Financial Statements

Question 1

Where in the cash flow statement (indirect) are bond discounts and premiums listed and how are they adjusted (addition or subtraction)

Answer 1

Operating section
discount is added (Int exp exceeds cash)
Dr Int Exp
   Cr Discount
    Cr Cash
premium is subtracted (cash exceeds Int exp)
Dr Int Exp
Dr Premium
   Cr Cash

Question 2

When can a ST liability be listed as a LT liability in the financials after YE but before the statements have been issued?

Answer 2

If the company shows the ability and intent to refinance.

Question 3

What is the Dividends per share payout ratio and the Price earnings ratio?

Answer 3

1. )Dividends per share/Earnings per share

2. )Market price share/Earnings per share

Question 4

What is the Cost of sales formula?

Answer 4

COGS=COGM + FGBeg - FGEnd

Question 5

Disclosures related to financial instruments, both derivative and nonderivative, that are used as hedging instruments must include…?

Answer 5

(1) objectives and the strategies for achieving them,
(2) context to understand the instrument,
(3) risk management policies, and
(4) a list of hedged instruments.

Disclosures must be separated by type of hedging

Question 6

What are items that would be included in the investing section of the CF statement?

Answer 6

making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment

Question 7

What are items that would be included in the financing section of the CF statement?

Answer 7

Sales of equity securities
Issuance of Debt
Payment of LT debt

Question 8

What is an example of an accounting error and when does it require adjustment in the F/S?

Answer 8

Forgetting to record uncollectable accounts. The error would be fixed retrospectively by adjusting beg RE.

Question 9

Does a self-correcting error need adjusting?

Answer 9

Yes, the prior year statements presented would have to be adjusted.

Question 10

What is an example of a change in principle and how is it corrected in the F/S?

Answer 10

Changing from LIFO to FIFO (one GAAP principle to another). The is adjusted retrospectively, but prior-year statements are not adjusted.

Question 11

What is an example of a change in estimate and how is it adjusted in the F/S?

Answer 11

Change in the useful life of an asset. This is adjusted prospectively only.

Question 12

Does the double-declining method incorporate the salvage value?

Answer 12

No.
Ex: 500,000 equip with 50,000 salvage, 5-year life.
Yr1= 500,000/5= 100,000 x2 = 200,000 Depreciation
Yr2= 300,000/5= 60,000 x2= 120,000

Question 13

What cost flow does the weighted average method use?

Answer 13

The periodic

Question 14

In financial reporting of segment data, what must be considered in determining if an industry segment is a reportable segment?

Answer 14

Sales to unaffiliated customers and Intersegment sales

Question 15

When should long-lived assets be reviewed for impairment?

Answer 15

When circumstances indicate that the carrying amount of an asset might not be recoverable.

Question 16

What is the acid (quick) test formula

Answer 16

ST assets= cash, AR, ST securities
divided by
ST liabilities

Question 17

Which depreciation methods use salvage value?

Answer 17

SL: (Bk val - Sal val)/Life
DDB: (BK/ life) x 2
SYD: (Bk Val - Sal val) x (n/sum of all years)
Service hour: (Cost- Sal Val)/ useful life
Composite/ group and units use SL

Question 18

Can previously recognized losses for assets still in use be restored?

Answer 18

No

Question 19

What are the market, income and cost approaches?

Answer 19

Market uses pricing models on similar securities.

The cost approach uses values needed to replace asset.

The income approach converts future amounts into present values.