BUS 251 - Midterm Review (Ch 1 - 6) Exam
With Complete Solutions
3 major financial statements (F/S) - ANSWER 1. Statement of Financial Position /
Balance sheet (B/S
2. Statement of Income (I/S)
3. Statement of Cash Flows (CFS)
Equity - ANSWER Represents the 'accounting value' of the company belonging
to its owners.
Assets = - ANSWER Liabilities + Owner's Equity
Sales Revenues (Sales) - ANSWER Increases in the company's wealth (economic
benefits earned) by providing goods or services to customers
Expenses - ANSWER Decreases in the company's wealth (economic sacrifices
made) in the period in order to earn revenues.
Market Capitalization= - ANSWER the # of company shares issued by the
company in the past, which are trading in the stock market
x
the stock market (share) price that day
Internal F/S - ANSWER Prepared at any time, for decision making by
management.
External F/S - ANSWER Prepared for external users. Must be done at least
annually. May be done quarterly.
Assets - ANSWER a resource controlled by a company, where the company
expects future economic benefits from the use or sale of the resource and the
event which gave the company control of the resource has already happened.
Liabilities - ANSWER Obligations (debts) that will have to be paid by the
organization in the future. A future outflow of resources will be required and the
event which gave rise to the obligation has already happened.
SHAREHOLDERS' EQUITY - ANSWER Linked to the I/S through Retained
Earnings (R/E).
, R/E includes the cumulative prior net income (Revenue - Expense) not paid out in
dividends.
Working Capital = - ANSWER Current assets - Current liabilities
Current ratio = - ANSWER Current Assets / Current Liabilities (CA/CL)
Debt-to-equity ratio = - ANSWER Liabilities
/Shareholders' Equity
Debt-to-assets ratio = - ANSWER Liabilities
/Total Assets
Gross margin %= - ANSWER (Sales Rev - cost of goods sold)/Sales Rev times 100
Profit margin % = - ANSWER net income / Sales Rev
Return on assets % = - ANSWER = Net income
/ Average total assets
Return on equity % = - ANSWER Net income
/ Average total
shareholders' equity
Revenue is recorded when .... - ANSWER a company has fulfilled its obligations
to a customer
Expenses are recorded when - ANSWER transaction is incurred
IFRS (International Financial Reporting Standards) - ANSWER F/S mandatory for
Canadian public companies (Contract-Based Approach)
ASPE (Accounting Standards for Private Enterprises) - ANSWER F/S that can be
used by private companies (Earning-based approach)
Cost Constraint - ANSWER the benefit of reporting (additional) information must
exceed the costs of capturing and reporting.
Materiality - ANSWER it does not matter how (or if) information is captured and
reported, if that information does not impact a user's decisions.
characteristics of information - ANSWER - Accurate
- Timely
-Relevant
-- To Context
--To Subject
With Complete Solutions
3 major financial statements (F/S) - ANSWER 1. Statement of Financial Position /
Balance sheet (B/S
2. Statement of Income (I/S)
3. Statement of Cash Flows (CFS)
Equity - ANSWER Represents the 'accounting value' of the company belonging
to its owners.
Assets = - ANSWER Liabilities + Owner's Equity
Sales Revenues (Sales) - ANSWER Increases in the company's wealth (economic
benefits earned) by providing goods or services to customers
Expenses - ANSWER Decreases in the company's wealth (economic sacrifices
made) in the period in order to earn revenues.
Market Capitalization= - ANSWER the # of company shares issued by the
company in the past, which are trading in the stock market
x
the stock market (share) price that day
Internal F/S - ANSWER Prepared at any time, for decision making by
management.
External F/S - ANSWER Prepared for external users. Must be done at least
annually. May be done quarterly.
Assets - ANSWER a resource controlled by a company, where the company
expects future economic benefits from the use or sale of the resource and the
event which gave the company control of the resource has already happened.
Liabilities - ANSWER Obligations (debts) that will have to be paid by the
organization in the future. A future outflow of resources will be required and the
event which gave rise to the obligation has already happened.
SHAREHOLDERS' EQUITY - ANSWER Linked to the I/S through Retained
Earnings (R/E).
, R/E includes the cumulative prior net income (Revenue - Expense) not paid out in
dividends.
Working Capital = - ANSWER Current assets - Current liabilities
Current ratio = - ANSWER Current Assets / Current Liabilities (CA/CL)
Debt-to-equity ratio = - ANSWER Liabilities
/Shareholders' Equity
Debt-to-assets ratio = - ANSWER Liabilities
/Total Assets
Gross margin %= - ANSWER (Sales Rev - cost of goods sold)/Sales Rev times 100
Profit margin % = - ANSWER net income / Sales Rev
Return on assets % = - ANSWER = Net income
/ Average total assets
Return on equity % = - ANSWER Net income
/ Average total
shareholders' equity
Revenue is recorded when .... - ANSWER a company has fulfilled its obligations
to a customer
Expenses are recorded when - ANSWER transaction is incurred
IFRS (International Financial Reporting Standards) - ANSWER F/S mandatory for
Canadian public companies (Contract-Based Approach)
ASPE (Accounting Standards for Private Enterprises) - ANSWER F/S that can be
used by private companies (Earning-based approach)
Cost Constraint - ANSWER the benefit of reporting (additional) information must
exceed the costs of capturing and reporting.
Materiality - ANSWER it does not matter how (or if) information is captured and
reported, if that information does not impact a user's decisions.
characteristics of information - ANSWER - Accurate
- Timely
-Relevant
-- To Context
--To Subject
