©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
Wall Street Prep Redbook Exam Questions
And Answers (Guaranteed A+)
What is the primary purpose of US GAAP? - answer✔In the US, the Securities and Exchange
Commission ("SEC") authorizes the Financial Accounting Standards Board ("FASB") to determine
the set of accounting rules followed by publicly traded companies.
Under FASB, financial statements are required to be prepared in accordance with US Generally
Accepted Accounting Principles ("US GAAP").
Through the standardization of financial reporting and ensuring all financials are presented on a
fair, consistent basis - the interests of investors and lenders are protected.
What are the main sections of a 10-K? - answer✔In a 10-K, you'll find the three core financial
statements, which are the income statement, cash flow statement, and balance sheet. There'll
also be a statement of shareholders' equity, a statement of comprehensive income, and
supplementary data and disclosures to accompany the financials.
Business Overview: Overview of the company's business divisions, strategy, product or service
offerings, seasonality, geographical footprint, and key risks.
Management's Discussion & Analysis ("MD&A"): Commentary and summarized analysis of the
company's fiscal year result from the perspective of the management team.
Financial Statements: The "Core 3": Income Statement, Balance Sheet, Cash Flow Statement
The "Other 2": Statement of Comprehensive Income, Statement of Shareholders' Equity
What is the difference between the 10-K and 10-Q? - answer✔10-K: A 10-K is the annual report
required to be filed with the SEC for any public company in the U.S. The report is
comprehensive and includes a full overview of the business operations, commentary on recent
1|Page
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ALL RIGHTS RESERVED.
performance by management, risk factors, disclosures on changes in accounting policies - and
most importantly, the three core financial statements with supplementary data.
10-Q: A 10-Q refers to the quarterly report required to be filed with the SEC. Compared to the
10-K, this report is far more condensed in length and depth, with the focus being on the
quarterly financials with brief sections for MD&A and supplementary disclosures.
Additional Differences: A few more differences are 10-Ks are required to be audited by an
independent accounting firm, but 10-Qs are only reviewed by CPAs and left unaudited. 10-Ks
must also be filed ~60-90 days after the fiscal year ends, whereas 10-Qs must be submitted
~40-45 days after the quarter ends.
Walk me through the three financial statements. - answer✔Income Statement ("IS"): The
income statement shows a company's profitability over a specified period, typically quarterly
and annually. The beginning line item is revenue and upon deducting various costs and
expenses, the ending line item is net income.
Balance Sheet ("BS"): The balance sheet is a snapshot of a company's resources (assets) and
sources of funding (liabilities and shareholders' equity) at a specific point in time, such as the
end of a quarter or fiscal year.
Cash Flow Statement ("CFS"): Under the indirect approach, the starting line item is net income,
which will be adjusted for non-cash items such as D&A and changes in working capital to arrive
at cash from operations. Cash from investing and financing activities are then added to cash
from operations to arrive at the net change in cash, which represents the actual cash
inflows/(outflows) in a given period.
Walk me through the income statement. - answer✔The income statement shows a company's
accrual-based profitability over a specified time period and facilitates the analysis of its
historical growth and operational performance. The table below lists the major income and
expense components of the income statement:
Net Revenue (or Sales): The income statement begins with revenue (often called the "top line"),
which represents the total value of all sales of goods and delivery of services throughout a
specified period.
2|Page
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ALL RIGHTS RESERVED.
Less: Cost of Goods Sold: COGS represents the costs directly tied to producing revenue, such as
the costs of materials and direct labor.
Gross Profit: Revenues - Cost of Goods Sold = Gross Profit
Less: Research & Development ("R&D"): R&D refers to developing new products or procedures
to improve their existing product/service offering mix.
EBITDA: Gross Profit - SG&A - R&D = EBITDA. EBITDA stands for: Earnings Before Interest, Taxes,
Depreciation & Amortization.
Less: Depreciation & Amortization ("D&A"): D&A is a non-cash expense that estimates the
annual reduction in the value of fixed and intangible assets
Operating Income ("EBIT"): EBITDA - D&A = Operating Income (or EBIT) EBIT stands for:
Earnings Before Interest and Taxes.
Less: Interest Expense, net: Interest expense from debt, net of interest income generated from
investments.
Pre-Tax Income ("EBT"): EBIT - Interest Expense, net = Pre-Tax Income (or "Earnings Before
Tax")
Less: Tax Expense: Tax liability recorded by a company for book purposes.
Net Income: EBT - Tax Expense = Net Income (referred to as the "bottom line")
Walk me through the balance sheet. - answer✔The balance sheet shows a company's assets,
liabilities, and equity sections at a specific point in time. The fundamental accounting equation
3|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
is: Assets = Liabilities + Shareholders' Equity. The assets belonging to a company must have
been funded somehow, so assets will always be equal to the sum of liabilities and equity.
Assets Section: Assets are organized in the order of liquidity, with "Current Assets" being assets
that can be converted into cash within a year, such as cash itself, along with marketable
securities, accounts receivable, prepaid expenses, and inventories. "Long-Term Assets" include
property, plant, and equipment (PP&E), intangible assets, goodwill, and long-term investments.
Liabilities Section: Liabilities are listed in the order of how close they're to coming due. "Current
Liabilities" include accounts payable, accrued expenses, and short-term debt, while "Long-Term
Liabilities" include items such as long-term debt, deferred revenue, and deferred income taxes.
Shareholders' Equity Section: The equity section consists of common stock, additional paid-in
capital (APIC), treasury stock, and retained earnings.
Could you give further context on what assets, liabilities, and equity each represent? -
answer✔Assets: Assets are resources with economic value that can be sold for money or bring
positive monetary benefits in the future. For example, cash and marketable securities are a
store of monetary value that can be invested to earn interest/returns, accounts receivable are
payments due from customers, and PP&E is used to generate cash flows in the future - all
representing inflows of cash.
Liabilities: Liabilities are unsettled obligations to another party in the future and represent the
external sources of capital from third parties, which help fund the company's assets (e.g., debt
capital, payments owed to suppliers/vendors). Unlike assets, liabilities represent future
outflows of cash.
Equity: Equity is the capital invested in the business and represents the internal sources of
capital that helped fund its assets. The providers of capital could range from being self-funded
to outside institutional investors. In addition, the accumulated net profits over time will be
shown here as "Retained Earnings."
What are the typical line items you might find on the balance sheet? - answer✔Assets Section
4|Page
ALL RIGHTS RESERVED.
Wall Street Prep Redbook Exam Questions
And Answers (Guaranteed A+)
What is the primary purpose of US GAAP? - answer✔In the US, the Securities and Exchange
Commission ("SEC") authorizes the Financial Accounting Standards Board ("FASB") to determine
the set of accounting rules followed by publicly traded companies.
Under FASB, financial statements are required to be prepared in accordance with US Generally
Accepted Accounting Principles ("US GAAP").
Through the standardization of financial reporting and ensuring all financials are presented on a
fair, consistent basis - the interests of investors and lenders are protected.
What are the main sections of a 10-K? - answer✔In a 10-K, you'll find the three core financial
statements, which are the income statement, cash flow statement, and balance sheet. There'll
also be a statement of shareholders' equity, a statement of comprehensive income, and
supplementary data and disclosures to accompany the financials.
Business Overview: Overview of the company's business divisions, strategy, product or service
offerings, seasonality, geographical footprint, and key risks.
Management's Discussion & Analysis ("MD&A"): Commentary and summarized analysis of the
company's fiscal year result from the perspective of the management team.
Financial Statements: The "Core 3": Income Statement, Balance Sheet, Cash Flow Statement
The "Other 2": Statement of Comprehensive Income, Statement of Shareholders' Equity
What is the difference between the 10-K and 10-Q? - answer✔10-K: A 10-K is the annual report
required to be filed with the SEC for any public company in the U.S. The report is
comprehensive and includes a full overview of the business operations, commentary on recent
1|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
performance by management, risk factors, disclosures on changes in accounting policies - and
most importantly, the three core financial statements with supplementary data.
10-Q: A 10-Q refers to the quarterly report required to be filed with the SEC. Compared to the
10-K, this report is far more condensed in length and depth, with the focus being on the
quarterly financials with brief sections for MD&A and supplementary disclosures.
Additional Differences: A few more differences are 10-Ks are required to be audited by an
independent accounting firm, but 10-Qs are only reviewed by CPAs and left unaudited. 10-Ks
must also be filed ~60-90 days after the fiscal year ends, whereas 10-Qs must be submitted
~40-45 days after the quarter ends.
Walk me through the three financial statements. - answer✔Income Statement ("IS"): The
income statement shows a company's profitability over a specified period, typically quarterly
and annually. The beginning line item is revenue and upon deducting various costs and
expenses, the ending line item is net income.
Balance Sheet ("BS"): The balance sheet is a snapshot of a company's resources (assets) and
sources of funding (liabilities and shareholders' equity) at a specific point in time, such as the
end of a quarter or fiscal year.
Cash Flow Statement ("CFS"): Under the indirect approach, the starting line item is net income,
which will be adjusted for non-cash items such as D&A and changes in working capital to arrive
at cash from operations. Cash from investing and financing activities are then added to cash
from operations to arrive at the net change in cash, which represents the actual cash
inflows/(outflows) in a given period.
Walk me through the income statement. - answer✔The income statement shows a company's
accrual-based profitability over a specified time period and facilitates the analysis of its
historical growth and operational performance. The table below lists the major income and
expense components of the income statement:
Net Revenue (or Sales): The income statement begins with revenue (often called the "top line"),
which represents the total value of all sales of goods and delivery of services throughout a
specified period.
2|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
Less: Cost of Goods Sold: COGS represents the costs directly tied to producing revenue, such as
the costs of materials and direct labor.
Gross Profit: Revenues - Cost of Goods Sold = Gross Profit
Less: Research & Development ("R&D"): R&D refers to developing new products or procedures
to improve their existing product/service offering mix.
EBITDA: Gross Profit - SG&A - R&D = EBITDA. EBITDA stands for: Earnings Before Interest, Taxes,
Depreciation & Amortization.
Less: Depreciation & Amortization ("D&A"): D&A is a non-cash expense that estimates the
annual reduction in the value of fixed and intangible assets
Operating Income ("EBIT"): EBITDA - D&A = Operating Income (or EBIT) EBIT stands for:
Earnings Before Interest and Taxes.
Less: Interest Expense, net: Interest expense from debt, net of interest income generated from
investments.
Pre-Tax Income ("EBT"): EBIT - Interest Expense, net = Pre-Tax Income (or "Earnings Before
Tax")
Less: Tax Expense: Tax liability recorded by a company for book purposes.
Net Income: EBT - Tax Expense = Net Income (referred to as the "bottom line")
Walk me through the balance sheet. - answer✔The balance sheet shows a company's assets,
liabilities, and equity sections at a specific point in time. The fundamental accounting equation
3|Page
, ©FYNDLAY EXAM SOLUTIONS 2024/2025
ALL RIGHTS RESERVED.
is: Assets = Liabilities + Shareholders' Equity. The assets belonging to a company must have
been funded somehow, so assets will always be equal to the sum of liabilities and equity.
Assets Section: Assets are organized in the order of liquidity, with "Current Assets" being assets
that can be converted into cash within a year, such as cash itself, along with marketable
securities, accounts receivable, prepaid expenses, and inventories. "Long-Term Assets" include
property, plant, and equipment (PP&E), intangible assets, goodwill, and long-term investments.
Liabilities Section: Liabilities are listed in the order of how close they're to coming due. "Current
Liabilities" include accounts payable, accrued expenses, and short-term debt, while "Long-Term
Liabilities" include items such as long-term debt, deferred revenue, and deferred income taxes.
Shareholders' Equity Section: The equity section consists of common stock, additional paid-in
capital (APIC), treasury stock, and retained earnings.
Could you give further context on what assets, liabilities, and equity each represent? -
answer✔Assets: Assets are resources with economic value that can be sold for money or bring
positive monetary benefits in the future. For example, cash and marketable securities are a
store of monetary value that can be invested to earn interest/returns, accounts receivable are
payments due from customers, and PP&E is used to generate cash flows in the future - all
representing inflows of cash.
Liabilities: Liabilities are unsettled obligations to another party in the future and represent the
external sources of capital from third parties, which help fund the company's assets (e.g., debt
capital, payments owed to suppliers/vendors). Unlike assets, liabilities represent future
outflows of cash.
Equity: Equity is the capital invested in the business and represents the internal sources of
capital that helped fund its assets. The providers of capital could range from being self-funded
to outside institutional investors. In addition, the accumulated net profits over time will be
shown here as "Retained Earnings."
What are the typical line items you might find on the balance sheet? - answer✔Assets Section
4|Page
