FSA Final

Ennis, Inc. has 35,000 common shares issued at a $2.25 par value of which 22,000 are outstanding. If Ennis has no other outstanding stock, what size dividend must be paid such that each share receives $3.20?

$70,400 (22,000 x 3.20)

When the fair value of a company's portfolio of passive investments in marketable equity securities exceeds its book value the difference should be

Added to the investment account

Held-to-maturity debt securities are recorded at

Amortized cost

Net gain or loss on the redemption of a note

Amount paid - book value

Cumulative depreciation expense

Annual depreciation expense x years

Net fair value of assets

Assets - liabilities + fair value in excess of book value

Average useful life

Avg depreciable Asset Cost / Depreciation Expense

Ending equity investment balance

Beg balance + share of investee's NI - dividends received

Assets at end of year

Beg of year + actual returns + contributions - benefits paid

Significant influence is often presumed when the investor owns

Between 20% and 50% of the voting stock of the investee

Investment income

Book value % x net income

Gain on bond retirement

Carrying value - cash paid

Assume a company enters into a forward contract to lock in a price on inventory that it will purchase over the next 12 months. This is an example of what type of hedge?

Cash flow

Actuarial gains and losses arise from

Changes in mortality rates, discount rate, estimates of wage inflation

Cash Conversion Cycle

DSO + DIO - DPO

Below face value

Discount

Net income

EPS x avg number of shares outstanding

Dow Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under Gaap the laboratory should be

Expenses in the current year

Cash paid on retirement

Face value x retired %

The principal and interest that will be paid on long-term debt within the next operating cycle are reported on the balance sheet as current portion of long term debt

False

PBO < assets

Overfunded

Credit analysis concerns which of the following

The probability a company will make timely payments

How do credit analysts determine the risk-free rate

The yield on US government borrowings

Leases can be a better financing vehicle because leases often require less equity investment than traditional bank financing

True

Only the principal portion is classified as current portion of long term debt

True

R&D expense is treated as an operating expense, not a capital expenditure, unless the R&D assets acquired have an alternative future use.

True

Realized gains and losses on passive investments classified as marketable securities are reported in a company's net income in the period that they are realized

True

The defined contribution plan and the defined benefit plan are the two general types of pension plans offered by companies

True

The gain (or loss) on the repurchase of a bond carries no economic effects, as the gain (or loss) is exactly offset by the present value of the future cash flow implications of the repurchase

True

The percent used up ratio indirectly measures the likelihood of future capital expenditures that the company will have to make.

True

Under the equity method, fair-value changes in the investee company's stock are not reflected in the investor's accounting records

True

Unrealized gains and losses for trading debt securities are included in current year income

True

When there is a purchase and sale of stock or a payment of dividends there is never any gain or loss recorded

True

Equity earnings

net income x % of book value

Annual depreciation expense

(Cost - Salvage Value) / Estimated Useful Life

IRR

(Initial investment, {cash flows})

Price per share

(Issued shares par value + other paid in capital) / number of issued shares

Diluted EPS

(Net Income - Preferred Dividends)/(Weighted Average Dilutive Shares)

Basic EPS

(Net Income - Preferred Dividends)/(Weighted Average of Shares Outstanding)

NPV

(Rate, year 0 cash flow, L1)

Which one of the following would be considered a contingent liability?

A company estimates that it will probably have to pay 75,000 to the EPA for a chemical spill

Which one of the following is not a factor that changes a company's pension obligation during the year

Contributions to the pension plan

Net book value of an asset

Cost - accumulated depreciation

Goodwill

Cost to acquire - fair value of net assets acquired

Total operating lease liabilities

Current + noncurrent

During 2020 Leahy enterprise decreased its discount rate used to calculate pension obligations from 4 to 3. The effect on the company's pension expense for the year and pension obligation balance at the year end is

Decrease pension expense, increase pension obligation

Corporate debt ratings to market interest rate relationship

Decreasing rate, increasing score

Difference between income tax expense and amount paid based on tax rules

Deferred tax expense or benefit

3 components of inventory

Direct labor, manufacturing overhead, raw material

Restructuring accrual

Employee severance costs + costs provided with exit or disposal - cash paid during the year

Dilutive Securities

Employee stock options, warrants, convertible bonds, or convertible preferred stock

Contingent Liability

Estimable and probable

To report the largest amount of income for the period

FIFO as expenses are minimized

Physical flow of goods is best reflected by

FIFO as it first accounts for goods that came in first

Companies are required to report total pension assets and pension liabilities on their balance sheet

False

Increasing inventory turnover rate will improve profitability

False

Kimberly-Clark recently repurchased 6.198 million shares of common stock at a cost of 788 million. One plausible reason for this is that the company feels that its stock is overvalued at the current market price

False

Pro rata distributions associated with split-offs can result in the company reporting gains or losses on the carve out

False

The investor company cannot be considered to have control over the investee company if it owns less than 50% of the outstanding voting stock of the investee company.

False

Using the capital lease method requires that both the lease asset and lease liability be reported off the balance sheet

False

Under the new accounting standard for leases companies classify all capitalized leases at either

Finance or operating leases

An asset is impaired when the asset's carrying value is

Greater than the sum of undiscounted expected cash flows

Busiest

Highest rates per square foot

Tax expense

IBIT x effective tax rate

Income before income tax expense

Income tax expense / effective tax rate

If a company issues 2,500 shares of commonstock at a market price of 48 per share which of the following is the correct balance sheet effect

Increase cash by 120,000 and increase contributed capital by 120,000

Which of the following statements does not accurately describe the fair value method of accounting

Investments for which current reliable fair values exist are accounted for using this method

Carrying value

Issue price - premium amortized

Shareholders' Equity

Issued share capital + RE + additional paid-in capital - treasury stock - accumulated OCI

Why might a company repurchase its own stock

It believes that market undervalues its shares, to offset dilutive effects of employee stock options granted, to recognize an economic gain when the treasury shares are later sold for a profit, to improve EPS by reducing the denominator

FIFO inventory

LIFO Inventory + LIFO Reserve

To minimize income taxes for the period

LIFO as expenses are higher

Freshest food

Lowest DIO

Smallest stores

Lowest average store size

Lowest price

Lowest gross profit margin %

Least efficient with space

Lowest sales per square foot

Montevideo Corp holds a 15% equity investment in Hutchinson Inc. Minneap Investments holds 35% of Hutchinson Inc. stock. On May 1, 2017 Hutchinson Inc. declares and pays dividends to its stockholders. How will the dividend affect each company's balance sheet account?

Montevideo no effect, Minneap decrease

Warranty expenses

Net sales x % of all sales returned under warranty x cost of repairing and/or replacing goods under warranty

Outstanding shares

Number of issued shares - number of treasury stock shares

Issued shares

Number of issued shares x CS par value

Market capitalization

Outstanding shares x closing stock price

Funded status

PBO - assets

Depreciable asset cost

PPE - CIP - land

Above face value

Premium

Periodic interest payments

Principle x coupon rate x number of payments

Interest accured

Principle x rate x portion of year outstanding

Which one of the following items is not a component of contributed capital

Retained earnings

PPE Turnover

Revenue / Average PPE

Which of the following does not affect the current liabilities section of the balance sheet?

Sale of goods on credit

Gross Profit

Sales - COGS

Pension Obligation

Service cost + interest cost + Acturial loss - benefits paid to retirees

Four basic components of pension expense

Service cost, interest cost, expected return of plan assets, amortization of deferred amounts

Retained earnings reduced by market value for small stock dividends

Shares x rate x market value per share

The equity carve out in which the parent company distributes the subsidiary's shares as a dividend to shareholders is called which of the following

Spin off

In this form of equity carve-out, the parent company exchanges stock that it owns in the subsidiary for some of the parent shares owned by its shareholders

Split-off

The purpose to adjusting the balance sheet and income statement

To correct for overstated depreciation expense across years

Average warranty expense

Total net sales / total warranty expense

Average cost for average cost method

Total units / total costs

Average cost per share

Treasury stock value / number of treasury stock shares

Accrued liabilities are obligations for which there is no external transaction

True

Because diluted EPS include dilutive securities such as convertible securities and employee stock options, it must always be less than or equal to basic EPS.

True

Companies are only required to report the funded status of the pension plan

True

Employee severance costs, as part of board-approved restructuring plans, are reported in the income statement even if the actual payment for these costs occurs in subsequent periods.

True

Equity carve-outs make it easier to evaluate the individual business units of a conglomerate

True

If Home Depot loses its dominance in the retail home improvement market and eventually becomes bankrupt, its preferred shareholders carry senior positions as claimants in bankruptcy vis-à-vis common shareholders.

True

Income tax expense is not recorded at the amount owing to the tax authorities even if this is the most objectively measured amount

True

PBO > assets

Underfunded

Risk premium

Yield rate - risk free rate

LIFO reserve

the difference between inventory reported using LIFO and inventory using FIFO