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MSB 201 Exam 2 Study Guide Part 1 Accounting and Finance
New Update!!
Financial Accounting Focuses on the preparation, analysis, and reporting of financial information for external stakeholders, such as investors, creditors, and regulatory authorities
Management Accounting Focuses on providing internal financial information to assist managers and executives in decision-making
What is capital? Money
What is debt financing? Borrowing money from a creditor with the expectation that the company will pay them back. The creditor will NOT own any part of the business
What financial statement is shown as of one specific date? Balance sheet
What is NOT a way financial accounting info is used? Breakeven Analysis
Two critical conditions that must exist for financial statements to be useful Comparability and Creditability
The balance sheet embodies which basic accounting equations? Assets = liabilities + owners equity
Owners Equity can be defined as Common stock + retained earnings
If a company's total assets amount to $150,000 and total liabilities and capital contributions amount to $70,000 and $20,000, respectively, then retained earnings must amount to... $60, 150,000-70,000-20,000=retained assets
Given the following balances at the end of the year: Liabilities $22,000, Retained Earnings $4,000, Capital Stock $8,000. Determine the total amount of assets $34, Total assets = total liabilities + capital stock + retained earnings
What is the effect on the financial statements if a cash dividend is paid to owners? Decrease assets and owner's equity, but no effect on liabilities
Which of the following accounts is reported on the income statement? Tax Expense 3 multiple choice options
Refer to picture $ Net Income = Revenue - Expenses
Ratio Analysis Comparisons of info on financial statments that provide insights on company's financial status and future prospects
Debt Ratio Total Liabilities/Total Assets
Debt to Equity Ratio Total Liabilities/Total Owners Equity
CVP Analysis = Sales Revenues - Variable costs - Fixed costs
Use the following information to find the debt ratio: Total liabilities 80, owners equity 120, net income 30, expenses 10, inventory 15 40% 3 multiple choice options
Given the following information, determine the sales price per unit required at an anticipated sales volume of 15,000 units to achieve a net income of $80,000. They have a total fixed cost of $25,000 and a variable costs ratio of 60%.
3 multiple choice options
Examples of product costs Direct labor, Direct materials, manufacturing overhead
Value The worth of an asset, company, and financial performance
Financial Assets Generally intangible assets that can easily be turned into cash
Certificate of Deposit A savings product which can receive a higher interest rate coupled with the requirement that the deposited money remain untouched for a certain time people
Bonds A loan from an investor to a company or government with the promise of repayment and interest in the future
Stocks A share of ownership in a company
r = periodic rate of return t = number of periods
Alternative way to view PV PV = FV/(1+r)^t
TVM Problem Variables -FV -PV -N (how long would it take to...?) -r (rate of return) -Payment
Loan Flow Directions PV = + Pmt = - FV = -
Investment Flow Directions PV = - Pmt = - FV = +
Annuity Flow Directions PV = - Pmt = + FV = +
Nper Total number of PERIODS (NOT YEARS)
Rate = PERIODIC rate (NOT annual rate). Often divided by 12 to show monthly rate
Pmt Regular Payment
Type Payment at beginning or end of period
Perpetuity A stream of cash flows that continues indefinitely
NPV
The sum of all future cash flows
NPV =
Outflow + Σ C/(1+r)^t
How to interpret NPV If NPV > 0: Accept If NPV < 0: Reject If NPV = 0: Doesn't Matter
Logic behind Internal Rate of Return IRR shows how much of a change are expected of the cash flows over time. If IRR is higher than discount rate, profitable
Return Money made or lost in an investment over time
Why is TVM important? Consumption opportunity, Inflation, Investment opportunities
What is an annuity? A financial security that pays a fixed stream of cash flows 3 multiple choice options
What is a perpetuity? A stream of cash flows that continues indefinitely 3 multiple choice options
What is the IRR? -The discount rate that sets the NPV to zero -The return that a project will produce
How do you calculate NPV in excel? The NPV formula - the initial investment 3 multiple choice options
What is the pivotal question of finance? Is it worth it?
