M1 Flashcards
What is Comprehensive Income
NI + OCI
What is Solvency & Liquidity
Liquidity = Current Assets/Current Liabilities
Solvency = Debt/Equity
What is the difference between Contributed Capital & Earned Capital
Contributed Capital - Equity is increased via Issuance of stock or debt
Earned Capital - Equity is increased via retained earnings
What is the purpose of the Balance Sheet? (List 3)
- Shows Assets & Liabilities
- Show the types of Assets & Liabilities (short-term vs. long-term) Tangible vs. intangible
- Used to evaluate liquidity & solvency
What is an Asset?
An asset is a resource with probable future economic benefit
What are some limitations of the balance sheet? (List 3)
- balance sheet amounts do not represent the market value
- Measurements are subjective (valuation & depreciation methods)
- Estimates may be used (useful life)
What is the purpose of the income statement? (List 3)
- Indicates performance for a period of time
- Helps determine operating risk
- Provides information on REGL
Who are the users of the income statement & what do they look at? (List 3)
- External users (investors & shareholders), EPS & ROE
- Lenders, profit margin & EBIT
- Internal users, ROA
*All users are concerned with risk
what are Unexpired Costs? (give 3 examples) and what are period costs
Costs that are capitalized as assets, they appear on the balance sheet and are expensed in future periods based on the matching principle (Prepaid insurance, inventory, PP&E, Patents
Period Costs - SG&A costs expensed immediately
What is a Nonoperating Expense? (List 3) & where is it disclosed
An expense unrelated to core business operations. Such as Write downs, write-offs, sale of PP&E, sale of an investment in another company, unusual operating expenses. Interest Revenue & expense are nonoperating unless the business is a bank)
disclosed on the face or in the footnotes
List the steps in a multi-step income statement & the benefits of a multi-step income statement (List 3)
Sales
-Cogs
=Gross Profit
-Operating Expenses
=Operating Income
-Nonoperating gain or loss
=Pretax Income
-Income tax Expense
=Net Income
+/- Discontinued Ops
Benefits
1. Enhances user info
2. Separates operating business from nonoperating
3. Provides readily available info for ratio analysis
What is the difference between Freight In & Freight Out?
Freight Out - selling expense
Freight In - Materials cost
Gross Profit Margin
Gross Profit/Sales
Operating Margin
Operating Income/Net Sales
When are discontinued operations reported?
a. It has been disposed of during that year
b. It Is classified as held for sale in that year
Impairment Loss (Discontinued Ops)
When an asset is carried at more than its recoverable amount.
The impairment loss cannot be reversed more than the amount written down
If a discontinued operation has a carrying value of 4M & a NBV of 2.2 what is the impairment loss after a 40% tax rate?
2.2-4 = 1.8 * (1-40%) = 1.08M
What is the direct method
The domestic price of one unit of another currency. Example one-euro costs $1.47
What is the Indirect Method
The foreign price of one unit of the domestic currency. For example, 0.68 euro buys $1.00
foreign currency transactions not settled at balance sheet date are recorded as
Unrealized gain/loss recorded in net income
PUFI
Items not included on the income statement (OCI) include
1. Pension Adjustments
2. unrealized gains or losses
3. Foreign currency
4. Instrument specific credit risk
What is a reclassification adjustment
Reclassification adjustments move other comprehensive income items from AOCI to the IS
Accumulated other comprehensive income
includes the other comprehensive income for the current period as well as previous periods
prior year +/- current year +/- reclassification adjustments
What ways can the statement of comprehensive Income be displayed
- A single statement
- An income statement followed by a separate statement of comprehensive income beginning with net income
