BIWS 400 Exam Questions with Correct Answers| New Update 100% Verified by Experts
Can you give examples of major line items on each of the financial statements? IS: Revenue,
COGS, SG&A, Operating Income, Pretax income, Net Income
BS: Cash, Accounts Receivable, Inventory, PP&E, Accounts Payable, Accrued Expenses, Debt,
Shareholders Equity
Cash Flow Statement: Net Income, Depreciation and Amortization, Stock-Based Compensation,
Changes in Operating Assets & Liabilities, CFO, Capital Expenditures, CFI, Sale/Purchase of
Securities, Dividends Issued, Cash Flow from Financing.
How do the 3 statements link together? Net Income from the Income Statement flows into
Shareholder's Equity on the Balance Sheet, and into the top line of the Cash Flow statement.
Changes to Balance sheet items appear as working capital changes on the Cash Flow statement,
and investing and financing activities affect Balance Sheet items such as PP&E, Debt and
Shareholder's Equity. The Cash and Shareholder's Equity items on the Balance Sheet act as
"plugs" with Cash flowing in from the final line on the Cash Flow Statement.
Walk me through how Depreciation going up by $10 would affect the statements. Income
Statement: Operating income would decline by $10, and assuming a tax rate of 21%, Net
income would decline by $7.90.
CFS: Net Income at the top should decline by $7.90, but the $10 Depreciation is a non-cash
expense that gets added back, so overall CFO goes up by $2.10. There are no changes
elsewhere, so overall Net Change in Cash goes up by $2.10.
BS: PPE goes down by $10 in Assets bc of Depreciation, and Cash is up by $2.10 from changes
on the CFS.
Overall, Assets is down by $7.90. Since Net income decreased by $7.90 as well, S/E on the
Liabilities&S/E is down by $7.90 and the BS is balanced.
If Depreciation is a non-cash expense, why does it affect the cash balance? Depreciation is a
non-cash expense, but it is tax-deductible. Since taxes are a cash expense, Depreciation affects
cash by reducing the amount of taxes you pay.
, Where does Depreciation usually show up on the Income Statement? It can be in a separate
line item, or it could be embedded in COGS or Operating Expenses--every company will do it
differently. (But Depreciation always reduced Pre-tax income.)
What happens when Accrued Compensation goes up by $10? (First confirm that accrued
compensation is now being recognized as an expense (as opposed to just changing non-accrued
to accrued compensation). Assuming that's the case:
OpEx on IS goes up by $10, Pre-tax income falls by $10, and NI falls by $7.90 (21% tax rate)
CFS: NI is down by $7.90, and Accrued Compensation will increase cash flow by $10, so overall
CFO is up by $2.10, and the net change in cash at the bottom is $2.10.
BS: Cash is up by $2.10, so Assets are up by $2.10. On L&E side, Accrued Comp is a liability so
Liabilities are up by $10 and R/E are down by $7.90 due to NI, so it balances.
What happens when Inventory goes up by $10, assuming you pay for it with cash? No
changes to Income Statement.
CFS: Inventory is an asset so that decreases CFO by $10, thus same with net change in cash.
BS: Inventory(A) is up by $10 but Cash(A) is down by $10, so it balances.
Why is the Income Statement not affected by changes in Inventory? The expense is only
recorded when the goods associated with it are sold, so if it's just sitting in a warehouse, it
doesn't count as COGS or OpEx until the company manufactures it into a product and sells it.
Let's say Apple is buying $100 worth of new iPod factories with debt. How are all 3 statements
affected at the start of "Year 1," before anything else happens? IS: At the start of year 1
there are no changes to the IS.
CFS: The additional investments in factories would show up under CFI as a net reduction in CF
by $100. The additional $100 of debt raised would show up as an addition to CF, cancelling out
the investments activity, sot NCIC is the same.
BS: PPE(A) goes up by $100 and Debt(L) goes up by $100, so it balances.
Can you give examples of major line items on each of the financial statements? IS: Revenue,
COGS, SG&A, Operating Income, Pretax income, Net Income
BS: Cash, Accounts Receivable, Inventory, PP&E, Accounts Payable, Accrued Expenses, Debt,
Shareholders Equity
Cash Flow Statement: Net Income, Depreciation and Amortization, Stock-Based Compensation,
Changes in Operating Assets & Liabilities, CFO, Capital Expenditures, CFI, Sale/Purchase of
Securities, Dividends Issued, Cash Flow from Financing.
How do the 3 statements link together? Net Income from the Income Statement flows into
Shareholder's Equity on the Balance Sheet, and into the top line of the Cash Flow statement.
Changes to Balance sheet items appear as working capital changes on the Cash Flow statement,
and investing and financing activities affect Balance Sheet items such as PP&E, Debt and
Shareholder's Equity. The Cash and Shareholder's Equity items on the Balance Sheet act as
"plugs" with Cash flowing in from the final line on the Cash Flow Statement.
Walk me through how Depreciation going up by $10 would affect the statements. Income
Statement: Operating income would decline by $10, and assuming a tax rate of 21%, Net
income would decline by $7.90.
CFS: Net Income at the top should decline by $7.90, but the $10 Depreciation is a non-cash
expense that gets added back, so overall CFO goes up by $2.10. There are no changes
elsewhere, so overall Net Change in Cash goes up by $2.10.
BS: PPE goes down by $10 in Assets bc of Depreciation, and Cash is up by $2.10 from changes
on the CFS.
Overall, Assets is down by $7.90. Since Net income decreased by $7.90 as well, S/E on the
Liabilities&S/E is down by $7.90 and the BS is balanced.
If Depreciation is a non-cash expense, why does it affect the cash balance? Depreciation is a
non-cash expense, but it is tax-deductible. Since taxes are a cash expense, Depreciation affects
cash by reducing the amount of taxes you pay.
, Where does Depreciation usually show up on the Income Statement? It can be in a separate
line item, or it could be embedded in COGS or Operating Expenses--every company will do it
differently. (But Depreciation always reduced Pre-tax income.)
What happens when Accrued Compensation goes up by $10? (First confirm that accrued
compensation is now being recognized as an expense (as opposed to just changing non-accrued
to accrued compensation). Assuming that's the case:
OpEx on IS goes up by $10, Pre-tax income falls by $10, and NI falls by $7.90 (21% tax rate)
CFS: NI is down by $7.90, and Accrued Compensation will increase cash flow by $10, so overall
CFO is up by $2.10, and the net change in cash at the bottom is $2.10.
BS: Cash is up by $2.10, so Assets are up by $2.10. On L&E side, Accrued Comp is a liability so
Liabilities are up by $10 and R/E are down by $7.90 due to NI, so it balances.
What happens when Inventory goes up by $10, assuming you pay for it with cash? No
changes to Income Statement.
CFS: Inventory is an asset so that decreases CFO by $10, thus same with net change in cash.
BS: Inventory(A) is up by $10 but Cash(A) is down by $10, so it balances.
Why is the Income Statement not affected by changes in Inventory? The expense is only
recorded when the goods associated with it are sold, so if it's just sitting in a warehouse, it
doesn't count as COGS or OpEx until the company manufactures it into a product and sells it.
Let's say Apple is buying $100 worth of new iPod factories with debt. How are all 3 statements
affected at the start of "Year 1," before anything else happens? IS: At the start of year 1
there are no changes to the IS.
CFS: The additional investments in factories would show up under CFI as a net reduction in CF
by $100. The additional $100 of debt raised would show up as an addition to CF, cancelling out
the investments activity, sot NCIC is the same.
BS: PPE(A) goes up by $100 and Debt(L) goes up by $100, so it balances.
