ACC 200 Exam 2

COMPANY LIFE STAGE CYCLES (DECLINING)

- Operating + Investing -/+ Financing

COMPANY LIFE STAGE CYCLES (START UP)

- Operating - Investing + Financing

Which of the following ratios does the DuPont framework deconstruct?

Return on Equity

Which of the following are examples of preventative internal controls? (select all that apply)

Separation of duties Physical controls, e.g., lockbox. Encryption of data Strong password requirements.

COMPANY LIFE STAGE CYCLES (GROWTH)

+ Operating - Investing + Financing

COMPANY LIFE STAGE CYCLES (MATURE)

+ Operating - Investing - Financing

Preferred Stock

- No voting rights. - Right to receive a dividend if declared.

Common Stock

- Right to vote on who services on the board of directors. - Right to receive a dividend if declared and only after the other type of stockholders are first paid their dividend.

What are the three activities that are represented on the Statement of Cash Flows?

1. Operating Activities 2. Investment Activities 3. Financing Activities

Accounting Management

Altering judgements and estimates to meet certain financial goals and targets (No cash flow impact)

What accounts increase in DEBIT?

Assets, Expenses, Dividends

Financing Activities

Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.

Real Activities Management

Changing the way they do normal business practices, in order to hit financial goals and targets (Cash flow impact)

Operating Activities

Day-to-day activities of producing and selling a product or providing a service

DuPont

Deconstructs the return on equity ratio

What is the proper way to common size a balance sheet?

Divide everything by assets

What is the proper way to common size an income statement?

Divide everything by sales

Which of the following types accounts will be closed?

Dividends, Expenses, Revenues

Which of the following is a component of equity on the balance sheet?

Earned Capital, Returned Capital, Contributed Capital

True/False: Sustainabilitity reporting is now required by the FASB.

False

True/False: The cash gap can never be negative.

False

True/False: Both nominal and real accounts need to be closed.

False (only nominal accounts need to be closed)

Stockholders' equity is decreased when the

Firm pays dividends

What are some actions a company can take to reduce their cash gap? (select all that apply)

Hire collection experts. Sell receivables to financial institutions. Incentivize customers to pay early. Improve their forecasts of demand. Run better credit checks.

Which of the following bodies will be setting sustainability standards around the world going forward?

ISSB (International Sustainability Standards Board)

Which governing body oversees determining tax credits and deductions?

Internal Revenue Service (IRS)

What accounts increase in Credit?

Liabilities, Revenues, Owners Equity

DuPont Framework

NI/TE = NI/Sales x Sales/TA x TA/TE

Tax Credit

Reduces tax liability AFTER applying the tax rates

Tax Deduction

Reduces taxable income BEFORE applying the tax rates

Total Stockholders Equity

TSE = Common Stock + Retained Earnings

Effective Tax Rate

Tax Liability / All Income

Average Tax Rate

Tax Liability / Taxable Income

Marginal Tax Rate

Tax applied to the next additional increment of income

Tax Calculation

Tax base x Tax rate = Tax Liability

Date of declaration

The date when the board of directors announces that a dividend will be paid to shareholders on a particular date in the future.

What does the cash gap measure?

The number of days that a company is "out" of cash from operations.

Investing Activities

The purchase and sale of land, buildings, equipment, and securities.

Which of the following are potential reasons a company would repurchase shares of its own stock in the open market? (select all that apply)

To protect against hostile takeovers. To increase the stock price. To make the return on equity ratio look better.

True/False: The statement of cash flows helps financial statement users to understand why the amount of cash reported on the balance sheet changed from one period to the next.

True

True/False: When a trial balance is prepared correctly, the total of debit and credit accounts should be the same.

True

Which of the following are limitations of the effectiveness of internal controls. (select all that apply)

Upper management can override system controls. Collusion between employees.

Formula for the Cash Gap

days inventory held + days sales outstanding - days payable outstanding