Financial Reporting & Analysis Flashcards

Under ASC 842, how must a lessee classify a lease that transfers ownership of the asset to the lessee by the end of the lease term?

Answer: Finance lease

Transfer of ownership is one of the five criteria that automatically classify a lease as a finance lease under ASC 842.

Which financial statement reconciles net income to cash provided by operating activities under the indirect method?

Answer: Statement of cash flows

The indirect method starts with net income and adjusts for non-cash items and working capital changes to arrive at operating cash flow.

A company reports a current ratio of 0.8. What does this indicate?

Answer: The company may struggle to meet short-term obligations

A current ratio below 1.0 means current liabilities exceed current assets, signaling potential short-term liquidity risk.

Under IFRS 15, revenue is recognized when a performance obligation is:

Answer: Satisfied by transferring control to the customer

IFRS 15 requires revenue recognition when (or as) the entity satisfies a performance obligation by transferring control of the promised good or service.

Which inventory costing method reports the highest cost of goods sold during a period of rising prices?

Answer: LIFO

LIFO assigns the most recently purchased (highest-cost) inventory to COGS first, producing the highest COGS in an inflationary environment.

What does the debt-to-equity ratio measure?

Answer: The proportion of assets financed by creditors versus shareholders

The debt-to-equity ratio compares total debt to shareholders' equity, indicating the relative proportion of creditor versus owner financing.

When a company issues a bond at a discount, the carrying value of the bond over its life will:

Answer: Increase to par value at maturity

Amortization of the bond discount increases the carrying value each period until it equals par value at maturity.