[jeff]

@h0wdyus

Incorrect

The answer is B. Comparable sales.

“The use of comparable sales is not an income approach to valuation of a business, it is a market approach. Under the comparable sales approach, the value of a business is determined by comparing it to other entities with comparable characteristics for which the value is more readily determinable.”

This was a tricky one

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

so I just tried to reachedule on the website and it asked me to pay $58.56 now

so there is risk that they wont let me take it?

[Anonymous]

No idea, give them a call.

[Anonymous]

Thanks @MOD and @BPK1, that makes sense. So fiscal policy focuses more on demand and monetary policy would focus more on supply, in a sense?

The Wiley Test Bank didnt explain it at all. If you don't understand something, you're left to your own devices because they don't really explain much.

[Charell__]

@cannotpass from reading this forum Becker is much harder than the actual test. I'm using Becker as well but can't say for certain that it's true because I take mine tomorrow at 1:00pm. Just try! You can do it!

[M.O.D.]

Steers Company has just completed its prospective financial statements for the coming year. Relevant information is summarized below:

Projected net income $100,000

Anticipated capital expenditures 50,000

Increase in working capital 25,000

Depreciation expense 15,000

From the information provided above, the increase in Steers’ cash account for the coming year will be

Answer:

The change in cash can be calculated as follows:

GAAP-basis net income $100,000

Less: capital outlays (50,000)

Less: increase in working capital (25,000)

Add: depreciation expense (noncash) 15,000

Increase in cash $ 40,000

I don't agree with their treatment of the increase in working capital:

I submitted this objection to Gleim:

An increase in permanent working capital (say AR or AP) should be funded with long term debt, and would not affect the cash balance.

Furthermore, if cash is used to increase AR, that would not affect working capital because cash is also a working capital account.

Am I missing something?

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[M.O.D.]

Re expansionary policies

yes, fiscal policies try to stimulate demand (spending) in the economy, thus demand for goods.

Monetary polices try to stimulate business investment through lower interest rates and credit access. You can think of it as stimulating supply.

@Bpk

Your answer makes sense if one already knew that the US already imports more than it exports (has a current account deficit).

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[How many letters do you need]

Hi MOD: It's an interesting question and I'm a little stumped too. Thinking of one possible scenario, how about this one? If you decide to loosen collection standards in an effort to increase sales long term, one could argue that it would increase AR, thus creating an increase in working capital and an opportunity cost from a cash perspective. That is cash flow you could have had but currently do not. That's about the only scenario I can think of where that fits….

MBA,CMA,CPA, CFF?, ABV?

[M.O.D.]

@ letters

I agree that an increase in AR (looser credit policies/longer terms) would decrease cash, and this is likely what the question meant. I think I saw this very question on the CMA Gleim test bank but I ignored it then (I had more pressing issues).

But that would not affect working capital because the increase in AR would offset the decease in cash:

Working capital = cash + AR + inventory + prepaid expenses (all current assets) – AP and current liabilities.

If funds are shifted from cash to AR, it would decrease cash, but would not affect current (working) capital. This offset concept is extensively tested in the current ratio section.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

I'm assuming this question is wanting you to use the formula for free cash flow in which case, you would subtract the increase in working capital. The formula for FCF is:

Net Income+ Depreciation Expense- Capital Outlays-Increase in Working Capital

[Anonymous]

The reasoning behind subtracting the increase in working capital is a decrease from FCF because you would have less cash after acquiring additional working capital.

[M.O.D.]

Pray tell what is a FCF (Free Cash flow). Gleim does not cover this.

And does it assume that “Working Capital” does not include cash?

The rest of accounting theory includes it. Is this a finance redefinition of working capital?

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Anonymous]

Becker didn't cover it either, I came across it in the Wiley Testbank but based on the variables they've given I can only assume that what they're asking for is what Wiley refers to as Free Cash Flow.

[M.O.D.]

en.wikipedia.org/wiki/Free_cash_flow

I think this is based on operating cash flows. Interesting analysis, but the terms need to be defined first: note that cash is specifically excluded from Current Assets.

Then it would work.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[GoVPI]

Wren Co. manufactures and sells two products with selling prices and variable costs as follows:

A B

Selling price $18.00 $22.00

Variable costs12.00 14.00

Wren’s total annual fixed costs are $38,400. Wren sells four units of A for every unit of B. If operating income last year was $28,800, what was the number of units Wren sold?

Can someone explain to me how to get this answer? Thanks!

BEC 8/14/14 - Passed
Graduated from college 12/13/14
AUD 8/31/15 - 74. Retake - Passed
REG
FAR

[Anonymous]

@CPAin14:

Since CM-Fixed Costs= Operating Profit, you would set up the following equation:

[4(6B)+8B]-38,400=28,800

[4(6B)+8B]=67,200

32B=67,200

B= 2100

Then, find the units for A which is 4B= 8400

A:8400 + B: 2100= 10,500 units sold

[Author]

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