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ACC 502 Final


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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.?
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

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