Wall Street Prep Premium Exam | 50 Questions
and Answers | Graded A+
What is generally not considered to be a pre-tax non-recurring (unusual or infrequent) item? –
Answer Extraordinary gains/losses
what is false about depreciation and amortization – Answer D&A may be classified within interest
expense
Company X’s current assets increased by $40 million from 2007-2008 while the companies current
liabilities increased by $25 million over the same period. the cash impact of the change in working
capital was – Answer a decrease of 15 million
the final component of an earnings projection model is calculating interest expense. the calculation may
create a circular reference because – Answer interest expense affects net income, which affects FCF,
which affects the amount of debt a company pays down, which, in turn affects the interest expense,
hence the circular reference
a 10-q financial filing has all of the following characteristics except – Answer issued four times a year.
Depreciation Expense found in the SG&A line of the income statement for a manufacturing firm would
most likely be attributable to which of the following – Answer computers used by the accounting
department
If a company has projected revenues of $10 billion, a gross profit margin of 65%, and projected SG&A
expenses of $2billion, what is the company’s operating (EBIT) margin? – Answer 45%
A company has the following information, 1. 2014 revenues of $5 billion,2013 Accounts receivable of
$400 million, 2014 accounts receivable of $600 million, what are the days sales outstanding – Answer
36.5
A company has the following information:
- 2014 Revenues of $8 billion
- 2014 COGS of $5 billion
- 2013 Accounts receivable of $400 million
- 2014 Accounts receivable of $600 million
- 2013 Inventories of $1 billion
- 2014 Inventories of $800 million
- 2013 Accounts payable of $250 million
- 2014 Accounts payable of $300 million
What are the inventory days for the company? – Answer 65.7 days
Which of the following is true – Answer Coca Cola’s brand name is not reflected as an intangible
asset on its balance sheet
A company has the following information: - 2014 share repurchase plan of $4 billion
- Average share price of $60 for the year 2013
- Expected EPS growth for 2014 of 10%
What should the number of shares repurchased by the company be in your financial model? – Answer
60.6 million
non-controlling interest – Answer is an expense on the income statement and equity o the balance
sheet
A company has the following information: - 2013 retained earnings balance of $12 billion
- Net income of $3.5 billion in 2014
- Capex of $200 million in 2014
- Preferred dividends of $100 million in 2014
- Common dividends of $400 million in 2014
Wall Street Prep | 43 Questions and
Answers | Graded A+
Assets – Answer resources a company uses to operate its business
includes cash, A/R, PP&E
Liabilities – Answer represents the company’s contractual obligations and includes A/P, debt, accrued
expenses
Shareholder’s equity – Answer is the residual
the value of the business available to the owners (shareholders) after debts have been paid off
Income statement – Answer illustrates the profitability of the company over a specified period of
time
broad sense: shows revenue-expenses
Balance sheet – Answer snapshot of the company economic resources and funding for those
resources at a given point in time (A = L + SE)
Revenue – Answer “top-line”
represents the sale of goods and services
it is recorded when earned (even though cash might not have been received at the time of transaction)
Expenses – Answer netted against revenue to arrive at net income
COGS (directly associate with good production), SG&A (indirectly associated with production), interest
expense (expense related to paying debt holders periodic payments), taxes, depreciation expense (noncash expense accounting for the use of PP&E, often imbedded within COGS and SG&A)
Net income – Answer “bottom-line”
revenue-expenses
the profitability available to common shareholder’s after debt payments have been made (interest
expense)
EPS (earnings per share) – Answer portion of a company’s profit allocated to each outstanding share
of common stock
EPS = (net income – dividends on preferred stock)/weighted average shares outstanding
Cash flow statement – Answer While cash is not necessarily received when a sale occurs, the income
statement still records the sale. As a result, the income statement captures all the economic transactions
of the business.
The cash flow statement is needed because the income statement uses what is called accrual
accounting. In accrual accounting, revenues are recorded when earned regardless of when cash is
received (revenue includes sales using cash and made on credit A/R)
Since we also want to have a clear understanding of the cash position of a company, we need the
statement of cash flows to reconcile the income statement to cash inflows and outflows.
“cash position of the company”
cash from operating activities, cash from investing activities, and cash from financing activities
Wall Street Prep Excel Questions and
Answers 100% Verified
Which of the following keys IS NOT a way to trace precedent cells? – Answer Ctrl Alt [
Please select the answer that best describes the shortcut to
Split (not freeze) an excel sheet into just two panes (top and bottom)
To navigate from pane to pane – Answer 1. With the active cell on any row but in column A, hit Alt W
S to split the panes to a top and bottom. 2. Hit F6 to jump from pane to pane (in some versions of Excel
you will need to hit F6 several times to get from one pane to the other).
You are in cell A1 and start a formula by typing = in a worksheet with split top and bottom panes. In
order to jump to the bottom pane while working on the formula: – Answer Hit F6
If I want to add the title “Company Financials” in cell A1 ensure that all columns are the same width
across all the worksheets in my workbook, how would I do that? – Answer 1. Group the wroksheets
by hitting Ctrl Shift and use the PageUp/Down keys to select the worksheets. 2. In the active sheet type
in “Company Financials” in A1 and apply the desired width to all columns 3. Remember to hit Ctrl Pageup
or Pagedown to make sure that future edits only apply to active sheet.
If I want to add the title “Company Financials” in cell A1 ensure that all columns are the same width
across all the worksheets in my workbook, how would I do that? – Answer 1. Group the wroksheets
by hitting Ctrl Shift and use the PageUp/Down keys to select the worksheets. 2. In the active sheet type
in “Company Financials” in A1 and apply the desired width to all columns 3. Remember to hit Ctrl Pageup
or Pagedown to make sure that future edits only apply to active sheet.
What is the keyboard sequence to
1) Group highlighted columns (but not to hide group)
2) Hide the group (will show a + sign above the column)
Wall Street Prep | 99 Questions and
Answers 100% Correct | 2023-2024
Do companies prefer straight-line or accelerated depreciation?
For GAAP reporting purposes, companies generally prefer straight-line depreciation. That’s because a
company will record lower depreciation in the early years of the asset’s life than if they had used
accelerated depreciation. As a result, companies using straight-line depreciation will show higher net
income than under accelerated depreciation.
Do companies depreciate land?
No, land is considered to have an indefinite life and is not depreciated.
Can companies amortize goodwill?
Under GAAP, public companies are not allowed to amortize goodwill. Instead, it must be tested annually
for impairment.
The longer answer is that under GAAP, public companies are not allowed to amortize goodwill and must
instead test it annually for impairment. However, private companies may elect to amortize goodwill. In
addition, for tax reporting purposes, goodwill may be amortized over 15 years under some
circumstances.
What is the impact of share issuance on EPS?
The major impact to EPS is that the actual share count increases, thereby decreasing EPS. However,
there is sometimes an impact on net income. That’s because assuming share issuances generate cash for
the company, there will be higher interest income, which increases net income and EPS slightly. Because
returns on excess cash for most companies are low, this impact is usually very minor and doesn’t offset
the negative impact to EPS from a higher share count.
What is the impact of share repurchases on EPS?
The major impact to EPS is that the actual share count is reduced, thereby increasing EPS. However,
there is sometimes an impact on net income. That’s because assuming share repurchases are funded
with the company’s excess cash, any interest income that would have otherwise been generated on that
cash is no longer available, thereby reducing net income – and EPS – slightly. Because returns on excess
cash for most companies are low, this impact is usually very minor and doesn’t offset the positive impact
to EPS from a lower share count.
How do you calculate earnings per share?
Earnings per share (EPS) is calculated as net income divided by the company’s weighted average shares
outstanding during the period.
There are two ways to measure EPS – Basic and Diluted. Basic
EPS is net income divided by the actual shares, while Diluted EPS is net income divided by actual shares
and shares from potentially dilutive securities such as options, restricted stock, and convertible bonds or
stock.
A company acquired a machine for $5 million in 2003 and has since generated $3 million in
accumulated depreciation. In addition, the PP&E now has a fair value of $20 million. Assuming GAAP,
what is the value of that PP&E on the company’s balance sheet?
The short answer is $2 million. Except for certain liquid financial assets which can be written up to reflect
fair market value, companies must carry the value of assets at their historical cost.
Do you amortize intangible assets?
Intangible like customer lists, copyrights and patents – assets that have a finite life – are amortized, while
others like trademarks (and goodwill) are considered to have indefinite lives and are not amortized.
How do capital leases affect the three financial statements?
Leases treated as capital leases (as opposed to operating leases) create an asset and associated liability
for the thing that is being leased. For example, if a company leases a building for 30 years, the building is
recognized as an asset on the lessee’s balance sheet with a corresponding debt-like liability. The income
statement impact is the depreciation expense associated with the building, as well as interest expense
associated with the financing.
How do operating leases affect the three financial statements?
Under US GAAP, companies can choose to account for leases as operating or capital leases.
Operating leases primarily only impact the income statement. When leases are accounted for as
operating leases, lease (rent) payments are treated as operating expenses like wages and utilities:
Regardless of whether you sign a 1-year lease or a 30-year lease, every time you pay the rent, cash is
credited and an operating expense is debited.
The only significant balance sheet impacts have to do with timing differences between payments
(prepaid and accrued rent) and the matching of rent payments to when the tenant benefits from that
rent (leading to balance sheet accruals for smoothing of rent escalations and upfront rent incentives like
a free month). Starting in 2019, operating leases will no longer be allowed under US GAAP.
How can a profitable firm go bankrupt?
To be profitable, a company must generate revenues that exceed expenses. However, if the company is
ineffective at collecting cash from customers and allows its receivables to balloon, or if it is unable to get
favorable terms from suppliers and must pay cash for all inventories and supplies, what can occur is that
despite a profitable income statement, the company suffers from liquidity problems due to the timing
mismatch of cash inflows and outflows.
While reliably profitable companies who simply have these working capital issues can usually secure
financing to deal with it, theoretically, if financing becomes unavailable for some reason (the 2008 credit
crisis is an example where even profitable companies couldn’t secure financing), even a profitable
company could be forced to declare bankruptcy.
Is it bad if a company has negative retained earnings?
Not necessarily. Retained earnings will be negative if the company has generated more accounting losses
than profits. This is often the case for early-stage companies that are investing heavily to support future
growth. The other component of retained earnings is common or preferred dividends, which could
contribute to a lower or even negative retained earnings.
What’s more important: the income statement or the cash flow statement?
hey are both important and any serious analysis requires using both. However, I would think that the
cash flow is slightly more important because it reconciles net income, the accrual-based bottom line on
the income statement to what’s happening to cash, while also showing you the critical movement of
cash during the period. Without the cash flow statement, I can only see what’s happening from an
accrual profitability standpoint. The cash flow statement on the other hand can alert me to any liquidity
issues, as well as any other major investments or financial activities that do not hit the income
statement.
The one situation in which I would prefer the income statement is if I also have the beginning and endof-year balance sheet. That’s because I could reconcile the cash flow statement simply by looking at the
balance sheet year over changes along with the income statement.
Why are increases in accounts receivable a cash reduction on the cash flow statement?
Since cash flow statements start with net income, and net income captures all of a company’s revenue –
not just cash revenue – an increase in accounts receivable suggests that more customers paid with credit
during the period and so an adjustment down needs to be made to net income when arriving at cash
since the company never actually received those funds – they’re still sitting on the balance sheet as
receivables.
How should increases in inventory get handled on the cash flow statement?
Increases in inventory, as well as any other working capital assets, reflect a usage of cash and should thus
be reflected as an outflow on the cash from operations section of the cash flow statement. Conversely,
increases in working capital liabilities represent a source of cash and should be presented as an inflow in
the section.
Do inventories get captured on the income statement?
There is no inventory line on the income statement, but it does get captured, if only partially, and
indirectly in cost of goods sold (and potentially other operating expenses).
For example, COGS is recognized on the income statement during a period, regardless of whether the
associated inventory was purchased during the same period. That means that a portion of the COGS line
on the income statement will likely reflect a portion of inventory used up. That’s why the other two
financial statements are better for understanding what is happening to inventory. Specifically, the cash
flow statement shows the year-over-year changes in inventory, while the absolute balance of beginning
and end-of-period inventory can be observed on the balance sheet.
Which section of the cash flow statement captures interest expense?
Wall Street Prep Accounting | 180 Questions
and Answers | Updated 2023-2024
Liquidity Ratios – Answer measures of a firm’s short-term ability to meet its current obligations
Profitability Ratios – Answer measures of a firm’s profitability relative to its assets (operating
efficiency) and to its revenue (operating profitability)
Activity Ratios – Answer Measure of efficiency of a firm’s assets
Solvency Ratios – Answer Measure of a firm’s ability to pay its obligations
Inventory Turnover – Answer COGS / avg inventory
Receivables Turnover – Answer revenue / average accounts receivable
DSO (Days Sales Outstanding) – Answer AR/Credit Sales * days in period
days in period/receivables turnover
A/P turnover – Answer COGS / Average A/P
PPP (payables purchasing period) – Answer days in period/ Accounts payable turnover
Current Ratio – Answer current assets/current liabilities
Quick ratio (acid test) – Answer Cash and AR divided by current liabilities
Gross profit margin – Answer gross profit/revenue
operating margin – Answer operating profit/revenue
net profit margin – Answer net income/revenue
asset turnover – Answer revenue/ average assets
return on assets (ROA) – Answer Net Income / Average Assets
return on equity (ROE) – Answer net income/ total equity
Basic EPS – Answer (Net Income – Preferred Dividends)/(Weighted Average of Shares Outstanding)
Diluted EPS – Answer diluted net income / weighted average diluted shares outstanding
dividend yield – Answer dividends/net income
debt to EBITDA – Answer Total Debt/EBITDA
interest coverage ratio – Answer EBIT/ interest expense
fixed charge coverage – Answer (EBIT + Lease charges)/(Interest Payments + Lease charges)
Debt to Total Assets – Answer Total Debt/Total Assets
debt to equity – Answer total liabilities/total equity
cash from operations (CFO) – Answer uses net income as a starting point and converts accrual base
net income into cash flow from operations via a series of adjustments
cash from investing activities (CFI) – Answer capital expenditures / asset sales and purchases
cash from financing activities (CFF) – Answer new borrowing / pay down of debt / new issuance of
stock / share repurchases / issuance of dividends
working capital – Answer -CFO
-increase in current assets = cash outflow
-increase in current liabilities = cash inflow
asset write downs / impairments – Answer -added back to CFS via CFO
Increases in A/R, inventory, prepaid expenses, other current assets should be _ net
income to get to CFO – Answer subtracted
increases in A/P, accrued expenses, other current liabilities should be __ net income to get
to CFO – Answer added
gains on sale of assets – Answer subtracted from CFO
stock based compensation – Answer added to CFO
Common CFI inflows/outflows – Answer – capital expenditures
- purchases of intangible assets
- asset sales
- sales of debt/ equity security
- purchases of debt/equity security
Wall Street Prep: Excel Questions and
Answers | Updated 2023-2024
Add/delete sheets – Answer alt-i-w OR alt h-i-s
Moving around task ribbon – Answer Tab and shift (to select)
Auto fit cell – Answer alt-h-o-i
Custom fit columns – Answer alt h-o-w
Custom fit rows – Answer alt h-o-h
Select entire column/row – Answer ctrl shift-arrow key
Format cells – Answer ctrl 1
Paste special – Answer alt e-s
Freeze panes – Answer alt w-f-f
Split panes – Answer alt w-s
Move between panes – Answer F6
Get in cell AND navigate to others while inside – Answer F2
Edit a cell from the outside – Answer alt h-e
Wall Street Prep Accounting Questions
and Answers with Complete Solutions
FASB – Answer Financial Accounting Standards Board, which oversees GAAP through issuance of
SFAS, oversight by the SEC
SFAS – Answer Standard Financial Accounting Statements, issued by the FASB
AA,P,C: Accounting Entity – Answer The assumption that a corporation is an entity separate from any
person
AA,P,C: Going Concern – Answer The Assumption that a corporation will continue to exist for the
foreseeable future
AA,P,C: Measurement & Units – Answer The principle that financial statements can only show the
quantifiable assets or liabilities of a corporation
AA,P,C: Periodicity – Answer the principle that financial statements reflect a standard period of time,
usually years or quarters
AA,P,C: Historical Cost – Answer The principle that resources and liabilities are recorded at their
initial cost rather than a continuously updating value
AA,P,C: Revenue Recognition – Answer The principle that revenues are recorded when EARNED and
MEASURABLE
AA,P,C: Matching – Answer The principle that costs must be recorded in the same period that
revenues were generated
AA,P,C: Disclosure – Answer The principle that a corporation must reveal all relevant financial
information
AA,P,C: Estimates and Judgement – Answer The constraint that estimates/predictions cannot always
be accurate
AA,P,C: Materiality – Answer The constraint that one transaction may be deemed relevant for one
company but not another, usually based on size
AA,P,C: Consistency – Answer The constraint that recording methods and assumptions may not
always be the same over time
AA,P,C: Conservatism – Answer The constraint that assets are usually understated and liabilities are
not understated, for example historical cost measurements
Income Statement – Answer depicts the revenues and expenses of a company over a given time
period
Revenue – Answer proceeds from the goods or services offered for sale by a company
Cost of Goods Sold – Answer Represents the cost of manufacture or procurement for goods or
services that generate revenue (cost of inventory, factory overhead, raw materials, direct labor costs,
depreciation of fixed assets)
Gross Profit – Answer Revenue-Cost of Goods Sold, i.e. profit only after direct expenses have been
calculated
Selling, General and Administrative Expenses – Answer costs not directly associated with
manufacture or procurement of revenue driving goods or services
Research and Development Expenses – Answer costs associated with developing new products or
procedures
Wall Street Prep: Analyzing Financial
Reports
True or false: 10-Q’s must be filed four times a year for publicly traded companies. – Answer False;
only 3x a year
True or False: Both the 10-K and 10-Q filings are audited. – Answer False; only 10-K filings are
audited
True or false: All publicly traded companies and private companies with revenues greater than $850m
must file 10-K’s annually with the SEC. – Answer False
True or false: For large accelerated filers, 10-K’s must be filed no later than 90 days after the fiscal yearend date. – Answer False; for large accelerated filers, 10-Ks must be filed not later than 60 days after
the fiscal year-end date.
True or false: For accelerated filers, 10-K’s must be filed no later than 90 days after the fiscal year end
date. – Answer False; For accelerated filers, 10-K’s must be filed no later than 60 days after the fiscal
year-end date.
Companies often produce glossy annual reports.
True or false: These reports cannot contain information not included in the 10-K. – Answer False
Part I of the 10-K contains the Management Discussion & Analysis section, while Part II contains the
Financial statements and Footnotes. – Answer False
It is 4/18/2014. What are the revenues Google reported on its latest available quarterly financials (use
revenues for the latest three months)? Enter as a positive number in millions without $ sign or comma
separator (Ex: 2345) – Answer Google reported $15,420 million in revenues — Source filing: 4/16/14
8-k