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44 Cards in this Set

  • Front
  • Back
Define asset
Economic resources to generate revenue and ultimately a profit
What CF does dividends paid go into?
What CF does the acq/div business unit go into?
What CF does gain/sale trading securites go into?
What is the difference between 10-K & 10-Q?
10-K: Annual, official ; 10-Q: Quarterly, not-audited
What is proxy statement?
Qualitative, exec compensation, stock price trends, board of directors
What are the 3 buckets of cash bonuses?
Income statement measures, returns, cash flows
What is a material deficiency?
A material weakness in internal controls that creates -more of a remote chance- that a material misstatement will not be prevented or detected
What is a deferred expense?
Asset allocated over multiple periods, ex. prepaid rent
What is an accrued expense?
Expense incurred, not paid for, ex. wage expense
What is a deferred revenue?
Previously recorded liabilities adjusted for revenue earned, ex. unearned revenue
What is an accrued revenue?
Previously unrecorded revenue adjusted for revenue earned, ex. interest receivable, unbilled A/R
What 4 factors influence sales?
Volume, price, product mix, foreign exchange, (also acq)
How to qualify special charges? Examples?
Unusual or infrequent. Restructuring, gains/losses on asset sales, write-down/write-off.
How to qualify extraordinary items? Examples?
Unusual AND infrequent. Floods, quakes, expenses from new laws, special theft.
Completed contract method. Advantages? Disadvantages?
Adv: Don't pay taxes till the end. Dis: Might be in higher tax bracket later
Describe Disney & CapCities ABC
Disney acquired for $18b of goodwill
Percentage of completion: Journal entry to record costs incurred
Dr. Inventory: Construction in progress
Cr. Cash
Percentage of completion: Journal entry to record income
Dr. Inventory: Construction in progress
Cr. Income from continuing operations
Percentage of completion: Journal entry to record billings
Dr. Accounts receivable
Cr. Billings on construction in progress
Percentage of completion: Journal entry to terminate contract
Dr. Billings on construction in progress
Cr. Inventory: Construction in progress
How do you record the buying back of treasury stock (2 ways)?
1. Treasury stock acct.
2. Reduce contributed capital
How do you calculate cost of capital?
Firm's weighted average of cost of debt & cost of equity (= to % amt of debt * cost of debt)
How do you calculate diluted EPS?
(NI - Pref. Div + Tax effects) / (Weighted Outstanding Shares + Pot. Dilutive Securities)
What are the five key drivers of financial results?
Profit margin, Asset turnover, Debt to Equity, Cash Flow Yield, Turnover Ratios
How does percentage of net sales method work?
How does aging of accounts receivable work?
What factors influence the estimate of percentage uncollectible?
Credit quality of customers, economic conditions, industry boom/busts, change in current policy (Lucent), earnings mgmt, prior period estimates
Detail journal entry for obsolescence.
Dr. Loss due to inventory revaluation
Cr. Allowance for inventory revaluation
What is the REALISTIC inventory turnover equation?
LIFO COGS + LIFO Dipping Gain / FIFO Avg Inventory
How do you calculate estimated average life?
Avg. Depreciable Assets / Dep Exp
What are good income quality estimates?
Fast depreciation, short useful life, minimal residual value, short amortization, high uncollectible estimate, LIFO
What are the four types of "Other comprehensive income" items?
1. Unrealized GL on "Available for sale" securities
2. Unrealized currency translation GL
3. Losses related to minimum pension obligations
4. Unrealized GL related to hedging
How are bonds carried?
At amortized cost.

At issuance: market value
Later on: book/carry value = FV +- premium/discount
Why issue convertible bonds?
1. Investors like them-- can offer lower interest rates
2. Bondholders have no voting rights; no control seded
3. Bond interest is tax deductible
Journal entry for bond conversion into common stock
Dr. Bonds Payable 100k
Dr. Unamortized Bond Premium 1447
Cr. Common Stock (par) 32k
Cr. PIC in Excess of Par (plug)
What are the four hedge accounting considerations?
1. Hedged Item
2. Hedging Instrument
3. Hedging Risk
4. Hedge Effectiveness
How do you define hedge effectiveness? What is the diff. of effective & non-effective hedge?
Effectiveness: Within 80% to 125%. Effective hedge goes to Other Comprehensive Income; Ineffective hedge goes to earnings
What are the three types of hedges?
Fair value hedge, Cash flow hedge, Foreign currency hedge
What are the FOUR capital lease criteria?
1. Lease transfers ownership of the asset by end of lease term
2. Discount guarantee for sale
3. Lease term is 75% or more of useful life
4. PV of payments at least 90% of fair value
How does operating lease affect:
a) Debt-to-equity
b) RoA
c) Current ratio
a) Lower D/E in operating
b) Higher ROA in operating
c) Higher current ratio in operating
Where do LESSEE capital & operating payments flow in CFS?
Capital lease payments:
Interest - operating cf
Principal - financing cf

Operating lease payments:
Expense - operating cf
In evaluating capital/operating leases, how do you estimate the income statement effect?
Make adjustments to see the change in retained earnings over two years. That is the income effect!
Lessor accounting: Direct financing vs Operating leases. How do they affect income?
In operating leases, the asset stays on the books.