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Questions and Answers
What is the accrual basis of accounting?
What is the accrual basis of accounting?
- Reporting revenues and expenses when cash is received or paid
- Reporting revenues when cash is received and expenses when cash is paid
- Reporting revenues and expenses only after cash is received or paid
- Reporting revenues and expenses without waiting for cash to be received or paid (correct)
What does the Cash Flow Statement prepared using the indirect method aim to reconcile?
What does the Cash Flow Statement prepared using the indirect method aim to reconcile?
- Revenue to expenses
- Income position to cash position (correct)
- Cash inflow to cash outflow
- Assets to liabilities
What is the formula for the Balance Sheet equation using the indirect method?
What is the formula for the Balance Sheet equation using the indirect method?
- Cash + Non-cash Current assets + Long-lived Assets = Current Liabilities + Long-term Liabilities + Capital + Retained Earnings (Net Income – Dividends) (correct)
- ASSET = LIABILITY + EQUITY
- Change in cash = Change in all the other items
- Cash = Net Income – Non-cash Current Assets + Current Liabilities – Long-lived assets + Long-term Liabilities + Capital – Dividends
What does the formula Δ Retained Earnings = Net Income – Dividends represent?
What does the formula Δ Retained Earnings = Net Income – Dividends represent?
What does the formula Δ +/- Long-lived Assets represent in the change in cash equation?
What does the formula Δ +/- Long-lived Assets represent in the change in cash equation?
What is the formula for calculating goodwill?
What is the formula for calculating goodwill?
What is the meaning of 'minority interests' in the context of consolidating A and B?
What is the meaning of 'minority interests' in the context of consolidating A and B?
If A acquired a 100% interest in B for $253 million, what is the FMV of its identifiable assets if the equity book value is $213 million and the building had a FMV of $35 million?
If A acquired a 100% interest in B for $253 million, what is the FMV of its identifiable assets if the equity book value is $213 million and the building had a FMV of $35 million?
What happens to 'minority interests' when A only acquires a relevant portion of B?
What happens to 'minority interests' when A only acquires a relevant portion of B?
What is the tabulation for calculating goodwill?
What is the tabulation for calculating goodwill?
What do accrued liabilities represent?
What do accrued liabilities represent?
What is the purpose of provisions in financial statement analysis?
What is the purpose of provisions in financial statement analysis?
How are bonds reported on the balance sheet?
How are bonds reported on the balance sheet?
What affects bond prices according to the text?
What affects bond prices according to the text?
How is the present value of a bond obligation computed?
How is the present value of a bond obligation computed?
What is the threshold for ownership that constitutes a financial investment, leading to an affiliation where the investing company has power to influence decisions?
What is the threshold for ownership that constitutes a financial investment, leading to an affiliation where the investing company has power to influence decisions?
How are available for sale or trading securities reported on the Balance Sheet?
How are available for sale or trading securities reported on the Balance Sheet?
What method is used for financial investments to adjust the investment based on the investee's profits and dividends?
What method is used for financial investments to adjust the investment based on the investee's profits and dividends?
When should consolidated financial statements be prepared?
When should consolidated financial statements be prepared?
Where are unrealized gains or losses from available for sale or trading securities recorded?
Where are unrealized gains or losses from available for sale or trading securities recorded?
How are trading securities reported on the Balance Sheet?
How are trading securities 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?
What is the major difference between available-for-sale and held-to-maturity bonds?
What is the major difference between available-for-sale and held-to-maturity bonds?
What determines the accounting method for equity investments?
What determines the accounting method for equity investments?
Who is responsible for making the decision on investment classification?
Who is responsible for making the decision on investment classification?
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?
What does the cash flow statement explain?
What does the cash flow statement explain?
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 are the key issues to consider in bond valuation?
What are the key issues to consider in bond valuation?
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.
