MI 400 Exam Questions with 100 Verified

M&I 400 Exam Questions with 100% Verified Correct Answers Walk me through the 3 financial statements. - Correct Answer The 3 major financial statements are the

• Income Statement
• Balance Sheet
• Cash Flow Statement

The Income Statement gives the company's revenue and expenses, and goes down to Net Income.The Balance Sheet shows the company's Assets- it's resources- such as Cash, Inventory and PP&E, as well as its Liabilities- such as Debt and Accounts Payable- and Shareholders' Equity.Assets= Liabilities+Shareholders' Equity The Cash Flow Statement begins with Net Income, adjusts for non-cash expenses and working capital changes, and then lists cash flow from investing and financing activities; at the end, you see the company's net change in cash.Can you give examples of major line items on each of the financial statements? - Correct Answer

Income Statement:

• Revenue
• COGS (cost of goods sold)
• Gross Margin
• Operating Expenses (R&D, SG&A)
• Operating Income
• Other Income and Expense
• Pretax Income
• Provision for Income Taxes
• Net Income
• Earnings per common share 1 / 4

Balance Sheet:

Assets-

• Cash and cash equivalents
• Short-term investments
• Accounts receivable
• Inventories
• Deferred tax asset
• PP&E
• Goodwill
• Acquired intangible assets (patents & copyrights)

Liabilities & Shareholders' Equity-

• Accounts payable
• Accrued expenses
• Non-current liabilities (debt, bonds issued, mortgage, loans)
• Common stock
• Retained earnings

Cash Flow Statement:

Cash and Cash Equivalents, beginning of the year (from B.S.) Operating Activities- Net income Non-cash expense

• D&A (A)
• Stock-based compensation expense
• Provision for deferred income taxes 2 / 4

• Loss on disposition of PP&E

Changes in operating assets and liabilities-

• Accounts Receivable
• Inventories
• Other current assets
• Other assets
• Accounts payable
• Deferred revenue
• Other liabilities

CASH FLOW FROM OPERATIONS

Investing Activities (CAPITAL EXPENDITURES)-

• Purchases of short-term investments
• Proceeds from maturities of short-term investments
• Proceeds from sale of short-term investments
• Purchases of long-term investments
• Payments made in connection with business acquisitions
• Payment for acquisition of PP&E
• Payment for acquisition of intangible assets

CASH FLOW FROM INVESTING

Financing Activities (SALE/PURCHASE OF SECURITIES) -

• Proceeds from issuance of common stock (DIVIDENDS ISSUED)

CASH FLOW FROM FINANCING 3 / 4

How do the 3 statements link together? - Correct Answer 1. The net income from the Income Statement, after the payment of any dividends, is added to retained earnings on the Balance Sheet.

• Debt on the Balance Sheet is used to calculate the interest expense on the Income Statement.
• PP&E will be used to calculate any depreciation expense.
• The beginning cash on the Cash Flow Statement comes from the previous period's Balance Sheet.
• Cash from operations on the Cash Flow Statement is affected by the Balance Sheet's numbers for

changes in working capital.

• PP&E is another Balance Sheet item that affects the CF Statement because depreciation is based

on the amount of PP&E a company has.

• Any change due to the purchase or sale of PP&E with affect cash from investing.
• The CF Statement's ending cash balance becomes the beginning cash balance on the new Balance

Sheet.If I were stranded on a desert island, only had 1 statement and I wanted to review the overall health of a company-- which statement would I use and why? - Correct Answer The Cash Flow Statement because it gives a true picture of how much cash the company is actually generating, independent of all the non-cash expenses you might have.Cash is the #1 thing you care about when analyzing the overall financial health of any business.The Income Statement can be misleading due to any number of non-cash expenses that may not truly be affecting the overall business. And the Balance Sheet alone just shows a snapshot of the company at one point in time, without showing how operations are actually performing.Let's say I could only look at 2 statements to assess a company's prospects-- which 2 would I use and why? - Correct Answer The Income Statement and Balance Sheet because you can create the Cash Flow Statement from both of those.Walk me through how Depreciation going up by $10 would affect the statements. - Correct Answer

Income Statement:

Operating Income would decline by $10 and assuming a 40% tax rate, Net Income would go down by $6.

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