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. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.
Forecasting Financial Performance: Application
Cash Flow From Operations (CFO) - FASB
IFRS/US GAAP Frameworks: F/S elements...
Sustainable Growth
2. 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)
Financial Liability: US GAAP/Amortized at Cost
Reasons to Lease...
Cash Flow: Logic (A = L + E)
Types of accounting changes...
3. Required by IFRS - Permited by US GAAP
What is the economic substance of financial (capital) lease?
Roles of financial reporting & analysis include...
Under Completed Contract Method...
Component depreciation;
4. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.
Cash Flow: Logic (A = L + E)
Form 144...
Funded Status US GAAP & IFRS
Balance Sheet
5. 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
Operating vs. Non-operating Income
Warning Signs of Earnings Manipulation
Installment Method...
Debt covenants
6. FIFO: EI = newest purchases - LIFO: EI = oldest purchases - Avg. Costs: EI = Available for sale/Units - Specific ID: high value items (cars - diamonds etc)
Net Periodic Benefit Costs
Impact on the B/S of a Premium Bond...
Expensed Intangibles...
Inventory Cost Flow Methods...
7. 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
IASB - Goals
B/S - investments
Market Value (GAAP)...
8. 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
Forecasting Financial Performance: Top Down Approach...
Disclosure for each segment...
B/S - investments
9. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets
Return on Assets ROA...
Trade-Offs Qualitative Characteristics of IFRS
Financial Ratios based on B/S: Solvency (Coverage)
Effects of Lease Classification on F/S - Operating Lease
10. Both: Broadly consistent - lack fully developed concepts - FASB: Assets revaluations prohibited (except some financial instruments)
Free Cash Flow -CFO
Financial Ratio based on I/S...
Complex Capital Structure
IFRS/US GAAP Frameworks: Measurement of Elements...
11. 1) Evaluating equity investments for a portfolio; 2) Evaluating potential M&A; 3) Evaluating a subsidiary of a parent company; 4) Deciding on private equity/ venture cap investment 5) Determine creditworthiness - borrowing; 6) Extending credit to
Roles of financial reporting & analysis include...
Forecasting Financial Performance: Application
Financial Ratio based on I/S...
Expensed Intangibles...
12. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives
Footnote disclosure of Reconciliation of opening and closing carrying values...
Vertical Common Size Statements...
B/S - investments
Financial Assets: US GAAP/Fair Market Value
13. 1) Timing Differences: Accrual vs. modified cash accounting - Differences in reporting methods estimates
Impact on the Cash Flow of a Discount Bond...
Financial Assets: US GAAP/Amortized at Cost
Sources of Differences: Temporary
From creditor POV: Int. Coverage;
14. 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
ROE interpretation: if ROE is low...
Taxation Disclosure Requirements
Financial Ratios based on B/S: Solvency (Coverage)
days of sales o/s =
15. 365/(AR T/O) = 365/(Rev/Avg. AR)
Defined Benefit Obligations (DBO)
IFRS/US GAAP Frameworks: F/S elements...
days of sales o/s =
Common Size Statement
16. Decreases DTA -> Decreases Net Income - [Decrease in Valuation Allowance; Increase DTA and Increases Net Income]
IFRS Revenue Recognition For Service
Effects of Lease Classification on F/S - Finance Lease
An Increase in the Valuation Allowance Account...
B/S - investments
17. If PV of min lease pymt = cost of asset 1) lessor is not a dealer of leased equipment (fin. co.)2) no gross profit is recognized at time of lease inception 3) all profit is int. revenue recognized over period of lease. CFO = Int. Income inflow - CFI
Convergence IFRS/US GAAP...
Tax Loss Carryforward...
Return on Equity (ROE)...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
18. Replacement cost subject to: Upper limit = NRV - Loewr limit = NRV - normal profit margin
Extended DuPont Equation...
Financial Assets: US GAAP/Fair Market Value
Market Value (GAAP)...
Tax base on a liability
19. 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
Inventory mangement: High T/O (low DOH) and sales growth above industry average
Forecasting Financial Performance: Application
Double-decline balance (DDB)
Cash Flow From Financing (USA) (Source of Cash)
20. 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
Warning
: Invalid argument supplied for foreach() in
/var/www/html/basicversity.com/show_quiz.php
on line
183
21. 1) Outcome reliable: rev recognized by stage of completion 2) Outcome unreliable: revenue recognized but no profit (
Financial Ratio based on I/S...
Cost included in Inventory on b/s...
IFRS Revenue Recognition For Service
Impact on the Cash Flow of a Par Bond...
22. 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
Horizontal Common Size Statements...
Impairments recognition (GAAP)
B/S - Stockholders' Equity
Under Completed Contract Method...
23. Total assets TO = Revenue/Avg. total asset - Fixed asset TO = Revenue/ Avg. net fixed assets - Working Cap TO = Revenue/Avg. working captial
Defined Contribution Plans
Tax Loss Carryforward...
Measures of Operating Performance - Efficiency Ratios...
Operating vs. Non-operating Income
24. Securities that would INCREASE EPS if exercised
Antidilutive Securities
FASB
DTA/DTL: Effect on Net Income when Tax Rate decreases...
Defined Contribution Plans
25. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability
Motivation to Under-report Earnings
The report format of B/S
# of days payable =
Taxation Analyst Adjustments...
26. Income Tax Expense > Taxes Payable - F/S > Tax Return - Pay less tax now but more on reversal
DBO Funded Status =
Financial Ratios based on B/S: Solvency (Coverage)
Deferred Tax Liability: (DTL)
Roles of financial reporting & analysis include...
27. Assets - liabilities - and equity are presented in a single column.
Form 144...
The report format of B/S
Types of accounting changes: accounting principle
CFO - Indirect method steps...
28. 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
Potentially Dillutive Securities
Taxation Disclosure Requirements
Asset Revaluation: IFRS
Financial Ration based on B/S: Liquidity Ratios
29. 1) Firms adds a lease asset and a lease liability to b/s = amounts - 2) Recognize int. expense on liability and depreciation exp on asset - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ratios.
FIFO results in: (assuming inflationary period)
Forecasting Financial Performance: Top Down Approach...
Inventory mangement: Low T/O (High DOH)...
Financial Lease Reporting
30. CFO: cash interest expense - CFF: increased by amount rcvd at issuance and decreased by payment made at redemption - CFO is lower CFF is higher
3 C's for Credit Analysis...
Defined Benefit Plans
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Impact on the Cash Flow of a Premium Bond...
31. Follows the traditional ledger account - assets on the left hand side and liabilities and equity on the right hand side.
Return on Assets ROA...
The best indicator of overstating its profits is...
The account format of B/S
Impact on the B/S of a Premium Bond...
32. I/S: COGS higher - EBT lower - Taxes: lower - NI: Lower - B/S: INV: lower - W/C: Lower - are/E: lower - CF: CFO: higher
Taxation Analyst Adjustments...
Valuation Allowance...
Fraud Triangle - 1) Incentive/Pressure
LIFO results in: (assuming inflationary period)
33. Profit is recognized only when it exceeds estimated total cost.
Credit Analysis: Ratios
Revaluation below historic cost...
Cost recovery method...
The 4 Qualitative Characteristics of FASB...
34. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy
What is the economic substance of financial (capital) lease?
The 4 Qualitative Characteristics of IFRS
Return on Equity (ROE)...
Free Cash Flow to the Firm - FCFF
35. G = (earnings Retention rate) x (ROE) - earnings retention rate = [1-(payout ratio)] - payout ratio = Common dividends/ NI - Pref. Div.
Cash Flow: Logic (A = L + E)
Inv. Valuation reporting Inventory ABOVE costs...
% of Completion
Sustainable Growth
36. Meet Analyst Expectations - Meet debt covenants - Incentive compensation
Cash Conversion Cycle =
Cash Flow From Operations (CFO) - FASB
Motivation to Over-report Earnings
Impact on the B/S of a Zero Coupon Bond...
37. 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
Revaluation above historic cost...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
Effects of Lease Classification on Ratios - Operating Lease
IOSCO
38. +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
Financial Ratio based on I/S...
Cash Flow From Operations (CFO) - FASB
Add/ Sub changes to related b/s operating accounts
BASIC EPS
39. Held for continuing use within the business (not for resale) 1) investment property; 2) Assets held for sale; 3) Natural resources; 4) PP&E
Impact on the B/S of a Zero Coupon Bond...
CFO - Direct/Indirect method
Analyzing Effective Tax Rate Reconciliation
B/S - Long-lived assets
40. Shares are to take over control - Subsidiary - Consolidate financials
Intercorporate Investment: > 50% votes...
B/S - Long-term Liabilities
CFO Disclosure requirement...
Financial Liability: US GAAP/Fair Market Value
41. IAS 39 Marketable securities - IAS 2 Inventories (LIFO prohibited) - IAS 16 PP&E - JV (IFRS: proportional consolidation) - IAS 38 Intangibles - IAS 18 & 11 Contruction Contracts - Extraordinary Items: Prohibited in IFRS - Cash Flow Statement
% of Completion
Convergence IFRS/US GAAP...
Funded status of the pension plan (under US GAAP & IFRS) is reported where?
Analyst Treaments of DTL
42. I/S: Income statement account/Sales - B/S: Balance sheet account/ Total Assets
FIFO after-tax profit =
From creditor POV: Int. Coverage;
The account format of B/S
Vertical Common Size Statements...
43. Off B/S asset or liability = Footnotes disclosure - Lease payments are expensed when due via I/S - Payments are CFO outflows
Operating Lease
Cash Conversion Cycle =
Cash flow ratios
B/S - Stockholders' Equity
44. 1) when differences are expected to REVERSE and reslut in future tax payment - treate DTL as a LIABILITY in calculating leverage ratios 2) when differences are NOT expected to REVERSE and result in future tax payment - treat DTL as EQUITY in calculat
Return on Assets ROA...
Sustainable Growth
Reasons to Lease...
Analyst Treaments of DTL
45. For inventory that has a limited shelf life ex) Because the movies have a very limited shelf life and will greatly deteriorate in value with age - especially after the first year - FIFO is the most appropriate method of accounting for the movies for
Types of accounting changes: prior period adjustments
FIFO is appropriate
BASIC EPS
Effective Tax Rate
46. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes
IASB
Analyst Treaments of DTL
Fraud Triangle - 1) Incentive/Pressure
Types of accounting changes: accounting estimate
47. Stock options - Warrants - Convertible debt - Convertible preferred stock
Intercorporate Investment: 20% - 50% votes...
To investigate the stability of that structure - Kilgore would be best served by looking at...
Potentially Dillutive Securities
Financial Ratios based on B/S: Solvency ratio
48. Current Ratio (CA/CL): lower - Work. Cap (CA -CL): Lower - Asset TO: (Sales/TA): Lower - ROA (EAT/TA): Lower - ROE (EAT/E): Lower - Debt/Equity: Higher - Since Int. exp + depre > lease pymt in the early years. This decreases NI - and Profitability ra
Effects of Lease Classification on Ratios - Finance Lease
The best indicator of overstating its profits is...
Impact on the Cash Flow of a Premium Bond...
Types of accounting changes: accounting principle
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
Traditional DuPont Equation...
Effects of Lease Classification on Ratios - Operating Lease
Gross Reporting of Revenue
Impact on the Cash Flow of a Zero Coupon Bond...
50. Both: General agreement on objectives; focus on wide range of users - IASB: One objective for all users - FASB: Separate objectives for business entities and non-business entities.
Inv. Valuation reporting Inventory ABOVE costs...
Lessor Accounting Capital Lease: Sales: Direct Financing Lease
IFRS/US GAAP Frameworks: objective of F/S
Unusual OR Infrequent items...