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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. 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






2. 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)






3. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.






4. Capital structure that contains NO potentially dillutive securities - (contains only c/s - nonconvertible debt - and nonconvertible pref. stock)






5. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives






6. 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






7. Shares are to take over control - Subsidiary - Consolidate financials






8. 'Assets' - Cash spent on long-term assets - Proceeds from the sale of long-term assets - Cash flow from investments in JVs - affiliates - and long-term investments in securities (trading securities are CFO) - [CFI = Cash additions - cash rcvd on disp






9. 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






10. Increasing CFI - may indicate growth OR Decreasing CFI or sell capital assets to conserve or generate cash.May result in higher outflows in the future as older assets are replaced or growth conts.






11. Pd after more than 1 year - notes & bonds: at PV of future CF pymets - Capital leases - Provisions - Deferred tax






12. LT D-to-E = Total LT Debt / Total Equity - D-to-E = Total Debt / Total Equity - Financial leverage ratio = Total Assets/Total Equity - Total Debt Ratio = Total Debt / Total Asset - Debt-to-Capital = Total Debt/ Total Debt + SOE - All Solvency are ove






13. 1) SL; 2) Double Decline balance (accelerated); 3) Units of production; 4) Tax code perscribed Modified Accelerated Cost Recovery System (MACRS)






14. A company can issue securities to certain qualified buyers without registering the securities with the SEC - but must notify the SEC that it intends to do so.






15. 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






16. Depreciation exp = (cost - accum depre)/useful life x 2 - Does NOT use residual value but depreciation stops when residual value has been reached - reduce EBIT - NI - Assets - Equity and decrease ROA & ROE






17. Inventory TO = COGS / Avg. Inventory - LIFO = Higher - FIFO = Lower - DOH = 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.) - LIFO = lower days - FIFO = higher days - Gross Profit margin = Gross profit/ revenues - LIFO = lower - FIFO = higher






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






19. Contributed capital = c/s @ par plus add'l paid-in capital - Treasury stock (reaquired by frim but not yet retired) - are/E = Accum' NI less dividends - Minority (non-controlling) interest - Comprehensive income items: all chg in SOE not in I/S or fr

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20. Cash collections less direct cash inputs less other cash outfllows






21. 1) installment sales (If collection is certain - rev is recognized at time of sale) 2) installment method: (if collection cannot be estimated) 3) cost recovery (if collectability is highly uncertain)






22. 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.






23. 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:






24. Held for continuing use within the business (not for resale) 1) investment property; 2) Assets held for sale; 3) Natural resources; 4) PP&E






25. 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






26. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)






27. Loss that could not be deducted on the tax return in current period but may be used to reduce taxable income and taxes payable in future (i.e. warranty)






28. Divdends and share repurchases - Production and investment - M&A - New debt issuance - Payoff pattern and liquidation priority - Maintenance of assets used as collateral






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






30. Aggressive Revenue Recognition - Diff. growth rates of operating cash flow and earnings - Abnormal comparative sales growth - Abnormal inventory growth as compared to sales - Moving nonoperating income and nonrecurring gains up to I/S to boost revenu






31. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates






32. 1) Intention to hold >1 year (e.g. debt or equity) valued @ cost or mkt value 2) Equity accounted investments






33. EU & US 1) Int'l Org. of Securities Commission; 2) Goal: uniform regulation; 3) Core objectives: Protecting investor - Fair - transparent - efficient markets - Reduction of systematic risk






34. GAAP: direct method must disclose adj to reconcile NI to CFO. reconciliation is NOT required for IFRS. IFRS: pymts for Int & Taxes MUST be disclosed separately in the CF Stmnt under direct or indirect. Under GAAP - this can be reported in CF stmnt or






35. Asset is impaired if carrying value > recoverable amount - One-step process 1) Compare carrying value to: recoverable amount = the greater of the two. a) Fair value - selling costs b) Value in use = (PV of future cash flow from cont. use) - Loss reve






36. 1) fair presentation; 2) going concern; 3) accrual basis; 4) consistency; 5) materiality






37. Required by IFRS - Permited by US GAAP






38. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005






39. 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






40. 1) Character: Mgmt reputation and history of repayment 2) Collateral: ability to pledge specific collateral reduces lender risk 3) Capacity: ability to replay debt. requires LT view of firms prospect.

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41. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF






42. Change in equity from transactions from nonownership sources. Include: NI - chg in foreign currency translation adj. - chg in pension adj to funded status - chg unrealized gains/losses on derivatives contracts accounted for as hedges - chng in unrea






43. 1) Incentive/Pressure (the motive to commit fraud) 2) Opportunity (exists with weak internal controls) 3) Attitude/rationalization (mindset that fraud is justified)






44. Income subject to tax as per Tax Return






45. Slow moving or obsolete inventory






46. 1) Risk & Reward transferred; 2) No continued control; 3) Reliable measurement; 4) Probable flow of benefits; 5) Cost verifiable






47. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.






48. 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.]






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






50. 1) B/S asset increased to FMV 2) Increase above original cost to equity via revaluation surplus account (comprehensive Income)