Financial Reporting & Analysis Flashcards

Under the effective interest method, bond discount amortization causes interest expense to be:

Answer: Greater than the coupon payment

When a bond is issued at a discount, the carrying value is below face value, so effective interest expense exceeds the stated coupon payment.

A company's earnings per share (EPS) calculation must exclude which of the following from the share count for basic EPS?

Answer: Treasury shares

Treasury shares are repurchased shares held by the company and are excluded from both basic and diluted EPS calculations.

Which ratio best measures a company's ability to meet short-term obligations using only its most liquid assets?

Answer: Cash ratio

The cash ratio (cash + cash equivalents / current liabilities) uses only the most liquid assets to measure short-term solvency.

Deferred tax liabilities arise when:

Answer: Tax expense exceeds taxes currently payable

Deferred tax liabilities arise when tax expense on the income statement exceeds actual taxes currently owed to the government.

The DuPont analysis breaks return on equity (ROE) into which three components?

Answer: Profit margin, asset turnover, financial leverage

DuPont analysis decomposes ROE into net profit margin × asset turnover × equity multiplier (financial leverage).

Under ASC 842, operating leases appear on a lessee's balance sheet as:

Answer: A right-of-use asset and a lease liability

ASC 842 requires lessees to recognize both a right-of-use asset and a corresponding lease liability for operating leases.

Horizontal analysis of financial statements compares:

Answer: Financial data across multiple time periods

Horizontal analysis examines changes in financial statement items over multiple accounting periods to identify trends.