1
Q
- Weighted average cost of capital (WACC)
A
= (Debt % of Capital * Debt Yield *(1-tax rate)) +(Equity % of capital) *Required Rate of return on equity)
2
Q
Break-Even Sales (in dollars)
A
Fixed Costs / Contribution Margin Ratio
3
Q
Break-Even Sales (in units)
A
Fixed Costs / Contribution Margin per Unit
4
Q
Contribution Margin per Unit
A
Sales Price per Unit – Variable Cost per Unit
5
Q
Contribution Margin Ratio
A
Contribution Margin / Sales
6
Q
Margin of Safety (in dollars)
A
Actual Sales – Break-Even Sales
7
Q
Margin of Safety (%)
A
Margin of Safety in Dollars / Actual Sales
8
Q
Direct Materials Price Variance
A
(AP – SP) × AQ
9
Q
Direct Materials Quantity Variance
A
(AQ – SQ) × SP
10
Q
Direct Labor Rate Variance
A
(AR – SR) × AH
11
Q
Direct Labor Efficiency Variance
A
(AH – SH) × SR
12
Q
Variable Overhead Spending Variance
A
Actual VOH – (AH × SVOR) or
(Actual VOH Rate - Standard VOH Rate)*AH
13
Q
Variable Overhead Efficiency Variance
A
(Actual Hours – Standard Hours Allowed) × Standard VOH Rate
(AH-SH)*SR
14
Q
COGS (FIFO)
A
Beginning Inventory + Purchases – Ending Inventory
15
Q
Ending Inventory (FIFO)
A
Newest costs remain in inventory
16
Q
Ending Inventory (LIFO)
A
Oldest costs remain in inventory
17
Q
Weighted Average Unit Cost
A
Total Cost of Inventory / Total Units Available
18
Q
COSO Control Components
A
Control Environment, Risk Assessment, Control Activities, Information & Communication, Monitoring (CRIME)
19
Q
IMA Ethical Principles
A
Honesty, Fairness, Objectivity, Responsibility
20
Q
IMA Ethical Standards
A
Competence, Confidentiality, Integrity, Credibility (CCIC)
21
Q
Current Ratio
A
Current Assets / Current Liabilities
22
Q
Quick Ratio
A
(Current Assets – Inventory – Prepaids) / Current Liabilities
23
Q
Receivables Turnover
A
Net Credit Sales / Average Receivables
24
Q
Inventory Turnover
A
COGS / Average Inventory
25
Days Sales Outstanding (DSO)
365 / Receivables Turnover
26
Return on Investment (ROI)
Net Operating Income / Average Operating Assets
27
Residual Income
Operating Income – (Operating Assets × Required Rate of Return)
28
Sales Volume Variance
(Actual Q Units Sold – Budgeted Q Units Sold) × Standard Contribution Margin per Unit
29
Sales Volume Variance Example (Favorable)
(1,200 – 1,000) × $5 = +$1,000
30
Sales Volume Variance Example (Unfavorable)
(800 – 1,000) × 5 = –$1,000
31
Actual Overhead Applied
Actual OH applied = Predermined rate * Actual Hrs
32
DOL degree of operating leverage
DOL = Percentage change in operating income / Percentage change in sales
or
DOL = Contribution Margin/Operating Income
33
The difference between net income under absorption costing and net income under variable costing
The difference between net income under absorption costing and net income under variable costing is fixed manufacturing overhead
34
Under variable costing
Under variable costing, all of the fixed manufacturing overhead will be expensed
35
Under absorption costing, fixed manufacturing overhead for the units that were sold
Under absorption costing, fixed manufacturing overhead for the units that were sold will be expensed, but fixed manufacturing overhead for units manufactured but not sold will be in inventory.
36
Reorder Point (ROP)
= (Daily Demand × Lead Time) + Safety Stock
ROP = (150 units/day × 10 days) + 300 units
ROP = 1,500 units + 300 units = 1,800 units
37
Simple regression differs from multiple regression
Simple regression differs from multiple regression in that simple regression uses only one independent variable, while multiple regression uses more than one independent variable. Simple regression analysis estimates the relationship between the dependent variable and one independent variable while multiple regression analysis estimates the relationship between the dependent variable and two or more independent variables.
38
Total Overhead Spending Variance
Total Overhead Spending Variance = Actual Overhead – Budgeted Allowance based on Actual Hours Worked
39
Variable Spending Variance
Fixed Spending Variance
Total Overhead Spending Variance
Variable Spending Variance = Actual Variable Overhead – (Standard Variable Overhead Rate at Actual Input Quantity)
Fixed Spending Variance = Actual Fixed Overhead – Budgeted Fixed Overhead
Total Overhead Spending Variance = Actual Variable OH + Actual Fixed Overhead – (Standard Variable Overhead Rate at Actual Input Quantity) – Budgeted Fixed Overhead
40
Purchase of Treasury Stock
Cash Flow from Financing Activities
41
Sale of trademarks
Cash inflow from investing activities
42
What are the elements of financial statements?
They are the building blocks of the statements. They include:
Assets
Liabilities
Equity
Comprehensive income and its components
Investments by owners and distributions to owners
The components of comprehensive income include revenues, expenses, gains, and losses.
43
What does the balance sheet provide information about?
A company’s assets, liabilities, and owners’ equity at a point in time
44
What is the balance sheet used for?
To provide information on assets, liabilities, and stockholders’ equity; and to provide a basis for computing rates of return, evaluating the capital structure of the business, and predicting future cash flows.
45
What are the limitations of the balance sheet?
It does not report the company’s true value due to unreported assets, historical cost valuation, and use of estimates.
46
How does U.S. GAAP differ from IFRS in terms of approach?
U.S. GAAP is largely rules-based with extensive interpretive guidance.
IFRS is principles-based with greater flexibility.
47
What are current assets
Cash and other assets expected to be realized in cash, sold, or consumed during the normal operating cycle of the business.
48
What are the two measurement systems used for assets and liabilities in financial statements?
Entry price system
Exit price system
The system used for each asset or liability should depend on which system best meets the objective of financial reporting.
49
What is the exit price system of measuring assets and liabilities generally referred to as?
Fair value
An exit price is the price received to sell an asset or the value of what was paid to transfer or settle a liability in an exchange transaction.
50
51
What are intangible assets?
Assets that do not have physical substance but provide benefit to the company, such as patents and goodwill.
52
What are examples of current liabilities?
Accounts payable
Cash dividends payable
Deposits received
Short-term notes and obligations due on demand
Current portion of long-term debt and lease liabilities
Taxes and wages payable
Other accruals
Agency collections such as employee tax withholdings and sales taxes collected
53
What are examples of non-current liabilities?
Liabilities that will not be settled within one year or the operating cycle if the operating cycle is longer than one year
Contract liabilities classified as non-current
Long-term notes or bonds payable
The non-current portion of long-term debt and lease liabilities
Pension obligations
Net deferred tax liabilities
54
What is owners’ equity
The ownership interest in a business, representing the difference between the company’s assets and its liabilities.
Equity is increased by net income and investments by owners and decreased by net losses and distributions to owners.
55
List the categories of owners’ equity for corporations.
*Capital stock
*Additional paid-in capital
*Retained earnings
*Accumulated other comprehensive income
*Noncontrolling interest
*Treasury stock (contra-equity account)
56
What standards must an item meet to be recognized in the financial statements?
Meet the definition of an element of financial statements
Be measurable
Be able to be depicted and measured with faithful representation
Be representationally faithful, verifiable, and neutral
57
What is comprehensive income?
The change in equity (net assets) of a company during a period from transactions and other events from nonowner sources, including net income and other comprehensive income.
58
What are the components of comprehensive income?
Revenues
Expenses
Gains
Losses
59
What is the difference between revenues/expenses and gains/losses?
Revenues and expenses result from delivering or producing goods or providing services
Gains and losses result from exchange transactions, holding gains and losses, or events like natural catastrophes.
60
What are unusual gains and losses, and how are they reported?
They are those considered to be of an unusual nature or infrequent occurrence; and they are reported as non-operating gains and losses within income from continuing operations.
61
What defines a discontinued operation?
A component of a company that is held for sale or has been disposed of, that represents a strategic shift that has or will have a major effect on operations and financial results.
62
What is intra-period tax allocation?
Intra-period tax allocation is the allocation of total income tax expense among income from continuing operations, discontinued operations, and accumulated other comprehensive income within the same reporting period.
63
What are the benefits of the income statement?
It helps users to:
predict future cash flows
evaluate past performance
predict future performance
assess the risk or uncertainty of achieving future cash flows
64
What are the limitations of the income statement?
Limitations arise from its periodic nature, as some transactions may be incomplete at the financial statement date; and net income is affected by estimates and accounting methods used.
65
What is Accumulated Other Comprehensive Income?
(AOCI)
The balance sheet account in the equity section where certain items of revenues, expenses, gains, and losses not reported in net income are recorded.
66
How can a company report comprehensive income according to ASC 220-10-45-1?
Either in a single continuous financial statement or in two separate but consecutive financial statements.
67
What items are considered other comprehensive income items?
Foreign currency translation adjustments.
Gains and losses on foreign currency transactions designated as and effective as economic hedges of a net investment in a foreign entity
Gains and losses on intra-entity foreign currency transactions of a long-term investment nature.
Gains and losses on derivative instruments that are designated as and qualify as cash flow hedges.
Unrealized holding gains and losses on available-for-sale debt securities.
Gains or losses associated with pension or other postretirement benefits.
68
What is the purpose of notes to financial statements?
They supplement and explain the information presented on the face of the financial statements, providing a thorough picture of a company’s financial position and results of operations.
69
What are notes to financial statements?
They provide additional relevant information that can be important to fully understanding the financial statements.
Notes are not considered part of a full set of financial statements according to FASB’s Statement of Financial Accounting Concepts No. 8, Chapter 7. They are a required part of general purpose financial reporting, however.
70
What is included in a full set of financial statements?
Assets
Liabilities
Equity/net assets
Comprehensive income
Investments by owners
Distributions to owners
Cash flows during the period
