ACC 502 Final
Terms
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- Does goodwill get amortized?
- No. Unless it's impaired, it remains at historical 'cost' indefinitely.
- How are A/R allowances determined?
- GAAP says have to make full and sufficient advance provision for unknown customers
- Name 3 types of inventory
- -raw material -work in process (WIP) -finished goods
- How do we value inventory on the balance sheet?
- At lower of cost and market (LCM).
- What is most common inventory valuation method in U.S.?
- LIFO
- Congress says LIFO is fully acceptable method for tax purposes so long as...
- it's also reported to shareholders
- What type of company might use FIFO?
- One whose selling prices go down (like technology).
- What happens after long time of using LIFO?
- Get really really old numbers on the balance sheet. Cost of inventory is frozen.
- Name 5 types of PPE
- -land -buildings -factories -equipment -fixtures
- Name 5 types of intangibles
- -brand names -trademarks -patents -customer lists -goodwill
- How is PPE valued on the balance sheet?
- At historical cost less depreciation/amortization
- What's the income statement recognition valuation for PPE?
- amortization, depreciation expense
- When does goodwill arise?
- ONLY in mergers & acquisitions
- What is goodwill?
- The excess in purchase price over all the specific assets and liabilities at market prices. Also sometimes noted as "synergies"
- Name the 2 types of depreciation
- -Straigh-line -Percentage declining balance or MACRS (modified accelerated cost recovery system)
- What's the difference between straight-line and MACRS depreciation
- -straight line depreciates assets by same percentage of historical value every year -MACRS starts out faster
- What are the benefits of using MACRS?
- With assets depreciating quickly at the beginning, can get tax benefit up front.
- What's the most common way to depreciate assets?
- straight-line. 90% of U.S. companies use it.
- Name the 3 categories of activities on the cash flow statement
- -operating -financing -investing
- Cash flows from investing include:
- -acquisition of PPE (CapEx) -Acquisition of intangibles, investments in securities of other entities -proceeds from sale of any of these items
- Cash flows from financing include:
- Interactions with banks and shareholders -issue and repay debt (but NOT interest) -issue and repurchase equity (stock) -dividend payments
- Cash flows from operating include:
- -'everything else' -cash from customers, suppliers, employees, insurance, etc. interest and taxes.
- What's important about cash flows?
- How/why cash is moving, not necessarily how much.
- What are the two methods for estimating cash flows? What is the most common method?
- Direct, Indirect. INDIRECT.
- To calculate cash flow from operations, what do we add back in?
- Start with Net Income. +/- nonoperating losses(gains) +depreciation/amortization +deferred tax provision ---------------- working capital from operations +/- changes in current assets and liabilities
- How do changes in current assets get added into the stmt of cash flows
- -subtract increases in current assets +add decreases in current assets +add increases in current liabilities -subtract decreases in current liabilities
- When GAAP reported pretax income are higher than actual income taxed, what happens on the balance sheet?
- Creates a deferred tax LIABILITY
- When initially GAAP pretax income is < Tax, what happens on the balance sheet?
- Creates a deferred tax asset
- Tax provision is split into what categories on the Income Statement?
- Current Deferred