FRA

Question 1

What is the difference between the coupon payment and interest expense?

Answer 1

The Discount Amortization [concerning bonds at a discount]

Question 2

The ________________ method recognizes profit corresponding to the costs incurred as a proportion of estimated total costs.

Answer 2

Percentage of Completion Method

Question 3

Under US GAAP, the Completed Contract Method Recognizes Revenue when ____________.

Answer 3

The project is complete

Question 4

The ________________ recognizes profit in proportion to cash collected.

Answer 4

Installmant Method

Question 5

Profit from Sale of Equipment is _________ from Net Income when calculating Cash Flow from Operations

Answer 5

Subtracted, because it would then be counted twice in Cash Flow from Investments

Question 6

Interest income is considered an Operating Cash Flow ONLY under __________.

Answer 6

U.S. GAAP

Question 7

If a firm uses short-term debt to buy inventory, how is the current ratio and quick ratio affected, if current ratio > 1 and quick ratio < 1?

Answer 7

Both ratios will decrease

The increaes in current assets will be proportionally less than the increase in current liabilities, because they are both increased by the same amount.

The quick ratio will decrease because Cash, MSs, and AR all remain the same as Current Liabilities increases.

Question 9

What are the four general categories to be considered in the formulas by credit ratigng agencies determiing the CAPACITY of a borrower to repay debt?

Answer 9

1. Scale & Diversification
2. Operational Effeciency
3. Margin Stability
4. Leverage

Question 10

Under US GAAP, an asset is considered impaired if its Book Value is ________.

Answer 10

Greater than the sum of its UNDISCOUNTED cash flows.

Question 11

Declaration of Dividends is unlike Dividends Paid, because ____________.

Answer 11

It appears as a decrease in Changes in Equity, as Dividends is a transaction between shareholders, so it does not appear in Changes in Equity and instead in the Cash Flow from Financing Actiivities.

Question 12

How is Free Cash Flow to Firm calculated?

Answer 12

FCFF = CFO + Cash Paid to Interest after Taxes - CAPEX,
NOTE: CAPEX can be expanded to -FCinv - WCInv

Question 13

Current Liabilities are obligations due within one year or the company’s operating cycle, whichever is ________.

Answer 13

Longer

Question 14

Under US GAAP, when future cash collection cannot be reasonably estimated, the _________ should be used.

Answer 14

Installment Method

Question 15

Under US GAAP, for LT projects, a firm should use _________ when payment is reasonably assured and the firm can reliably estimate the project’s outcome.

Answer 15

Percentage of Completion

Question 16

Under US GAAP, for LT projects a first should use ___________ when the firm cannot estimate the outcome reliably.

Answer 16

Completed Contract Method

Question 17

Write-Downs of Inventory affect which part on the Income Statement?

Answer 17

Net Income

Question 18

Under US GAAP land owned by the firm is most likely to be reported on the BS at ________.

Answer 18

Historical Cost

Question 19

Under US GAAP, if it is more likely than not that some or all of the DTA will not be realized, then DTA must be reduced by a ___________, and if circumstances change, the net DTA can be increased by decreasing the valuation allowance, resulting in _____________.

Answer 19

Valuation Account; higher earnings

Question 20

According to IASB Framework for Financil Reporting, what are the 2 fundamental qualitative characteristics of Financial Statements?

Answer 20

Relevance & Faithful Representation

Question 21

How is COGS_LIFO converted to COGS_FIFO?

Answer 21

COGS_FIFO = COGS_LIFO - Change in LR

Question 22

A __________ occurs when LIFO firm’s inventory quanitities decline to an extant, and older costs are included in COGS

Answer 22

LIFO Liquidation

Question 23

How if LIFO Inv converted to FIFO Inv?

Answer 23

Add the LIFO Reserve to the LIFO Inventory on the balance sheet
[NOTE: not the change in LR]

Question 24

LIFO is not availble under _____.

Answer 24

IFRS

Question 25

When is an asset tested for impairment under IFRS? Under GAAP?

Answer 25

annually; events indicate the firm may not be able to recover the carrying value thru future use

Question 26

Revaluation Surplus is a component of _______, and does not affect _______. Under the Revaluation Model, there must be an ___________ to determine Fair Value under these circumstances.

Answer 26

[IFRS] equity, Net Income

Question 27

How is Interest Expense of an issued Bond calculated, for the period?

Answer 27

PV_{period of int exp} • Mkt Int Rate

Question 28

The Amortization of a Premium or Discount bond is calculated as __________. If Amortization is Negative what was bond? if the Amortization is Positive, what was the bond?

Answer 28

Interest Expense - Coupon Payment = Amortization of the Bond
Beg. of Period Book Value * Mkt Interest - Coupon Payment = Amortization
———–
If negaitive - premium bond, and BV is decreased by the Amortization
If positive - discount bond, and BV is increased by the Amortization

Question 29

How is the Tax Base of an Asset calculated?

Answer 29

($OG Cost - Accum Depr) * Tax Rate

NOTE: that these are calculated for the short term, if its asking for depreciated tax base, and will reverse. If Accum Depr, has lowered the value to its Salvage Value, tax base in the future period is 0.