Section 1

Question 1

Convert from Cash to Accrual Basis

Answer 1

ADD INC in ASSETS and DEC in LIAB
SUBTRACT DEC in ASSETS and INC in LIAB

**This is a Prior Period Adj to a Correction of an Error

Question 2

Comprehensive Income

Answer 2

Net Income + Other Comprehensive Income (Unrealized gain/loss on AFS debt securities, foreign currency translation adjustments, unrecognized gain/loss on pension benefits, and deferred gain/loss on hedging)

Question 3

Book Value per share of C/S

Answer 3

Total Stockholders Equity / # of COMMON shares OUTSTANDING (or Shares Issued - Reacquired)

Question 4

COGS

Answer 4

Amt paid = COGS - Inv Decrease - AP Increase

Question 5

Equity Method for Investments

Answer 5

Parent recognizes its share of subsidiary income and dividends declared by subsidiary.

Question 6

Return on equity

Answer 6

Net income - Preferred Dividends (also called dividends paid to preferred stock)
/
AVG common shareholder’s equity (this is C/S + Retained Earnings)

Question 7

WASO

Answer 7

If Treasury shares are in the beginning of the calculation, SUBTRACT them to get your starting total.

If you’re asked for Basic EPS from DISCONTINUED Ops, DO NOT include P/S DIVIDENDS

Question 8

Diluted EPS

Answer 8

Diluted EPS: NI- P/S dividends + P/S dividends
/
WASO + Dil Sec Options (Or Incremental Shares) + PS Con

T/S Method: Option to purchase 40 shares at $3 per share. Avg market price is $8.

Calculation is : ((Option Shares (40) x Price (3)) / Avg Mkt price = Shares I can buyback (15)

Option shares (40) - Shares I can buyback (15) = Incremental Shares (25)

Conversion Rate: # of P/S shares (10) x Convertible shares (20) = Dil Sec Conv P/S (200)

Question 9

EPS P/S dividends

Answer 9

If not given, it’s Dollar amt of p/s divided by the ‘convertible’ percentage

Question 10

Non-controlling interest

Answer 10

F.V. of unpurchased shares +
Non-controlling % of N.I. -
Non-controlling % of Dividends paid

Question 11

Warranty Liabilities

Answer 11

*Remember, if asked to calculate warranty liability at the end of a given year, you must include estimated warranty expense even AFTER the end of the period.

Question 12

Diluted EPS cont’d

Answer 12

If P/S is convertible, we add back P/S div in Diluted EPS calc

Interest on bonds is added back to N.I., net of tax

ONLY Common Shares are used in the denominator

First figure out basic EPS to determine if it’s dilutive vs antidilutive

You do consider time value when accounting for diluted shares in denominator

Question 13

Underlying principles

Answer 13

Conservatism - Recognizing gains/losses
Relevance - Quality of info that is useful for decision making
Faithful Representation - Unbiased

Question 14

Segment Reporting

Answer 14

10% of Sales, Op Income, or Assets

Question 15

Discontinued Ops

Answer 15

Income from Continuing Ops is restated in prior years to reflect the change from discontinuing ops for comparability.

Question 16

Basic EPS

Answer 16

Net Income - Preferred Dividends (if not given, it’s total $$ value of preferred stock x’s %cumulative. / WASO

Question 17

Cash Flow Statement

Answer 17

Trading securities are reported in OPERATING ACTIVITIES
Remember to account for depreciation (by looking at change in A.D. compared to any sale of fixed assets)

Question 18

Primary Qualitative Characteristics

Answer 18

Relevance - capable of impacting a decision.
Predictive Value-used as input to predict future outcomes
Confirmatory Value-provides feedback about previous evals
Materiality-can influence decision making.

Faithful Representation - reliable.
Complete-Includes all necessary info.
Neutral-without bias in the selection or presentation of fin. info.
Free from error-No errors or omissions

Question 19

Enhancing Qualitative Characteristics

Answer 19

Comparability-enables users to identify and understand similarities
Verifiability-different knowledge and independent observers reach consensus
Timeliness-Having info available in time to make decisions
Understandability-presenting info clearly

Question 20

Diluted T/S Method

Answer 20

Stock Options and Warrants

Calculation: ((Mkt Price - Exercise Price) / Mkt Price)) x’s # of options
Example:
10,000 options to acquire C/S at $20 par and the market value is $25
- (25-20)/ 25 x’s 10,000 = 2,000
The 2,000 is added to the denominator.

Question 21

Diluted ‘If Converted’ Method

Answer 21

of shares converted is added to denominator.

Int Exp (net of tax) is added back to numerator.
**Remember, both account for time value.
If P/S is CONVERTIBLE, we add back to Net Income in calc.

Question 22

Accounting estimates

Answer 22

Change in estimate - Current and prospective change
Change in principal - Retrospective application