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Advanced Financial Reporting And Analysis

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. Higher share price - Lower borrowing cost - Higher incentive compensation






2. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]






3. 1) Lack physical form (patent - copyrights etc; 2) Good will is an ex. of an unidentifiable intangible asset - not amortized but subject to annual impairment reviews; 3) Identifiable intangibles are amortized.(eliminate goodwill from ratio analysis)






4. 1) Change in accounting principle; 2) Change in accounting estimate; 3) Prior period adjustments






5. Refers to changes from one GAAP method or IFRS method to another IFRS & US GAAP require prior year data shown in f/s to be adjusted.






6. 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






7. 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)






8. Income variability lower - Profitability early years (ROE - ROA & NI) is Higher - Profitability later years: lower - Total Cash Flows: Same - CFO: higher - CFI: Lower - Leverage ratios: D/E & D/A: lower - Opposite fore Expensing






9. Reported BELOW the line.Prohibited under IAS1 1) Losses from expropriation of assets. 2) Uninsured losses from natural disasters - Analyst must determine if it is really THAT extraordinary and if should be included in forecasting






10. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes






11. 1) will only benefit on reversal if there is sufficient taxable earnings 2) can only utilize loss carryforwards if we have future profits 3) If asset cannot be utilized in full it is reduced by a contra 'valuation allowance'. REDUCE DTA - REDUCE NI






12. Assets: higher - Liabilities: Higher - NI (Early yrs): Lower - CFO: Higher (b/c only interest portion is classed as CFO) - CFF: Lower (b/c principal repayment portion) - Total CF: Same - Since Int. exp + depre > lease pymt in the early years. This de






13. Tax Rate down: DTL down -> Inc. Tax Exp down -> NI up - DTA down -> Inc. Tax Exp up -> NI down






14. For inventory that does not deteriorate with age.






15. Ensure that information in f/s is useful to a wide range of users.






16. Research = Expensed Development may be capitalized when the following critera is met: (ie if in the Development stage and NOT research stage) 1) process is clearly identified 2) Cost can be clearly idenfified 3) Technical feasibility established 4) M






17. 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






18. 1) Account format (A on left and L & E on right) 2) Report format ( A - L - E presented in one column) 3) Classified B/S (ordered)






19. Replacement cost subject to: Upper limit = NRV - Loewr limit = NRV - normal profit margin






20. Interest Expense = Coupon - Amortization = PV of future CF x market yield @ issuance






21. Assets - liabilities - and equity are presented in a single column.






22. 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.]






23. 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.






24. Share are to ensure significant influence over the company - Affiliate/Associate - Equity Method






25. Same as other ratios using NI in this case substitut NI for CFO.






26. If PV of min lease pymt < cost of asset 1) lessor is a dealer or seller of the leased equipment 2) at the time of lease inception - lessor recognized a gross profit on sale. (NI - are/E - and Assests are higher) 3) Interest rev recognized over period






27. 1) Consider the growth rate and capital spending levels when determining whether temp diff due to accelerated depre will reverse 2) Look for cumulative differences due to asset impairments and post-retirement benefits 3) Restructuring charges can c






28. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate






29. +Cash rcvd from customer - +Cash dividends rcvd - +Cash interest rcvd - +Other cash income ((trading securities) - Payment to suppliers - Cash expenses (wages etc) - Cash interest paid - Cash taxes paid






30. Depreciation exp = (cost-residual value)/ useful life






31. 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






32. Inflow - (bringing bond UP to par)






33. Primary) Relevance & Reliability - Secondary) Comparability - Lastly) Understandability - user specific






34. Low: P/E - P/CF - or P/S - High: ROE - ROA - growth rates of sales and earnings - Low: leverage






35. Adjustments Involves erros or new accounting standards - Resate prior period - Disclose nature and effect on NI - Errors may indicate weakness in internal controls






36. Shows the performance of the company over a reporting period.






37. Unlisted instruments - Held-to-maturity investments - Loans - Receivables






38. Financial Services Companies: Operating activities: Interest - Dividends - G/(L) on disposal Non-Financial Services Companies: Non-operating activities: Interest - Dividends - G/(L) on disposal






39. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)






40. 1st: Net Income - dividends declared = chg in are/E - Then: Dividends declared +/- chg dividends payable = cash dividends paid.






41. 1)DTL - DTA - valuation allowance - Net ? in valutaion allowance over the period 2) unrecognized DTL or undistributed earning from subsidiaries & JVs 3) Current yr tax effect of each type of temp difference 4)Components of Inc Tax Expense 5)Tax loss






42. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower






43. 1) 3rd party pressure: 1) analyst/institutional expectations; 2) need to obtain finance; 3) listing requirements; 4) Debt covenants; 5) Transactions 2) Directors' Financial Position: 1) Equity interest; 2) Stock options; 3) Personal debt guarantees.






44. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.






45. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy






46. 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.






47. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution






48. 1) Aggregation where appropriate; 2) No offsetting assets against liabilities or income against exp.; 3) Classifed B/S; 4) Minimum Info on face; 5) Minimum disclosure; 6) Comparative info.






49. Improve ROA and Asset TO Ratios - Report higher aquisition goodwill






50. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up