Financial Statements

Question 1

Income Statement - Selling Expenses

Answer 1

Selling expense (or sales expense) includes any costs incurred by the sales department

• Salesperson salaries and wages
• Sales administrative staff salaries and wages
• Commissions
• Payroll taxes
• Benefits
• Travel and entertainment
• Facility rent / showroom rent
• Depreciation
• Advertising
• Promotional materials
• Freight out

Question 2

Income Statement - General and Administrative Expenses

Answer 2

Expenditures required to administer a business, and which are not related to the construction or sale of goods or services.

• Accounting staff wages and benefits
• Building rent
• Consulting expenses
• Corporate management wages and benefits (such as for the chief executive officer and support staff)
• Depreciation on office equipment
• Insurance
• Legal staff wages and benefits
• Office supplies
• Outside audit fees
• Subscriptions
• Utilities

Question 3

Components of Comprehensive Income

Answer 3

• Unrealized gains & losses on AFS
• Certain gains & losses from pension costs
• Foreign currency translation adjustment
• Unrealized gains & losses from certain derivative instruments

Question 4

Statement of Cash Flows - Asset & Liability effect on cashflows

Answer 4

• Assets: opposite direction

- Liabilities: same direction

Question 5

Added Back to Net Income

Answer 5

• Amortization of premium on bond investment

- Amortization of discount on bonds payable

Question 6

Deducted from Net Income

Answer 6

• Amortization of discount on bond investment

- Amortization of premium on bond payable

Question 7

Sources of Risk & Uncertainty

Answer 7

• Nature of the entity’s operations
• Use of estimates in financial statements
• Certain significant estimates
• Current vulnerability due to significant concentrations in certain aspects of operations
• The entity’s ability to exist as a going concern

Question 8

Where do business risks stem from

Answer 8

• products & services
• geographical location
• principal markets

Question 9

Significant Concentrations

Answer 9

• Concentrations in the volume of business with a particular customer, supplier, lender, grantor, or contributor
• Concentrations in revenue from specific products, services, or fund-raising sources
• Concentrations in specific sources (suppliers) of services, materials, labor, licenses or other rights used in operations
• Concentrations in the market or geographic area of operations

Question 10

Note about Subsequent Events

Answer 10

• If the event or what led to the event happened during the year then they are reported in the year they occur.
• If it happened after year end, but before the financial statements are issued then are only disclosed in notes

Question 11

How to account for a mortgage on building you are planning to dispose

Answer 11

Net it against the value of buildings like you would with accumulated depreciation to get to the amount you would compare to selling price

Question 12

What is included in disposal loss for a giving year

Answer 12

• operating loss or gain for that year only

- difference between selling price and carrying value of asset

Question 13

Note about quick ratio (acid test)

Answer 13

Does not include inventory & prepaids

Question 14

Book Value per Common Stock

Answer 14

Total stockholder’s equity divided by net number of common shares(deduct treasury stock)

Question 15

FV Impairment

Answer 15

Undiscounted future cash flows has to be less than carrying value for there to be an impairment. Then you use the difference between FV and Carrying to record the loss

Question 16

What is included is IFRS Financial Statements

Answer 16

3 statements of financial position
2 statements of profit or loss and other comprehensive income
2 statements of profit & loss
2 statements of cashflows
2 statements of changes in equity

Question 17

Income tax payable and deferred income taxes

Answer 17

Increase in deferred income taxes is debited and decrease is credited

Question 18

Impairment & Cash flows

Answer 18

Increases operating cash flows

Question 19

Deferred gains & losses from hedges for comprehensive income

Answer 19

Deferred gains increase comprehensive income and deferred losses decrease comprehensive income