30 terms


Additional Q's
. List the components that comprise a typical financial statement.
Income statement, statement of owner equity, balance sheet, statement of cash flow
Describe how changes to a company's revenue and expenses affect their Income Statement and Balance Sheet.
Income statement presents the summary of revenues and expenses for a period of time. Changes in these two entity's will affect the report of the company net income and net loss.
How do changes in the Income Statement and Balance Sheet data affect a Statement of Cash Flows?
The statement of cash flows reports the cash coming in and out during a period which is supported by the balance sheet data and the income statement date of specific date. The order of financial statements are income statement, statement of owner's equity, balance sheet, and statement of cash flows.
Explain how you can evaluate the financial condition of a firm by reviewing the Balance Sheet.
The balance sheet is a snapshot of the business at a specific date that showcase the company assets, liabilities and owner's equity.
How can you determine the contribution margin from an Income Statement?
Perform a breakeven analysis. This give information for the decision making purposes.
How is a horizontal and vertical analysis calculated?
Horizontal Analysis -
1. Compute the dollar amount of change in sales from Year 1 to Year 2.
2. Divide the dollar amount of change b the base-period amount. This computes the percentage change for the period.
Vertical Analysis - shows the relationship of each item to it base amount of 100%
= %= Each Income Statement Item / Revenues (Net Sales) X 100
Describe how horizontal analysis and vertical analysis of a Balance Sheet are used to evaluate a firm's performance over a period of time.
Using horizontal analysis and vertical analysis to evaluate a firm's performance is to use the common-size statements, dollar value bias and benchmarking.
What two methods can be used to prepare a Statement of Cash Flows?
Indirect Method - starts with net income and adjusts it to net cash provided by operating activities.
Direct Method - restate the income statement in terms of cash and shows all the cash receipts and all the cash payments from operation activities.
What three categories are shown on the Statement of Cash Flows? What accounts are shown under each category?
Operating Activities - current assets, current liabilities
Investing Activities - purchases and sales of assets, loan receivable
Financial Activities - issuing stocks , paying dividends, buying and selling treasure stock
What is the difference between liquidity ratios and solvency ratios and what is their relationship to a firm's profitability?
Operating Activities - current assets, current liabilities
Investing Activities - purchases and sales of assets, loan receivable
Financial Activities - issuing stocks , paying dividends, buying and selling treasure stock
What is the difference between profitability ratios and market prospect ratios?
Profitability ratios is the return on sales and the profitability of the firm while market prospect ratios is an opinion of what the firm's investors think the firms performance and future prospects.
Which ratios are liquidity, solvency, profitability, and market prospect? How are they calculated?
Liquidity - Inventory turnover (cost of goods sold/Average inventory) Account receivable turnover (net credit sales/average net accounts receivable) Days sales in receivables (average net accounts receivable/one day's sales)
Solvency - Current ratio (current assets/current liabilities), Acid test ratio (cash +short term investments + receivables / current liabilities)
Profitability - Rate of return on net sales (net income/net sales), rate of return on total assets (net income + expense / average total assets)
Market prospect - Price earnings ratio (market price per share of common stock/earnings per share), Dividend yield (annual dividend per share of common stock/market price per share of common stock), book value per share of common stock ( total stockholders equity-preferred equity/number of share of common stock outstanding)
How does the interpretation of financial data differ depending upon the perspective of the person analyzing the data?
Financial data is interpretation differ due to the reason why of the person goal of investing, improve or giving a loan to the business. Financial statement is refer to as the accounting language of business.
What is the difference between direct and indirect costs?
Direct cost is related to a cost object such as a product or department and indirect costs is not related to a product or department.
What is the difference between sunk costs, opportunity costs, and differential costs?
Sunk cost- the historical cost or past cost that cannot be changed.
Opportunity cost - the cost of an alternative that must be forgone in order to pursue a certain action.
Differential cost -the cost that is different for each available alternative
What is a cost variance analysis?
Cost variance analysis is the difference or variance between actual costs and the standard cost allowed for the good output.
Describe the difference between activity-based costing and traditional allocation methods. When should you use activity based costing?
Activity based costing is the method that identifies the activities based costing the relationship between costs, activities and product, and through this relationship assigns indirect cost to products less arbitrarily than traditional methods. Activity based costing is used in manufacturing overhead cost to product s in a more logical manner
Define a job order costing system and a process costing system.
Job order costing system a system that assigning manufacturing cost to an individual product or batches of products.
Process costing system a system where similar units are mass produced.
In what type of activity would you use job order costing? Process costing?
Job order costing is use in manufactured were the products are sufficiently different from each other. When products are identical or nearly identical the process of costing system will be used.
How is the contribution margin calculated?
Contribution Margin = Revenues - Variable Expenses
What is Cost-Volume-Profit Analysis (CVP)?
The analysis of how profits change as volume changes.
How is the breakeven point in units calculated?
Breakeven Point = TFC/(SPU-VCU)
Total fixed costs/(Sales price per Unit - Variable costs per unit) = Breakeven Point
. How is the breakeven point in sales dollars calculated?
Breakeven point in sales = total fixed expenses / Contribution Margin Ratio
What is a variable cost? What is a fixed cost?
Variable cost - is a cost or expense that total changes in proportion to changes in volume or activity.
Fixed cost - an cost that does not change with an increase or decrease in the amount of goods or services produced.
What are the four types of bonds and what are their characteristics?
Term bonds - a bonds that mature at the same specified time of 5 to 10 years
Serial bonds - bonds that mature in installment at regular intervals
Secured bonds- bonds that give rights to the bondholder to take specified asset of the issuer if the issuer fail to pay principal or interest.
Debentures - are unsecured bonds that are not backed by assets only by the good will of the bond issuer.
What is the price of a bond issued at par value, a discount, a premium?
Par value -a bond issued at par has no discount or premium
Discount bond - a bond price below maturity value
Premium -bond price above the maturity par value.
What impact does the market rate of interest have on the price of a bond?
Market interest rate impact the bond rate due to the varies of the daily rate. The market rate is what investors demand to earn for loaning their money.
. How are bond ratings determined?
Bond rating is a grade given to bonds that indicates their credit quality. Independent rating services such evaluations the bond issuer of financial strength or it's the ability to pay a bond principal and interest in a timely manner.
How are dividend policies determined?
Dividend policies are determined from the business owner of investing or expanding the business or give dividends to the share holders.
Compare and contrast operating leverage and financial leverage.
Financial leverage is the use of debt to acquire additional assets know as trading on equity.
Operating leverage is the percentage of fixed cost in a company's cost structure. A company is dependent on sales of products to pay it operating expenses.