FSA Exam With 100% Correct And Verified Answers 2024, Exams of Advanced Education

Download FSA Exam With 100% Correct And Verified Answers 2024 and more Exams Advanced Education in PDF only on Docsity! FSA Exam With 100% Correct And Verified Answers 2024 Accrual Based Accounting - Correct Answer-Recognizes revenues when earned and expenses when incurred, regardless of when cash inflows/outflows occur. This helps to better measure the profitability of a company during a specific time period. Matching principle - Correct Answer-Revenue is offset with all the expenses incurred in generating that revenue, thus providing a measure of the overall profitability of the economic activity. Articulation - Correct Answer-Financial statements are not isolated lists of numbers but are an integrated set of reports on a company's financial status. They are meant to articulate specific facts regarding a business. Big bath - Correct Answer-A earnings management strategy in which managers record huge write-offs in one period to relieve other periods of expenses; period chosen is usually one with poor performance (like in a recession when the competition has poor earnings as well.) International Accounting Standards Board (IASB) - Correct Answer-Accounting board that wants to have an international set of accepted accounting principles. Sarbanes-Oxely Act of 2002 - Correct Answer-Legislation introduced to cut down on corporate scandal and to help restore investor's confidence in the public disclosures of companies. Some of the things which this act mandated are: A) The creation of the Public Company Accounting Oversight Board (PCAOB), which is an organization that oversees the audits of public companies in order to protect the interests of investors. B) The requirement for a company's CEO and CFO to sign and certify that a company's financial statements are fair and representative of the company's financial condition. C) Auditors need to be independent from the company that they are auditing for example; they can't also serve in an actuarial capacity. D) Additionally, jail time for many white- collar crimes was increased. Securities and Exchange Commission (SEC) - Correct Answer-Independent government agency that has the legal power to establish accounting principles and financial reporting requirements. They also have the authority to bring enforcement actions against companies that seem to be misrepresenting their financial conditions. Lastly, they can modify and set GAAP if necessary, but they usually just accept FASB. Conservatism - Correct Answer-Reporting or disclosing the least optimistic information about uncertain events and transactions 8-K - Correct Answer-A current report which needs to be filed within four days of A) A change in management control B) Acquisition or disposition of major asset C) Bankruptcy D) Auditor change 5) Material restatement of earnings The Balance Sheet - Correct Answer-Represents the investing and financing activities of a company Common Size Analysis (Vertical) - Correct Answer-The purpose of this type of analysis is to evaluate the internal makeup of financial statements and to evaluate financial statements across companies. Ultimately, the output is proportionate size of assets, liabilities, equity revenues and expenses (I don't know that it's explicitly in the slides, but Google seems to think that this involves converting all numbers into percentages to see margins (expressing revenue as a percent of net sales), which could make it easier to see where a company is excelling and doing poorly, especially in relation to another company.) Comparative Analysis (Horizontal) - Correct Answer-Basically analyzing the balance sheet left to right. The purpose is to evaluate consecutive financial statements. The output lets you see the direction, speed and extent of any trends. It's year-to-year change analysis Management Discussion & Analysis (MD&A) - Correct Answer-A kind of "catch-all" section of the financial statements in which management discusses the company's performance in the previous year. Some items that can be found there include internal & external sources of liquidity, material deficiencies in liquidity and how they will be remedied, commitments for capital expenditures, the purpose of such commitments, and expected sources of funding, anticipated changes in the mix and cost of financing resources, unusual or infrequent transactions that affect income from continuing operations, events that cause material changes in the relationship between costs and revenues and a breakdown of sales increases into price and volume components. Marketable Securities - Correct Answer-There are three different types of marketable securities, namely available-for-sale (debt or equity securities not classified as the other two. They are recorded at fair market value. They are reported in the shareholder's equity section), trading securities (debt or equity securities bought and sold frequently, primarily to generate short-term profits, changes are included in Net Income), and held- to-maturity, (debt securities that the company has the ability and intent to hold onto until maturity, they are reported at amortized cost.) Net Realizable Value - Correct Answer-The total amount of receivables less any allowance for uncollectible accounts. Accounts receivable are reported this way. Allowance for Doubtful Accounts - Correct Answer-An estimated figure by management (using one of a few different methods) to represent the amount of accounts receivable that a company does not expect to be able to collect. Some good ol' info on FIFO - Correct Answer-FIFO best matches the actual flow of goods for most companies and conforms to good inventory management. FIFI provides a better inventory figure for the Balance Sheet by reflection recent costs (it provides a measure of inventory that is closer to its current economic value.) FIFO is used in times of low inflation in order to report higher earnings. Lower of cost or market - Correct Answer-Companies must write down the carrying amounts of inventories on the Balance Sheet if the reported cost exceeds market value (determined by current replacement cost). Bonds - Correct Answer-One type of bond is a debenture; it is backed only by the general trustworthiness, or credit, of the corporation. Alternatively, there is secured debt, like a mortgage bond, which is secured by a specific asset (in this case, a mortgage.) Covenants - Correct Answer-Constraints or requirements put on retained earnings (often because of bond agreements.) Cumulative - Correct Answer-If in any year, the preferred dividend is not paid, it accumulates in favor of preferred shareholders Arrears - Correct Answer-An amount on a loan, cumulative preferred stock or any credit instrument that is overdue Convertibility - Correct Answer-A feature in preferred stock that lets it be converted to common stock at a set conversion price. Also can refer to a bond that is convertible in a similar fashion. Treasury Stock - Correct Answer-When a company buys its own stock back, that stock is recorded at cost and reported as Treasury Stock. This is known as a Contra-Equity Account, which decreases the company's equity Additional-Paid-In-Capital - Correct Answer-The amount paid by shareholders in excess of par or stated value Comprehensive Income - Correct Answer-Changes to equity that do not impact regular income and are not reflected in retained earnings (like unrealized holding gain) Underwriter - Correct Answer-When a large amount of stock is to be issued, corporations use the services of an underwriter. An underwriter guarantees the issuing corporation a specific stock price, makes a profit by selling the shares to the public at a slightly higher price than they pay, assures the corporation that the entire stock issue will be sold without delay. Contingent Liability - Correct Answer-A contingent liability is recorded if the contingency is probably and the amount of the liability can be reasonably estimated. If it is only possible, it does not need to be journalized, only footnoted. Total Creditor Financing - Correct Answer-Includes debt creditor financing as well as operating creditor financing Defined Benefit Plan - Correct Answer-You need to compare projected benefit obligations (PBO's) to plan assets. If it is underfunded (PBO exceeds the pension plan assets) it is a potential liability. If it is overfunded (pension plan assets exceed PBO), there is a potential opportunity to reduce future pension expense and/or reduce related cost. If it is overfunded, it is reported as an asset called Prepaid Pension Cost. Defined Contribution Plan - Correct Answer-Contributions to the plan are specified, employers bears no risk for future growth of plan. Any company contribution is recorded as an expense in the income statement when the cash is paid. Reasons to buy back shares - Correct Answer-A) Strong belief in stock B) Belief that stock is undervalued C) Raise EPS D) Prevent takeovers E) Meet requirements for employee stock option Financial effects of buying back stock - Correct Answer-A) Fewer dividends will be paid B) EPS will increase C) Market price will likely increase D) Used as a management strategy instead of paying a higher dividend that cannot be maintained E) reduces the size of the company F) The stock can now be resold to the public The reasons to have restricted cash include - Correct Answer-litigation, bankruptcy, investment purposes, insurance and capital calls Reasons for Inventory Detail - Correct Answer-Toys R Us accumulated excess inventory that it failed to sell, they needed to use a "strategic inventory repositioning" restructuring move Milton Friedman - Correct Answer-Said that a corporation's responsibility is to increase its profits Arthur Levitt - Correct Answer-Spoke about the cookie jar reserve, which is an accounting practice in which a company takes a quantity of large reserves from an economically successful year and incurs them against losses from less successful years. Financial Accounting Standards Board (FASB) - Correct Answer-Private sector organization, issues publications, which represents official expressions of GAAP. Big four accounting firms - Correct Answer-EY, PWC, KPMG, Delloite (used to be a big five, this Arthurt Anderson being the 5th), but they went bankrupt (I think), after the Enron scandal. Income Shifting - Correct Answer-An earnings management technique in which the recognition of revenues or expenses is accelerated or delayed in order to shift income from one period to another. Proxy Statement - Correct Answer-Contains details of board of directors, managerial ownership, managerial remuneration and employee stock options. It is also used by a company when trying to solicit votes. Depletion - Correct Answer-Resources like oil, gold or coal get "depleted" instead of depreciated.