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Questions and Answers
What amount was paid for income taxes?
Which transaction indicates a decrease in the fair value of marketable securities?
What was the total cash paid for the repurchase of common stock?
What is the combined total of the depreciation and amortization expenses recorded?
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What is the correct formula for the Accounting Equation?
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Which of the following would be classified as a prepaid (deferred) expense?
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What happens to unearned (deferred) revenues once the related goods or services are delivered?
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Which financial ratio reflects a company's ability to cover its short-term liabilities?
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What is an accrued expense?
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Which of the following ratios would help assess how effectively a company is generating profit from its assets?
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If a company recognizes revenue for services provided but has not yet received payment, this is considered what type of revenue?
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Which of the following best describes financial leverage?
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What is the primary purpose of financial statements?
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How is accumulated depreciation calculated?
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What represents the equation to calculate the book value of an asset?
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What are the two main categories listed on a balance sheet?
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Which of the following is NOT listed as a current asset?
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What does the Income Statement primarily show?
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Which of the following is a step in the Revenue Recognition Principle?
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What does revenue recognition primarily relate to?
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Which financial statement would include the $20,000 paid in dividends during the year?
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What was the impact of selling inventory costing $223,526 for $394,328 on the income statement?
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At the end of the year, how will the balance sheet reflect the cash received from account receivables?
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Which transaction results in a decrease of both cash and liabilities?
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After the transactions are recorded, what is the effect of paying $26,889 cash for operating expenses on the income statement?
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What is the financial statement that summarizes revenues and expenses for the period?
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How does purchasing long-term marketable securities impact the balance sheet?
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What is the effect of issuing commercial paper for cash on the balance sheet?
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What does LIFO stand for and how is it characterized in inventory management?
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Which statement accurately describes FIFO in the context of inventory?
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What does a higher inventory turnover indicate for a company?
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What is the formula for calculating Days Inventory Outstanding (DIO)?
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How is a bond characterized when sold at a premium?
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What does the term 'Book Value' represent in relation to a company?
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Which of the following describes the critical aspect of revenue recognition related to performance obligations?
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What does a lower Days Inventory Outstanding (DIO) indicate about a company's inventory management?
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Study Notes
Midterm Exam Format
- Consists of 20 multiple choice questions (4 points each) and 3 problems, where 2 must be completed (10 points each).
- Similar to the CMA Exam.
Topics Covered
-
Prepare an Income Statement, Statement of Stockholder's Equity, and Balance Sheet (Module 3, Slides 20-25)
- Similar to statements prepared in class.
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Record 10 Transactions in Financial Statement Effects Template (Module 3, Slides 9-20)
- Prepare transaction entries for 10 transactions similar to those from Module 3.
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Calculate 10 Financial Ratios (Modules 1, 4, 6, & 7)
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Liquidity Ratios:
- Cash Conversion Cycle
- Current Ratio
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Solvency Ratios:
- Times Interest Earned Ratio
- Portion of Assets Financed by Non-owners
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Profitability Ratios:
- Return on Equity
- Return on Assets
- Financial Leverage
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Activity Ratios:
- Inventory Turnover
- Gross Profit Margin
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Liquidity Ratios:
Key Topics
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Accounting Equation: Assets = Liabilities + Shareholders Equity
- Resources equal financing.
-
Accounting Adjustments (Module 3, Slides 13-18)
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Prepaid (Deferred) Expenses:
- Payments made in advance for goods or services that will be received in the future.
- Shown as an asset on the balance sheet and as an expense on the income statement when used.
-
Unearned (Deferred) Revenues:
- Money received in advance for goods/services not yet provided.
- Shown as a liability on the balance sheet and recognized as revenue on the income statement when goods/services are delivered.
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Accrued Expenses:
- Cost that a company must pay later after receiving a good/service.
- Shown as a liability on the balance sheet and as an expense on the income statement.
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Accrued Revenues:
- Money a business has earned by providing goods/services but hasn't received payment yet.
- Shown as an asset on the balance sheet and as revenue on the income statement.
-
Prepaid (Deferred) Expenses:
-
Depreciation (Module 6)
- Allocation of the cost of a fixed asset to expense over its useful lifetime.
- Shown on the balance sheet as "Property, Plant, and Equipment."
- Calculated by: Accumulated Depreciation = Annual Depreciation * Number of Years.
- Book Value of an asset: Cost - Accumulated Depreciation = Book Value.
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Financial Statements (Module 2)
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Balance Sheet:
- Snapshot of a company's assets, liabilities, and equity at a specific point in time.
- Includes Current Assets and Liabilities:
- Current Assets: Cash, Accounts Receivable, Inventory, and Prepaid Expense.
- Liabilities: Accounts Payable, Wages Payable, Income Tax Payable, Short-Term Debt, Long Term Debt, Bonds, Shareholder Equity.
-
Income Statement:
- Shows a company's revenue, expenses, and profits for a specific period.
- Includes: Revenue, Cost of Sales, Gross Profit, Selling, General, and Administrative Expenses (SG+A), Operating Income, Interest Expense, Income before Tax, Income Tax Expense, Net Income.
-
Balance Sheet:
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Revenue Recognition Principle (Module 5)
- Guidance used to recognize revenue. Revenue is recognized when a service/product is delivered or a service is performed.
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Rules for Revenue Recognition:
- Identify relevant parties and the terms of the sale.
- Identify performance obligations.
- Ensure there is a transaction price or estimated selling price.
- Allocate transaction price for each performance obligation.
- Recognize revenue when performance obligation is satisfied.
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Inventory (Module 6)
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LIFO:
- Most recent inventory purchases are sold first.
- The cost of the newest inventory items is used to calculate the cost of goods sold.
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FIFO:
- The oldest inventory items are sold or used first.
- The cost of the earliest purchased goods is used to calculate the cost of goods sold.
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Inventory Turnover:
- Shows how many times a company's inventory is sold and replaced.
- Formula: Inventory Turnover = Cost of Goods Sold / Average Inventory.
- Higher inventory turnover is generally better.
-
Days Inventory Outstanding (DIO):
- Measures how quickly a company turns its inventory into sales.
- Formula: DIO = Average Inventory * 365 / Cost of Goods Sold.
- Lower DIO is generally better.
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LIFO:
-
Bonds (Module 7)
- Long-term debt or loan made by an investor to a company or government.
- Have a set interest rate and maturity date.
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Bond Pricing:
- Sold at Par: Contract Rate = Market Rate
- Sold at a Discount: Contract Rate < Market Rate
- Sold at a Premium: Contract Rate > Market Rate
-
Stock (Module 8)
- Represents ownership of a company.
- Traded on a stock exchange.
- Market Value: What investors are willing to pay based on supply and demand.
- Book Value: Value of company's assets minus its liabilities, representing the net worth of the company.
Review Problem 2
- The text provides a list of transactions and their effects on the balance sheet and income statement.
- The instructions ask to analyze the transactions, prepare journal entries, and then prepare accounting adjustments.
- The transactions include a variety of activities such as inventory purchases and sales, cash receipts and payments, debt issuance and repayment, and stock transactions.
- Accounting adjustments include accruals for expenses, depreciation, amortization, and fair value changes on marketable securities.
- The problem requires an understanding of the accounting equation, the impact of different transactions on the balance sheet and income statement, and the application of various accounting adjustments.
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