FS 2 medio chiuso
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Questions and Answers

What is the formula for calculating goodwill?

  • Goodwill = Price paid + Equity book value + FMV adjustments
  • Goodwill = Price paid - Equity book value – FMV adjustments (correct)
  • Goodwill = Price paid - Equity book value + FMV adjustments
  • Goodwill = Price paid + Equity book value – FMV adjustments

    • What does 'minority interests' or 'interest of the non-controlling company' refer to in the context of consolidating A + B?

  • The total equity value of A and B
  • The controlling interest of A in B
  • The residual part of B remaining in the hands of B's shareholders (correct)
  • The goodwill value in the consolidated balance sheet

    • If A acquired a 100% interest in B for $253 million and B's equity book value was $213 million, what is the FMV adjustment?

  • $20 million
  • $35 million
  • $15 million (correct)
  • $40 million

    • In the context of goodwill calculation, if the price paid for the acquisition is less than the equity book value, what does it indicate?

    <p>Negative goodwill</p> Signup and view all the answers

    What happens to 'minority interests' when A does not buy 100% of B, but only a relevant portion?

    <p>The 'minority interests' need to be identified and disclosed in the consolidated balance sheet</p> Signup and view all the answers

    How are trading securities reported on the Balance Sheet?

    <p>Immediately after cash at mark to market with unrealized gains or losses</p> Signup and view all the answers

    What determines if a bond investment is available-for-sale or held-to-maturity?

    <p>The investor's intent</p> Signup and view all the answers

    How are held-to-maturity bonds reported on the Balance Sheet?

    <p>At amortized cost and fluctuate with market interest rates</p> Signup and view all the answers

    What determines the classification of short-term and long-term liabilities?

    <p>The financial criterion</p> Signup and view all the answers

    Which method of accounting is used for equity investments with high influence?

    <p>M&amp;A</p> Signup and view all the answers

    What are provisions set aside for?

    <p>Future expenses and risks</p> Signup and view all the answers

    How are bonds reported on the balance sheet?

    <p>At their present value</p> Signup and view all the answers

    What affects bond prices?

    <p>Market interest rates</p> Signup and view all the answers

    How is the present value of a bond obligation computed?

    <p>Based on cash flows and market rates</p> Signup and view all the answers

    What is the coupon rate on a bond?

    <p>The periodic interest payment on a bond</p> Signup and view all the answers

    What is the appropriate accounting method for financial investments with ownership between 20% and 50%?

    <p>Equity Method, adjusting the investment based on the investee's profits and dividends</p> Signup and view all the answers

    How are unrealized gains or losses from available for sale or trading securities treated in the Income Statement?

    <p>Recorded under other comprehensive income</p> Signup and view all the answers

    What signifies an investment for return without exerting influence?

    <p>Ownership of less than 20%</p> Signup and view all the answers

    When does the preparation of consolidated financial statements become mandatory?

    <p>When an investor has control over an investee company (over 50% ownership)</p> Signup and view all the answers

    What is the main purpose of eliminating intercompany transactions in the preparation of consolidated financial statements?

    <p>To avoid double counting of revenues and expenses</p> Signup and view all the answers

    How are liabilities of indefinite amount treated in financial statements?

    <p>They need to be estimated and disclosed in the notes</p> Signup and view all the answers

    What is the primary method used by companies for preparing the cash flow statement?

    <p>The indirect method</p> Signup and view all the answers

    In bond valuation, what are the four key issues to consider?

    <p>Amount of money at issuance, determination of interest expense, amortization of discount/premium, and payment due at maturity</p> Signup and view all the answers

    How are short-term, definite, and certain liabilities reported in financial statements?

    <p>At nominal value</p> Signup and view all the answers

    What does the cash flow statement explain?

    <p>Changes in a firm's cash balance during an accounting period</p> Signup and view all the answers

    What does the accrual basis of accounting entail?

    <p>Reporting revenues and expenses without waiting for cash transactions</p> Signup and view all the answers

    Why is the Cash Flow Statement prepared using the indirect method?

    <p>To reconcile the income position to the cash position</p> Signup and view all the answers

    What is the formula for the change in cash using the indirect method?

    <p>$ ext{Change in cash} = ext{Net Income} - ext{Change in non-cash current assets} + ext{Change in current liabilities}$</p> Signup and view all the answers

    What does the equation 'Cash = Net Income - Non-cash Current Assets + Current Liabilities - Long-lived assets + Long-term Liabilities + Capital - Dividends' represent?

    <p>The arrangement of the Balance Sheet equation</p> Signup and view all the answers

    Why is the indirect method used to prepare the Cash Flow Statement?

    <p>To reconcile the income position to the cash position</p> Signup and view all the answers

    Study Notes

    Bonds Valuation and Cash Flow Statement Preparation

    • Bonds are evaluated by discounting future cash flows at present value
    • Liabilities are classified as short-term or long-term, definite or indefinite in amount, certain or contingent
    • Short-term, definite, and certain liabilities are reported at nominal value, while long-term, definite, and certain liabilities are reported at present value
    • Liabilities of indefinite amount need to be estimated and contingent liabilities are disclosed in the notes
    • Four key issues to consider in bond valuation: amount of money at issuance, determination of interest expense, amortization of discount/premium, and payment due at maturity
    • Cash flow statement explains changes in a firm's cash balance during an accounting period
    • Cash inflows and outflows are grouped into operations, investing, and financing activities
    • Cash flow statement can be prepared using the direct method (labeling each cash flow as operating, investing, or financing) or the indirect method
    • The indirect method is used by 99.9% of companies for preparing the cash flow statement
    • The indirect method involves adjusting net income for non-cash items and changes in operating assets and liabilities to derive cash flow from operations
    • The direct method involves reporting actual cash receipts and payments for operating, investing, and financing activities
    • The cash flow statement provides a detailed explanation of cash inflows and outflows related to the functioning, investment, and financing of a business

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    Description

    Test your knowledge of bonds valuation and cash flow statement preparation with this quiz. Explore concepts such as discounting future cash flows, classification of liabilities, key issues in bond valuation, and the preparation of cash flow statements using direct and indirect methods.

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