ARE MY ANSWERS CORRECT? 25 questions
1. what an A/R aging analysis is, its purpose, and how it is created.
Used to estimate amount needed in Allowance for Bad Debts Account (a contra account)
A/R Days Outstanding
0-30 31-60 61-90 Over 90
Under each term list all A/Rs that are not paid by date
Use historical experience to estimate the percentage of A/R for each date period to determine allowance for Bad Debts
M L O
Material
Labor
Overhead
Also known as CGS
3) what are the 4 factors need in determining depreciation
MACS
4) what is double declining depreciation (DDB) and why is it very seldom used any more
5) What does the UCC term 2/10N30 mean
UCC is a state law that all 50 states have agreed to same law / is the commercial code in business
2/10N30 – if paid in 10 days, the buyers a 2% discount. If paid in 30 days the buyer pays the face amount
Perfecting the asset is Form UCC 1
Usually there are additional terms for payments made after 30 days
Probable |
Probable |
Possible |
Remote |
Impact |
large |
middle |
Negative |
Ability to |
yes |
yes |
? |
F/S – Balance sheet |
Foot note / financial statement |
Don’t have to do anything ; Smartest thing a CEO can do is disclose in report |
7) what 4 taxes do employers have to pay
What employers pay:
FWIT – Federal Withholding of Income Taxes
FICA – Social Security
Medicare – Health Tax
FUTA/SUTA – Federal and State Unemployment taxes
8) define debenture
Debenture – unsecure note
9) Know what happens to bond principal amounts if market interest rates change relative to the stated interest on the bond
If we have a bond 10,000 bond that pays 5%--get $500 a year
If we have a bond 10,000 bond that pays 10% --get 1,000 a year
--in this situation you are losing; if we have to sell, and market value is much higher so our value of bond would be less than a 10% bond
Hold to maturity, you get the face principal amount
10) know what is required for a company to issue a cash or stock dividend
11) what are the 4 principal dates regarding dividends
12) what the the two types of earnings per share(EPS) in GAAP. Show the formula for basic and and state the principal difference between the two types.
EPS Is a value metric, you can compare one stock to another
Net Income – Preferred Dividends
Weighted Average # of Shares of Common Stock
expanded the denominator greatly; requires the exercise and practice of all exercisable including warrants options units, converted into common stock that then goes into the denominator /
Net Income – Divs. on Non-Convertible Preferred stock + Int. Exp. On Convertible Bonds
Weighted Avg. # of Common Shares O/S + All dilutive elements
13) Define horizontal analysis
Its a Longitudinal analysis of financial statement accounts across numerous periods to discern changes and impact
14) Define vertical analysis
Analysis of financial statement accounts within a period, measuring relative to its class.
Difference as a % of difference of class.
Income statement is different because its measured as a percent of gross revenue.
Example: account as a percent of its class in a period / % of SG&A of revenue, % of cash
15) Calculate a breakeven point with the data presented (fixed and variable expenses)
BES 1.00=1 million FC (viable $$ form/Everything below SG&A) + 45% VC (decimal form of CGS)
BES .55 = 1,000,000
BES = 1,000,000 / .55
=$1.818,000
Or
16) Calculate working capital from the data given (hint: many of the accounts presented have nothing to do with working capital). You need to know what working capital is, and what accounts are used in calculating working capital
17) Calculate the working capital ratio from the data in the question above
Filter what is current assets minus current liabilities
Current Assets (CA) – Current Liabilities (CL)= Working Capitol
Banks prefer to see twice as much in Current Asset as in Current Liabilities
Example: CA = $100,000 CL = $40,000 WC = $60,000
Working Capital Ratio: 2.5 to 1 ($100,000/$40,000 = 2.5)
18) Calculate the accounts receivable turnover rate is based on the data given
Think about what its paired with. Accounts receivable is paired with revenue.
Steps:
Example:
Sales - $2,000,000. Average A/R = $80,000
A/R turnover rate = 25
19) Calculate the number of days in sales inventory from the data presented
Steps:
Determine Average Inventory
Determine Daily CGS in $s
Divide Average Inventory by Daily CGS
Example:
Beginning Inventory: $400,000
Ending Inventory: $600,000
Average Inventory $500,000
Daily CGS $5,000
Avg. Inv. $500,000/Daily CGS $5,000= 100 days or 3.65 turns a year
20) State what the price earnings ratio is and how it is used
Example
Stock Earns $2/share and sells for $30. P/E ratio is 15.
21) What is the difference between period and product costs?
Standard Costs represent a form of budgeting.
Actual product costs are compared against the standard cost estimates as a measure of meeting or missing plan.
Standard costs work best in fairly stable economic environments. If it is a wild market, much turmoil, standard costs do not work well.
Period is SG&A
Product is CGS
22) What is ABC costing?
Activity Based Costing (ABC)
23) What is budgeting and variances and how are each used?
Budgets
An attempt to estimate future costs/performance
Budgets also used to measure performance against plan
Differences between Budgeted amounts and actual results are called variances
Variances may be either positive or negative
24) What are standard costs and when do they work best?
In stable economies
25) Calculate the IRR from the data presented. – do it for 3 years
A series of net cash flows when discounted at a specific Net Present Value discount rate, equals zero after recovery of the investment.
It is important to keep the cash inflow estimates separate from the investment requirements (cash outflows), because many try and cover sins by lumping & netting these two flows one against the other.
ARE MY ANSWERS CORRECT? 25 questions 1. what an A/R aging analysis is, its purpose, and...
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Jefferson Steel requires $15 million to fund its current year's capital projects. Jefferson will finance part of its needs with equity. The firm's common stock is selling in the market at $180 per share. Dividends of $1 per share were recently paid (Do). Dividend growth of 6 percent per year is expected for the foreseeable future. The market is currently demanding a 6 percent premium on the average risk stock and Tbonds are currently yielding 3%. Preferred stock is selling...
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