ACCT 2840 Exam 3

the time series analysis

what is another term for the horizontal trend analysis?

year to year changes as a percentage of the base year

what does a horizontal trend analysis show?

expresses each financial statement amount as a percentage of the base

what does a vertical analysis show us?

sales

on an income statement, what is the base?

total assets

on the balance sheet, the base is?

compares items in the financials to each other and look for relationships

what does a ratio analysis do?

profitability, liquidity, and solvency

what are the three main categories of ratios?

measures overall success of the company

what do profitability ratios tell us?

measures the ability to meet currently maturing debt

what do liquidity ratios tell us?

measures the ability to meet long term obligations

what do solvency ratios tell us?

resources owned by a business that enables it to produce the goods or services that it sells to customers

what are long lived assets?

property, plant, equipment

what are tangible assets?

operating assets

what is another term for tangible assets?

only on paper

where do intangible assets exist?

when one company buys another

when is goodwill created?

value of unrcovered assets

what is goodwill

no, it is expensed as incurred

is research and development an intangible asset?

costs that make something usable

what are acquisition costs?

expenditures that are added to the acquisition cost of an asset and change its value

what are capital expenditures?

expenditures that are expensed as incurred

what are revenue expenditures?

general repairs and maintenance

what are examples of revenue expenditures?

depreciation

an expense of a fixed asset is called what?

amortization

an expense of an intangible asset is called what?

a single line on statement of cash flows

how are depreciation and amortization listed?

cost - acquisition cost

what is the formula for book value?

an estimate

depreciation is a what?

what you expect the asset to be worth at the end of its life

what is the residual value?

no, end value will be the same

are there any conformity rules for depreciation? why?

straight line depreciation

what depreciation method is most popular?

recognizes depreciation evenly over life, same amount each year

describe straight line depreciation?

more depreciation early in life, less depreciation later in life

describe double declining balance depreciation?

same

is the sum of depreciation expense over the life same or different for the two types of depreciation methods?

1/life x 2

how do we find the double declining rate?

no

if no exchange occurs, do we record a journal entry?

sales price - BV

how do we find the gain or loss from a disposal?

higher

do we want a higher or lower fixed asset turnover ratio?

for every dollar of net PPE, the company generated X amount of dollars in sales

how do we interpret a fixed asset turnover ratio?

financing with stock

what does equity financing mean?

permanent

is the capital obtained from equity financing permanent or nonpermanent?

no

does the capital obtained in equity financing have to be repaid?

no, theyre optional

are dividends required in equity financing?

it is tax deductible

what is special about the interest in debt financing?

NOT diluted

what happens to ownership in debt financing?

more stocks are in the market so stock price goes down

what happens during dilution?

authorized, issues, treasury, outstanding

what are the four categories of shares of capital stock?

number of stocks approved to be sold by the board of directors

what is the authorized stock?

very high

is the authorized stock usually high or low?

number of stocks actually sold

what is the issued stock?

stocks that have been repurchased

what is treasury stock?

stocks that have been issued and are still held in market

what are outstanding stocks?

the minimum amount to be contributed by stockholders

what is par value?

legal requirement

what type of requirement is the par value?

charter

where is par value specified?

no

is there a relationship between par value and market price of the stock?

no

do all states require a par value?

at par

how is common stock recorded?

additional paid in capital

the amount paid for stock in excess of par is credited to what account?

record the entire selling price in common stock

how do we record sales of no par value stocks?

when it is announced that dividends will be paid

what is the declaration date?

if you hold stock on this date, you will get the dividend

what is the record date?

the date the dividends are actually paid

what is the payment date?

a distribution of income

what are dividends?

outstanding shares

we only pay dividends on what type of shares?

no

are dividends an expense?

reduce it

what do dividends do to retained earnings?

giving someone more stock

what is issuing stock dividends?

splitting the stocks in two, but decreasing value by half

what is a stock split?

nothing

when we split stocks, what is recorded?

par value and number of shares outstanding

when we split stocks, what is affected?

percentage x par

how do we find the preferred stock dividend?

no, must have common if you have preferred

can you have just preferred stock?

common stock

what type of stock has the voting rights?

gets whatever is leftover after preferred stock is paid

how do we determine how much common stock dividends are distributed?

cumulative vs noncumulative

what are the two types of preferred stock?

unpaid dividends from past years accumulate

what is a cumulative preferred stock?

preference on dividends paid, get paid first

what does preferred stock mean?

redemption

a repurchase of preferred stock is called what?

noncumulative preferred stock or a larger total dividend

what two scenarios would cause a more favorable dividend for common shareholders?

preferred stock, common stock, additional paid in capital

what are the three ways we can record the contributed capital in stockholders equity?

at par

how do we record stocks?

no

do we calculate the EPS?

the amount the company earns for each stock share outstanding

what does the EPS tell us?

the market assessment of the quality of the company's earnings

what does the price/earnings ratio tell us?

no

does the balance sheet report inflows and outflows of cash?

accrual

the income statement is ______________ based

revenues and expenses are recorded when earned, regardless of when cash is received or paid

what does accrual based accounting mean?

operating, investing, financing

what are the three categories of cash flows?

net income

operating adjusts ________ ___________ to cash from operations

operating

interest on debt is what category?

adjusts each line of the income statement to a cash basis

what does direct operating section do?

adjusts net income to cash by looking at what affected net income that did not affect cash

what does indirect operating section do?

+ depreciation and amoritization expense

+- changes in account balances

what do we do to net income in indirect cash flow?

flip the sign

what do we do to current assets when changing net income in indirect operating method?

keep the sign

what do we do to current liabilities when changing net income in indirect operating method?

because it decreases income but not cash

why do we add back depreciation and amortization when changing net income for indirect operating method?

cash flows from buying and selling noncurrent assets

what does the investing section of cash flows show us?

how much of investment funds are internally generated

we can compare the cash flow of investing section to cash flow from operations to see what?

the amount used in investing activities and the amount generated by operations

the financing section provides the bridge between what?