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Training the Street Accounting- Final Exam Questions with Complete Verified Solutions 2024/2025
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Training the Street Accounting- FinalExam Questions with Complete Verified
Solutions 2024/2025
two objectives of financial reporting
relevant and reliable
historical cost
firm records the amount of the transaction
fair value
whatt the transaction is worth as of the balance sheet date, also known as "mark to market"
Fair Value Hierarchy
The fair value hierarchy provides insight into the priority of valuation techniques that are used to
determine fair value. The fair value hierarchy is divided into three broad levels.
Fair Value Hierarchy
Level 1: quoted prices in active markets like common stock on NYSE
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability
either directly or through corroboration with observable data.
Level 3: Unobservable inputs (for example, a company's own data or assumptions). this is the most iffy.
(ex: a DCF)
Level 1 is the most reliable because it is based on quoted prices, like a closing stock price in the Wall
Street Journal. Level 2 is the next most reliable and would rely on evaluating similar assets or liabilities in
active markets. At the least-reliable level, Level 3, much judgment is needed based on the best
information available to arrive at a relevant and reliable fair value measurement.
FV Level 3 observality
if an observable input has >10% impact on fair value, then it must be level 3
substantial doubt
75% doubt a firm wont meet obligations
revenue
sales-returns (products and services have been delivered) "top line"
, accounts recievable
claim to case
retained earnings
captures revenue
do dividends change the income statement
no
another name for income statment
profit and loss
net income=
revs-expenses +/- other income (including gains and losses)
pg 22
make sure to double check this somehow (brad?)
accrual accounting
economic measurement is not equal to cash flow (in other words we dont record when cash is physically
moving, just the effects in accrual)
Matching Principle/ accrual accounting (revenues)
entities match the revenues with the period when it is earned ; example, gift cards. when you buy a gift
card, the accounts receivable increases, and its matched with deferred revenue (liability!) on the balance
sheet until it is earned
redo pg 28
matching with tif giftcard on cc using accrual accounting
matching principle/ accrual accounting (expenses)
entities match the expense with the revenue; its not an expense until its sold. example is inventory on the
bal sheet until revenue is earned (like when the person uses the gift card)
balance sheet
a firms assets and source of capital (liabilities and equity) at a single point in time
what are the three primary ways to fund assets
other liabilities (accounts payable accrued expenses and deffered revenue); debt (interest bearing
liabilities) and equity (residual owners, high risk high reward)
what are some omissions (items not on the balance sheet)
intangible assets like Brand; purchase commitments, like coke's commitment to buy sugar, off balance
sheet commitments and contingencies
example identifying inventory: if you sell a restaurant is that inventory for the restaruant?
no that would be ppe, the business sells food so that would be the inventory
assets
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