SUBJECTS
|
BROWSE
|
CAREER CENTER
|
POPULAR
|
JOIN
|
LOGIN
Business Skills
|
Soft Skills
|
Basic Literacy
|
Certifications
About
|
Help
|
Privacy
|
Terms
|
Email
Search
Test your basic knowledge |
Advanced Financial Reporting And Analysis
Start Test
Study First
Subject
:
business-skills
Instructions:
Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can
study here
.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.
This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. BV - cash paid = gain/(loss) + any unamortized issue costs (US only) = Gain/Loss on repurchase [I/S as continuing operations)
Impact on the Cash Flow of a Discount Bond...
FASB
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Gain/(loss) on bond early retirement: (derecognition of debt)
2. US 1) Financial Accounting Standards Board; 2) Standards form GAAP; 3) Aims - useful - relevant - reliable - consistent and comparable; 4) SEC deems FASB standard authoritative
To investigate the stability of that structure - Kilgore would be best served by looking at...
FASB
Effects of Lease Classification on F/S - Finance Lease
Free Cash Flow to the Firm - FCFF
3. When a company prepares a proxy statement for its shareholders prior to the annual meeting or other shareholder vote - it also files the statement with the SEC as Form DEF-14A.
Form DEF-14A...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Comprehensive income...
Taxation: Tax Payable
4. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
Footnote Finance Liability Disclosure
Vertical Common Size Statements...
Analysis: Market Value of Debt
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
5. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments
Activity Based Restrictions
Financial Ratios based on B/S: Solvency (Coverage)
Segment Reporting
Creative Cash Flows Accounting: Technique
6. FASB & IASB -LT projects under contract - reliable estimates of revenue - cost and completion time -Rev - exp and profit are recognized in proportion to total cost incurred to date - divided by total expected cost.
Analysis: Market Value of Debt
Tax base of an asset
% of Completion
days of sales o/s =
7. Higher share price - Lower borrowing cost - Higher incentive compensation
Creative Cash Flows Accounting: Motivation
FIFO after-tax profit =
Taxation: Income Tax Expense
Financial Ratios based on B/S: Solvency ratio
8. 1) Start with NI 2) Sub Gains or add losses from financing or investing CFs 3) Add non-cash charges (depr't & amort'z) & sub all non cash revenue 4) Add/ Sub changes to related b/s operating accounts:
Ending Inventory =
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
Impact on the Cash Flow of a Premium Bond...
CFO - Indirect method steps...
9. FASB: No discussion of 'probables' - IASB: Asset - liabilities - are probable flows
Stock options: Use treasury stock method
IFRS/US GAAP Frameworks: Recognition of Elements...
Characteristics of an effective framework
Net Periodic Benefit Costs
10. 1) Results of operations and discussions of trend; 2) Capital resources - liquidity - and cash flow trends; 3) General business overview based on known trends; 4) Effects of trends - events - and uncertainties; 5) Discontinued operations - extraordin
MD&A contains...
Effects of Lease Classification on F/S - Finance Lease
Impact on the Cash Flow of a Zero Coupon Bond...
Analyst Treaments of DTL
11. Used when estimates of revenue or cost are unreliable or short-term contracts - (US GAAP only) Revenue - expense - and profit is recognized at completion (IFRS) Revenue is recognized to the extent of contract cost - cost are expensed when incureed
Under Completed Contract Method...
Fraud Triangle - 2) Opportunity
Impact on the Cash Flow of a Premium Bond...
B/S - Stockholders' Equity
12. Reported BELOW the line. Operations mgmt has decided to dispose of but: 1) has not yet done so or 2) did so in CY after it generated profit/(loss) Must be physicallly and operationally distinct from firm. Analyst must determine effects on future inco
Discontinued Operations...
Tax base of an asset
Income Tax Paid...
IFRS/US GAAP Frameworks: objective of F/S
13. CV of Op. Inc = std dev. EBIT/ Mean EBIT - CV of Revenue: std. dev Rev/ mean Rev. - Operating Leverage = %chg in EBIT/ %chg in Sales
Motivation to Under-report Earnings
Cash Flow From Investing (USA) (Assets)
Operating Risk Ratios...
FIFO ending inventory =
14. (GAAP) Internally created intangibles 1) (R&D) are expensed 2) Advertising 3) Software (developed to establish feasibility)
Defined Benefit Obligations (DBO)
Expensed Intangibles...
Inventory mangement: Low T/O (High DOH)...
Financial Adj to Facilitate Comparison...
15. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives
LIFO is appropriate
Cash flow ratios
What is the economic substance of financial (capital) lease?
Financial Assets: US GAAP/Fair Market Value
16. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
The best indicator of overstating its profits is...
Credit Analysis: Ratios
IFRS Revenue Recognition For Service
Cash Flow From Operations (CFO) - IFRS
17. ROE = (NI/EBT)x(EBT/EBIT)x(EBIT/Rev)x(Rev/Asset)x(Asset/Eqty) or (tax burden)x(int. burden)x(EBITmargin)x(Aset TO)x(Fin Lvg)
Motivation to Under-report Earnings
Activity Based Restrictions
Calculate dividends declared...
Extended DuPont Equation...
18. If any ONE out of the FOUR are met must be classifed as Financial Lease: 1) Title transfered to lessee at the end of lease; 2) Bargain purchase option at the end of the lease; 3) Lease period is at least 75% of asset's useful life; 4) The PV of least
Straight-line depreciation (SL)
Finance (capital) Lease criteria (under US GAAP)
Sustainable Growth
Financial Assets: US GAAP/Amortized at Cost
19. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution
Inventory Systems...
Capitalization of Interest...
Tax Loss Carryforward...
Defined Contribution Plans
20. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
Cash Flow: Logic (A = L + E)
An Increase in the Valuation Allowance Account...
Discontinued Operations...
CFI Analysis...
21. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage
Screening for Potential Equity Investment: Criteria
B/S - investments
Lessor Accounting Capital Lease: Sales-Type Lease
Financial Liability: US GAAP/Amortized at Cost
22. 2 step-process 1) Recoverability: carrying value > undiscounted CF from asset's use and disposal 2) Loss measurement: Loss is the excess of carrying value over the asset's fair market value or PV of cash flows - Loss reversal for held-for-use assets
Impairments recognition (GAAP)
FASB - Harmonization
Valuation Allowance...
Net Realizable Value (NRV) (IFRS)
23. Increase in an asset: deduct (use of cash) - Increase in a liability: add (source of cash) - Decrease in an asset: add (source of cash) - Decrease in a liability: deduct (use of cash)
B/S - investments
Financial Assets: US GAAP/Fair Market Value
Add/ Sub changes to related b/s operating accounts
Balance Sheet - formats
24. Current ratio = CA/CL - Quick/Acid test = (cash + mkt sec + AR)/CL - Cash ratio = (Cash + mkt sec)/ CL - Defensive interval = (cash + mkt sec + AR)/Daily Cash Exp - Liquidity is over current Liabilities
To investigate the stability of that structure - Kilgore would be best served by looking at...
Bond Issuance Cost under GAAP/IFRS
Gross Reporting of Revenue
Financial Ration based on B/S: Liquidity Ratios
25. = LIFO ending inventory + LIFO reserve FIFO after-tax profit
Net Reporting of Revenue
IFRS Revenue Recognition For Service
FIFO ending inventory =
Effects of Lease Classification on F/S - Finance Lease
26. Means that at least ONE of the following is true: Company has poor profit margin; Company has poor asset TO; Company is underleveraged
Form 144...
Revaluation above historic cost...
ROE interpretation: if ROE is low...
Sources of Differences betweent F/S & T/
27. Management turnover.
Financial Assets: US GAAP/Fair Market Value
Footnote Finance Liability Disclosure
To investigate the stability of that structure - Kilgore would be best served by looking at...
% of Completion
28. 1) held-to-maturity: @ amortized cost (i.e Bonds) 2) trading: @ fair value through P&L @ fair mkt value - unrealized g/(l) are recognized on the I/S. 3) available-for-sale: @ fair mkt value - unrealized g/(l) are NOT recognized on the I/S - instead r
B/S - short-term investments
Analysis: Market Value of Debt
Stock options: Use treasury stock method
DTA/DTL: Effect on Net Income when Tax Rate decreases...
29. GAAP: more quantitative rules - IFRS: more qualitative approach based on whether the risks and reward of the asset have tranferred.
Debt covenants
Cash flow ratios
Finance (capital) Lease criteria GAAP vs. IFRS
Auditor/Audit Opinion
30. For inventory that does not deteriorate with age.
CFO Analysis...
Inventory mangement: Low T/O (High DOH)...
LIFO is appropriate
Traditional DuPont Equation...
31. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.
Intercorporate Investment: 20% - 50% votes...
IFRS/US GAAP Frameworks: underlying assumptions...
Impact on the B/S of a Premium Bond...
Effects of Lease Classification on F/S - Finance Lease
32. 365/(AP T/O) = 365/(purchases/ Avg. AP)
Barter (IASB & FASB)
Intercorporate Investment: > 50% votes...
# of days payable =
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
33. 1) Land @ cost; 2) Plant & building @ historic cost less accu'm depr; 3) Equipment @ historic cost less accu'm depr 4) Intangible assets @ historic cost less accu'm amort
Expensed Intangibles...
B/S - Long-lived assets PP&E
Sales Basis Revenue Recognitions
Activity Based Restrictions
34. You.S. GAAP
Simple capital structure
Impairments recognition (IFRS)
Amortization of Bond Premium = (in/out flow) in the indirect method CFO
Which set of accounting standards requires firms to disclose estimated amortization expense for the next five years on intangible assets?
35. ROE = (NI/Sales) x (Sales/Assets) x (Assets/Equity) or ROE= Net Profit Margin x Asset TO x Leverage Ratio
Traditional DuPont Equation...
IFRS Revenue Recognition For Service
Net Reporting of Revenue
Impact on the B/S of a Discount Bond...
36. 1) if 50% of its revenue is earned externally 2) if a business area has at least 10% of a firm's: Revenue; or Operating profit; or Use of asset 3) Business and geographical segments
Segment Reporting
days of inv. on hand =
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Depreciation Methods...
37. 1) Capitalize interst during construction period when building its own operating facility; 2) Interest must actually be paid by the firm; 3) Specific and general debt interest is capitalized
Creative Cash Flows Accounting: Motivation
# of days payable =
Inventory Valuatoin (LCM)
Capitalization of Interest...
38. Cash Flow available for distribution to all investors (stockholders & debt holders) CFO + int(1-t) - fixed capital investment or [FCFF calculated from NI = NI + noncash charged + (Int exp(1-tax rate) - net cap investment - working capital invt.]
Footnote disclosure of Reconciliation of opening and closing carrying values...
Complex Capital Structure
Fraud Triangle - 1) Incentive/Pressure
Free Cash Flow to the Firm - FCFF
39. Ensure that information in f/s is useful to a wide range of users.
Types of accounting changes: prior period adjustments
Inv. Valuation reporting Inventory ABOVE costs...
The objective of f/s is to...
Financial Ratio based on I/S...
40. It is Rare - but permitted for commodity producer/dealers B/S = NRV - I/S = unrealized gains/losses
Barter (IASB & FASB)
Amortization of Bond Discount = (in/out flow) in the indirect method CFO
An Increase in the Valuation Allowance Account...
Inv. Valuation reporting Inventory ABOVE costs...
41. 1) Basis for measurement; 2) carrying value of inventory by category; 3) Amount of inventory carried at FV less cost to sell 4) Write-downs & reversals (discussion of circumstance that led to reversal); 5) Inventories pledged as collateral for liabil
Defined Benefit Obligations (DBO)
DBO Funded Status =
Unusual OR Infrequent items...
Measurement of A & L disclosure in footnotes
42. EBIT/ *Gross Interest EBITDA/ *Gross Interest *(inc'd capitalized interest) - How many times is EBIT or EBITDA bigger than gross interest? Higher ratio is desired. Shows ability to cover int. payment
Diluted EPS
One major difference between the presentation of deferred tax assets and liabilities under IFRS and under U.S. GAAP is that...
From creditor POV: Int. Coverage;
DTA/DTL: Effect on Net Income when Tax Rate decreases...
43. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal
Credit Analysis: Ratios
The objective of f/s is to...
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Operating vs. Non-operating Income
44. CFO = NI - means high quality of earnings but may be affect by the stage of business cycle and firm's life cycle - CFO > NI - means premature recognition of revenue or delayed recognition of expenses.
LIFO results in: (assuming inflationary period)
Finance (capital) Lease criteria GAAP vs. IFRS
CFO Analysis...
Revaluation below historic cost...
45. Net income + non-cash charges - working cap investment
Inventory Cost Flow Methods...
3 C's for Credit Analysis...
Free Cash Flow -CFO
Statement of Cash Flow - relevance...
46. Potentially dilutive securitites [options - warrants - convertible securities]
Deferred Tax Liability: (DTL)
Creative Cash Flows Accounting: Motivation
Complex Capital Structure
BASIC EPS
47. Cash Flow available for distribution to the c/s; after all obligations have been paid. CFO - fixed capital investment + net debt increase or CFO - net cap expenditure + net borrowings
Free Cash Flow to Equity - FCFE
Activity Based Restrictions
Inventory mangement: High T/O (low DOH) and sales growth below industry average
Intercorporate Investment: > 50% votes...
48. US Gaap: lower of cost or market value - (does NOT allow subsequent reverasals) - IFRS: lower of cost or NET realizable value - (allows subsequent reversals)
Ratios that directly affect choice of Inventory Account...
CFI Analysis...
FIFO is appropriate
Inventory Valuatoin (LCM)
49. CFO: no impact - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower (b/c no impact) and CFF is higher
Impact on the Cash Flow of a Zero Coupon Bond...
Effects of Lease Classification on F/S - Operating Lease
Complex Capital Structure
days of sales o/s =
50. Reported ABOVE the line 1) G/(L) from disposal of a business segment 2) G/(L) from sale of investment in subsidiary 3) Provisions for environmental remediation - impairments - write-offs - write-downs - restructuring.4) Integration expense for recent
Extraordinary Items: Unusual AND Infrequent items...
Footnote disclosure of Reconciliation of opening and closing carrying values...
Creative Cash Flows Accounting: Motivation
Unusual OR Infrequent items...