Framework & General (SFCPA)

Question 1

What are the 2 Qualitative characteristics & their components ?

Answer 1

• Faithful representation (completeness, neutral, free from error)
• Relevance (predictive value, confirmatory value, material)

Question 2

What are the 4 enhancing characteristics?

Answer 2

Comparability, verifiability, timeliness, and understandability

Question 3

What are the three main aspects that GAAP addresses of financial reporting ?

Answer 3

Recognition. Measurement. Disclose.

Question 4

What is the order of items on the balance sheet ?

Answer 4

Current assets 
Long term assets
Current(or short term) liabilities
Long term liabilities 
Shareholders equity

Question 5

Current ratio =

Answer 5

Current assets / current liabilities

Question 6

Quick ratio =

Answer 6

Current assets - inventory / current liabilities

Question 7

Debt to equity ratio =

Answer 7

Total liabilities/ shareholders equity

Question 8

Where should goods put on consignment be included ?

Answer 8

In the company’s inventory at their cost

Question 9

Gross margin =

And

Profit margin =

Answer 9

GM= gross profit / net sales
PM= net income / net sales

Question 10

Earnings per share =

Answer 10

Net income / weighted average # of common shares outstanding

Question 11

What are the three types of flows on a cash flow statement ?

Answer 11

Operating. Investing. And financing.

Question 12

Allowance method :

• To write off uncollectible debt JE
• to bring the allowance account back to where it needs to be JE

Answer 12

• DR Allowance for doubtful accts
  CR. A/R
• DR. Bad debt expense
  CR. Allowance for doubtful accts.

Question 13

Controlling interest

Non-controlling interest

Answer 13

• When one entity has control over another (more than 50%). Parent company consolidates subsidiaries.
• ownership is less than 50%

Question 14

Variable interest entity (VIE)

Answer 14

An entity that is controlled by another entity but not through voting rights.
- has a primary beneficiary (when not a person)-the company will consolidate the VIEs holdings on it balance sheet and consolidate financial statements.

Question 15

VIE primary beneficiary qualifications

Answer 15

(Test for being the controlling interest in a VIE)

1) direct or indirect ability to make decisions about activities through voting rights
2) obligation to absorb losses
3) right to receive returns

Question 16

Goodwill in a consolidation

Answer 16

Difference between

Cost of acquisition and fair value of the net assets (assets-liabilities)

Question 17

Issuance costs /legal fees in consolidation

Answer 17

• Costs to register and issue stock to acquire another company are netted in paid in capital acct
• legal or consulting fees due to consolidation are expensed as incurred

Question 18

AR turnover in days

Answer 18

Average net receivables /

Net credit sales / 365

Question 19

Allowance for uncollectibles BASE

Answer 19

B beginning balance
A additions 
       (bad debt exp
        -A/R recovered)
S subtractions (Write offs)
E ending balance