SS 8. FR&A: Income Statements, Balance Sheets and Cash Flow Statements Flashcards
The par value of common stock is defined as:
the stated or nominal value assigned to the stock.
It has no relationship to market value.
The cumulative amount of earnings recognized on a company’s income statements that have not been distributed as dividends to the company’s owners is best described as:
retained earnings.
Where assets, liabilities and equity are all in one column, this is called a:
Report format
Cash return on assets =
Cash flow from operations
/
Average total assets
What is the proper classification of interest received in the Statement of Cash Flows under IFRS?
Operating or Investing
Extraordinary items are placed on the income statement:
after net income from continuing operations and net of tax.
In the direct method statement of cash flows, the primary component of investing cash flow is typically:
capital expenditures for long-term assets
Under U.S. GAAP, how are dividends paid and dividends received reported on the cash flow statement?
Dividends received: Operating
Dividends paid: Financing
The obligations of an entity resulting from previous transactions that are expected to result in an outflow of economic benefit in the future is the definition of a:
Liability
Income statement equation is:
revenues - expenses = net income
Cash ratio =
(Cash + cash equivalents + invested funds)
/
current liabilites
‘Stock that has been reacquired by the issuing firm but not yet retired’ is called:
Treasury stock
Cash from Operations using the indirect method =
net income
+ non cash charges - non cash gains
+ increase in current liabilites - decrease in current liabilites
+ decrease in current assets - inrease in current assets
+ cash interest income - cash interest expenses
Working Capital =
Current Assets - Current Liabilities
Current ratio =
Current assets / current liabilites
or
(Cash + marketable securities + receivables + inventory) / current liabilites
Free Cash Flow to Equity (FCFE) =
CFO (Cash Flow from Operations) - net fixed capital expenditures + net borrowing
As a general rule, revenue is normally recognised when it is:
Realizable and Earned
The definition of a current liability is:
Settlement is expected within one year or one operating cycle, whichever is greater.
How are Inventories valued under IFRS and U.S. GAAP?
IFRS: lower of cost or net realizable value
GAAP: lower of cost or market value
Inventory write-up allowed under IFRS, not GAAP
What is the preferred method for revenue recognition if estimates relating to total revenue and costs are not reliable?
The completed-contract method
Basic EPS =
(Net income - Preferred Dividends)
/
Weighted average no. of shares outstanding
Receivables Turnover ratio =
Net credit sales
/
Average accounts receivable
Ending retained earnings =
opening retained earnings + earnings after tax - dividends paid
Under U.S. GAAP, the format of the income statement:
is not specified
‘The process of converting non-cash resources and rights into money’ is called:
Realization
‘Outflows or depletions of assets in the course of a business’s activities’ defines:
Expenses
Only in the ______ method is depreciation added back to net income when determining CFO because net income is only used in the ______ method
Indirect
Traditional DuPont equation is:
ROE = (net income / sales)(sales / assets)(assets / equity)
or
ROE = (net profit margin)(asset turnover)(leverage ratio)
Leverage ratio is also known as financial leverage or equity multiplier.
Under which situations does an analyst need to adjust both the numerator and the denominator for calculating diluted EPS?
If the dilutive security is:
A convertible bond
Preferred shares
Under the direct method, the only section of the cash flow statement that will differ in presentation is the:
Cash Flow from Operations
Under IFRS, dividend payments are classified as:
Operating or Financing
Under US GAAP, operating activities generally involve:
producing and delivering goods and providing services
A complex capital structure is one that contains:
securities that have the potential to dilute a firm’s earnings per share.
How does the indirect method calculate cash flow?
Indirect method starts with income after taxes and adjusts backwards for non-cash and other items for operating activities only.
How are dividend payments reported on the statement of cashflows under US GAAP and IFRS?
Financing activities under U.S GAAP, and operating or financing activities under IFRS
Long-term debt =
100% - (% equity + % current liabilities)
The accounting concept of fair value is best described as:
The price that knowledgeable and willing parties would pay in an arms length transaction
Diluted EPS formula:
(Total income - preferred dividends)
/
(Outstanding shares + diluted shares)
An item that gives a company future economic benefits because it is owned or controlled by the company as a result of a previous transaction is best described as a(n)
Asset
Quick ratio =
(Current assets - inventories) / current liabilites
or
(cash and equivalents + marketable securities + accounts receivable)
/
current liabilities
If a balance sheet shows the assets in one column and liabilities and equity in an adjacent column, this is called:
Account format
Reversal of impairments are allowable under:
IFRS
NOT U.S. GAAP
Cash Conversion Cycle (CCC) =
Average receivables collection period
+ Average inventory processing period
- Average payables payment period
Unrealized foreign currency translation gains and losses are not reported in the income statement and are included in:
comprehensive income.
Under U.S. GAAP, in a cash flow statement, are interest paid and received, respectively, classified as operating or investing activities?
Operating, operating
Defensive interval ratio =
current assets / daily operational expenses
Answer is expressed as a number of days.
Other Comprehensive Income =
Comprehensive Income - Net Income
When preparing a direct method statement of cash flows, the principal component of cash flows from operating activities is:
Cash collections
Average Collection Period =
Days x AR
/
Credit Sales
Transactions included in other comprehensive income (4):
1 . Foreign currency translation gains and losses.
- Adjustments for minimum pension liability.
3 . Unrealized gains and losses from cash flow hedging derivatives.
- Unrealized gains and losses from available-for-sale securities.
Give examples of 4 short-term liquidity ratios
Current ratio
Quick ratio
Cash ratio
Defensive interval ratio
Held-to-maturity (HTM) securities are reported on the balance sheet at (1) _____________ whereas available-for-sale securities (AFS) are reported at (2) __________.
- Amortized cost
2. Fair market value
Retained cash flow is most likely to be defined as:
Operating cash flow before working capital changes less dividends
Extended DuPont equation is:
ROE =
(net income/ EBT)(EBT/ EBIT)(EBIT / revenue)(revenue / total assets)(total assets / total equity)
or
ROE =
(tax burden)(interest burden)(EBIT margin)(asset turnover)(financial leverage)
