Framework Flashcards
Per the FASB framework an information is considered useful when it meets what two qualitative characteristics?
Relevance and Faithful Representation
How do you calculate the number of days in a company’s operating cycle when company has already calculated ICP & PCP
Inventory Conversion Period + Receivable Collection Period
What are the impacts of issuing stock options on selected ratios?
Answer varies on the what type of ratio. Note - When stock options are exercised, cash is received and shares of stock are issued, increasing both assets and equity. Ratios that use assets or equity in the denominator will decrease. (eg. Debt to equity, earnings per share, asset turnover)
What is a current liability?
It’s an obligation that will be settled with current assets or creation of another current liability and within a year of the operating cycle, whichever is longer. Eg. Accounts Payable, Salaries Payable, Sales tax payable, income taxes payable and dividends payable.
What are the 4 disclosure requirements related to risk and uncertainties an entity would have to disclose.
Nature of operations, Use of estimates, certain significant estimates, Current vulnerability associated with certain concentrations.
What is a fair value?
It is the price received to sell an asset or transfer a liability from an orderly transaction between market participants on a specific date. In context, market participants are buyers and sellers in the principal (or most advantageous) market for the asset or liability being sold. In addition, market participants have the following characteristics.
How do you calculate the average collection period for an entity’s accounts receivable?
First you need to calculate the A/R turnover then calculate the A/R turnover in days.
What are examples of current liabilities that are typically due in a year or less.
Notes payable, Accounts Payable, Dividends payable, Income tax payable, Accrued expenses, Unearned Revenue, Current portion of long-term debt, Other short-term debt
How do you calculate the price to earnings ratio? Given the market price per share of common stock
Price per share divided by EPS. Note To calculate Basic EPS is Net Income - Preferred dividends divided by weighted average number of common shares
How do you calculate the Net cash balance when reconciling bank accounts.
Bank Statement balance + Deposits in transit - checks outstanding plus/minus Bank errors
What are quick ratio and current ratio?
These are liquidity metrics that assess a company’s ability to meet its short-term obligations. Note- current ratio includes all current assets in the numerator; the quick ratio includes only cash, marketable securities and net account receivables in the numerator.
What is the debt-to-equity ratio formula?
Total Debt divided by Total Equity
What are the enhancing qualitative characteristics of Relevance & Faithful Representation?
Comparability, Understandability, Timeliness & Verifiability
What are cash and cash equivalents?
Cash & cash equivalents are highly liquid current assets. they include balances in savings, checking or money market accounts and negotiable paper. Other investments are cash equivalents if they are easily converted to known amounts of cash and have a maturity when purchased of three months or less.
How do you determine the fair value of non financial assets?
The fair value of a non financial asset should reflect that asset’s highest and best use because sellers will transact wherever they will receive the most consideration. That use must be physically possible, legally permissible and financially feasible. If the highest and best use for an asset differs from the current use, the former equals fair value.
How do you classify the monetary or non monetary accounts on computing a purchasing power gain or loss?
Monetary Items are Cash, AR, AP, Bonds & Nonmonetary Item are PPE, Inventory and intangibles.
What are the changes in current and quick ratio if the ratio is greater or lessor than 1?
What does other comprehensive income comprises of?
Derivative cash flow hedges, excess adjustment on defined benefit pension plans, unrealized gains and losses on available-for-sale debt securities and foreign currency translation adjustments
How do you calculate dividends per share payout ratio
Dividends per share divided by earnings per share
How do you calculate earning per share
Net Income-Preferred dividends/weighted average common shares outstanding
What is the entry to record accrued salaries expense at the end of the year?
Debit Salaries Expense & Credit Accrued Salaries
What ratio would failing to accrue salaries at the end of the year affect?
Failing to accrue salary expense at the year end would result in an understatement of current liabilities, which simply means current ratio and working capital will be overstated.
What does liquidity ratios do?
Liquidity ratios allow users of financial statements to measure a company’s short-term ability to meet its obligations.
What are accrued expenses?
These are current liabilities representing expenses that are organized on the books but have not been paid. For example salaries are recognized when employees perform services to match the cost to the related revenues generated during that period. Therefore salary expenses incurred before year end and paid the following year are accrued as current liabilities.
