Accounting: Interview Questions
All,
Looking for help with some basic accounting interview questions. Thanks in advance:
1) How does increasing a Deferred Tax Asset by $100 affect the three statements?
2) How does decreasing a Deferred Tax Asset by $100 affect the three statements?
3) If you use accelerated depreciation on your tax books but straight line on your GAAP books, how does this flow through the 3 statements? (Deferred Tax Liability Question)
Bump
Here's my thought process. Deferred taxes always jumbles my brain up so these are very likely partially incorrect:
1) Assuming all else equal, if DTA increases by $100, it means that compared to before, your pre-tax taxable income is now $250 (40% tax rate) higher than your pre-tax book income. Therefore, you pay $100 (25040%) more in taxes than your books reflect, which creates a $100 DTA. So, NI is +150 (25060%), CFS is +50 (NI +150; DTA -100), BS balances (Cash +50, DTA +100; RE +150).
2) Vice versa to (1).
3) For the first few years, you will have a lower taxable income than book income, as accelerated depreciation will cause your D&A to be higher on your tax statements. Therefore, you are paying less in taxes than what your books reflect - a DTL is thus created. In the ending years where depreciation from MACRs is lower than yearly straight-line depreciation, your D&A will be lower on your tax statements, which causes you to pay more taxes than what your books reflect, and therefore the previous DTL balance you created is reduced until eventually it zeroes out.
Thanks apenny. If anyone can confirm the responses above it would be greatly appreciated. Conceptually that seems to make sense to me though.
I agree with apenny. I think he is right.
Accounting Interview Questions (Originally Posted: 01/14/2011)
Hi guys, does anyone know where I can get a comprehensive list of accounting questions that will be asked at an ib interview? Thanks in advance.
http://www.ibankingfaq.com/ I would appreciate a silver banana if you don't mind.
Accounting interview questions (Originally Posted: 01/24/2013)
Can someone please help me answer these.
Walk through how the three statements are affected if you sell an asset after 1 year of depreciation
What happens to three statements if you buy back a bond
1) Income Statement will be impacted by a profit / loss on disposal which will simply be the price you sold it for minus the cost minus accumulated depreciation on the asset.
Balance Sheet will have a reduction in whatever line item the asset was from, an increase in cash and a reduction in Accumulated Depreciation (this last bit only applies if the company splits out acc.dep and doesn't just report the carrying value)
Cash Flow Statement will have positive cash flow from the sale.
2) I believe that share buybacks don't have any impact on the income statement, could be wrong though.
Balance sheet - treasury stock will go up (effectively down since it is a negative) and cash will go down.
CFS - negative cash flow in either Financing or Investing,
Just a couple of things to add to Asatar's post:
1) Income Statement - If you disposed of the asset during year two, and not at the very beginning (Jan 1), you're going to have a prorated depreciation expense amount to include for the time that you held the asset.
Cash Flow Statement - You'll add back any depreciation expense taken for the asset (assuming the scenario mentioned above). Any gain/loss will also be subtracted/added into the cash flow from operations (CFO). The actual dollar amount received will show up as a positive cash for in the cash flow from investing (CFI) section. BTW, I'm using the indirect method for the CFO since it's easier to compute.
2) Your post mentions a bond whereas Asatar's answer refers to shares (or common stock). I'm not sure if you originally meant bond or stock, so I'll do the bond side of things.
Income Statement - You'll most likely have a gain or loss from the early retirement of the bond. This is mainly dependent on if the bond was issued at a discount or at a premium, the bond issuing costs, and how much you paid for the retirement of the bond. You'll also record the equivalent interest expense on the bond in the same manner you would the depreciation scenario in #1.
Balance Sheet - Your cash obviously will go down for the purchase price to retire the bond. Subsequently the bond (at book value), the discount/premium (if there was any) and the bond issue costs will all be removed from the balance sheet.
Cash Flow Statement - As with the asset in #1, any gain/loss will be subtracted/added in the CFO, and any interest expense is added back in (again indirect method). On this part I'm not 100% sure, but I believe the purchase amount you paid for the retirement of the bond will be a negative cash flow from financing (GAAP anyway). Overall though there should be a cash outflow for the repurchase.
Good catch on the bond versus share.
The fact that he mentioned 'after one year of depreciation' led me to assume that it was bought on Jan 1st X1 and sold on Jan 1st X2, hence I didn't include any reversals of depreciation.
This was a good answer.
The depreciation is probably not a deal breaker for an interview. I would say though that during the interview it would be good to mention, just to show you know that may be the case. Since the start date is never mentioned, it could easily have been bought in June or whenever.
Better to know too much than too little.
Accounting Interview Question - 3 statements (Originally Posted: 04/07/2011)
I have never done any interviews but I have a question about answering accounting questions. When you are asked how something such as a $1,000 purchase of equipment using debt affects all 3 statements, are you given 3 statements on a piece of paper to help you map it out or do you have to keep everything in your head and make all the adjustments by saying one account increases by x and another decreases by y and so on?
You are expected to do it by scratch. The kinds of questions they ask can all be done pretty easily on scratch paper, which is fine to use in an interview to show your thought process. Do a search on those types of questions there are tons on here plus the WSO guide covers it as well.
Buy the M&I or WSO technical guide. All your questions will come from there. ibankingfaq.com is good free ones.
Accounting Interview Q's for non-finance majors? (Originally Posted: 01/12/2011)
Hello fellow WSO comrads,
I have an upcoming interview for a boutique IB. This will be my first internship relating to finance and I am an economics major with only one introductory Accounting course. My question is what kind of technical and accounting questions am I expected to know regardless of background?
I bought the Interview prep and it seems as if interviewers expect a fair amount of skill whether you are an accounting/finance major or not....is this true? Any examples of interview questions from people with a similar background would be greatly appreciated.
Graduated from engineering, all interviews I had with all the differents banks were all very technical and involved knowing detailed things (plus the typical IB questions..)
"detailed things" mind elaborating?
If you bought the interview prep, stick with it. Master it, because it's compiled from the information you could be expected to know. I doubt it would get more technical than the WSO or BIWS guides.
Accounting Interview Question - Interview for summer analyst (Originally Posted: 03/03/2008)
Just had an interview for a summer analyst position at a BB and was asked the following question.
Company A wants to distribute $50mm of the $60mm in cash on its balance sheet prior to being acquired. Company A currently has $48mm of Shareholders' Equity. What effect will this have on Shareholders' equity?
I walked through the question saying that I assumed would be treated as a cash dividend of some type. This would flow through the CF statement and decrease cash by 50. The offset to balance the BS would be a decrease of 50 in retained earnings. Thus giving you a negative $2mm in shareholders equity. The interviewer did not tell me if I got it right or not. I think there must be some catch to this cause how do you have a negative shareholders' equity.
Can anyone help me with this problem I thought it was fairly simple except for the negative shareholders' equity?
Your answer is correct. Also, you can definitely have negative shareholders equity. Pretend you have a startup company that just went IPO and loses money the first two years. The company will have negative S/E but won't necessairly be bankrupt.
absolutely. many companies operate with negative shareholders equity for long periods of time (like Amazon)
Accounting Questions - What kind of questions are asked (Originally Posted: 09/01/2007)
what kind of accounting questions will be asked for IB analyst positions ?
I know they are mostly about statements, but is is like "what is retained earnings ? " , or do we have to use the statements to derive something else ?
How does a transaction flow through all statemants Have other people got other questions? It will be great if will can accumulate these accounting questions
Search for "CS Phone Interview"
There are some good questions in that thread.
http://www.ibankingoasis.com/node/2608
Here's one I got from CIBC ...
Say interest expense is overstated by $10 million, what are the adjustments to be made to the I/S, B/S, and Statement of Cash Flows?
The easiest way to think about adjustments is to look at how the original transaction was recorded in the first place and then reverse them out.
The original entry would have been: 1) Debit interest expense (in the P&L) 2) Credit interest expense accrual (in the balance sheet) 3) No impact on the cashflow statement
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