Set 1

Question 1

What are the 4 Levels of Fair Level Measurements

Answer 1

“Level 1 measurement are quoted prices in active markets for identical assets or liabilities only
Level 2 measurement are quotes prices in active markets for similar assets or liabilities.
Level 3 measurement is based on management assumptions (internal data) and only acceptable when there is no level I or II or required
Level 4 measurement is in fair value hierarchy is determined by the level of lowest level significant input”

Question 2

How to treat Fair Value of stock with no principal market?

Answer 2

Use best price after considering cost transactions i.e the best net amount

Question 3

What is Fair Value

Answer 3

a market based measure where a price is received to sell an asset or paid to transfer a liability in the market at measurement date

Question 4

What are Level 2 and Level 3 Fair Value valuation techniques?

Answer 4

“Level 3 input valuation techniques used to measure fair value of an asset are unobservable inputs, reflecting management’s judgement about assumptions that the market would use
Level 2 valuation techniques uses inputs other than quoted market prices that are observable or unobservable “

Question 5

What is the Advantageous market price?

Answer 5

is best price after considering cost and once identified than fair value measurement is the market selling price. When there are multiple selling prices estimate, identify fair value of asset by identifying “most advantageous” i,e, highest and best use.

Question 6

Is a change in accounting estimate a change in valuation technique used to measure fair value?

Answer 6

Yes

Question 7

How to use Fair Value Principal Market

Answer 7

Used to identify Fair Value by using the greatest volume of activity for asset

Question 8

What are Market participants?

Answer 8

buyers and sellers in their economic best interest who are independent and knowledgable about asset/liability, and willing/able to transact

Question 9

If approach of fair value to use price received to sell in principal market, is not available what is not approach?

Answer 9

advantageous approach

Question 10

Total debt ratio

Answer 10

Total Liab/ Total Assets

Question 11

debt to equity ratio

Answer 11

Total liab/ Total equity

Question 12

Quick ratio

Answer 12

[Cash + Cash eq + Marketable sec + AR]/ Current Liab
* AR check if allowance for uncollectible accounts need to be subtracted from AR

Question 13

Current Ratio

Answer 13

Total Current Assets / Total Current Liab

Question 14

Days in Inventory

Answer 14

Ending Inventory / (COGS / 365)

Question 15

Inventory Turnover

Answer 15

COGS / average inventory

Question 16

Accounts Receivable Turnover

Answer 16

Net Credit Sales/ Average AR

Question 17

DuPont Return on Assets

Answer 17

Net profit margin * Total Asset Turnover = (Net Income / Net Sales ) * (Net Sales / Average Total Assets)

Question 18

ROE

Answer 18

Net Income - Preferred dividends / Average Common Equity
* Check if any preferred stock or dividends are mentioned, if not than its 0

Question 19

Days in AR

Answer 19

Ending AR net / (Sales net/365)

Question 20

Times interest earned

Answer 20

Income before interest and taxes / interest expense

Question 21

COGS

Answer 21

Beg Inv + Purchases - End Inv

Question 22

What are types of Adj Entries?

Answer 22

a) accrued Rev: rev earned but not record cash nor cash received. DR AR and CR Rev
b) Accrued expenses: expenses incurred but not paid/recorded. DR Expense and CR Accrued laib
c) Deferred Revenue/ Unearned Revenue. When cash received for unearned DR Cash and CR unearned-> When unearned becomes earned rev DR unearned REV and CR Rev.
d) Prepaid expenses: payments made for future goods/services received. When paid in advance DR prepaid expense (asset) and CR cash. Reverse prepaid to incurred expense DR expense and CR prepaid expense.

Question 23

Wha are rules for recording adjustment entries?

Answer 23

1) record by end of fiscal year
b) never involve cash account in adjustment
c) adjustments hits 1 I/S account and 1 B/S account

Question 24

What is escrow liability?

Answer 24

Escrow Liability i.e end balance = Beg balance + deposits - payments

Question 25

What are the Par Value Method events and JE?

Answer 25

1) Issuance: DR Cash and CR Common Stock C/S
2) Buyback: DR Treasury Stock, APIC C/S, and RE; CR Cash
3) Re-sell:
a) DR Cash and CR Treasury Stock and APIC C/S
b) DR Cash and CR Treasury Stock and APIC C/S

Question 26

How to calculate Discontinued Operations?
Decided to sell asset in Y1 and actually sold in Y2

Answer 26

Add the following:
a) Impairment Gain/Loss: Y1= BV - FV. BV is Total assets - Total Liab, FV is best estimate. Y2 will be 0 bc sold
b) Operating Gain/Loss: Y1 and Y2 stated in I/S as income before taxes.
c) Gain/Loss on Disposal: Y1 0 bc not sold yet, Y2 = Sales price - Fee - BV. BV is the FV of Y1
d) Income Tax Benefit/ Expense: add a, b, and c for total and multiply income tax

Question 27

What is reported in discontinued operations?

Answer 27

a) Impairment loss,
b) gain/loss from actual operations,
c) gain/loss on disposal

Question 28

What is included in Compressive Income?

Answer 28

all changes in equity assets except investments by owners and distribution to owners which is NI + Other Compressive Income. For example sales revenue is comprehensive income but not deferred revenue b/c its a liability. Additionally CI can be shown in single statement that show both NI and CI

Question 29

What is Other Comprehensive Income?

Answer 29

Comprehensive items like revenue, expenses, gains, and losses but excluded from NI. Examples are Pension adjustments like amortization of actual pension, not actual return on pension plan assets. Other examples are unrealized gains, losses in debt securities and hedges, foreign currency items, investment-specific credit risk. When calculating balance a loss of amortization actual pension is added to balance (DO NOT SUBTRACT)!

Question 30

How is Available-for-sale debt v equity securities categorized?

Answer 30

Available for sale debt is categorized as other comprehensive income rather available for sale security is categorized as NI

Question 31

Which F/S is accumulated other comprehensive income shown in?

Answer 31

As an item of equity following retained earnings in balance sheet

Question 32

When purchase goods on credit for exchange rate, the entries are?

Answer 32

1) purchase: DR Purchase and CR AP;
2) End of year: DR AP and CR Foreign exchange transaction;
3) Payment for purchase: DR AP and foreign exchange transaction, CR cash

Question 33

After quarter end, what is the 10Q filing deadline?

Answer 33

Any type of accelerators is 40 days and all other is 45 days.

Question 34

What is the difference between basic EPS and Complex EPS?

Answer 34

Basic EPS is INCOME available i.e. NI divided by weighted average # of common shares OUTSTANDING. While Complex EPS is INCOME available + interest on dilutive divided by weighted average assuming dilutive converted to common stock. If dilutive is a potential security it is ignored. Examples of dilutive securities are a) convertible b) warrants c) contracts settled in cash/stock d) contingent shares… Contingent shares is included in Basic.

Question 35

How are complex EPS examples treated?

Answer 35

a) convertible bonds # shares: issued * each bond convertible into # shares of common stock *(months left in year / 12)
b) dilutive effect of options formula: # of shares exercisable- [(# of shares exercisable * exercise price)/Average market price]

Question 36

Dividends are treated in EPS as?

Answer 36

subtract from NI. Dividends is calculated by # * $ per share declated