30 Questions
How are trading securities reported on the Balance Sheet?
At market value with unrealized gains or losses
What determines the classification of short-term and long-term liabilities?
The financial criterion
What method is used for accounting equity investments with high influence?
M&A
How are held-to-maturity bonds reported on the Balance Sheet?
At amortized cost
What is the basis for representing long-term liabilities?
Obligations settled through outflow of resources embodying economic benefit
Which ownership percentage constitutes a financial investment, leading to an affiliation where the investing company has power to influence decisions?
30%
How are available for sale or trading securities reported on the Balance Sheet?
At fair value
When an investor has control over an investee company, what financial statements must be prepared?
Consolidated financial statements
What method is used for financial investments to adjust the investment based on the investee's profits and dividends?
Equity method
Where are unrealized gains or losses from available for sale or trading securities recorded?
Income Statement under other comprehensive income
How are liabilities of indefinite amount treated in financial statements?
Reported at an estimated amount and disclosed in the notes
What method is used by the majority of companies for preparing the cash flow statement?
The indirect method
What does the direct method of preparing a cash flow statement involve?
Reporting actual cash receipts and payments for operating, investing, and financing activities
What are the 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
How are short-term, definite, and certain liabilities reported in financial statements?
At nominal value
How are accrued liabilities defined?
Expenses incurred but not yet paid or invoiced
What do unearned revenues represent?
Payments received for services not yet delivered
What is the coupon rate of a bond?
The periodic interest payment on a bond
How are bonds reported on the balance sheet?
At their present value
How are provisions related to future expenses and risks treated?
Set aside for future expenses and risks
What is the formula for calculating goodwill?
Goodwill = Price paid - Equity book value – FMV adjustments
In the given example, if A acquired a 100% interest in B for $253 million, what is the FMV of its identifiable assets?
$35 million
What is the item that needs to be identified and disclosed when A acquires a relevant portion of B, resulting in a residual part remaining in the hands of the shareholder of B?
Minority interests
What is the excess of the cost of an acquired company over the sum of the FMV of its identifiable assets less the liabilities?
Goodwill
If the building with a book value of $20 million had a FMV of $35 million, what is the impact on the calculation of goodwill?
Increases the goodwill
What does the accrual basis accounting mean?
Revenues and expenses are reported when they are earned or incurred, regardless of when cash is received or paid out.
What is the purpose of preparing the Cash Flow Statement using the indirect method?
To reconcile the income position to the cash position.
In the Balance Sheet equation, what does the equation Cash = Net Income - Non-cash Current Assets + Current Liabilities - Long-lived assets + Long-term Liabilities + Capital - Dividends represent?
The arrangement of the Balance Sheet equation focusing on cash.
What does the equation Change in cash equal to change in all the other items, so $Δ +/- Cash = – Net Income - Δ +/- Non-cash Current Assets + Δ +/- Current Liabilities - Δ +/- Long-lived Assets + Δ +/- Long-term Liabilities + Δ +/- Capital - Dividends$ represent?
The calculation of net cash flow.
What is the focus of the indirect method of preparing the Cash Flow Statement?
Reconciling the income position to the cash position.
Study Notes
Financial Statement Analysis and Managerial Accounting
- Accrued liabilities include expenses incurred but not yet paid or invoiced
- Unearned revenues represent payments received for services not yet delivered
- Payroll-related liabilities involve paying salary and social contributions
- Provisions are set aside for future expenses and risks
- Contingent liabilities depend on future events and may not require outflow of resources
- Accrued interest on liabilities affects net income if not accounted for
- Bonds are reported at their present value on the balance sheet
- The coupon rate is the periodic interest payment on a bond
- Market interest rates affect bond prices
- Bonds may be issued at par, discount, or premium based on coupon and market rates
- The present value of a bond obligation is computed based on cash flows and market rates
- Cash flows from a bond are discounted to determine its present value
Test your knowledge of financial statement analysis and managerial accounting with this quiz. Explore topics such as accrued liabilities, unearned revenues, payroll-related liabilities, provisions, contingent liabilities, bonds, coupon rates, market interest rates, and present value calculations.
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