BIWS 400 – Accounting Exam Questions and Answers
Grade A+
What happens when Accrued Expenses decreases by $10 (i.e. it's now paid
out in the form of cash)? Do not take into account cumulative changes from
previous increases in Accrued Expenses. - Answer-IS - no change
CFS - CFO: decrease in current liability of $10 leads to CFO decrease of $10
BS - Cash decreases by $10, accrued expense liability decreases by $10
Accounts Receivable increases by $10. Walk me through the 3 statements. -
Answer-IS - Revenue increases by $10, so net income increases by $6
CFS - CFO: Net income increases by $6, A/R increases by $10 so CFO decreases
by $10, so net decrease of $4
BS - Cash decreases by $4, A/R increases by $10, SE increases by $6 via retained
earnings
Intuition: When AR increases, it means that we've paid taxes on additional revenue
but haven't received any of that revenue in cash yet... so our cash balance decreases
by the additional amount of taxes we've paid.
,Prepaid Expenses decreases by $10. Walk me through the statements. - Answer-IS -
expenses increase by $10, pre-tax income decreases by $10, net income decreases
by $6
CFS - CFO: net income decreases by $6, prepaid expense (current asset) decreases
by $10 so cash increases by $10 for a net increase of $4
BS: cash increases by $4, prepaid expense decreases by $10 for net decrease in
assets of $6. SE decreases by $6 via net income.
Walk me through what happens on the 3 statements when there's an Asset Write-
Down of $100. - Answer-IS - expense increases by $100 so net income decreases
by $60
CFS - CFO: NI down by $60 but add back $100 for non-cash expense, giving net
increase of $40
BS - cash increases by $40, the given asset decreases by $100, so assets decrease
by $60. SE decreases by $60 via net income.
, Explain what happens on the 3 statements when a company issues $100 worth of
shares to investors. - Answer-IS - no change
CFS - CFF increases by $100
BS - cash increases by $100, SE increases by $100 via Common Stock and
Additional Paid-In Capital (APIC)
Let's say we have the same scenario, but now instead of issuing $100 worth of
stock to investors, the company issues $100 worth of stock to employees in the
form of Stock-Based Compensation. What happens? - Answer-IS - stock-based
compensation expense increases by $100, so net income is down by $60
CFS - CFO: net income down by $60, add back $100 for non-cash expense so net
increase of $40
BS - cash up by $40, Common Stock/APIC up by $100, but retained earnings via
net income is down by $60 for net increase of $40
A company decides to issue $100 in Dividends - how do the 3 statements change? -
Answer-IS - no change
CFS - CFF - down by $100
Grade A+
What happens when Accrued Expenses decreases by $10 (i.e. it's now paid
out in the form of cash)? Do not take into account cumulative changes from
previous increases in Accrued Expenses. - Answer-IS - no change
CFS - CFO: decrease in current liability of $10 leads to CFO decrease of $10
BS - Cash decreases by $10, accrued expense liability decreases by $10
Accounts Receivable increases by $10. Walk me through the 3 statements. -
Answer-IS - Revenue increases by $10, so net income increases by $6
CFS - CFO: Net income increases by $6, A/R increases by $10 so CFO decreases
by $10, so net decrease of $4
BS - Cash decreases by $4, A/R increases by $10, SE increases by $6 via retained
earnings
Intuition: When AR increases, it means that we've paid taxes on additional revenue
but haven't received any of that revenue in cash yet... so our cash balance decreases
by the additional amount of taxes we've paid.
,Prepaid Expenses decreases by $10. Walk me through the statements. - Answer-IS -
expenses increase by $10, pre-tax income decreases by $10, net income decreases
by $6
CFS - CFO: net income decreases by $6, prepaid expense (current asset) decreases
by $10 so cash increases by $10 for a net increase of $4
BS: cash increases by $4, prepaid expense decreases by $10 for net decrease in
assets of $6. SE decreases by $6 via net income.
Walk me through what happens on the 3 statements when there's an Asset Write-
Down of $100. - Answer-IS - expense increases by $100 so net income decreases
by $60
CFS - CFO: NI down by $60 but add back $100 for non-cash expense, giving net
increase of $40
BS - cash increases by $40, the given asset decreases by $100, so assets decrease
by $60. SE decreases by $60 via net income.
, Explain what happens on the 3 statements when a company issues $100 worth of
shares to investors. - Answer-IS - no change
CFS - CFF increases by $100
BS - cash increases by $100, SE increases by $100 via Common Stock and
Additional Paid-In Capital (APIC)
Let's say we have the same scenario, but now instead of issuing $100 worth of
stock to investors, the company issues $100 worth of stock to employees in the
form of Stock-Based Compensation. What happens? - Answer-IS - stock-based
compensation expense increases by $100, so net income is down by $60
CFS - CFO: net income down by $60, add back $100 for non-cash expense so net
increase of $40
BS - cash up by $40, Common Stock/APIC up by $100, but retained earnings via
net income is down by $60 for net increase of $40
A company decides to issue $100 in Dividends - how do the 3 statements change? -
Answer-IS - no change
CFS - CFF - down by $100
