# Accounting test

Home > Preview

The flashcards below were created by user zachariah on FreezingBlue Flashcards.

1. How do we find the operating cycle?
Length of the operating cycle is determined by # days' sales in inventory plus avg. collection period (NOT # days' purchases in AP)
2. Find # days' sales in inventory:
Annual inventory turnover = COGS / avg inventory; 365/Inv turnover = # days' sales in inventory
3. Avg Collection period:
AR turnover = Sales/avg AR; 365/AR turnover = Avg. collection period
4. inventory turnover =
COGS / avg inventory --> how much inventory have we sold vs.
5. Be *sure* to check:
Time of year of financial statements! Answer *the question*, not "a reasonable question", FORMAT to see pos/neg clearly!, Don't mess up counting months!
6. Cash paid for inventory
= cogs + increase in inventory - AP increase
7. How to treat R & D?
US & World: Capitalize R; Us regular: Expense D; US software & World: Capitalize D. R is initial Research. D is later stage development/feasibility.
8. How to choose between expense & capitalization?
Capitalize costs that are expected to benefit future periods.
9. What are the D/C for PPE & Acc Depreciation?
PPE is Debit for positive balance. Accumulated depreciation offsets gross PPE, therefore increase w/ Credit.
10. Outflow/inflow? Prepaid +/-, Payable +/-, Receivable +/-
Prepaid outflow/inflow; Payable inflow/outflow; Receivable outflow/inflow
11. True/False: Loss from sale of PPE is Operating CF.
Tricky, b/c the cash from sale of PPE is Investment CF, however, need to adjust NI by gain/loss reflected therein.
12. What is free cash flow?
Operating net cashflow (usually positive) + investment net cash flow (usually negative)
13. Which CF statement includes interest from financing/investments?
Operating (per FASB ruling)
14. For MicroStrategy, why should board favor restatement of earnings?
Ethical, Good crisis management, good character/transparency mean lower cost of capital
15. Revenue recognition:
Is work done, is cash collected/reasonably collectible?
16. When should Brad Co. recognize ship rev? (spec, gen)
Proportionately over construction period in this specific case--though general answer is when cust takes possession.
17. Rec Rev if Unsigned sales agreement but have already delivered product?
Need written policy; Must follow; (reduces strategic timing)
18. Rec Rev if Sold w/ liberal return policy & 0% financing?
No side agreements that negate transfer of ownership
19. Rec Rev if finished product for specific customer?
No revenue before phys delivery. EXCEPT: cust request in writing
20. Rec Rev if Health Club annual non-ref upfront fee?
21. When to recognize refundable membership fee revenue?
No service revenue until refund period ends. EXCEPT: Substantial (2+ yrs) history allowing reliable estimate of refunds.
22. Can internet company recognize full revenue from a drop-ship arrangement?
No gross accounting, has to be net--i.e., commission revenue.
23. With FIFO/LIFO, what happens to: COGS/Inventory/Profits?
FIFO: lower COGS, higher inventory, higher profits. LIFO is higher COGS, lower inventory, lower profits
24. LIFO conformity -- what is the most common inventory method used for Financials? For taxes?
Tricky--This is one method that MUST be same for both. LIFO is preferred for tax bens.
25. How to compute LIFO reserve?
LIFO layers show value in inventory. Subtract inventory recorded \$ from replacement cost of units * current price. This represents an unrealized gain on holdings
26. What number to use for double-declining balance?
double the pct of straight-line & apply to remaining book value, NOT depreciable cost
27. What is the impairment procedure?
First, see if non-discounted CFs are > book value. Then impair to mkt value.
28. What is debt ratio?
Total liabilities/total assets--don't confuse w/d/e ratio
29. Op lease to capital lease: don't forget:
Add to both assets & liabilities!
30. How can I get tricked by bad debt EXPENSE?
by not inculcating existing bad debts into calculation--thus 18% of AR is bad but 2% already accounted for--need to only do the 16%
31. How can I be tricked by Depreciation useful life estimate adjustments?
Look for TOTAL useful life adjustments vs. RELATIVE useful life--i.e., years remaining vs. years total.
32. How can I be tricked w/PV calculations?
Look for # of periods--Draw it out!!
33. How to calculate impairment loss w/o mkt price?
PV of the future cashflows
34. How to calculate bond interest?
Calculate mkt rate of interest on issue value, then add interest (non-coupon) & recalculate next period
35. How can I be tricked on cash collected w/ pcts of other months?
By forgetting current month Cash!
36. Contingent Accounting for gains/losses?
Gains: PROBABLE recognize if estimable, REAS POSSIBLE: disclose, but be careful, REMOTE: nothing; Losses: PROB recognize if estimable, else disclose; R POSS: Disclose; REMOTE: no recog unless guarantee--then disclose in note
37. Contingencies
Items not fully resolved at the time of financial statement preparation. (e.g., lawsuits, environmental cleanup)
38. Expensing vs. Capitalizing issues
Advertising, Research, Software development, oil exploration, etc.
39. What are the two most significant operating items?
Employee Compensation (pension liabilities) & income taxes (deferred income tax liabilities)
40. What is the "intrinsic value method"?
For stock options, this is an accounting valuation that focuses on the value of the option on issue date--i.e., almost always nothing
41. What is the fair value method?
Estimating the probable value of the options and expensing them as compensation.
42. Defined contribution
Pension plan where employee bears risk--company merely promises to pay certain amount into fund. Simple accounting.
43. Defined benefit
Pension plan where company assumes risk--guarantees a certain payout to pensioner. Accounting complex, but must be Matched.
44. What is a PBO?
Projected Benefit Obligation, the present value of the future projected benefit--i.e., the amount needed to invest today in order to pay out in the future.
45. How to calculate net pension liability/asset?
PBO - fair value of plan assets = difference which if PBO > plan assets, is a liability; otherwise a "net pension asset"
46. 3 primary components of pension expense?
Interest cost, Service cost, and Return on pension fund assets.
47. Service cost?
Impact of an extra year of service to the calculation, results in an increase in the pension expense.
48. How to account for Return on pension fund assets?
Use expected return in order to smooth out impact of market fluctuations.
49. On Income statement, Plan Assets (+) & PBO (-) are affected by…
+ return on assets, -benefits paid; & -service costs, -interest costs, + benefits paid p 488
50. On CF statement, Plan Assets & PBO are affected by…
+ Contributions & nothing
51. Underfunded pensions have "Net pension …"
Liabilities
52. a. What is the subject of FASB Statement No. 106?
The non-reporting of retiree healthcare obligations
53. b. After FASB Statement No. 106 was implemented, managers blamed some negative consequences on the FASB. What were those negative consequences?
Scrapping retiree healthcare plans.
54. The Different types of inventory?
Raw Materials, Work in Process, Finished Goods--including all incremental labor, overhead, etc. that went into each stage

### Card Set Information

 Author: zachariah ID: 42230 Filename: Accounting test Updated: 2010-10-15 23:08:14 Tags: Stice Accounting Folders: Description: Accounting Stice Show Answers:

Home > Flashcards > Print Preview