Chapter 1

Question 1

Enhancing Qualitative Characteristics

Answer 1

1. Comparability (Are the F/S easy to make comparisons?)
2. Verifiability (can we easy verify the accuracy of the F/S
3. Timeliness (Can we grab F/S information in a timely manner?)
4. Understandability (Are the F/S easy to understand?)

Question 2

Fundamental Qualitative Characteristics

Answer 2

1. Relevance (Is this information relevant?)

2. Faithful Representation (Is this information reliable?)

Question 3

Fundamental Qualitative Characteristics - Relevance:

Answer 3

1. Predictive Value
2. Confirmation Value
3. Materiality

Question 4

Fundamental Qualitative Characteristics - Faithfull Representation :

Answer 4

1. Completeness: Continue Operating Income Assets classification events
2. Neutrality: The information is free from bias
3. Freedom from errorInfo doesn’t contain any material errors

Question 5

Misstatement error on the F/S will relate to which of the fundamental qualitative characteristics?

Answer 5

Since this mistake belong to MATERIALITY which is component of RELEVANCE.

Question 6

Other Comprehensive Income (FUPIE)

Answer 6

1. Foreign currency transaction gains and losses
2. Unrealized holdings gains or losses on available-for-sale securities
3. Pension gains or losses
4. Instrument specific credit risk
5. Effective portion of flow hedges

Question 7

Consignement Sale Relationship

Answer 7

1) Revenue is not recorded until consignee sells to third-party (Customer)
2. Consignor will record inventory and cost of goods sole when sold by consignee.
3. Consignor will report commission expense when consignee sells inventory to third party (customer).

Question 8

Audited Annual Reports for Public Traded Companies

Answer 8

1. Form 10-K (U.S. Companies)
2. Form 40-F (Canadian companies)
3. Form 20-F (Other non- US companies)

Question 9

Unaudited Reports for Public Traded Companies

Answer 9

1. Form 10-Q (US companies quarterly)

2. Form 6-K (Foreign private issuers semiannually)

Question 10

Change from LIFO to FIFO, how to record it

Answer 10

The change in accounting principles will be recorded retrospectively. It will be recorded as an adjustment to beginning retained earnings

Question 11

Accounting Changes Types

Answer 11

1. Change of estimate (prospectively)
2. Change in accounting principle (retrospective)
3. Change in reporting entity (retrospectively)
4. Error correction (Restatement of prior periods)

Question 12

Continue Operating Income Assets classification events

Answer 12

1. Frequently happens
2. Recur
3. Occurs each year

Question 13

Non-Operating Income Assets classification events

Answer 13

1. Infrequently happens
2. Nonrecurring
3. Occurs every 5 years.

Question 14

Selling Expenses categories

Answer 14

1. Advertising
2. Freight-out
3. Rent for office (selling dep only)
4. Sales salaries and commission

Question 15

Current cost

Answer 15

Asset reported at the amount of cash or its equivalent that would have to be paid if the same or equivalent asset were acquired currently. (fair market

Question 16

Large Accelerated Filer

Answer 16

1. Over $700 million or more
2. 10-K report within 60 days
3. 10-Q report within 40 days

Question 17

Accelerated Filer

Answer 17

1. Sales ($75-$700 million)
2. 10-k report within 75 days
3. 10-Q report within 40days

Question 18

Other Filer

Answer 18

1. Less $75 million
2. 10-k report within 90 days
3. 10-Q report within 45 days

Question 19

Components of COGS

Answer 19

1. Raw/Direct material
2. Direct Labor
3. Factory Overhead

Question 20

AP roll forward from accrual to cash basis

Answer 20

Beg AP
+Material Purchase
-Cash Payments
Ending AP

Question 21

Investing Section of Cash Flow Statement

Answer 21

1. Purchase or sale of fixed assets
2. Loans made to other entities
3. Purchase of sale of available-for-sale securities or held-to-maturity securities
4. Acquisition of subsidiary or business unit under the equity or acquisition method

Question 22

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖o

Answer 22

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 /

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒�

Question 23

𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖o

Answer 23

(𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦)/

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Question 24

𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡y

Answer 24

𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠/
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠
′𝐸𝑞𝑢𝑖𝑡y

Question 25

COGS formula

Answer 25

inventory + purchases - ending inventory =

Question 26

Gross margin

Answer 26

Gross profit / net sales.

Question 27

Profit margin

Answer 27

Net income / net sales

Question 28

Earnings per share

Answer 28

Net income / weighted avg. # of common shares | outstanding

Question 29

Other Comprehensive Income” items

Answer 29

* Unrealized gains or losses on AFS securities * Unrecognized gains or losses from pension costs * Foreign currency translation adjustments * Unrealized gains or losses from certain derivative transactions

Question 30

Dividends received are part of

Answer 30

Net income and an operating activity

Question 31

Dividends paid

Answer 31

will be part of financing activity on cash flow stmt

Question 32

Time Interest Earned

Answer 32

Income before interest expense and taxes / interest expense

Question 33

Account Receivable Turnover

Answer 33

Sales (Net) / AR (Net)

Question 34

FOB Destination

Answer 34

Title passes when goods received by the buyer and all shipping , packaging and handling cost covered by seller

Question 35

FOB Shipping point

Answer 35

Title passes when good leave seller's location and shipping cost covered by buyer.

Question 36

FIFO: First in, first out.

Answer 36

When prices are rising using FIFO, COGS is the lowest and provides the highest net income, also the highest ending inventory.

Question 37

LIFO: Last in, first out.

Answer 37

When prices are rising using LIFO, this gives the highest COGS and lowest net income, and lowest ending inventory

Question 38

COGS

Answer 38

Beg Inv + Purchases - End Inv

Question 39

Net Realizable Value

Answer 39

Selling Price - Cost to sell

Question 40

NRV - profit margin

Answer 40

(Selling Pr - Cost to sell) - (Selling Pr * profit margin)