[Anonymous]

For anyone who’s interested or is taking BEC soon and wants to practice. We did this in the Q2 FAR group and it was really helpful, especially for memorizing formulas, which as we all know, BEC is heavy with. Answer or ask your own question! Just be sure to come back on here and let the person who answered know if they were right or wrong 🙂

I’ll start it off:

What is the formula to calculate Marginal Propensity to Consume (MPC)?

[Monkey Wrench]

Change in Consumption/Change in Income

What is the rationale behind some ratio's having averages and other not?

[Anonymous]

@monkey- correct. I actually have no clue what the answer to that one is though. Good question, I'm curious to know what the answer is because that's what throws me off the most when I'm memorizing formulas. My assumption is that it's evening out the activity over the year which reflects a more accurate financial ratio, because it's compensating for ups and downs.

[M.O.D.]

MPC = 1 – marginal propensity to save

It is used to calculate the multiplier = 1/(1-MPC)

The multiplier indicates how much GDP will increase (or decrease) as a result of fiscal policies (ie govt spending).

real GDP increase = multiplier x expenditures

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]

Partially correct @MOD. That's how you calculate the multiplier effect but I came across a question on the Wiley TB that gave me the change in net income, change in spending, and change in sales and asked me to calculate the MPC. Becker really didn't dive into that calculation at all.

[M.O.D.]

Financial ratios with averages (or weighted) are turnovers: inventory, AR, AP and profitability: ROE, ROA, EPS

Financial ratios without averages are liquidity: current ratio, quick ratio

I think of the averages as being more accurate (for analysis), but just using the latest data (not averaged) to be more stringent (for credit evaluation).

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)

[Monkey Wrench]

I was going through FAR on CPAexcel and they said the answer to the above, when I was going thru the ratios for them, I don't recall ever hearing it when going thru BEC. but, the answer is:

When you compare B/S to B/S there is no reason to need averages because it is a fixed point of the year, same for when you compare I/S to I/S. BUT when you start comparing, specifically operating ratios, you are comparing numbers from the Income statement to the balance sheet. Since the B/S is a fixed point in the year and the Income statement is a continuation of the year, it requires you to take the beginning and ending from the balance sheet and average them.

I hope that makes sense, I am not the most eloquent in explaining things through text! I would be a terrible textbook author!

[M.O.D.]

Gleim does not cover MPC much either. I remember though from Econ class.

I think it is more important to understand the concepts and theory of monetary policy and fiscal policy.

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)

[Monkey Wrench]

I have found it more likely for them to give you MPC or MPS and just realize you need to substract it from 1 to get the difference. Basically just the concept that they are =1

[Anonymous]

@MOD I agree. I pretty much stick with whatever Becker teaches because I've found the Wiley questions tend to be more specific than the exam gets.

[Anonymous]

Explain what interest rate risk is:

[M.O.D.]

Interest rate risk is the risk that a company's investments or financing will be adversely affected by a rise in interest rates (or a fall in interest rates).

How do you respond to interest rate risk?

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]

Hmm, hedging or diversifying the portfolio between LT and ST debt? I'm doing this purely by memory so it's a bit harder 🙂

[M.O.D.]

Hedging against changes in interest rates:

Cash flow swaps

use of options and futures

Changing the mix of LT and ST debt is not done because LT debt should finance LT assets and ST debt should be used carefully (for short term needs only) due to the risk of being unable to refinance it.

Besides, the point of hedging is not to replace a risky asset but to cover the possibility of loss.

If one sells or replaces the asset, the risk is gone, and hedging does not apply anymore.

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.]

What are general controls in IT?

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]

Controls that ensure the company's operating environment is stable, i.e- change management controls or controls over the system as a whole (as compared to application controls which are specific to a particular application)

How do you calculate GDP under both the income and expenditure approach?

[Author]

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