Note lý thuyết và bài tập điển hình Introduction & Income statement môn FRA
The role of financial statement analysis is to evaluate the financial reports
- Balance Sheet: express financial position at poin of time
- Income Statement : company’s profitability (financial results from business activities) for a period
- Cash Flow Statement : cash flow for period
Example 1. Information about management and director compensation are least likely to be found in the:
A. auditor’s report.
B. proxy statement.
C. notes to the financial statements.
2. 4 Types of Audit Reports :
Unqualified Opinion : Clean opinion, provided by the small business is free of any misrepresentations is the best type of report
Qualified Opinion : In situations when a company’s financial records have not been maintained in accordance with GAAP but no misrepresentations are identified
Adverse Opinion : The worst type of financial report, firm’s financial records do not conform to GAAP, the financial records provided by the business have been grossly misrepresented.
Disclaimer of Opinion : Some occasions, an auditor is unable to complete an accurate audit report. This may occur for a variety of reasons, such as an absence of appropriate financial records the auditor issues a disclaimer of opinion, an opinion of the firm’s financial status could not be determined.
Example 2. What type of audit opinion is preferred when analyzing financial statements?
3.Two fundamental qualitative characteristics that make financial information useful : relevance and faithful representation.
Example 3 : According to the International Financial Reporting Standards framework, which of the following qualities of financial information is least likely cited as one of the two fundamental characteristics that make financial information useful?
A. Faithful representation
B. Accrual accounting
4. EPS vs Diluted EPS
Basic EPS = (Net income – Preferred dividends)
Weighted average number of shares outstanding
Diluted EPS <= EPS
Example 4 :
The following data pertains to the Sapphire Company:
Net income equals $15,000.
5,000 shares of common stock issued on January 1 .
10% stock dividend issued on June 1 .
1,000 shares of common stock were repurchased on July 1 .
1,000 shares of 10%, $100 par preferred stock each convertible into 8 shares of common were outstanding the whole year.
What is the company's diluted earnings per share (EPS)?
5. Comprehensive Income = Net Income + Other Comprehensive Income
Other Comprehensive Income = unrealized gains and losses on available for sale securities, foreign currency exchange rates, and changes to pension benefit obligations.
Example 5 : For the year ended December 31, 2007, Milan Company reported the following financial information:
Gross profit from sales 600,000
Operating expenses 100,000
Unrealized loss from foreign currency translation 30,000
Dividends received from available-for-sale securities 15,000
Increase in minimum pension liability 45,000
Interest expense 25,000
Acquired treasury stock for $25,000 more than original book value 75,000
Unrealized gain from available-sale-securities 20,000
Ignoring taxes, calculate Milan's net income and comprehensive income for 2007.
Net income Comprehensive
A 490,000 2000
B 40,000 44000
C 490,000 43500
6. Completed-contract method vs Percentage-of-completion method
Under both IFRS and U.S. GAAP When the outcome of a long-term contract can be reliably estimated, the percentage-of-completion method is used.
Under U.S. GAAP, the completed-contract method is used when the outcome of the project cannot be reliably estimated.
Example 6 : An oil exploration company has been contracted to dig 100 exploratory holes for $200,000. The cost to complete this job is estimated to be $150,000, but the company doesn't recognize any of the $50,000 profit until the job is completed. Which revenue recognition method is being used?
A. Cost recovery method.
B. Completed contract method.
C. Percentage-of-completion method.
7. Marketable Security Classifications
fair value on balance sheet;
dividends, interest, realized and unrealized G/L recognized on income statement.
fair value on balance sheet ;
dividends, interest, realized G/L recognized on income statement;
unrealized G/L is other comprehensive income.
amortized cost on balance sheet;
interest, realized G/L recognized on income statement.
Example 7: According to the Financial Accounting Standards Board, what is the appropriate balance sheet treatment for available-for-sale securities and where are the unrealized gains and losses reported?
Balance sheet Unrealized gains and losses
A Fair value Net income
B Amortized cost Other comprehensive income
C Fair value Other comprehensive income
Number of average common shares:
1/1 5,500 shares issued (includes 10% stock dividend on 1/6) × 12 = 66,000
1/7 1,000 shares repurchased × 6 months = -6,000
60,000 shares / 12 months = 5,000 average shares
Preferred dividends = ($10)(1,000) = $10,000
Number of shares from the conversion of the preferred shares = (1,000 preferred shares)(8 × 1.1 shares of common/share of preferred) = 8,800 common
Diluted EPS = [$15,000(NI) − $10,000(pfd) + $10,000(pfd)] / (5,000 common shares + 8,800 shares from the conv. pfd.) = $15,000 / 13,800 shares = $1.09/share
This number needs to be compared to basic EPS to see if the preferred shares are antidilutive.
Basic EPS = [$15,000(NI) − $10,000(preferred dividends)] / 5,000 shares = $5,000 / 5,000 shares = $1/share
Since the EPS after the conversion of the preferred shares is greater than before the conversion the preferred shares are antidilutive and they should not be treated as common in computing diluted EPS. Therefore diluted EPS is the same as basic EPS or $1/share. ration in combating violations of securities and derivative laws.5. C
Net income is equal to $490,000 ($600,000 gross profit - $100,000 operating expenses + $15,000 dividends received - $25,000 interest expense).
Comprehensive income includes all transactions that affect stockholders' equity except transactions with shareholders. Thus, comprehensive income is equal to $435,000 ($490,000 net income - $30,000 unrealized loss from foreign currency translation - $45,000 increase in minimum pension liability + $20,000 unrealized gain on available-for-sale securities).
The treasury stock purchase is a transaction with shareholders and is not included in either comprehensive income or net income.6. B