Podcast
Questions and Answers
What is the formula for calculating goodwill?
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?
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?
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?
In the context of goodwill calculation, if the price paid for the acquisition is less than the equity book value, what does it indicate?
What happens to 'minority interests' when A does not buy 100% of B, but only a relevant portion?
What happens to 'minority interests' when A does not buy 100% of B, but only a relevant portion?
How are trading securities reported on the Balance Sheet?
How are trading securities reported on the Balance Sheet?
What determines if a bond investment is available-for-sale or held-to-maturity?
What determines if a bond investment is available-for-sale or held-to-maturity?
How are held-to-maturity bonds reported on the Balance Sheet?
How are held-to-maturity bonds reported on the Balance Sheet?
What determines the classification of short-term and long-term liabilities?
What determines the classification of short-term and long-term liabilities?
Which method of accounting is used for equity investments with high influence?
Which method of accounting is used for equity investments with high influence?
What are provisions set aside for?
What are provisions set aside for?
How are bonds reported on the balance sheet?
How are bonds reported on the balance sheet?
What affects bond prices?
What affects bond prices?
How is the present value of a bond obligation computed?
How is the present value of a bond obligation computed?
What is the coupon rate on a bond?
What is the coupon rate on a bond?
What is the appropriate accounting method for financial investments with ownership between 20% and 50%?
What is the appropriate accounting method for financial investments with ownership between 20% and 50%?
How are unrealized gains or losses from available for sale or trading securities treated in the Income Statement?
How are unrealized gains or losses from available for sale or trading securities treated in the Income Statement?
What signifies an investment for return without exerting influence?
What signifies an investment for return without exerting influence?
When does the preparation of consolidated financial statements become mandatory?
When does the preparation of consolidated financial statements become mandatory?
What is the main purpose of eliminating intercompany transactions in the preparation of consolidated financial statements?
What is the main purpose of eliminating intercompany transactions in the preparation of consolidated financial statements?
How are liabilities of indefinite amount treated in financial statements?
How are liabilities of indefinite amount treated in financial statements?
What is the primary method used by companies for preparing the cash flow statement?
What is the primary method used by companies for preparing the cash flow statement?
In bond valuation, what are the four key issues to consider?
In bond valuation, what are the four key issues to consider?
How are short-term, definite, and certain liabilities reported in financial statements?
How are short-term, definite, and certain liabilities reported in financial statements?
What does the cash flow statement explain?
What does the cash flow statement explain?
What does the accrual basis of accounting entail?
What does the accrual basis of accounting entail?
Why is the Cash Flow Statement prepared using the indirect method?
Why is the Cash Flow Statement prepared using the indirect method?
What is the formula for the change in cash using the indirect method?
What is the formula for the change in cash using the indirect method?
What does the equation 'Cash = Net Income - Non-cash Current Assets + Current Liabilities - Long-lived assets + Long-term Liabilities + Capital - Dividends' represent?
What does the equation 'Cash = Net Income - Non-cash Current Assets + Current Liabilities - Long-lived assets + Long-term Liabilities + Capital - Dividends' represent?
Why is the indirect method used to prepare the Cash Flow Statement?
Why is the indirect method used to prepare the Cash Flow Statement?
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.
