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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. Carrying amount of the liability minus the amount that will be deductible in the future.






2. 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






3. Profit is recognized only when it exceeds estimated total cost.






4. Stock options - Warrants - Convertible debt - Convertible preferred stock






5. 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






6. Profit recognized is the proportion of cash collected x total expected profit Revenue = (COG provided to date/total COG to be provided) x total expected revenue






7. Exchange of goods or services between two parties (no cash) IASB: Revenue = FMV of similar non-barter transaction with unrelated parties FASB: Revenue = FMV only if the company has received cash payments for such services in the past






8. 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






9. Diff. in depreciation methods/assumptions; Diff. in inventory methods/assumptions; Diff. in treatment of the effect of exchg rate chgs; Diff. in classifications of investment securities - Goodwill: Internally Generated DON'T capitalize - Purchased =






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






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






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






13. All other liabilities (e.g. bonds - notes payables - leases)






14. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal






15. 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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16. 1) Unqualified opinion (good); 2) Qualified opinion (followed GAAP except for...); 3) Adverse opinion (bad)






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






18. Is more relevant than book value: Recent changes allow more liability to be recorded at FMV (IFRS & GAAP require disclosure of FMV) - Downward adj. in liability will Increase equity and decrease leverage ratio - Upward adj in liability will decrease






19. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is higher and CFF is lower






20. 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.]






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






22. Working Capital = CA - CL - Working Capital TO = Rev/Avg. Working Capital - Fixed Asset TO = Rev/Avg Net Fixed Assets






23. PV of future obligation or the PV of the amount owed to employees for future pension benefits earned to date - Payments are determined based on expected final salary.






24. Potentially dilutive securitites [options - warrants - convertible securities]






25. 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)






26. 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






27. Int. Coverage = EBIT/Interest Expense - Fixed Charged Coverage = (EBIT+Lease Pymts) / Int. exp + Lease payments






28. [net income - preferred dividends] + [convertible prf.dividends] + [convertible debt int.] (1-t) / (weighted avg. of c/s o/s) + (shares from conversion of conv. pfd. shares) + (shares from conversion of conv. debt) + (shares issuable from stock optio






29. 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.






30. Shows only the difference between sales and cost of goods sold Users are usually: 1) internet-based merchandising companies; 2) Sell prodict but never hold inventory; 3) Arrangement for supplier to ship directly to end customer. Discolsure policies






31. Assets: lower - Liabilities: lower - NI (Early yrs): higher - CFO: lower (b/c entire pymt is classed as CFO) - CFF: higher - Total CF: Same






32. Efficient inventory managment






33. Companies must file this form to disclose material events including significant asset acquisitions and disposals - changes in management or corporate governance - or matters related to its accountants - financial statements - or the markets on which






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






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






36. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.






37. 1) Responsibility to establish and maintain adequate internal controls 2) Mgmt's framework for evaluating internal controls 3) Assessment of the effectiveness of internal controls over the last operating period 4) Statement of auditor's attestment 5)






38. Income Tax Expense/Pretax Income (EBIT) Income Tax Exp. = Taxes payable + chg in deferred ta






39. 1) Nature of industry/entity operations: 3rd party transactions; Power of customer/supplier; Acct est subjective; Unusual transactions; International operations; International operations; Operations in tax havens. 2) Opportunity complex/unstable org.






40. + Service Costs (recurring costs (actual)) - + Interest Costs (recurring costs (actual)) - - Expected return on plan assets (smoothed event) - +/- Amort of (gains) and losses (smoothed event) - +/- Amort of prior service costs* (smoothed event) - +/-






41. Both: Recognize going concern & accrual assumptions - IASB: Going concern & accruals given more prominence in framework - FASB: Going concern assumption not well developed in framework.






42. 1) is a contra asset account used to reduce the value of a DTA - 2) it is used to reduce the asset when future taxable income is deemed to be insefficient to fully use the DTA.






43. Under GAAP 1) Purchased patentes - copyrights - franchises - licenses - brands - and trademarks 2) Direct response advertising 3) Goodwill arising from transactions - (Proceeds - FMV net assets required = goodwill) 4) Software development costs once






44. 1) Cheaper Financing; 2) Reduce risk of obsolescence; 3) Less restrictive provisions; 4) Off-B/S reporting; 5) Tax Reporting Advantages (treated as ownership for tax ( deduct depreciation and interest expense)






45. 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






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






47. Current Ratio (CA/CL): Higher - Work. Cap (CA -CL): Higher - Asset TO: (Sales/TA): Higher - ROA (EAT/TA): Higher - ROE (EAT/E): Higher - Debt/Equity: Lower - Understates Leverage ratios (b/c not recognized as a liability) - Overstates Coverage ratios






48. Funds from Operations to debt = NI adj for non cash items/ total debt - Free operating CF to Total Debt = CFO - Capex / total debt - Total Debt to EBITDA = total debt / EBITDA - Return on Capital = EBIT / Capital - Total debt to total debt + equity =






49. FIFO: EI = newest purchases - LIFO: EI = oldest purchases - Avg. Costs: EI = Available for sale/Units - Specific ID: high value items (cars - diamonds etc)






50. Depreciation exp = (cost - residual value) x (# units produced / total expected to produce)