1/9/19 Deck Flashcards

1
Q

reporting in RE for changes in entity, estimate, & error (AP change)

A

Change in est = prospective

Change in entity = restate

Error = PPA (restate)

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2
Q

Notes to FS disclosures (relevant to decision makers & integral part of FS)

A
  • change in SE
  • contingency
  • off BS contracted obligations
  • pension plan
  • post BS but before FS issued
  • related party
  • significant est/risk
  • products, customers’ geography
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3
Q

What is included in total revenues and total expenses & losses

A

Total revenue = R & G

Total expenses & losses =
expenses, losses, and ITE

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4
Q

HFS criteria:

A
  • Mgt commits to a plan to sell component
  • available for immediate sale in its present condition
  • active program to locate buyer is initiated
  • sale of component is probable & sale is expected to be completed in 1 year
  • sale of component is actively marketed
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5
Q

When a component is classified as HFS:

A
  • an impairment analysis of the component must be conducted
  • is considered discont’d op’s, also discont’d if it has been disposed of
  • once class’d as HFS, it is measured at LC-NRV
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6
Q

disposal of component/group is reported as discont’d op’s if:

A

represents strategic shift or will have major effect on entity’s operations and financial results

  • strategic shift examples:
  • disposal of a major geographic area
  • disposal of major equity method investment
  • disposal of major line of business
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7
Q

Comparative vs. Noncomparative FS for change in AP:

A
  • Comparative: diff b/w BB RE and RE if retro’ly applied to all prior affected periods
  • Noncomparative: diff b/w BB RE in first period presented and RE if retro’ly applied to all prior periods
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8
Q

change in AP (net tax) GR:

A

One acceptable method of acct (GAAP to GAAP or IFRS to IFRS)
Because new method presents the fin info more fairly than old method
Exception: change in dep to LIFO (inseparable from change in est)

  • change in est = prospective
  • change in entity = restate BB RE
  • error correction = PPA & restate BB RE
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9
Q

change in AP (net tax) GR:

A

One acceptable method of acct (GAAP to GAAP or IFRS to IFRS)
Because new method presents the fin info more fairly than old method
Exception: change in dep to LIFO (inseparable from change in est)

  • change in est = prospective
  • change in entity = restate BB RE
  • error correction = PPA & restate BB RE
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10
Q

Selling Expenses:

A
  • freight out
  • sales salaries & commissions
  • advertising
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11
Q

G&A expenses:

A
  • general OH
  • officer’s salaries
  • accounting & legal fees
  • insurance
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12
Q

non-op expenses: [separate line items]

A
  • auxilliary activities (non-related)
  • interest exp
  • gains and losses
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13
Q

change in estimate:

A
  • depreciation method
  • UL of depreciable asset
  • residual value
  • BD %
  • loss accruals
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14
Q

neither a change in AP or estimate: [prospective]

A
  • change from FV method to equity method (due to increase in ownership)
  • adopt new equity method as of date investment qualifies as equity method
  • retro adj not req’d (cost of acq’ing add’l int in investee is added to CV of prev’ly held investment)
  • if investment was prev’ly accounted for as AFS, recognize the “un” G/L from AOCI
  • adopting pension plan for all employees
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15
Q

rules for AJE:

A
  • never involves cash

* all AJE will hit 1 IS account and 1 BS account

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16
Q

key financial ratios are:

A
  • liquidity ratio (WC, QR, CaR)
  • activity ratio (AR TO, A TO, Inv TO, days sales AR & Inv TO in days, days in Inv, AP TO, etc)
  • coverage ratio (DER, times int earned, Op CF/total debt, equity multiplier)
  • profitability ratios (not key); return on sales, ROA, ROE, NPM
  • investor ratios (EPS, PER, div payout ratio)
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17
Q

liquidity ratios:

A
  • WC = CA - CL
  • WC ratio = CA/CL
  • QR (acid) = CA-inv/CL [no PPD/inv]
  • CaR (most liquid) = (CA - inv - AR)/CL
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18
Q

Activity ratios:

A
  • AR TO = NS/ avg AR
  • AR TO days = 365/AR TO
  • days sales in AR = EB AR/(NS/365)
  • Inv TO = COGS/avg Inv
  • Inv TO days = 365/inv TO
  • days in Inv (#days to sell) = EI/(COGS/365)
  • AP TO = COGS/avg AP
  • days payable o/s = EB AP/(COGS/365)
  • Cash conversion cycle = days in AR + days in inv + days in AP (lower the better)
  • operating cycle = AR TO days + inv TO days (less is better)
  • WC TO = NS/avg WC
  • total A TO = NS/avg A
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19
Q

Activity ratios:

A
  • AR TO = NS/ avg AR
  • AR TO days = 365/AR TO
  • days sales in AR = EB AR/(NS/365)
  • Inv TO = COGS/avg Inv
  • Inv TO days = 365/inv TO
  • days in Inv (#days to sell) = EI/(COGS/365)
  • AP TO = COGS/avg AP
  • days payable o/s = EB AP/(COGS/365)
  • Cash conversion cycle = days in AR + days in inv + days in AP (lower the better)
  • operating cycle = AR TO days + inv TO days (less is better)
  • WC TO = NS/avg WC
  • total A TO = NS/avg A
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20
Q

Profitability ratios:

A
  • return on sales = EBIT/NS
  • ROA = NI/avg A
    (DuPont same thing; NPM * total A TO)
  • ROE (ROCE) = NI/ SE
  • NPM = NI/NS
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21
Q

Coverage Ratios:

A
  • DER = L/SE
  • DAR = L/A
  • times int earned (int coverage ratio) = (EBIT + int exp)/int exp
  • op CF/L = op CF/L
  • Equity multiplier = A/E
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22
Q

Investor ratios:

A
  • EPS = (NI-PD)/WACSO
  • PER = price per share/ basic EPS
  • div payout ratio = CD/NI
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23
Q

examples of CE’s:

A
  • coin+currency on hand (petty cash)
  • checking & savings accounts
  • MMF
  • deposits held as compensating balances (not restricted)
  • negotiating paper (traveler’s checks, bank drafts, cashier’s checks, T-bills, certificate of deposit (OG maturity <90 days)

*NOT legally restricted deposits held as comp balances

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24
Q

2 forms of bank reconciliations:

A
  • simple reconc:
  • goal is to calculate “true balance”
  • bank add it LOC (deposit - o/s checks)
  • svc charges, errors, and NSF deduct from books & bank collections, errors, and interest income add to books
  • steps = book bal adj’d to reflect correct bank bal, after adj’d book bal, it will equal true bal, then bank bal per bank statement is reconc’d to true bal
  • reconc of CR & CD:
  • shows proof of proper recording of cash transactions
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25
perpetual vs periodic inventory:
* perpetual: running total of inventory (updated) | * periodic: no running total & COGS cannot be det'd til end of period when inv counted (includes purchases)
26
inventory valuation methods: [GAAP vs IFRS]
* GAAP: LCM using LIFO/retail inventory method | * IFRS: LC-NRV using FIFO/WA method
27
how to calculate LCM:
* ceiling = NRV * replacement cost = given * floor = NRV - NPM
28
Inventory Costing Methods:
* FIFO: EI & COGS are same under perpetual or periodic - sell old; higher EI, CA, RE - highest EI & highest NI * LIFO: (US) tax advantage (better matching); need to use LIFO conformity rule (on FS as well) - lowest EI & lowest NI
29
WA - used with periodic inventory:
WA cost per unit = COGAFS/# units available for sale
30
MA - used with perpetual inventory:
* unit cost changes each time there is a new purchase | * calculate new MA after every purchase (total COGAFS/# units)
31
DV LIFO:
* computed internally or obtained from external sources * PI = EI CY/EI BY - PI*layer = Y1 layer - Y1 layer + Y1 DV LIFO = EB Y1 DV LIFO
32
conventional retail method:
*at cost: BI + purch = AFS * at retail: - BI + purch + markups = AFS - AFS - sales - markdowns = EI retail - cost AFS/retail AFS = cost/retail ratio - cost/retail ratio * EI retail = EI LCM
33
sales w/ ROR:
* GR: if goods are sold w/ ROR, they should be included in seller's inv if amt of goods likely to be returned cannot be est'd * if amt of goods likely to be returned CAN be est'd, transaction will be recorded as sale w/ allowance for est'd returns * revenue from sales transaction w/ ROR should be recog'd at time of sale only if crtierias are met: - SP substantially fixed at date of sale - buyer assumes all ROL - buyer has paid some form of consideration - product sold is substantially complete & - amt of future returns can be reasonably est'd (rev recognition rule)
34
exceptions to cost basis:
* precious metals & farm products: - valued at NRV *LCM and LC-NRV is used when loss on sale is expected
35
reversal of write-downs (GAAP vs IFRS):
* GAAP = no | * IFRS = yes (limited to amount of OG write-down)
36
Inventory write-down JE:
Dr Inv loss due to decline in MV | Cr Inv
37
Periodic vs. Perpetual JE for purchases:
*Periodic: Dr Purchases Cr Cash *Perpetual: Dr Inventory Cr Cash
38
Specific Identification:
takes precedence over any other inventory costing method (cost of each item is uniquely identified) - usually for HV items or physically large
39
Firm PC's:
* legally enforceable agreements to purchase a specific amount of goods at some time in the future * must be disclosed in FS or notes * if price > MV and expected that loss will occur when purch is made, the loss should be recog'd at time of decline in price (conservatism)
40
FOB destination & shipping point costs:
* destination = packaging, shipping, & handling (seller) | * shipping = shipping cost is buyer's cost
41
Ordinary vs. Extraordinary repairs:
* ordinary = expensed | * extraordinary = cap as inventory ONLY IF it increases usefulness of asset
42
land improvements:
fences, sidewalks, landscaping, etc
43
Building costs:
excavation & forward
44
land improvements:
fences, sidewalks, landscaping, lighting, paving, int costs during construction period, etc
45
land costs:
all costs up to excavation (includes razing & real estate taxes in arrears)
46
under IFRS, component depreciation is required (more accurate):
separate significant components of FA's w/ diff lives should be recorded and dep'd separately; CV of components that are replaced should be derecog'd
47
Interest on Self-Constructed Assets:
* cap those interests on these assets based on (WAAE*int rate); cannot exceed actual interest costs; leftover is int exp * this is an exception (permit filed & during construction for use in biz) * we capitalize interest LOWER of actual int costs incurred or computed cap'd int (avoidable interest) * interest on inventory routinely mfg'd is not cap'd
48
Depreciation methods:
* SOY digits: rate = remaining life/SOY digits [n(n+1)/2] - (cost - SV) * rate = DE * DDB = highest DE initially, SL = lowest initially *UOP: Step 1 : (cost-SV)/ units per hr = rate per unit/hr Step 2: rate per unit/hr * # units produced/hr worked = DE
49
valuation of donated FA's:
``` Dr FA (FMV) Cr Gain on nonreciprocal transfer ```
50
for a damaged portion of a Building that is known & uninsured:
recognize loss to CV of damaged portion & capitalize refurbished costs
51
WA int rate calculation:
[(6/14)*8%] + [(8/14)*9%] = 8.57%
52
disclosures for depreciable assets and DE should be made in FS or notes:
- DE for period - balance of major classes of depreciable assets - AD allowances y classes/total - methods used by major classes in computing DE
53
bond discount vs. premium rates:
*discount: effective rate > stated rate (investors pay less than face value) *premium: effective rate < stated rate (investors pay more than face value)
54
bond discount vs. premium rates:
*discount: effective rate > stated rate (investors pay less than face value) *premium: effective rate < stated rate (investors pay more than face value) **bonds issued at par: effective rate = stated rate
55
JE for premiums & discounts:
* premiums: Cr premium b/c pay more cash (Dr) | * discounts: Dr discount b/c pay less cash (Dr)
56
amortization of bond premiums & discounts:
* SL is tolerable under GAAP but forbidden under IFRS | * effective int method is used for GAAP + IFRS (bond amort table)
57
effective interest method:
* BS: bond face * coupon rate = interest paid (I/P) * IS: NCV * effective int rate = interest expense **int paid - int exp = amortization; all amort goes toward the face
58
retirement of bonds:[IS g/l]
``` *retiring premium bond: Dr B/P Dr premium (Dr loss) Cr Cash (Cr gain) ``` ``` *retirement discount: Dr B/P (Dr loss) Cr discount Cr Cash (Cr gain) ```
59
imputing interest:
N/R & N/P are recorded as PV when interest rate is not stated or when stated interest rate is unreasonably low - diff b/w face & PV of note is recorded as a discount and amortized over life of the note (SL)
60
trouble debt restructuring:
debtor is relieved of its obligation to creditor ONLY BY: - paying the creditor - being released of debt judicially or by creditor (considered debt is extinguished by placing cash in an irrevocable trust is NOT GAAP for extinguishment)
61
Trbl Debt Restructuring accounting:
by Debtor: [transfer of assets]: FV asset transferred = G/L; asset marked to MV thru IS CV payable = Gain (concession G) [transfer of Equity]: CV payable = Gain [Mod of Terms]: debtor accounts for effects prospectively & does not show CV or gain UNLESS [CV > total FCF] by Creditor: BDE is recog'd for diff b/w loan amount & FV of item being received and/or PV of expected CF discounted at loans' historical effective int rate
62
Trbl Debt Restructuring accounting:
by Debtor: [transfer of assets]: FV asset transferred = G/L; asset marked to MV thru IS CV payable = Gain (concession G) [transfer of Equity]: CV payable = Gain [Mod of Terms]: debtor accounts for effects prospectively & does not show CV or gain UNLESS [CV > total FCF] by Creditor: BDE is recog'd for diff b/w loan amount & FV of item being received and/or PV of expected CF discounted at loans' historical effective int rate
63
Permanent Differences:
[subtracted from FI to get TI] * tax-exempt interest (muni/state bonds) * life insurance proceeds on officer's key man policy (proceeds from term life insurance on death of officer) * nondeductible portion of meal & entertainment exp * DRD for corporations * excess % depletion over cost depletion [added from FI to get TI] * life insurance premiums when corporation is beneficiary * certain penalties, fines, bribes, kickbacks, etc
64
Temporary Differences:
``` * DTL: [income later] -installment sales -contracts (% vs completed) - equity method (undistr'd dividends) -"un" G/L (til sec's sold) ``` [expense 1st] - DE & amortization - PPD exp/ins (cash basis for tax; recognize all 1st year) DTA: [income now] -PPD (unearned) rent/int/royalties [exp later] - BDE (allow vs direct WO) - est'd L & warranty exp - start-up expenses (ACTUALLY IS no diff if amount is <5k b/c of tax rules)
65
as of 2018, no NOL CB is allowed, but NOL CF is allowed infinitely * NOL CF may require a VA (gift cert) limited to 80% of expected TI
JE to record DTA for CF: Dr DTA Cr Tax Benefit (reduces book loss) **calculation: NOL CF - (CY loss*80% expected NY income) = CF that will not be used (unusable)
66
as of 2018, no NOL CB is allowed, but NOL CF is allowed infinitely * NOL CF may require a VA (gift cert) limited to 80% of expected TI
JE to record DTA for CF: Dr DTA Cr Tax Benefit (reduces book loss) **calculation: ITB = [NY NI*80%]*TR+[NY NI*80%]*TR] - until all of CF is used
67
as of 2018, no NOL CB is allowed, but NOL CF is allowed infinitely * NOL CF may require a VA (gift cert) limited to 80% of expected TI
JE to record DTA for CF: Dr DTA Cr Tax Benefit (reduces book loss) **calculation: ITB = [NY NI*80%]*TR+[NY NI*80%]*TR] - until all of CF is used - leftover CF is VA (using future year TR)
68
PBO & ABO: (GAAP)
* PBO = future salary levels * ABO = actuarial PV CY & PY levels **DBO = IFRS (similar to PBO in GAAP)
69
for the AGE in "SIR AGE", JE for each year exp: [for net loss & gains]
[net loss] Dr Net Per Pen Cost (AGE) Cr OCI Dr DTB-OCI Cr DTB-IS [net gain] Dr OCI (AGE) Cr DTE-IS Dr DTE-IS Cr DTE-OCI
70
S of "SIR AGE" is recorded as OpEx on IS; JE:
Dr comp exp | Cr pension benefit A/L
71
IR of "SIR AGE" is recorded:
``` "R": (actual > expected) [CY] Dr pension ben A/L Cr OCI [NY] Dr OCI Cr Net Per Pen Cost ```
72
IR of "SIR AGE" is recorded: [net IR]
"I": Dr Net Per Pen Cost Cr Pen Ben A/L ``` "R": (actual > expected) [CY] Dr pension ben A/L Cr OCI [NY] Dr OCI Cr Net Per Pen Cost ```
73
JE for contribution to a plan:
Dr Pension Ben A/L | Cr Cash
74
amortization of existing net obl/NA at implenetation "E" of SIRAGE:
[+amort of obligation] [-amort of NA] calculation: PBO - FV = initial unfunded/ / 15Y or avg emp job life (greater of) = min amortization
75
DBPP disclosures should include:
-funded status of plan (face of BS) - amt of Net Per Pen Cost for the period FV Plan Assets
76
corridor approach "G": [use market-related value of assets]; if not present, use FV plan assets
unrecog'd G/L - 10% PBO/FV (greater) = excess; *excess / avg svc life = amort'd G/L **if 10% PBO/FV > unrecog'd G/L, then no amortization will be taken
77
corridor approach "G": [use market-related value of assets]; if not present, use FV plan assets
unrecog'd G/L - 10% PBO/FV (greater) = excess; *excess / avg svc life = amort'd G/L **if 10% PBO/FV > unrecog'd G/L, then no amortization will be taken
78
a company providing HC benefits for its retirees should disclose:
- assumed HC cost trend rate used to measure the expected cost of benefits covered by the plan (actuarial assumptions) - APBO
79
a company providing HC benefits for its retirees should disclose:
- assumed HC cost trend rate used to measure the expected cost of benefits covered by the plan (actuarial assumptions) - APBO
80
TS cost method:
``` [both methods] *initial JE issuance: Dr Cash SP Cr CS par Cr APIC-CS ``` [cost method]; resell *repurchase JE: Dr TS (cost) Cr Cash *resell above JE: Dr Cash SP Cr TS (cost) Cr APIC-TS (SP-cost) ``` *resell below JE: [loss is APIC-TS+RE SP - cost] Dr Cash SP Dr APIC-TS (if any) Dr RE (plug) Cr TS (cost) ```
81
TS par method:
``` [both methods] *initial JE issuance: Dr Cash SP Cr CS par Cr APIC-CS ``` [par method]; repurch ``` *repurch above issue price JE: Dr TS (par-CS) Dr APIC-CS (par) Dr RE (issue-PP) Cr Cash (PP) ``` ``` *repurch below issue price JE: Dr TS (par-CS) Dr APIC-CS (par) Cr Cash (PP) Cr APIC-TS (issue-PP) ``` *resell JE:
82
TS par method:
``` [both methods] *initial JE issuance: Dr Cash SP Cr CS par Cr APIC-CS ``` [par method]; repurch ``` *repurch above issue price JE: Dr TS (par-CS) Dr APIC-CS (par) Dr RE (issue-PP) Cr Cash (PP) ``` ``` *repurch below issue price JE: Dr TS (par-CS) Dr APIC-CS (par) Cr Cash (PP) Cr APIC-TS (issue-PP) ``` *resell above/below JE: Dr Cash (SP) Cr TS (par-CS) Cr APIC-CS (plug)
83
TS par method:
``` [both methods] *initial JE issuance: Dr Cash SP Cr CS par Cr APIC-CS ``` [par method]; repurch ``` *repurch above issue price JE: Dr TS (par-CS) Dr APIC-CS (par) Dr RE (issue-PP) Cr Cash (PP) ``` ``` *repurch below issue price JE: Dr TS (par-CS) Dr APIC-CS (par) Cr Cash (PP) Cr APIC-TS (issue-PP) ``` *resell above/below JE: Dr Cash (SP) Cr TS (par-CS) Cr APIC-CS (plug)
84
cost vs par method (RE & APIC comparison):
compared to cost method, par method will report lower amount for APIC & same amount for RE if: - repurch TS > par but
85
cost vs par method (RE & APIC comparison):
compared to cost method, par method will report lower amount for APIC & same amount for RE if: - repurch TS > par but
86
CD JE's:
Declaration date: Dr RE Cr D/P record date: NO JE Pmt date: Dr D/P Cr Cash
87
property div JE:
``` Dr RE (FMV) Cr FA ```
88
Stock div:
``` less than 20-25%: Dr RE (FMV) Cr CS (par) Cr APIC (plug) ``` greater than 20-25%: Dr RE (par) Cr CS
89
Stock div:
``` less than 20-25%: Dr RE (FMV) Cr CS (par) Cr APIC (plug) ``` greater than 20-25%: Dr RE (par) Cr CS
90
liquidating dividends:[div in excess of RE]; Dividends > RE
no JE for pure liquidating div ``` *liquidating div with excess: Dr RE (80%) Dr APIC (20% - ROC) Cr Cash (100%) ```
91
liquidating dividends:[div in excess of RE]; Dividends > RE
* no JE according to final review? * pure liquidating dividend: No JE ``` *liquidating div with excess: Dr RE (80%) Dr APIC (20% - ROC) Cr Cash (100%) ```
92
stock splits/reverse splits:
no JE
93
retirement of TS:
``` [cost method] Dr CS (par) Dr APIC-CS (SP-par) Dr RE (plug) Cr TS (cost) ``` [par method] Dr CS (par) Cr TS
94
donated TS:
Dr Donated TS (FMV) Cr APIC ``` *if sold: Dr Cash (SP) (Dr APIC if sold less than FMV) (Cr APIC if sold greater than FMV) Cr Donated TS (BV or FMV) ```
95
RE calculation:
BB +NI/ +/- PPA +/- Acct changes (cumu effect) + adjustment from "quasi-reorg" = EB RE
96
3 main differences of NFP's compared to commercial entities:
- contributions revenue; providers do not expect commensurate/proportionate return - operating purposes is to provide services/mission of the NFP - absence of ownership interest (no equity)
97
basic FS's for NFPs:
-statement of fin pos (BS) -statement of activities (IS) -statement of CFs [notes are included]
98
NFP's are required to disclose functional expenses to present program & support categories to analyze expenses by object (natural class'n):
* program svc: - activities the org is chartered - universities (edu & research) - hospitals (patient care & training) - union (labor negotiations & training) - day care (child care) * support services: - fundraising (cost to maintain a donor list for contributions) - mgt. & G&A exp (soliciting membership dues) - membership dvp (soliciting prospective members, brochure costs)
99
classification of gov expenditures:
* function/program = elderly, drug, addiction, edu programs * org unit = police, fire dept, (public safety functions) * activity = drug & highway (under police org unit) * character = current expend, cap outlay, debt svc, intergov * object classes = chart of accounts (S&G exp, etc)