value of the capital accounts is ______.
double; half; unchanged
According to GAAP, large stock dividends >=25% reduce the ________ instead of __________ and does not change _________
par value; fair market value; retained earnings
