Accounting Test 2

Earnings Per Share

(Net income minus preferred dividends)/ weighted average common shares outstanding

What is recast prior years and record a net of tax adjustment to the earliest year presented's beginning retained earnings balance

A Voluntary Change in Accounting Principle (eg. from FIFO to Average Cost) would be accounted for this way

deferred annuity

A series of equal periodic payments that starts more than one period after the agreement is called:

annuity

A series of equal-sized cash flows.

interest

Amount of money paid/received in excess of amount borrowed/lent.

present value of a single amount

Amount of money required today that is equivalent to a given future amount.

True

An annuity is a series of equal periodic payments.

15146

An investment product promises to pay $42,000 at the end of 10 years. If an investor feels this investment should produce a rate of return of 12%, compounded annually, what's the most the investor should be willing to pay for the investment?

$330,560.

Bill wants to give Maria a $500,000 gift in seven years. If money is worth 6% compounded semiannually, what is Maria's gift worth today?

$37,205.

Carol wants to invest money in a 6% CD account that compounds semiannually. Carol would like the account to have a balance of $50,000 five years from now. How much must Carol deposit to accomplish her goal?

monetary asset

Claim to receive a fixed amount of money.

True

Compound interest includes interest earned on interest.

Nonowner transactions.

Comprehensive income is the change in equity from:

simple interest

Computed by multiplying an invested amount by the interest rate.

Gains from the sale of equipment.

Each of the following would be reported as items of other comprehensive income except:

$2,191

FV of $1000 in 10 years with a rate of 8%, compounding semi-annually

annuity due

First cash flow occurs on the first day of the agreement.

ordinary annuity

First cash flow occurs one period after agreement begins.

True

Given identical current amounts owed and identical interest rates, annual payments of an ordinary annuity will be greater than annual payments of an annuity due.

(Net income- Preferred dividends)/weighted average of common shares outstanding

How do you calculate Earnings Per Share?

Income from continuing operations before income taxes $293,000 Income tax expense ($293,000 × 32%) 93,760 Income from continuing operations $199,240 Income on discontinued operations (net of 20,800 tax expense) 44,200 Net income 243,440 $243,440 and $93,760.

Howard Co.'s 2016 income from continuing operations before income taxes was $293,000. Howard Co. reported a before-tax income on discontinued operations of $65,000. All tax items are subject to a 32% tax rate. In its income statement for 2016, Howard Co. would show the following line-item amounts for net income and income tax expense:

True

In the future value of an ordinary annuity, the last cash payment will not earn any interest.

Comprehensive income

Includes all changes in equity during a period except those resulting from investments by or distributions to owners.

compound interest

Interest calculated on invested amount plus accumulated interest.

None

Issuing bonds in exchange for plant equipment would impact these SCF sections

$130,300. Net income 136,500 Subtract increase in A/R (2,200) Subtract decrease in A/P (4,000) Cash flows from operating activities $130,300

Lucia Ltd. reported net income of $136,500 for the year ended December 31, 2016. January 1 balances in accounts receivable and accounts payable were $28,100 and $26,400, respectively. Year-end balances in these accounts were $30,300 and $22,400, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:

$5,284,640 $390,000 x 13.55036* = $5,284,640 *PVAD of $1: n = 25; i = 6%

Mary Alice just won the lottery and is trying to decide between the annual cash flow payment option of $390,000 per year for 25 years beginning today and the lump-sum option. Mary Alice can earn 6% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives?

($640 - 290 - 25) x (1 - 0.4) = $195

Misty Company reported the following before-tax items during the current year: Sales revenue $640 Operating expenses 290 Restructuring charges 25 Loss on discontinued operations 55 Misty's effective tax rate is 40%. What is Misty's income from continuing operations?

time value of money

Money can be invested today and grow to a larger amount.

nonmonetary asset

No fixed dollar amount attached.

monetary liability

Obligation to pay a sum of cash, the amount of which is fixed.

$84 million.

On November 1, 2016, Jamison Inc. adopted a plan to discontinue its barge division, which qualifies as a separate component of the business according to GAAP regarding discontinued operations. The disposal of the division was expected to be concluded by April 30, 2017. On December 31, 2016, the company's year-end, the following information relative to the discontinued division was accumulated: Operating loss Jan. 1 - Dec. 31, 2016 $84 million Estimated operating losses, Jan. 1 to April 30, 2017 90 million Excess of fair value, less costs to sell, over book value at Dec. 31, 2016 14 million In its income statement for the year ended December 31, 2016, Jamison would report a before-tax loss on discontinued operations of:

$2,590,000 loss.

On October 28, 2016, Mercedes Company committed to a plan to sell a division that qualified as a component of the entity according to GAAP regarding discontinued operations and was properly classified as held for sale on December 31, 2016, the end of the company's fiscal year. The division's loss from operations for 2016 was $1,930,000. The division's book value and fair value less cost to sell on December 31 were $3,150,000 and $2,490,000, respectively. What before-tax amount(s) should Mercedes report as loss on discontinued operations in its 2016 income statement?

$105,000

Operating cash flows if Net income is 100,000, AR increased by 20,000, AP increased by 10,000, and depreciation was 15,000

False

Other things being equal, the present value of an annuity due will be less than the present value of an ordinary annuity.

$621

PV of $1000 received 5 years from now when I=10%.

$6,145

PV of a $1000 ordinary annuity for 10 years w/ a 10% discount rate.

Financing

Paying dividends impacts this SCF section

A line item within income from continuing operations

Popson Inc. incurred a material loss that was unusual in character. This loss should be reported as:

$580,000 × 26% = $150,800

Provincial Inc. reported the following before-tax income statement items: Operating income $580,000 Loss on discontinued operations 83,000 Provincial has a 26% income tax rate. Provincial would report the following amount of income tax expense as a line item in the income statement:

Investing

Purchase of equipment impacts this SCF section

In two separate, but consecutive statements. A single, continuous statement of comprehensive income

Reporting comprehensive income can be accomplished by what methods?

As a separate line item in Operating Section

Restructuring charges, if material, would show up this way in the income statement

Sale of land $140 Purchase of equipment (4,800) Cash outflows from investing activities (4,660)

Rowdy's Restaurants cash flow (in millions) Cash received from: Customers $2,400 Interest on investments 240 Sale of land 140 Sale of Rowdy's capital stock 680 Issuance of debt securities 2,400 Cash paid for: Interest on debt $340 Income tax 120 Debt principal reduction 1,900 Purchase of equipment 4,800 Purchase of inventory 1,400 Dividends on capital stock 320 Operating expenses 580 Rowdy's would report net cash inflows (outflows) from investing activities in the amount of:

Customers $4,650 Interest on investments 390 Interest on debt (490) Income tax (270) Purchase of inventory (2,900) Operating expenses (880) Cash inflows from operating activities $500 500 million

Rowdy's Restaurants cash flow (in millions) Cash received from: Customers $4,650 Interest on investments 390 Sale of land 290 Sale of Rowdy's capital stock 980 Issuance of debt securities 3,900 Cash paid for: Interest on debt $490 Income tax 270 Debt principal reduction 3,400 Purchase of equipment 7,800 Purchase of inventory 2,900 Dividends on capital stock 770 Operating expenses 880 Rowdy's would report net cash inflows (outflows) from operating activities in the amount of:

Investing, Operating

Selling a truck for a gain impacts these SCF sections when the Indirect Method is used.

78941

Shane wants to invest money in a 6% CD account that compounds semiannually. Shane would like the account to have a balance of $100,000 four years from now. How much must Shane deposit to accomplish his goal?

future value of a single amount

The amount of money that a dollar will grow to.

Administrative expenses(Under operating expenses)

The controller's salary would normally show up in here in a multi-step income statement

Primary activities of the reporting entity.

The distinction between operating and nonoperating income relates to:

ANNUITY DUE

The name for a stream of equal payments at equal intervals and payable at the beginning of the period.

Earnings Management

The planned timing of revenues expenses gains and losses to smooth out bumps in earnings

30,660 (40 PERIODS, I=3%)

The present value of $100,000 received 10 years from now when the annual interest rate is 12% and interest compounds quarterly.

effective rate or yield

The rate at which money will actually grow during a year.

Financing, investing, and operating.

The statement of cash flows reports cash flows from the activities of:

Intraperiod tax allocation

This is the process of associating income tax effects with the income statement components that create those effects.

Earnings quality

This refers to the ability of reported earnings (income) to predict future earnings.

What are changes in estimate

This type of change would be handled prospectively

What is multi-step?

This type of income statement shows Gross Profit

142576

Today, Thomas deposited $100,000 in a three-year, 12% CD that compounds quarterly. What is the maturity value of the CD?

Selling expenses (Under operating expenses)

Travel and entertainment expense generally shows up here in a multi-step income statement

Gains and losses on foreign currency translations Unrealized holding gains/losses

Two examples of other comprehensive income

In a separate income statement and in a combined statement of income and comprehensive income

Two options for presenting comprehensive income

Cash flows from these activities: Operating, Investing, Financing

What are the 3 sections to the Statement of Cash Flows?

Single Step

What income statements takes revenues and gains and subtracts expenses and losses?

Multi-step

What kind of income statement begins with net income and sets up operating and non-operating income.

Present value of the annuity, dollar amount and timing of the annuity payments.

Which of the following must be known to compute the interest rate paid from financing an asset purchase with an annuity?

True

With an annuity due, a payment is made or received on the date the agreement begins.

False

With an ordinary annuity, a payment is made or received on the date the agreement begins.

Discontinued Operations

disposal or planned disposal of a component of an entity, this is reported separately

(net income+other comprehensive income-unrecognized gain or loss)

how do you calculate comprehensive income?

if it was originally added, subtract it

how do you handle non cash items?

Current assets go opposite direction, if it originally increased, then decrease it

how do you handle the changes in Current Assets?

Current liabilities go same direction, if it originally increased, then increase it

how do you handle the changes in Current Liabilities?

Investing: Sale of equipment: $500 Operating: Gain on sale of equipment: (300)

how do you record a transaction where an item sold for more than its book value?

Investing: Sale of Equipment: $500 Operating: Loss of sale of equipment: $400

how do you record a transaction where the book value of an item was more than what it sold for? BV=$900 Sold=$500

estimate

if you change depreciation, amortization, or depletion method, this is a change in what?

prospectively

if you change the accounting principles now for the future

nonoperating activity

income from continuing operations includes gains from

retrospectively

this is the way a company changes their accounting principle to make it look like they have always used the same method

net of tax

this term is used to describe what you make after tax

all cash that comes in and out of the company(pulling everything out of the bowl except the orange m&ms)

what is the direct method?

putting everything back into the statement, starting with net income (pulling all orange m&m's out of the bowl)

what is the indirect method?

It must be reported by all corporations whose stock is publicly traded. It must be reported separately for discontinued operations.

what is true about EPS?