Urgent Accounting help needed for IBD interivew

These are all essentially more or less the same question - you just need to know how the three statements link. Our listing the answers out for you isn't going to help you very much, as you won't understand the accounting concepts behind the answers. Memorizing the answers won't get you anywhere; you need to actually know accounting or you won't be able to answer the accounting questions during the interview (and you're not going to learn accounting in 24 hours on an internet forum). A safer bet would be, if you get an accounting question, to just say that you've never had accounting before and that you can't answer the question.

I've never gotten an accounting question during an interview without the interviewer prefacing, "Have you had accounting before?" If you say no, they most likely won't ask you accounting questions.

I have an interview coming up as well, I'd appreciate some feedback - lets see if I know what I am doing.

Assume tax rate of 40%

1. Increase in Accounts Receivable by $5,000 IS: EBT increases by $5000, NI increases by $3000 CFS: cash taxes don't increase but book taxes will increase by $2000 BS: AR increases by $5000, def tax liability increases by $2000, SE increases by $3000

2. Increase in Inventory by $10,000 IS: no change CFS: cash decreases by $10,000 BS: Cash decreases by $10,000, Inventories increase by $10,000, no change in SE

3. Increase cash revenues by $100,000 IS: NI may increase: it depends on whether or not this increase will be recognized in the current period. Lets suppose that none of this revenue is going to be recognized, thus no change in NI. CFS: cash increases by $60,000 BS: cash increases by $60,000 increase in income tax asset by $40,000, unearned revenue liability increases by $100,000. No change in SE.

4. Increase cash expenses by $60,000 IS: I'm going to assume that these expenses are going to be recognized and are tax deductible in the current period. So NI decreases by $36,000 CFS: cash decreases by $36,000 BS: Cash decreases by $36,000, SE decreases by $36,000

5. Increase Accounts Paybable by $10,000 IS: NI decreases by $6,000 CFS: cash increases by $4,000 BS: Cash increases by $4,000, AP increases by $10,000, SE decreases by $6,000

6. Increase depreciation expense for tax purposes by $30,000 IS: no change. CFS: cash increases by $12,000 BS: cash increases by $12,000, income tax liability increases by $12,000, no change in SE.

It's not a matter of learning these questions individually but how the entire machine works. If you have a solid understanding of the basic accounting then you should be able to answer what happens to the financial statement if ANY line item were to change. Know how to solve the relationship accounting questions... it's all they really ask when it comes to accounting. Niles did a great job. There's a small error on #6 though and I'd approach #1 and #3 a little differently. Unless it's a change in CapEx, I like to assume changes for tax were paid immediately through cash and not deferred. None of the interviewers I've had have seemed to have a problem with that.

Corrections:

1. Increase in Accounts Receivable by $5,000 IS: EBT increases by $5000, NI increases by $3000 CFS: cash taxes don't increase but book taxes will increase by $2000 BS: AR increases by $5000, def tax liability increases by $2000, SE increases by $3000

Assuming that the A/R was used to increases revenue: - I/S is correct as is. - For the CFS, the net income under operating activities increases by $3000. There is a change in working capital of $5000 (which is subtracted), giving a change in cash flow of -$2000. This makes sense, it is the amount that was paid towards taxes. - For the BS, cash decreases by $2000, A/R increases by $5000 with the left hand side seeing a change of $3000. Retained earnings sees an increase of $3000 to balance the equation.

3. Increase cash revenues by $100,000 IS: NI may increase: it depends on whether or not this increase will be recognized in the current period. Lets suppose that none of this revenue is going to be recognized, thus no change in NI. CFS: cash increases by $60,000 BS: cash increases by $60,000 increase in income tax asset by $40,000, unearned revenue liability increases by $100,000. No change in SE.

It might be a tossup, but I think the interviewer would be happier if you included the transaction in this year's period. By including the IS, You'd have more to talk about and would get to show off more of your accounting knowledge

I/S: N/I increases by $100,000 so pre-tax increases by $100,000. Taxes increase by $40,000 and NI increases by $60,000 CFS: Correct as is BS: Cash increases by $60,000 under short-term assets. Under equity, retained earnings increases by $60,000 to reflect the change in NI.

6.) Increase depreciation expense for tax purposes by $30,000 IS: no change. CFS: cash increases by $12,000 BS: cash increases by $12,000, income tax liability increases by $12,000, no change in SE.

A change in depreciation exp has effects on the I/S. Why else would a company fiddle with their depreciation to save on taxes if it didn't?

I/S: Dept EXP comes out of EBITDA so your pre-tax income should go down by 30,000 with NI decreasing by $18,000 CFS: Under operating activities, NI decreases by $18,000 but Dep increases by $30,000 so there is an increase is cash of $12,000 BS: Under short-term assets, cash increases by $12,000. Under long-term assets, PPE decreases by $30,000 since depreciation is a contra-account to PPE leaving you with a total of -$18,000 on the left hand side. This would be balanced by a decrease in your retained earning by $18,000 to reflect the changes in the I/S.

Thanks so much for all of your help...I'll keep you guys posted on how it goes.