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CPA Exam - FAR > 1B ii Income Statement/ Statement of Profit or Loss > Flashcards

1B ii Income Statement/ Statement of Profit or Loss Flashcards

1
Q

What is the Cash Surrender Value of a Life Insurance Policy?

A

Amount an insurance company pays to the policy holder in the event the policy is surrendered before maturity.

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2
Q

What are Marketable Debt Securities?

A
  • Short term bonds issued by a public company, held by another company in lieu of cash
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3
Q

In which Financial Statement are marketable debt securities recorded?

A

Balance Sheet as an asset

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4
Q

Are marketable debt securities a current or non current asset?

A

Current Asset

They are expected to be sold within a year, not held long term

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5
Q

When marketable debt securities are recorded in the balance sheet - at what amount are the recorded at (Cost, Fair Value, Carrying Value etc)

A

Cost

until a gain or loss is realized upon the sale of the debt instrument

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6
Q

An increase in the cash surrender value of a life insurance policy owned by a company would be recorded by?

A

Decreasing annual insurance expense

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7
Q

Life Insurance Proceeds - How are they treated after death of Person

A

As revenue

but only to the extent that they exceed the cash surrender value of the policy

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8
Q

Cash Surrender Value - (Asset or liability etc)

A

An asset that is recognized each time the life insurance premium increases the cash value of the policy

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9
Q

How are gains or losses from the sale of long term investments reported in the income statement?

A

As Income from continuing operations

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10
Q

Transactions that are Unusual in Nature of Infrequent in occurrence should be reported in the income statement as…

A

As a component of Income from continuing operations, but not net of applicable income taxes

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11
Q

Are transactions that are Usual in Nature or Infrequent in Occurrence recorded net of applicable income tax?

A

No

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12
Q

What are 2 Options for reporting Unusual and Infrequent Items

  1. ????
  2. Footnotes to Financial Statements
A

Income Statement (as a competent of income from continuing operations)

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13
Q

What are 2 Options for reporting Unusual and Infrequent Items

  1. Income Statement (as a competent of income from continuing operations)
  2. ?????
A

Footnotes to Financial Statements

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14
Q

What are 2 Options for reporting Unusual and Infrequent Items?

A
  1. Income Statement (as a competent of income from continuing operations)
  2. Footnotes to Financial Statements
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15
Q

Unrealized Holding Losses - Where are they reported?

A

in OCI until realized

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16
Q

Realized Gains on AFS Marketable Securities - Are they included in Net Income?

A

Yes

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17
Q

Computing COGS (Using Beg & End Inventory)

A

Beginning inventory + Cost of Goods Purchased + Direct manufacturing cost - ending inventory

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18
Q

Annual Property Taxes - How is it reported in quarterly income statement

A

1/4 of it would be shown on each of quarterly income statements

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19
Q

Unanticipated Repairs - How’s it Shown in Quarterly Income Statement

A

Depends on when the company paid for the repairs

Ex if they paid $150k on April yr 2, the repairs benefit the last three quarters so you divide by 3 and show 50k to each of the next three quarters

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20
Q

How is a Non interest Bearing Note Recorded When it’s exchanged for equipment?

Whichever is more determinable

  1. ??????
    or
  2. Reasonable approximation of market value of the note.

If neither….
3. Record at Present Value

A

Face Value of Equipment Exchanged

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21
Q

How is a Non interest Bearing Note Recorded When it’s exchanged for equipment?

Whichever is more determinable

  1. Face Value of Equipment Exchanged
    or
  2. ???????

If neither….
3. Record at Present Value

A

Reasonable approximation of market value of the note.

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22
Q

How is a Non interest Bearing Note Recorded When it’s exchanged for equipment?

Whichever is more determinable

  1. Face Value of Equipment Exchanged
    or
  2. Reasonable approximation of market value of the note.

If neither….
3. ?????

A

Record at Present Value

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23
Q

How is a Non interest Bearing Note Recorded When it’s exchanged for equipment?

A

Whichever is more determinable

  1. Face Value of Equipment Exchanged
    or
  2. Reasonable approximation of market value of the note.

If neither….
3. Record at Present Value

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24
Q

How to get the balance of a non interest bearing note - so you can compute interest?

A

Take face value of note and subtract it from imputed interest

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25
Q

How to determine imputed interest for a non interest bearing note -For the first year & years after- so you can calculate the balance of it for the year

A
  • The first year would be the difference between face value and present value
  • For the following years it is that but also subtract interest that has already been recognized in previous years

Ex 200k face value, imputed interest 50k balance for year 1 is 150k and 10% interest… interest revenue is 15k

For yr 2 same thing… 200k face value but imputed interest is 35k (50k-15)

Then that give you a balance of 165k

Multiply by 10% interest rate, interest recognized yr 2 is 16,500

26
Q

Example of Determining the imputed interest of a non interest bearing note, so you can calculate the balance of it for the year

A

Ex 200k face value, imputed interest 50k balance for year 1 is 150k and 10% interest… interest revenue is 15k

For yr 2 same thing… 200k face value but imputed interest is 35k (50k-15)

Then that give you a balance of 165k

Multiply by 10% interest rate, interest recognized yr 2 is 16,500

27
Q

Determining Cost of Goods Manufactured (Using COGS and Beg & End Inventory)

A

Ending Inventory + Cost of Sales - Beginning Inventory

28
Q

Basic EPS

A

Net Income - Preferred Dividends /weighted average number of common shares outstanding

29
Q

When Calculating WACS: How are Shares issued in the middle of the year treated?

A

They are prorated to the amount of months left in the year

Ex: 50k shares issued 7/1

Multiply 50k x (6/12)

30
Q

If 30k shares are issued on April 1 yr 1, how is that prorated to determine WACS?

A

Multiply 30k shares x 9/12

because there’s 9 remaining months in the year

31
Q

In Determining WACS - how are Stock Dividends treated?

A

They are treated retroactively meaning you see how many outstanding shares you have at the point of the stock dividend and apply it

32
Q

In Determining WACS - How are Stock Splits treated?

A

Retroactively. See how many Shares outstanding at the point of stock split and apply there.

33
Q

Where is a Prior Period Adjustment Made?

A

Reported as an adjustment to the beginning balance of retained earnings, net of income tax effect,

34
Q

Is a Prior Period Adjustment net of income tax?

A

Yes

35
Q

Is a Prior Period Adjustment Reported in the Income Statement?

A

No

36
Q

How are Discontinued Operations recorded in the Income Statement

A

Classified Separately in the income statement net of taxes

After income(loss) from continuing operations

37
Q

Are Discontinued Operations Reported Net of Income Tax?

A

Yes

38
Q

What kind of Expense is Freight in?

A

Inventoriable cost

39
Q

What Kind of Expense is Freight-Out?

A

Selling Expense

40
Q

What Kind of Expense is Sales Representatives’ Salaries?

A

Selling Expense

41
Q

What kind of Expense are Accounting and Legal Fees?

A

General and Administrative Expenses

42
Q

What Kind of Expense are officer’s Salaries?

A

General and Administrative Expenses

43
Q

What kind of expense is insurance expense

A

General and Administrative Expenses

44
Q

How are gains and losses recorded with treasury stock transactions?

A

gains and losses are not recorded

45
Q

What happens when Treasury stock is reissued at a price larger than its acquisition price

A

The excess is credited to an appropriately titled Paid in Capital Account

46
Q

What Happens when treasury stock is reissued at a price lower than its acquisition price?

A

The deficit is first charged to any existing appropriately titled Paid in Capital Account

If there is more deficit left over it is charged towards retained earnings

47
Q

If you own 50% of a company’s non voting preferred stock - what method should you use (Cost, Equity Acquisition)

A

Cost method, because you do not have the ability to significantly influence the financial and operating policies of the company regardless of the percentage of preferred stock you own

48
Q

How are dividends reported under the cost method?

A

As dividend revenue

49
Q

Going form Cash Basis Net Income to Accrual Basis Net Income

  1. Start with Cash basis NI
  2. Add Change in A/R (if increae add if decree subtract)
  3. Add Change in Prepai expenses (Add if increase, subtractive decrease)
  4. ??????
A

Subtract change in accrued liabilities (add if decrease, subtract if increase)

50
Q

Going form Cash Basis Net Income to Accrual Basis Net Income

  1. ??????
  2. Add Change in A/R (if increase add if decree subtract)
  3. Add Change in Prepaid expenses (Add if increase, subtractive decrease)
  4. Subtract change in accrued liabilities (add if decrease, subtract if increase)
A

Start with Cash basis NI

51
Q

Going form Cash Basis Net Income to Accrual Basis Net Income

  1. Start with Cash basis NI
  2. ?????
  3. Add Change in Prepaid expenses (Add if increase, subtractive decrease)
  4. Subtract change in accrued liabilities (add if decrease, subtract if increase)
A

Add Change in A/R (if increae add if decree subtract)

52
Q

Going form Cash Basis Net Income to Accrual Basis Net Income

  1. Start with Cash basis NI
  2. Add Change in A/R (if increase add if decree subtract)
  3. ????????
  4. Subtract change in accrued liabilities (add if decrease, subtract if increase)
A

Add Change in Prepaid expenses (Add if increase, subtractive decrease)

53
Q

When Going From Cash Basis NI to Accrual Basis NI - How do you treat a Change in A/R?

A

Add Change in A/R - (if increase, addd. If decrease, subtract)

54
Q

When Going From Cash Basis NI to Accrual Basis NI - How do you treat a change in Prepaid Expenses?

A

Add Change in Prepaid expenses (Add if increase, subtractive decrease)

55
Q

When Going From Cash Basis NI to Accrual Basis NI - How do you treat a change in accrued liabilities ?

A

Subtract change in accrued liabilities (add if decrease, subtract if increase)

56
Q

Life Insurance Expense -How is it found using Life insurance premiums and Cash surrender value

A

Life Insurance expense = Balance

Balance is the portion of premium not used for cash surrender value

57
Q

Where is Inventory Obsolescence Loss Included in the Income Statement

A

Included in Income(loss) from continuing operations

58
Q

Fair Value Through Net Income - In what situation is this used?

A

In situations where investor owns preferred stock and doesn’t exercise significant influence (usually preferred stock doesn’t give significant influence, usually non voting

59
Q

Under Fair Value Through Net Income Method - When are dividends recognized as income?

A

dividends are not recognized as income until there are declared by the investee.

So for example if a year 3 dividend is declared and paid in year 4, it will be included in yr 4 continuing operations, not yr 3

60
Q

Under Fair Value Through Net Income Method - If a yr 3 dividend is declared and paid in yr 4, will it be recognized as income in yr 3 or yr 4?

A

yr 4

CPA Exam - FAR (8 decks)

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