Corporate Finance And Accounting Midterm 1

Front 1

What is accrual accounting?

Back 1

arises from the concept of double-entry book-keeping. for every flow of goods one way, there is a flow of money (cash) the other.

Front 2

What are examples of accrual accounting?

Back 2

Accounts receivable. When you sell a product and the customer pays later...
Accounts payable. Buy material and pay for it in a different period...
Wages and salaries, bonuses, taxes, interest.

Front 3

What is cash accounting?

Back 3

book the purchase or sale when you actually pay of receive the funds.

Front 4

What is an important principle that comes out of accrual accounting?

Back 4

The matching principle

Front 5

The matching principle

Back 5

Expenses are matched with the generation of revenues in order to determine net income for accounting principles.

Front 6

What are the elements that show that a true sale has taken place?

Back 6

1) Delivery of products has occurred or title to those products has passed to the buyer.
2) Services have been rendered
3) the price has been determined
4) collection of funds is expected.

Front 7

How do you know that all of these are being followed?

Back 7

Look at...
1) sales
2) accounts receivable
3) allowance for doubtful accounts
4) Inventories

Front 8

What is Depreciation.

Back 8

referrs to equiptment that has a life-span of more than one year that you are going to spread out the cost for.

Front 9

Expense recognition of a depreciated good.

Back 9

It does not go into COGS, but is part of the larger "general operating costs."

Front 10

Tax incentives for a depreciated good.

Back 10

the more you depreciate now, the lower your tax liability. (accelerated depreciation)

Front 11

What is the strait line deprecation formula?

Back 11

(cost-salvage value)/(estimated lifespan of machine)

Front 12

What is the estimated life of...
1) buildings and improvements
2) machinery and equiptment
3) furniture and fixtures
4) automotive equipment

Back 12

1) 10-40
2) 5-10
3) 5-20
4) 3-4

Front 13

Accelerated depreciation formulas...3

Back 13

1) book value=cost-accumulated depreciation
2) Double book value=2*(cost-accumulated depreciation/N) where N is the number of years
3) Sum of years digits=(cost-salvage value)*R/ (N(N+1)/2
where R is th enumber of remaining year, and N is the original number of years of expected useful life.

Front 14

There are other systems of accelerated deprecation, one of them is MACRS...

Back 14

Modified accelerated tax recovery system (IRS)

Front 15

What are the two methods for getting rid of inventories?

Back 15

LIFO and FIFO

Front 16

LIFO and when is it preferred?

Back 16

Last in first out (under inflation) because it lowers taxes. Also, it lowers reported earnings...

Front 17

FIFO and when is it preferred?

Back 17

First in First out (under deflation or very low inflation)

Front 18

LIFO is used...

Back 18

more!

Front 19

What are the four stages of profit?

Back 19

1) Gross profit
2) Operating profit (EBIT)
3) Profits before taxes
4) Net income after-taxes

Front 20

EBIT

Back 20

Earnings before interest and taxes.

Front 21

Links of cost to volume (4)

Back 21

1) variable costs
2) fixed costs
3) semi-variable costs
4) step-function costs

Front 22

There are no generally accepted principles of ________________.

Back 22

Cost Accounting

Front 23

The first purpose of the Statement of Cash flows is...

Back 23

to explain the change in the cash balance during the accounting period.

Front 24

The second purpose of the statement of cash flows is...

Back 24

To provide information about the cash flows during the period associated with operating activities, investing activities, and financing activities.

Front 25

Randomly placed... What is carrying cost?

Back 25

the cost of carrying inventory before they are sold.

Front 26

The DCF?

Back 26

Discounted cash flow.

Front 27

A firms share value can be determined by its...

Back 27

DCF

Front 28

What is the Equation for DCF?

Back 28

PV=Present Value, or market value
Ct=Forcasted incremental cash flow after corporate taxes.
T=projected life
r=the opportunity cost of capital

T
PV= Σ Ct / (1 + r )t
t=1

Front 29

Liquidity vs. Solvency

Back 29

Liquidity refers to a firm with a lot of cash. It can live from day to day.
Solvency refers to the ability to pay off accrued debts.

Front 30

Liquidity

Back 30

Makes the company run.

Front 31

Debt Management

Back 31

amount of debt and coverage of debt

Front 32

Asset management

Back 32

operating efficiency

Front 33

Profitability

Back 33

the heart, increase profit margins and rates of return by sound mgmt.

Front 34

return to investors

Back 34

general well being and mental stability. lots of measurable stuff here, but a lot is also based on market psychology.

Front 35

These previous 5 things are all...

Back 35

ratios!

Front 36

Proxy statement

Back 36

contains useful information about the board of directors, director and executive compensation, option grants...

Front 37

Auditors report

Back 37

expression of opinion on how fair a financial statement is.

Front 38

What are the two catagories that an auditors report can fall under?

Back 38

1) unqualified: meaning that the auditor thinks the financial statements are fair.
2) qualified: meaning that the auditor thinks the financial statements are not fair and that the firm should be carefully evaluated.

Front 39

MD and A sections

Back 39

Management discussion and analysis... may cover such things as projection sof capital expenditures and how such investments will be financed.

Front 40

Current ratio

Back 40

Current assets/current liabilities

Good for measuring short run solvency.