Term
| How are changes in accounting principle applied? |
|
Definition
Retrospective Application:
Prior Periods adjusted
Retained Earnings adjusted
Completed Contract to % Completion
Ex: LIFO to FIFO |
|
|
Term
Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?
How would it be applied? |
|
Definition
A change of principle.
Applied retrospectively. |
|
|
Term
Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate?
How would this change be applied? |
|
Definition
A change in accounting principle.
Applied retrospectively. |
|
|
Term
| How is a change in accounting estimate applied? |
|
Definition
A change in accounting estimate is applied prospectively (going forward).
No backwards adjustment is made. |
|
|
Term
Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate?
How would this change be applied? |
|
Definition
Change in depreciation method would be a change in accounting estimate.
It is applied prospectively. |
|
|
Term
| How is a correction of an accounting error made? |
|
Definition
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements.
The correction of the error must be included in the footnotes. |
|
|
Term
| What are the requirements for a prior period adjustment? |
|
Definition
Effect is Material
Is identifiable in Prior Period
Couldn't be estimated in Prior Periods |
|
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Term
| How is a change from a non-GAAP accounting method to a GAAP method recorded? |
|
Definition
It is treated as a correction of an accounting error.
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements
Correction of the error must be included in the footnotes |
|
|
Term
| How does an inventory error effect the financial statements? |
|
Definition
Effect on Ending Inventory : Effect on Net Income
If one is overstated- both overstated. If one is understated- both understated.
Misstating inventory corrects itself after TWO periods. |
|
|
Term
| How is a change in entity recorded? |
|
Definition
Applied retrospectively.
All prior periods presented for comparative purposes must reflect the change
Footnote disclosures must be made
Changing to Consolidated Statements |
|
|
Term
|
Definition
| Any bond that matures in installments |
|
|
Term
|
Definition
| Any bond that matures on a single date |
|
|
Term
| What is a debenture bond? |
|
Definition
| A bond not secured by any collateral |
|
|
Term
| What is a sinking fund bond? |
|
Definition
Cash is held in a sinking fund for repayment of bond at maturity
5 years of requirements and maturity details should be disclosed |
|
|
Term
| What is the formula to calculate proceeds of a bond sale? |
|
Definition
Present Value of the principal payment at maturity
+ Present Value of Interest Payments made
: Market Value of Bond Proceeds |
|
|
Term
| How is the present value of a bond calculated? |
|
Definition
Step 1: PV of $1 @ Yield Rate (not Stated Rate)
x Bond Face Value
PLUS
Step 2: PV of an Ordinary Annuity of $1 for Term @Yield
x (Stated Rate x Face) |
|
|
Term
| Which costs are included in bond issuance costs? How are they recorded? |
|
Definition
Include Engraving; Printing; Legal; Underwriter; Registration
New Way: Subtracted from Carrying Amount of the Bond
Old Way: Amortized
Treatment: Retrospective Treatment to all prior periods presented
Effect: Increases Effective Interest Rate |
|
|
Term
| How are bonds reported when classified as trading securities? |
|
Definition
| Reported at FMV with unrealized gains and losses being included in earnings |
|
|
Term
| How are bonds amortized under the interest method? |
|
Definition
| Both discount and premium amortization amounts increase each year |
|
|
Term
| Describe the book value method when converting from bonds to stocks. |
|
Definition
No gain or loss recognized
APIC is the plug for the difference between the Bond's Book Value and the Par Value of the Common Stock |
|
|
Term
| What is the stated rate for a bond? |
|
Definition
| Rate on the face of the bond |
|
|
Term
| What is the market rate on a bond? |
|
Definition
| Rate that bonds are currently selling for |
|
|
Term
| What happens when the bond's market rate is greater than the stated rate? |
|
Definition
| Bond will need to sell at a discount in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for less than par value |
|
|
Term
| What happens when a bond's market rate is less than the stated rate? |
|
Definition
| Bond will need to sell at a premium in order for buyers to be interested. The difference in market rate vs. the stated is made up by the buyer purchasing the bond for more than par value |
|
|
Term
| How does accrued interest on a bond affect the purchase price? |
|
Definition
The total cash that seller receives will be MORE than they normally would (set aside any considerations for premium or discount; they are irrelevant for this point).
Basically; the purchaser of the bonds must give the bond issuer the amount of accrued interest up front. |
|
|
Term
| When does interest expense start accruing on a bond? |
|
Definition
| When the bonds are issued |
|
|
Term
| How is an interest payment on a bond calculated? |
|
Definition
| Cash for payment : Stated rate x Face amount |
|
|
Term
| What amount of interest is expensed on a bond interest payment? |
|
Definition
Interest expense : effective yield x carrying value
Any difference between expense and cash payment is applied as amortization against premium/discount |
|
|
Term
| What are convertible bonds? Which recording method is used? |
|
Definition
Bonds that can be converted to stock
Book value method used if no gain or loss
Market value method used if there is a gain or loss |
|
|
Term
| How is the retirement of bonds recorded? |
|
Definition
Gain or Loss is Ordinary
Extraordinary if both unusual and infrequent |
|
|
Term
| When is a gain recognized in a debt restructuring? |
|
Definition
| If terms are modified; and future payments are now less than the carrying amount of the debt; then a Gain is recognized |
|
|
Term
| What is the gain recognized under a settlement of debt? |
|
Definition
Gain recognized:
Difference between cash paid and carrying amount of debt
Difference between non-cash asset given and re-valued at FMV and debt carrying amount |
|
|
Term
| For a creditor; how is a loan impairment recorded? |
|
Definition
If future cash flows discounted at loan's Effective Interest Rate are less than Carrying Value:
Effective Rate calculated using original rate; not modified rate |
|
|
Term
| When is the fair value method used for recording interest in a separate company? |
|
Definition
20% Ownership or Less
Accounted for as a purchase
If amount paid is less than fair value; results in a gain in current period |
|
|
Term
| When is the equity method used when purchasing another company's stock? How is it recorded? |
|
Definition
Ownership 21% to 50%
Gives significant influence
Purchase Price - Par Value : Goodwill
Dividends received from the investee reduce the investment account and are not income |
|
|
Term
| When are companies required to file consolidated financials? How is it recorded? |
|
Definition
Ownership of other company is greater than 50%
Investment account is eliminated
Only parent company prepares consolidated statements; not subsidiary.
Acquired assets/liabilities are recorded at Fair Value on acquisition date.
Eliminating entries for inter-company sales of inventory & PPE; also inter-company investments |
|
|
Term
| When is consolidation not required? |
|
Definition
Ownership less than 50%
OR
Majority owner does not control - i.e. bankruptcy or foreign bureaucracy |
|
|
Term
| What occurs under a step acquisition? |
|
Definition
Acquirer held previous shares accounted for under Fair Value Method or Equity Method; and are now re-valued to Fair Value
Results in a Gain or Loss in current period |
|
|
Term
| What is the difference between an acquisition and a merger? |
|
Definition
Acquired companies continue to exist as a legal entity - their books are just consolidated with the parent company in the parent's financial statements
Merged companies cease to exist and only the parent remains |
|
|
Term
| How are acquisition costs recorded in a merger? |
|
Definition
Expensed in period incurred - i.e. NOT capitalized:
Accounting; Legal; Valuation; Consulting; Professional
Netted against stock proceeds:
Stock registration and issuance costs |
|
|
Term
|
Definition
Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle
Includes: Demand deposits, cash equivalents, accounts receivable, inventory, pre-paids, and short-term investments |
|
|
Term
| What is a current liability? |
|
Definition
| A liability expected to be paid within 12 months or less |
|
|
Term
| How is the Quick Ratio calculated? |
|
Definition
| (Cash + A/R + Trading Securities) / Current Liabilities |
|
|
Term
| How is the Current Ratio calculated? |
|
Definition
| Currents Assets / Current Liabilities |
|
|
Term
| How is Working Capital calculated? |
|
Definition
| Currents Assets - Current Liabilities |
|
|
Term
| How is A/R Turnover calculated? |
|
Definition
| Credit Sales / Average A/R |
|
|
Term
| How is Inventory Turnover calculated? |
|
Definition
|
|
Term
| How is Day Sales in Inventory calculated? |
|
Definition
|
|
Term
| How is Days to Collect A/R calculated? |
|
Definition
| Average A/R / Average Sales per Day |
|
|
Term
| How are gain contingencies recorded? |
|
Definition
| They are NOT accrued due to Conservatism |
|
|
Term
| When are loss contingencies recorded? |
|
Definition
If Probable - they are accrued (if estimable) and disclosed
If Reasonably Possible - they are disclosed
If Remote - don't accrue or disclose |
|
|
Term
| What is a temporary difference related to deferred taxes? |
|
Definition
GAAP says to recognize a revenue/expense in one period and tax laws say to recognize it in another
Example: Dividends from a subsidiary accounted for using the Equity Method - tax income but not book income |
|
|
Term
| What is a deferred tax asset? |
|
Definition
| Deduction will reduce future income taxes expense. |
|
|
Term
| What is a deferred tax liability? |
|
Definition
| Income will be taxable in a future period and will increase future tax expense |
|
|
Term
| Which period's tax rate is used to calculate a deferred tax asset or liability? |
|
Definition
The FUTURE enacted tax rate not the current one.
It is never discounted to present value. |
|
|
Term
| What valuation allowance is used with respect to a deferred tax asset? |
|
Definition
| If it isprobable that not all of a Deferred Tax Asset (debit) will be realized then the Deferred Tax Asset account must be written down (credit) to reflect this |
|
|
Term
| What effect do permanent differences have on deferred income taxes? |
|
Definition
They have no tax impact.
When calculating the total differences between book and tax income subtract the permanent differences from the total before applying a future enacted tax rate |
|
|
Term
| What is deferred income tax expense? |
|
Definition
The sum of Net Changes in Deferred Tax Assets and Deferred Tax Liabilities
GAAP Method for calculating is theAsset and Liability Approach
Note: IFRS uses the Liability approach only |
|
|
Term
| How are deferred tax assets classified as current or non-current on the balance sheet? |
|
Definition
Current Deferred Tax Assets and Liabilities will impact income tax expense within 12 months. All current amounts are netted and reported as a single amount on the Balance Sheet
Non-Current Deferred Tax Assets and Liabilities will impact income tax expense 12 months or more fromt he Balance Sheet Date. All non-current amounts are netted and reported as a single amount on the Balance Sheet |
|
|
Term
| How are derivatives recorded? |
|
Definition
| At cost when acquired re-valued to fair value each period on Balance Sheet. |
|
|
Term
| How are unrealized gains/losses on trading securities recorded? |
|
Definition
| Recorded on income statement |
|
|
Term
| How are gains and losses on Available for Sale (AFS) securities recorded? |
|
Definition
| They are included in Other Comprehensive Income. |
|
|
Term
| What is a Fair Value Hedge? How is it recorded? |
|
Definition
Fair Value Hedge offsets exposure to changes in the value of a recognized asset/liability or of an unrecognized commitment
Initially recorded on Balance Sheet at Fair Value
Gains/Losses recorded on Income Statement |
|
|
Term
| What is a Cash Flow Hedge? How is it recorded? |
|
Definition
Cash flow hedges protect from exposure to fluctuations in cash flows.
Initially recorded on Balance Sheet at Fair Value
Gains/Losses going to OCI
Example: A cereal company enters into a futures contract on grain purchases to offset the risk that grain will go up in price. |
|
|
Term
| Where are gains and losses on foreign currency hedges recorded? |
|
Definition
| In Other Comprehensive Income (OCI) |
|
|
Term
| What disclosures are required for derivative transactions? |
|
Definition
Objectives and Strategies
Context to help investor understand the instrument
Risk Management Policies
Complete List of Hedged Instruments |
|
|
Term
| How do transactions denominated in in a currency other than a company's functional currency affect the income statement? |
|
Definition
| Fluctuations in that currency cause a gain or loss that must be recognized on the income statement as Income from Continuing Operations |
|
|
Term
| What causes a Foreign Currency Transaction G/L? |
|
Definition
| A change in exchange rates between the functional currency and the transaction currency |
|
|
Term
| Where are Foreign Currency Transaction G/L recorded? |
|
Definition
|
|
Term
| Where are Foreign Currency Translation G/L recorded? |
|
Definition
|
|
Term
| If the Functional Currency equals the Local Currency - what rate is used for translating Assets and Liabilities? |
|
Definition
| Current Rate as of the Balance Sheet Date |
|
|
Term
| If the Functional Currency equals the Local Currency - what rate is used for translating Revenues and Expenses? |
|
Definition
| Weighted Average Exchange Rate for the year |
|
|
Term
| If the Functional Currency equals the Reporting Currency - what Exchangee Rate is used?? |
|
Definition
| Use Weighted Average - Historical Exchange Rates (Inventory and Pre-paid Assets and Property Plant and Equipment) and Current Exchange Rates (Monetary Assets and Liabilities and Inventory @ Market and Trading Securities and Deferred Taxes) |
|
|
Term
| What is the primary objective of accounting? |
|
Definition
|
|
Term
| What is the most authoritative set of accounting pronouncements? |
|
Definition
The FASB Codification
All pronouncements fall under the Codification umbrella |
|
|
Term
| What are the 2 Levels of Authority within the FASB codification? |
|
Definition
| Authoritative and Non-Authoritative |
|
|
Term
| How does managerial accounting differ from financial accounting? |
|
Definition
Managerial Accounting has a timeliness focus
Managerial Accounting is not required to follow GAAP |
|
|
Term
| Which financial reports are required to be filed with the SEC? |
|
Definition
Form 10K - Annual and Audited
Form 10Q - Quarterly and Reviewed |
|
|
Term
| What is the focus of financial reports for individual companies? |
|
Definition
Focus is on the needs of users to help them make decisions and assessments about the company
Does not make assessments of the economy |
|
|
Term
| What are the Primary Constraints of Financial Reporting? |
|
Definition
Cost vs. Benefit
Materiality |
|
|
Term
| What are the Secondary Constraints of Financial Reporting? |
|
Definition
Consistency - Year vs. Year
Comparability - Company vs. Company |
|
|
Term
| What are the Qualitative Characteristics of Financial Reporting? |
|
Definition
Relevance & Faithful Representation
Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions
Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions |
|
|
Term
| What are the Enhancing Qualitative Characteristics of Financial Reporting? |
|
Definition
Comparability Verifiability Timeliness and Understandability
Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand |
|
|
Term
| How does Conservatism affect the recording of accounting transactions? |
|
Definition
| When an estimate is necessary due to uncertainty conservatism chooses the best option that won't overstate the financial position of the company |
|
|
Term
|
Definition
| Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet |
|
|
Term
|
Definition
| Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense) |
|
|
Term
| What is recognition in accounting? |
|
Definition
| When an item is recorded and included in the financial statements |
|
|
Term
| Describe fair value with respect to an asset |
|
Definition
The price you would receive if you sold the asset
Assumes asset is at its highest and best value
Assumes asset is sold at its most advantageous market to get the best price possible |
|
|
Term
| What market assumptions are made in a fair value assessment? |
|
Definition
Buyer and Seller are not Related
Buyer and Seller are Knowledgeable
Buyer and Seller are able to transact - i.e. This isn't a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you're trying to value at $10M
Buyer and Seller are both motivated to buy/sell |
|
|
Term
| What items are included in a Level 1 input in the fair value hierarchy? |
|
Definition
Price quotes or market prices
For example NYSE or NASDAQ |
|
|
Term
| What items are included in a Level 2 valuation input? |
|
Definition
|
|
Term
| What items are included in Level 3 inputs of the fair value hierarchy? |
|
Definition
Unobservable inputs such as assumptions or forecasts
Lowest priority for valuation |
|
|
Term
| What are acceptable valuation techniques for fair value? |
|
Definition
Market approach - uses market transactions and prices to value the asset
Income approach - uses present value discounts earnings
Cost approach - uses replacement cost to value the asset |
|
|
Term
|
Definition
Cash
Inventory or Assets expected to be converted or consumed during a business' operating cycle
Deferred Gross Profit on Installment Sales (Contra Asset)
Receivables expected to be collected in 12 months or less |
|
|
Term
| What are current liabilities? |
|
Definition
| Liabilities that will use current assets during the present operating cycle |
|
|
Term
| What is an accrued liability? |
|
Definition
Expense that has been incurred but not paid
Example: rents payable |
|
|
Term
| What is a deferred revenue? |
|
Definition
A type of current liability
Payments that have been received but cannot be recorded as revenue yet
Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens |
|
|
Term
| When are revenues recognized? |
|
Definition
| When they have been earned; i.e. company has performed |
|
|
Term
|
Definition
Increase in equity from an activity or event that is not central to the main activities of the business
Can be operating or non-operating |
|
|
Term
|
Definition
Decrease in equity from an activity or event that is not central to the main activities of the business
Can be operating or non-operating |
|
|
Term
| What is an operating cycle? |
|
Definition
| Average time it takes to turn materials or services into Cash |
|
|
Term
| What is the present value of future cash flows? |
|
Definition
| Valuation method - the current value of a future amount of money using a specific interest rate |
|
|
Term
|
Definition
| How much an asset cost - (net of depreciation and amortization) |
|
|
Term
| What is replacement cost? |
|
Definition
| How much it would cost to reacquire an asset today (Entrance Cost) |
|
|
Term
|
Definition
| The sale price of an asset (Exit Cost) |
|
|
Term
| What is Net Realizable Value? |
|
Definition
| Sale Price of an Asset - Selling/Disposal Fee |
|
|
Term
| When is royalty income recognized? How is it recognized? |
|
Definition
Recognized when earned
If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate |
|
|
Term
| When is revenue recognized in an installment sale? |
|
Definition
Revenue recognized upon receipt of cash
Only used when cash collection is uncertain |
|
|
Term
| What is deferred gross profit? |
|
Definition
Gross Profit that can't be recognized until cash is received
D.GP : Gross Profit % x Accounts Receivable
Pay attention to the year if GP% varies |
|
|
Term
| What is the cost recovery method? |
|
Definition
No revenue recognized until all costs are recovered from purchase of the asset
Most conservative method of revenue recognition when collection of sale price is uncertain |
|
|
Term
| What is subscription revenue? How is it recorded? |
|
Definition
Payment has been received but performance is not complete.
As company performs revenue is recognized.
Recorded as a Deferred Revenue (Liability) on Balance Sheet |
|
|
Term
| How are franchise revenues recorded? |
|
Definition
Franchisor - Startup franchise fee revenue deferred until substantial performance
Franchisee - Costs are deferred until corresponding revenue is recognized |
|
|
Term
| How do you calculate sales revenue starting from cash basis income? |
|
Definition
Mnemonic: SPEAR-BAR
Sales (i.e. Customer Payments)
+ Ending Accounts Receivable
- Beginning Accounts Receivable
: Sales Revenue on an Accrual Basis |
|
|
Term
| How do you calculate COGS starting from Cash Basis? |
|
Definition
Mnemonic: CRAP-I
Cash Remitted (i.e. paid)
+Increase in Accounts Payable
-Increase in Inventory
:COGS on an Accrual Basis |
|
|
Term
| How are discontinued operations reported? When are they used? |
|
Definition
Reported Net of Tax after Continuing Operations
Company decides to cease operating a segment of its business (represents a strategic shift and has major effect on operations and financials)
Includes Income (or loss) from the period plus the gain (or loss) from disposal |
|
|
Term
| For discontinued operations, what are the three requirements for disposal assets? |
|
Definition
| They must be Held for Sale - Sold - or Disposed of another way |
|
|
Term
| How are Unusual or Infrequent (formerly Extraordinary) items reported? |
|
Definition
| Reported Two Ways: 1. Income Statement above Income from Continuing Operations or 2. Footnotes. Retrospective OR Prospective Treatment is allowed. |
|
|
Term
| What is constant dollar accounting? |
|
Definition
Adjusts assets to reflect a consistent level of purchasing power due to inflation
Uses the Consumer Price Index (CPI) |
|
|
Term
| When are expenses recognized? |
|
Definition
| When they are incurred. Accrue if not yet paid. |
|
|
Term
| What are accrued expenses? |
|
Definition
Those incurred but not paid.
Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale)
Period costs - Expenses amortized and recognized with the passage of time |
|
|
Term
| When should impaired assets be written down to fair value and expensed? |
|
Definition
|
|
Term
| What major items should be classified under General & Administrative (G&A) expenses? |
|
Definition
Office staff salaries
Office/building rent
Office supplies
Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A |
|
|
Term
| What are business start-up costs? |
|
Definition
One-time costs for opening a new business
Expensed as they are incurred |
|
|
Term
| When is interest *not* expensed? |
|
Definition
| Interest on projects (software) for internal use is not expensed but is instead capitalized |
|
|
Term
| What are the major components of Comprehensive Income? |
|
Definition
Net Income + Other Comprehensive Income (OCI):
Revenues/Expenses
Gains/Losses
Cumulative accounting adjustments
Reclassifications adjustments
Non-owner changes in equity |
|
|
Term
| What items are considered cumulative accounting adjustments? |
|
Definition
Foreign Currency Translation Adjustments
Unrealized gains on AFS Securities
Minimum Pension Liability adjustment for defined benefit plans |
|
|
Term
| What is the purpose of a reclassification adjustment? |
|
Definition
Avoids double counting items that were included in both Net Income and OCI
Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement |
|
|
Term
| Where is Comprehensive Income reported? |
|
Definition
| Reported in a Single or Combined Income Statement |
|
|
Term
| What disclosures on accounting policies are required in financial statements? |
|
Definition
Accounting Principles used
Basis of Consolidation
Inventory Pricing Methods
Depreciation Method
Amortization of Intangibles |
|
|
Term
| What are some major risks and uncertainties that must be disclosed? |
|
Definition
Nature of Operations
Use of Estimates and listing of Significant Estimates
Concentration vulnerability |
|
|
Term
| Under Cash Basis Accounting how are Revenue and Expenses recognized? |
|
Definition
| Revenue is recognized with Cash Inflow and Expenses Recognized with Cash Outflow |
|
|
Term
| Is Cash Basis Accounting ok for Tax Returns? |
|
Definition
|
|
Term
| Is Cash Basis Accounting GAAP? |
|
Definition
| No - GAAP uses Accrual Accounting |
|
|
Term
| What is an advantage of Modified Cash Basis Accounting? |
|
Definition
| It avoids the complexities of GAAP but provides more information that Cash Basis Accounting |
|
|
Term
| Is Modified Cash Basis GAAP? |
|
Definition
| No - GAAP uses Accrual Accounting |
|
|
Term
| What are the 3 acceptable options for Income Tax Basis Accounting |
|
Definition
| Cash Basis - Accrual Basis - Hybrid Method |
|
|
Term
| What are the advantages of the Small and Medium Sized Entity Framework? |
|
Definition
| It simplifies reporting and disclosures for small companies - Reduces Book vs Tax differences - avoids Fair Value measurements (Historical Cost) |
|
|
Term
| What are the two options for Income Taxes under the Small and Medium Sized Entity Framework? |
|
Definition
| Deferred Taxes Method and Taxes Payable Method |
|
|
Term
| What are the two options for Startup Costs under the Small and Medium Sized Entity Framework? |
|
Definition
| Expensed or Amortized (15 years) |
|
|
Term
| How is Goodwill treated under the Small and Medium Sized Entity Framework? |
|
Definition
|
|
Term
| What are the required liquidation basis financial statements? |
|
Definition
| Statement of Net Assets in Liquidation and Statement of Changes in Net Assets in Liquidation |
|
|
Term
| What is a Development Stage Entity? |
|
Definition
| A company that is still in the formation stage and hasn't yet begun principal operations or produced significant revenue |
|
|
Term
| What is the key benefit of the accounting rules for Development Stage Entities? |
|
Definition
| Cost savings without sacrificing financial statement usefulness |
|
|
Term
| How are Research and Development costs recorded? |
|
Definition
| They are expensed in the period incurred and are not capitalized. |
|
|
Term
| Which expenditures are included in the cost of a building? |
|
Definition
| All expenditures to get the building into working condition are ready for use |
|
|
Term
| Which expenditures are included in the cost of land? |
|
Definition
All expenditures to get the land ready for its intended use:
Title & County Fees
Clearing of Land - Dirt work etc.
Demolition and removal of old buildings (minus any scrap or salvage)
Note: capitalized land costs are not depreciated |
|
|
Term
| In an exchange of non-monetary assets how much gain is recognized if no additional cash is exchanged when there is no significant difference in resulting cash flows? |
|
Definition
If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.
The new asset is recorded at the book value of the asset given up.
The only gain that can be recognized is any boot (cash) received. |
|
|
Term
| In an exchange of non-monetary assets what gain is recognized if resulting cash flows are significantly different? |
|
Definition
If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.
The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine. |
|
|
Term
| How is donated property recorded by the donee? |
|
Definition
Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose
Exam Tip - Think of a charity holding afair and then donating the property which is then recorded atfair value |
|
|
Term
| How is donation of property recorded by the donor? |
|
Definition
Recorded at Fair Value of asset given up.
Gain or Loss is recorded. |
|
|
Term
| How is double-declining balance (DDB) depreciation calculated? |
|
Definition
(1 / Useful Life) x 2 x Book Value
Ignore salvage value. |
|
|
Term
| How is Sum of Year's Digits (SYD) depreciation calculated? |
|
Definition
(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense
For example the depreciation factor for the third year of a 10-year asset would be:
: 8 / (10+9+8+7+6+5+4+3+2+1) : 8/55 : 14.5%
Remaining useful life : 8 SYD : 55 |
|
|
Term
| How is straight line depreciation calculated? |
|
Definition
| (Cost - Salvage Value) / Useful life : depreciation expense |
|
|
Term
| When is an asset considered to be impaired? How is impairment loss calculated? |
|
Definition
When the un-discounted future cash flows are less than the carrying value of the asset.
Carrying Value - Fair Value : Impairment Loss
Note: impaired assets that recover their value can't be written back up once written down |
|
|
Term
| How are legal fees to defend a patent amortized? |
|
Definition
If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent's economic life.
If unsuccessful they are expensed immediately. |
|
|
Term
| What are the two steps for testing goodwill impairment? |
|
Definition
Compare the CV to the FV. If FV is greater than CV no impairment exists you're done.
If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly. |
|
|
Term
| How are costs for developing software recorded? |
|
Definition
Expenses prior to technological feasibility are expensed as R&D.
After technological feasibility but prior to production costs are capitalized.
Expenses incurred during production are charged to inventory.
Expenses incurred training on internal use software are expensed. |
|
|
Term
| What expenditures are included in the cost of equipment? |
|
Definition
All expenditures to get the asset into working condition and ready for use:
Purchase price + liabilities assumed
Shipping
Taxes
Insurance
Installation
Testing
Legal fees
Construction loan interest
Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized. |
|
|
Term
| What are the three major types of funds in governmental accounting? |
|
Definition
| Governmental, Proprietary, Fiduciary |
|
|
Term
| Which two accounting bases are used in governmental accounting? |
|
Definition
Accrual basis - current economic resources focus (revenues recognized when earned)
Modified accrual basis - current financial resources focus (revenues recognized when available and measurable) |
|
|
Term
| What is a budget appropriation? |
|
Definition
| The highest amount allowed for a particular expenditure under a budget. |
|
|
Term
|
Definition
| Records purchase and reserves it for the encumbrance. |
|
|
Term
| What is the opening budgetary entry? |
|
Definition
Dr Estimated Revenues Control
Cr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug) |
|
|
Term
| What is the closing budgetary entry? |
|
Definition
Dr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)
Cr Estimated Revenues Control |
|
|
Term
| What are the types of governmental funds? |
|
Definition
General Fund
Special Revenue Fund
Permanent Fund
Capital Projects Fund
Debt Service Fund |
|
|
Term
|
Definition
The operating fund of the governmental unit
Records Significant Revenues: Taxes; Tickets; Fines; Licenses
Records Significant Expenditures: Police; Education; Fire Dept |
|
|
Term
| What is a Special Revenue Fund? |
|
Definition
| Restricted for a specific purpose such as street repair. |
|
|
Term
| What is a Permanent Fund? |
|
Definition
Legally restricted fund; where only earnings can be used to fund programs.
Principal remains intact. |
|
|
Term
| What is a Capital Projects Fund? |
|
Definition
| Used to acquire and build facilities. |
|
|
Term
| What is a Debt Service Fund? |
|
Definition
| Handles repayment of long-term debt and related interest. |
|
|
Term
| Which fund statements are issued in Governmental Accounting? |
|
Definition
Balance Sheet
Statement of Revenues; Expenditures; and Changes in Fund Balance |
|
|
Term
| When is Revenue recorded in Governmental Accounting? |
|
Definition
| When it is BOTH available and measurable; regardless of when it is spent. |
|
|
Term
| What is Derived Tax Revenue? |
|
Definition
Money collected from people doing things:
Sales tax (buying cars) or income tax (people working) |
|
|
Term
| What is Imposed Tax Revenue? |
|
Definition
Tax assessed just because things exist
Example: property tax on a car (even if it's never driven); real estate tax
Recorded as a revenue when BUDGETED.
Estimated uncollectible property tax revenues don't offset revenues; so don't net them. |
|
|
Term
| What are the types of Proprietary Funds? |
|
Definition
Internal Service Funds - to serve the needs of other governmental units (i.e. motor pool)
Enterprise Funds - provide goods or services to external users (i.e. post office) |
|
|
Term
| What are the Fund Balance Types? |
|
Definition
Restricted - Restricted by Contributor
Committed - Restricted by Government
Assigned - Intended for a purpose
Unassigned - Available to be spent
Non-spendable - Not in a spendable state |
|
|
Term
| What are the types of Fiduciary Funds? |
|
Definition
Agency Fund - government acts as an agent or custodian
Pension Trust Fund - Government is a trustee for a pension plan
Investment Trust Fund - Government is a trustee over a series of investments
Private Purpose Trust - Trust that benefits various individuals and entities |
|
|
Term
| How are Assets & Liabilities presented on the Statement of Net Position? |
|
Definition
Assets (Current & Non-Current)
Deferred Outflows of Resources
Liabilities (Current & Non-Current)
Deferred Inflows of Resources |
|
|
Term
| How are Capital Assets shown on a governmental Statement of Net Position? |
|
Definition
They are shown net of debt
Asset Cost - Accumulated Depreciation - Asset Liabilities : Net Assets |
|
|
Term
| How is infrastructure reported on a governmental Statement of Net Position? |
|
Definition
Modified approach:
Reported at cost; no accumulated depreciation |
|
|
Term
| How is a Statement of Net Position divided? |
|
Definition
| Into Governmental Activities and Business Activities |
|
|
Term
| How are activities presented in a Statement of Activities? |
|
Definition
They are divided by function
If the activities of a component are distinguishable from the rest of the governmental entity; then discreet presentation is required
If the activities of the component cannot be identified and separated from the rest of the governmental activities; then blended presentation is warranted.
Component units are reported in the Entity-Wide Financial Statements and not the Fund Financial Statements. |
|
|
Term
| What is the primary objective of governmental accounting? |
|
Definition
To provide information that is useful and benefits a wide range of users including:
Costs of services provided
Sufficiency of revenues to cover costs
Financial position of entity |
|
|
Term
| What Financial Statements are required for Defined Benefit Pension plans? |
|
Definition
| Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position |
|
|
Term
| What are the components of the Statement of Fiduciary Net Position for Defined Benefit Pension Plans? |
|
Definition
| Assets; Deferred Outfows; Liabilities; Deferred Inflows; Fiduciary Net Position |
|
|
Term
| What are the components of the Statement of Changes in Fiduciary Net Position for Defined Benefit Pension plans? |
|
Definition
| Additions (Contributions and Net Investment Income) - Deductions (Benefits Payments and Admin Expense) : Net Change in Fiduciary Net Position |
|
|
Term
| What should be included in the Financial Statement notes for Defined Benefit Pension Plans? |
|
Definition
| Types of Benefits; Plan Member Classes; Board Information; Investment Policies and FV Determination |
|
|
Term
| Which organization's standards are the most authoritative in the hierarchy of international accounting? |
|
Definition
| The International Accounting Standards Board (IASB) |
|
|
Term
| Where is the first place management should look for guidance on international recognition and accounting policies? |
|
Definition
| The International Financial Reporting Standards (IFRS) issued by the IASB |
|
|
Term
| Which framework helps to develop standards for international accounting? |
|
Definition
The IASB Framework
* The framework is NOT a standard itself
* The framework does not supersede any standard's authority |
|
|
Term
| What is the objective of the IFRS framework? |
|
Definition
| To provide users with information on international accounting. |
|
|
Term
| What basis of accounting is allowed under IFRS? |
|
Definition
| Only the Accrual Basis of Accounting is allowed under IFRS. |
|
|
Term
| What are the Qualitative Characteristics of accounting information within IFRS? |
|
Definition
Relevance & Faithful Representation
Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions |
|
|
Term
| What are the Enhancing Characteristics of IFRS? |
|
Definition
Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand |
|
|
Term
| How does comparability differ under GAAP versus IFRS? |
|
Definition
Comparative information from prior year is required under IFRS.
GAAP requires that if multiple years are presented they are consistently prepared however it doesn't require prior year comparative statements. |
|
|
Term
| What is the Pervasive Constraint within IFRS? |
|
Definition
|
|
Term
| Which items are considered reporting elements under IFRS? |
|
Definition
Asset
Liability
Equity
Income
Expense |
|
|
Term
| What are the criteria for recognition on IFRS financial statements? |
|
Definition
Probable future economic benefit
Can be measured reliably
If the value or outcome cannot be measured reliably IFRS requires the use of the Cost Recovery Method. |
|
|
Term
| When transitioning to IFRS what type of financial statement must be produced for the first reporting period? |
|
Definition
| A full comparative statement using IFRS. |
|
|
Term
| If IFRS was implemented in June 2012 for use in the December 31 2012 financial statements what is the Date of Transition? |
|
Definition
| January 1 2011 because a full year of comparative statements is required from the previous year |
|
|
Term
| For Property Plant and Equipment which election is the most efficient method for converting assets to IFRS? |
|
Definition
|
|
Term
| Where on the financial statements are adjustments for adopting to IFRS made? |
|
Definition
| In the entity's retained earnings or equity |
|
|
Term
| How is the completed contract method used under IFRS? |
|
Definition
| Completed contract method is not allowed under IFRS. |
|
|
Term
| How is LIFO treated under IFRS? |
|
Definition
| IFRS does not allow LIFO. |
|
|
Term
| Which financial statements are required under IFRS? |
|
Definition
Statement of Comprehensive Income
Statement of Changes in Equity |
|
|
Term
| How is the term income used in IFRS? |
|
Definition
| Income is used instead of revenue and encompasses BOTH revenue and gains. |
|
|
Term
| How is the term profit used in IFRS? |
|
Definition
| In IFRS the term profit is used instead of Net Income. |
|
|
Term
| How does IFRS treat gains? |
|
Definition
| They are treated the same as revenue and are not separated on the financial statements. |
|
|
Term
| How does IFRS treat losses? |
|
Definition
| In IFRS losses are treated the same as expenses but they ARE separated on the financial statements. |
|
|
Term
| How does refinancing of current liabilities to long-term liabilities under IFRS differ from GAAP? |
|
Definition
Under IFRS current liabilities can only be refinanced into a non-current liability if the refinance agreement is EXECUTED prior to the balance sheet date.
GAAP requires only *intent* to refinance not actual execution. |
|
|
Term
| How do contingent liabilities differ between GAAP and IFRS? |
|
Definition
Under GAAP there are three classifications of contingent liabilities - Probable Reasonably Possible and Remote.
Under IFRS contingencies are uncertain future events and are classified as a provision if probable and measurable even if uncertain in timing or amount. |
|
|
Term
| How are Financial Assets recorded under IFRS? |
|
Definition
Recorded on the Statement of Financial Position using one of three methods
1. Amortized Cost 2. Fair Value through OCI or 3. Fair Value through Profit or Loss |
|
|
Term
| How are deferred taxes treated under IFRS? |
|
Definition
They use the liability method - all deferred tax liabilities must be reported but only probable deferred tax assets can be reported.
They are non-current on the statement of financial position. |
|
|
Term
| When can deferred tax assets and liabilities be netted under IFRS? |
|
Definition
ONLY if they are related to the same country/taxing authority
For example China Deferred Tax Assets can't offset Japan Deferred Tax Liabilities |
|
|
Term
| Which tax rates are used for calculating deferred tax assets/liabilities under IFRS? |
|
Definition
The enacted rate or substantially enacted tax rate.
(GAAP is the enacted tax rate only) |
|
|
Term
| Which items are recorded on the Income Statement in IFRS? |
|
Definition
Income
Finance Costs
Tax Expense
Discontinued Ops
Profit/Loss
Non-controlling interest in Profit/Loss
Net profit/loss attributable from equity |
|
|
Term
| How are property plant and equipment (PP&E) recorded and valued under IFRS? |
|
Definition
Recorded at cost
Valued using either:
Cost model - asset carried at cost less accumulated depreciation and impairment loss
Revaluation model - asset adjusted to fair value less accumulated depreciation |
|
|
Term
| What are the requirements for using the revaluation model for PP&E under IFRS? |
|
Definition
Asset must be able to be reliably measured
Must be applied to whole class of assets not just one asset
No guidance on how often assets should be revalued under IFRS |
|
|
Term
| How is investment property reported under IFRS? |
|
Definition
Initially recorded at cost
Revalued using either Fair Value model or Cost model |
|
|
Term
| How is profit or loss recorded in the current period for investment property under the Fair Value model of IFRS? |
|
Definition
Recorded on the Income Statement
Investment P/L : IS
PP&E P/L : OCI |
|
|
Term
| Under IFRS how is investment property reported under the Cost Model? |
|
Definition
Carried at Cost minus Accumulated Depreciation
Fair Value must still be disclosed in the notes to the financial statements |
|
|
Term
| How are leases reported under IFRS? |
|
Definition
Operating Leases can be recorded as Investment Property if measured at Fair Value
All other investment property must use Fair Value Model if one asset uses it |
|
|
Term
| How are intangible assets valued under IFRS? |
|
Definition
Using either the Cost Model (cost less Accumulated Depreciation and Impairment Loss)
or
the Revaluation Model (Fair Value less Accumulated Depreciation) |
|
|
Term
| How is internally generated goodwill reported under IFRS? |
|
Definition
|
|
Term
| How is amortization of intangibles handled under IFRS? |
|
Definition
If asset has a finite life it is amortized over useful life.
If asset has indefinite life it is not amortized but is tested for impairment at the reporting date. |
|
|
Term
| When must a lease be recorded as a Finance Lease under IFRS? |
|
Definition
| If the substantial risks of ownership have passed to the Lessee then the Lease must be accounted for as a Finance Lease |
|
|
Term
| How are defined benefit plans recorded under IFRS? |
|
Definition
| Project-unit-credit method calculates the PV of the defined benefit obligation |
|
|
Term
| How are interest expense and/or finance costs classified on an IFRS statement of cash flows? |
|
Definition
They can be classified as either Operating or Financing
Once a classification is chosen all future costs must be classified there |
|
|
Term
| How are significant non-cash transactions recorded on an IFRS statement of cash flows? |
|
Definition
| They must be included in the notes to the financial statements. |
|
|
Term
| How are Investments in Subsidiaries Valued? |
|
Definition
| Investments in Subsidiaries under IFRS are valued three ways: 1. Cost 2. Fair Value 3. Equity Method |
|
|
Term
| Which costs are inventoriable? |
|
Definition
| Purchases - Net of Discounts, Freight, Warehouse expenditures |
|
|
Term
| When does ownership of goods transfer when shipped FOB Shipping Point? |
|
Definition
| FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock |
|
|
Term
| When does ownership transfer when goods are sent FOB Destination? |
|
Definition
| FOB Destination keeps the items in the seller's inventory until it reaches the buyer |
|
|
Term
| Which costs are non-inventoriable? |
|
Definition
Sales Commissions
Interest on liabilities to vendors
Shipping expense to customers |
|
|
Term
| When are discounts recorded under the gross method? |
|
Definition
| Under the gross method, discounts are recorded only when used. |
|
|
Term
| Under the net method, when are discounts recorded? |
|
Definition
Under the net method, discounts are recorded whether used or not.
Unused discounts are allocated to financing expense. |
|
|
Term
| How is gross margin calculated? |
|
Definition
| Gross Margin : Sales - COGS (BI + P - EI) |
|
|
Term
| Describe the periodic inventory system. |
|
Definition
Inventory is counted at certain times throughout the period
Weighted-average cost flow method is used. |
|
|
Term
| Describe the perpetual inventory system. |
|
Definition
Inventory count continually updated
Uses a moving-average cost flow method |
|
|
Term
| In periods of rising prices, under which cost flow system would ending inventory be the same under both periodic and perpetual inventory methods? |
|
Definition
| Under the FIFO system, periodic and perpetual inventory methods will both have the same ending inventory. |
|
|
Term
| How is inventory turnover calculated? |
|
Definition
|
|
Term
| How is Average Day's Sales in inventory calculated? |
|
Definition
|
|
Term
| Under a consignment system, who holds the consigned goods in inventory? |
|
Definition
| The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee. |
|
|
Term
| Under a consignment system, does the consignee hold consignment inventory in their own inventory? |
|
Definition
| No. Consignment goods are maintained in the inventory of the consignor, not the consignee. |
|
|
Term
| What effect does overstatement or understatement of inventory have on ending retained earnings? |
|
Definition
Misstatement of beginning inventory does NOT have an effect on ending retained earnings.
Misstatement of ENDING inventory does have an effect on retained earnings. |
|
|
Term
| How does misstatement of ending inventory effect Ending Retained Earnings? |
|
Definition
EI Over : COGS Under : ERE Over
EI Under : COGS Over : ERE Under |
|
|
Term
| Which costs are included in COGS first under the FIFO (first in first out) system? |
|
Definition
The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it, COGS is $1
This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes |
|
|
Term
| Which costs are included in COGS under the LIFO (last in first out) system? |
|
Definition
| The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it, COGS is $1.50 |
|
|
Term
| How is Weighted Average Cost Per Unit calculated under a weighted average inventory system? |
|
Definition
| COGAS / Total Units : Weighted Average Cost Per Unit |
|
|
Term
| How does FIFO's COGS relate to LIFO's in a time of changing prices? |
|
Definition
| FIFO's relationship to COGS will be opposite LIFO's relationship to COGS in periods of falling/rising prices. |
|
|
Term
| How do FIFO and LIFO change in a period of rising prices? |
|
Definition
FIFO has the Lowest COGS
FIFO is a cat that sees a mouse starts Low and is Rising
If COGS is Low, that means EI is High |
|
|
Term
| How do FIFO and LIFO change in a period of falling prices? |
|
Definition
FIFO has the Highest COGS
Remember: FIFO, that silly cat, got High from Catnip and is Falling off the couch
If COGS is High, that means EI is Low |
|
|
Term
| Under a Lower of Cost or Market, how are the benchmarks calculated? |
|
Definition
Market Ceiling : Net Realizable Value : Selling Price - Selling Costs
Market : Replacement Cost
Market Floor : Net Realizable Value - Normal Profit |
|
|
Term
| How are Available-For-Sale securities recorded on the Balance Sheet? |
|
Definition
| At Fair value as either Current or Non-current assets. |
|
|
Term
| How are Available-For-Sale security Unrealized G/L treated? |
|
Definition
| Included in OCI (Other Comprehensive Income) |
|
|
Term
| How are Unrealized G/L for Available-For-Sale securities that are reclassified to Held-to-Maturity or Trading Securities treated? |
|
Definition
HTM - Stockholder's Equity
/ Trading Securities - Current Period. |
|
|
Term
| How are Held-to-Maturity securities recorded on the Balance Sheet? |
|
Definition
Amortized cost as Current or Non-current assets.
If reclassified as AFS - Unrealized G/L go to Stockholder's Equity
If reclassified as Trading Securities - Unrealized G/L recognized in Current Period |
|
|
Term
| How are Held-to-Maturity securities Unrealized G/L treated? |
|
Definition
| Trick question - Unrealized gains or losses are not applicable because they are HTM |
|
|
Term
| How are Trading Securities recorded on the Balance Sheet? |
|
Definition
At Fair Value as a Current Asset
Unrealized gains/losses are recorded on the Income Statement
If they are reclassified as held-to-maturity or available-for-sale- there is no effect upon transfer. |
|
|
Term
| How are Trading Securities Unrealized G/L treated? |
|
Definition
Recorded on the Income Statement
If they are reclassified as HTM or AFS - there is no effect upon transfer. |
|
|
Term
| How is a Capital Lease recorded? |
|
Definition
| Capitalize at cost: Asset & Liability Recorded at Present Value of Future Lease Payments |
|
|
Term
| What footnote disclosures are required for a Capital Lease? |
|
Definition
Future minimum rental commitments
By year - for 5 years
All remaining years as a group |
|
|
Term
| What are the requirements for a Capital Lease for a lessor? |
|
Definition
Same as for lessee (Title- BPO or Substance)- PLUS:
Collectability of lease payments is predictable
No uncertainties about the lessor reimbursing the lessee for costs incurred |
|
|
Term
| What are the characteristics of an Operating Lease for a lessee? |
|
Definition
Risk of ownership does NOT pass
No asset or liability is recorded on the financial statements
Leasehold improvements - capitalized and depreciated over the lesser of lease life or leasehold improvement's life. |
|
|
Term
| What are the characteristics of an Operating Lease for a LESSOR? |
|
Definition
Rent revenue recorded
Leased property remains an asset and depreciated by lessor
If payments fluctuate over the term of the lease- rent revenue recognized on a straight line basis |
|
|
Term
| What are the characteristics of a Direct Financing Lease? |
|
Definition
Interest Revenue (or expense for lessor) decreases with passage of time
Principal amount increases with each payment
Carrying amount of Lease decreases |
|
|
Term
| How is a sale-leaseback recorded? |
|
Definition
Any profit on the sale is deferred and amortized
Exception: If PV of lease payments is 10% or less of the asset's FMV- the gain is recognized
If PV of lease payments is greater than 10% of FMV and the lease is operating- all of the gain is recognized except the amount of the PV of the lease payments |
|
|
Term
| What are the characteristics of lease payments under an annuity due situation? |
|
Definition
Payments begin at the start of the lease period
Think: Rent/Mortgage payments are Due at the first of the month |
|
|
Term
| What are the characteristics of lease payments under an ordinary annuity situation? |
|
Definition
Payments begin after the end of the first year
Think: An annuity that pays you at the end of each year |
|
|
Term
| What are the characteristics of a Capital Lease for a lessee? |
|
Definition
Risk of ownership passes to lessee by:
Title,
Bargain Purchase Option (BPO),
Substance - Lease is more than 75% of asset's useful life or PV of minimum lease payments are more than 90% of fair value |
|
|
Term
| Which financial statements are required for not - for - profit organizations? |
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Definition
Statement of Financial Position
Statement of Activities
Statement of Cash Flows
Statement of Functional Expense (Volunteer Health Organizations Only) |
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Term
| What are the major classifications found on a Statement of Financial Position? |
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Definition
Similar to Balance Sheet:
Assets
Liabilities
Net Assets
Unrestricted Assets
Permanently Restricted Assets
Temporarily Restricted Assets |
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Term
| What are the major classifications in a Statement of Activities? |
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Definition
Similar to an Income Statement - organization - wide:
Revenues
Expenses - ONLY deducted from Unrestricted Revenues
Gains and Losses
Changes in Net Asset classes
Unrestricted
Permanently Restricted
Temporarily Restricted |
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Term
| What are the characteristics of a Statement of Cash Flows for not - for - profits? What are the major classifications? |
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Definition
Both direct and indirect methods are OK
Operating Activities - Unrestricted Revenues and Unrestricted Expenses
Investing Activities
Financing Activities - Endowments and restricted contributions |
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Term
| Which organizations are required to present a Statement of Functional Expenses? |
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Definition
| Volunteer Health Organizations |
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Term
| Which statements are required for non - governmental hospitals? |
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Definition
Balance Sheet
Statement of Operations
Statement of Changes in Net Assets
Statement of Cash Flows
Financial Statement Notes |
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Term
| Which basis of accounting is used for revenues and net assets? |
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Definition
Accrual basis of accounting is used
Only external parties can restrict the use of assets (permanent or temporary)
Assets earmarked internally by management are still classified as unrestricted |
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Term
| What are the characteristics of unrestricted assets or revenue? |
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Definition
No restrictions or conditions placed on entity in order to use the resources
Note: assets earmarked internally by management are still unrestricted |
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Term
| When are revenues on contributions recognized? |
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Definition
| Revenues on contributions are recognized in the year received - not the year the contribution is spent and are recorded at Fair Value on the date received |
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Term
| When are services rendered considered contributions? |
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Definition
If the organization would have otherwise paid for them
or
They increase the value of a non - monetary asset |
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Term
| Is hospital charity care revenue? |
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Definition
NO.
It is disclosed in the notes to the financial statements only. |
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Term
| How are unconditional pledges to contribute recorded? |
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Definition
| Classified as revenue in the current year only - multi - year future contributions fall under Temporarily Restricted. |
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Term
| Which revenues are expenses deducted from? |
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Definition
| Expenses ONLY deducted from Unrestricted Revenues - not Temporary or Permanently Restricted Revenues/Assets |
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Term
| What are the characteristics of temporarily restricted assets/revenue? |
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Definition
Use is restricted to a future time - which could then convert to unrestricted - Class: Temp. Restricted Revenue
Unrestricted contributions promised (including multi - year contributions) - but not yet received are actually restricted by time and are therefore classified as Temporarily Restricted Assets - Multi - year contributions are recorded at the present value of the future contributions |
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Term
| What are the characteristics of an endowment? |
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Definition
Use of investment is restricted - but income from investment could be either restricted or unrestricted
Must be under control of receiving entity (Quasi Endowment) in order to be recorded in unrestricted net assets
Otherwise - a memo entry is recorded |
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Term
| When is the donation of an art collection recognized as a contribution or asset? |
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Definition
| Not recognized as assets or contribution revenue if they are held of display or education' or their sale results in the purchase of similar items |
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Term
| When both Temporarily Restricted Assets and Unrestricted Assets are available for use - which assets are used first? |
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Definition
| Temporarily restricted assets are used before Unrestricted assets. |
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Term
| How is a refundable advance recorded by a not for profit? |
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Definition
Classified as a Liability
Promise to contribute assets pending on certain conditions being met
Becomes unconditional once the possibility that it won't happen is remote |
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Term
| How are investments recorded and valued in not - for - profit accounting? |
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Definition
Fair Value is mostly used
Exception - Equity method used when significant influence exists |
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Term
| How are scholarships recorded? |
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Definition
| As a reduction of revenue - netted against college's tuition |
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Term
| How is depreciation expense recorded by a not - for - profit? |
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Definition
| Depreciation expense is allocated proportionately to various functions |
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Term
| How are capital contributions with a mortgage attached recorded in a partnership for financial statement purposes? |
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Definition
| Calculating the capital balance when property contributed has a mortgage results in the FV of the Asset being netted against the Liability |
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Term
| If no goodwill is recorded upon admission of a new partner - which method is used for recording the new partner's interest? |
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Definition
The bonus method:
Old Partnership Equity
+ New Partner Contribution
: New Partnership Equity
x New Partner %
: New Partner Equity Amount
New Partner Contribution
- New Partner Equity Amount
: Bonus to Prior Partners using same allocation as P/L |
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Term
| If goodwill is recorded upon admission of a new partner - how is the partner's interest recorded? |
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Definition
Using the goodwill method:
New Contribution / New Equity % : Partnership Value
Implied Value of Partnership
- Capital Accounts of all partners
: Goodwill to Old Partners
Under the Goodwill Method - the new Partner is paying an amount for a certain percentage stake in the partnership. For instance if they pay $1000 for a 25% stake - then it is assumed that the Partnership is worth $4 -000 ($1 -000/25%) |
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Term
| At what value should assets contributed to a partnership be recorded? What value for liabilities assumed by the partnership? |
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Definition
Fair Value for assets contributed.
Present value of remaining cash flows for liabilities assumed. |
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Term
| Which Personal Financial Statements are required? |
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Definition
| Required: Statement of Financial Condition (Statement of Changes in Net Worth is optional) |
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Term
| How are assets and liabilities valued in a Personal Financial Statement? |
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Definition
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Term
| How are estimated taxes that would be paid if all assets were converted into cash and all liabilities paid presented on a Personal Financial Statement? |
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Definition
| Presented on Statement of Financial Condition between Liabilities and Net Worth |
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Term
| What is the general presentation on a statement of financial condition? |
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Definition
Assets
- Liabilities
- Estimated taxes on assets sold
: Net Worth |
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Term
| How is life insurance presented on a Personal Financial Statement? |
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Definition
Only shown if there is cash surrender value
It is shown net of loans against the policy |
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Term
| How are business interests shown on a Personal Financial Statement? |
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Definition
| Business Interests that constitute a large percentage of total assets should be separated from other investments |
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Term
| What is the discreet view in an Interim Financial Statement? |
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Definition
Interim period is a separate accounting period - not GAAP
Same accounting principles used for annual reporting should be used. |
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Term
| What is the integral view in an Interim Financial Statement? |
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Definition
Interim period is a part of the annual period - GAAP
Gross profit method may be used to estimate COGS and inventory
Temporary declines in inventory aren't recognized |
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Term
| How are discontinued operations & extraordinary items reported in Interim Financial Statements? |
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Definition
Aren't prorated
Fully recognized in Interim Period as incurred
If it occurs in Q3 - it's recognized in Q3 |
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Term
| How are cumulative gains and losses reported in Interim Financials? |
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Definition
| Reported as if they occurred in the first quarter |
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Term
| How is inventory valuation handled in Interim Financials? |
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Definition
If inventory experiences a decline in value during an interim period - the loss is recognized in the interim period
If the loss is expected to be only temporary - no loss is recognized |
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Term
| What is one of the primary problems with interim reporting? |
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Definition
| The matching principle gets messed up - Expenses incurred in one period may benefit future periods |
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Term
| For whom is Segment Reporting required? |
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Definition
| Publicly traded companies |
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Term
| What factors cause a segment to be significant and therefore to be reported separately? |
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Definition
Revenue of segment is 10% or more of total
Profit is 10% or more of total
Segment assets are 10% or more of total
75% Test - All segment revenues must equal 75% of total external revenues |
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Term
| What is the disclosure requirement regarding sales of 10% or more for one customer? |
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Definition
| If 10% or more of enterprise revenue comes from one customer - the segment making the sales must be disclosed |
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Term
| What items are included in operating activities on the Statement of Cash Flows? |
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Definition
Cash received from Customers- Interest & Dividends- Trading Securities
Cash paid to Vendors- Suppliers- Interest- Taxes- Trading Securities |
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Term
| What items are included in investing activities on a Statement of Cash Flows? |
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Definition
Cash received: Sale of PP&E- Sale of Investments- Loan Principle
Cash paid: Loans- Acquisitions- AFS or HTM Securities- Taxes- Trading Securities |
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Term
| What items are included in Financing Activities in a Statement of Cash Flows? |
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Definition
Cash received: Issuance of Stock- Issuance of Debt
Cash paid: Dividends |
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Term
| What is the direct method for a Statement of Cash Flows? |
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Definition
Starts with Income from Continuing Operations
Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses
If used- the Indirect Method must also be shown |
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Term
| What is the Indirect Method for a Statement of Cash Flows? |
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Definition
Starts with Net Income
Adjusts for changes in accounts like A/R- A/P- Inventory and non-cash revenues- expenses- gains- losses |
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Term
| When common stock and preferred stock are issued in a lump sump purchase- how is APIC allocated? |
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Definition
| APIC for each is allocated by its respective % of the total FMV of the shares x the proceeds. |
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Term
| When is APIC recorded on a stock subscription? |
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Definition
| APIC increases on date subscription is recorded - not on the date paid for or issued |
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Term
| To what extent is retained earnings restricted if legally restricted due to Treasury Stock? |
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Definition
| It will be restricted to the extent of the balance in the Treasury Stock account. |
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Term
| When are dividends in arrear recorded for cumulative preferred stock? |
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Definition
| They are not accrued until declared. |
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Term
| When are dividends in arrears included as a disclosure and not an accrual in the financial statements? |
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Definition
| If a year passes and no Cumulative Preferred Stock is declared- then the dividends in arrears are included as a disclosure - not an accrual in the Financial Statements. |
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Term
| What is the gain or loss when a non-monetary asset is distributed to a shareholder? |
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Definition
| The gain or loss is the difference between the FMV of the asset distributed at the date of distribution and its carry amount on the company's books |
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Term
| What is the effect on retained earnings when a non-monetary asset is distributed to a shareholder? |
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Definition
The effect on Retained Earnings is the Carrying Amount of the asset
RE will be debited when the dividend is declared for the FMV of the asset- which is more (or less) than the carrying amount
Gain/Loss recorded when the asset is distributed will offset the original effect of the debt to RE and will be a wash
The net effect of the entry is that RE will decrease by the CV of the asset |
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Term
| When is Retained Earnings debited for FMV of Stock for a stock dividend? |
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Definition
| When Stock Dividend is less than 25% of Common Stock outstanding |
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Term
| When is Retained Earnings debited for Par Value for a stock dividend? |
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Definition
| When Stock Dividend is greater than 25% of common stock outstanding |
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Term
| What is the effect of a stock dividend or a stock split on total shareholder equity? |
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Definition
| Stock dividends and stock splits both have no effect on Total Shareholder Equity |
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Term
| What is the affect on APIC from a stock split? |
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Definition
| Stock splits only affect par value - APIC remains the same. |
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Term
| When is compensation expense recorded at the time of grant for a stock option? |
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Definition
Compensation expense is recorded at the time of grant if options are exercisable immediately
They are based on past service.
Expense recognized : FV Stock Option x # of Shares |
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Term
| What interest rate is used to discount stock options? |
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Definition
| The risk-free interest rate |
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Term
| What date is used as the measurement date for share-based payments classified as liabilities? |
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Definition
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Term
| How are compensation costs for share-based payments classified as liabilities measured? |
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Definition
| Compensation costs for share-based payments classified as liabilities are measured by the change in the fair value of the instrument for each reporting period |
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Term
| What is the net increase to shareholder equity in a reorganization where a company pays cash and issues stock to satisfy unsecured creditors? |
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Definition
| Net increase to SHE : Gain on settlement of debt + Credit to SHE from stock issuance |
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Term
| What is the primary purpose of a quasi-reorganization? |
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Definition
To eliminate a deficit balance in RE by restating its assets to Fair Value
It does not directly protect a company from its creditors |
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Term
| How is return on Common Stockholder's Equity calculated? |
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Definition
(Net Income - P/S Dividends) / Average Common Stockholders Equity
Note: Average CSE : Common Stock + RE |
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Term
| How is book value per share of common stock calculated? |
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Definition
Total Shareholder Equity
- Total Preferred Stock
- P/S Dividends in Arrears
- P/S Liquidation Premium
:Total Book Value
Book Value per Share : Total Book Value / Shares outstanding |
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Term
| How is the dividend per share payout ratio calculated? |
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Definition
| Dividends per share / earnings per share |
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Term
| How is basic Earnings Per Share (EPS) calculated? |
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Definition
(Net Income - Preferred Dividends) / Average C/S Outstanding
Note - If cumulative- subtract the P/S dividend regardless of whether or not they're declared. |
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Term
| For EPS purposes- which date is used for calculation purposes when a stock split or stock dividend has occurred? |
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Definition
| For EPS purposes- treat C/S stock splits or stock dividends as if they occurred at the beginning of the year- regardless of when actually issued during the year |
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Term
| For which areas is EPS required to be shown? |
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Definition
EPS is only required to be shown for Income from Continuing Operations and Net Income.
All others (discontinued operations- extraordinary items) can be shown on the Financial Statements or in the notes |
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Term
| When do stock options increase share outstanding? |
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Definition
Only if they are dilutive.
Their exercise price is LESS than the market value
If not- you ignore them in the calculation |
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Term
| How is EPS calculated when convertible bonds are taken into consideration? |
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Definition
[Net Income + Bond Interest (Net of Tax)] / (Average Common Stock Shares + Convertible Equivalents)
Bond interest is added back because if converted- there would be no bond interest expense
Contingent Issue Agreements are included in Diluted EPS if contingency is met |
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