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Final Exam Study Guide – Spring 2011 – Acct 414 -Final Exam Study Guide – Spring 2011 – Acct 414 - The format of the exam will be problems. If you attempt all three problems in one of the first two sections, I count the two best scores. Materials related to first exam material – 100 points (one-third) There will three short problems related to the material on Exam 1. You will pick two of the problems. Here are the topics that will be the subject of the short problems: • Present value problems (general and related to leases, troubled debt and/or pension) • Serial bonds (if effective interest method, yield rate will be provided) • Loan Impairment (Troubled debt restructuring by creditor) • Leases (classification for lessor and/or lessee with journal entries, IFRS might be included) • Fair value option problem and/or “level 2” measurements Materials related to second exam material – 100 points (one-third) There will three short problems related to the material on Exam 2. You will pick two of the problems. Here are the topics that will be the subject of the short problems: • Accounting for pension plan (working paper blank provided) • Deferred taxes (working paper blank provided) • Employee stock options (fair value method, with journal entries: liability or equity type awards) • Earnings per share (basic and diluted, possibly with stock split or dividend involved) • Long-term contracts – percentage of completion vs. completed contract method New Material – Statement of Cash Flow Problem – 100 points (one-third) You will prepare the working paper for the DIRECT method statement of cash flow which means you’ll also need to prepare the indirect method reconciliation schedule and make the appropriate disclosures for noncash investing and financing activities. You should be able to do the following types of transactions: • Equity method investment • Available for sale securities (but no deferred tax on the AOCI account to keep it simpler) • Capital lease • Treasury stock transactions (cost method only) • Stock dividend (large or small – the cutoff point is 20-25%) o Par value is debited to retained earnings for a large stock dividend or stock split o Market value on date of declaration is debited to retained earnings for a small stock dividend • Convertible preferred stock • Convertible bonds • Amortization of bond premium or discount • Asset retirement obligation (and accretion expense) • Pension (completed pension working paper provided) – no deferred taxes on AOCI accounts to keep it simpler • Basic transactions like purchase or sale of PP&E, intangibles, or investments; issuing new shares of stock, borrowing or repaying bonds payable, etc. • You need to understand noncash transactions like depreciation expense, amortization expense, accretion expense, stock-based compensation (stock option plans) – all of these items are added back to net income in the reconciliation schedule. • Bad debt expense is a “lack of revenue” and does not appear on the reconciliation schedule because it “gets there” automatically when you record the change in accounts receivable and the allowance for doubtful accounts. • In the reconciliation schedule, you will add back losses and subtract gains because a gain or a loss is an indication of a non-operating activity (investing or financing). • Many points are available for knowing that the change in current asset and current liability accounts (working capital) related to operations are listed as part of the reconciliation schedule. In other words, the“target numbers” appear with the opposite sign they had in explaining the change in the balance sheet accounts. • Don’t forget to note any noncash investing or financing activities you come across as these will add to the total number of correct items that I’m looking for. • You will have at least 2 or 3 “free misses” with respect to the list of items I score on the statement of cash flows: o Direct method cash flows like cash collected from customers and income taxes paid. If you do not prepare at least the top section of the direct method statement of cash flows, you will not get full credit. In other words, the income statement section of the working paper has the cash receipts and the cash disbursements in the far right column (once you are done) but the description changes from “salaries expense” to “salaries paid” (for example). I won’t know that YOU know this unless you prepare the top part of the formal statement! o I also count each financing and investing activity you identified correctly. If it is classified in the wrong section, it is counted as “half right.” o I count every correct item on the reconciliation schedule, including net income. o I count all the correctly identified noncash financing or investing activities. o Note that I can grade from the working paper – with the exception of the operating cash flows (as described above). Do not waste time writing out the reconciliation schedule twice – put it either on the working paper or on the page provided for the formal


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UI ACCT 414 - Study Guide for Final Exam

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