Untitled Quiz

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.
• 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.
• Calculate 10 Financial Ratios (Modules 1, 4, 6, & 7)
  • Liquidity Ratios:
    • Cash Conversion Cycle
    • Current Ratio
  • Solvency Ratios:
    • Times Interest Earned Ratio
    • Portion of Assets Financed by Non-owners
  • Profitability Ratios:
    • Return on Equity
    • Return on Assets
    • Financial Leverage
  • Activity Ratios:
    • Inventory Turnover
    • Gross Profit Margin

Key Topics

• Accounting Equation: Assets = Liabilities + Shareholders Equity
  • Resources equal financing.
• Accounting Adjustments (Module 3, Slides 13-18)
  • 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.
  • 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.
  • 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.
• 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.
• Financial Statements (Module 2)
  • 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.
• Revenue Recognition Principle (Module 5)
  • Guidance used to recognize revenue. Revenue is recognized when a service/product is delivered or a service is performed.
  • 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.
• Inventory (Module 6)
  • LIFO:
    • Most recent inventory purchases are sold first.
    • The cost of the newest inventory items is used to calculate the cost of goods sold.
  • 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.
  • 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.
• 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.
  • 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.