1.Fmk, 3.C/Equity, 4.MktS,6.FgnOps, 10.Rcvd

Question 1

Primary Characteristics

Answer 1

R-PC

Relevant: Predictive, and Confirmatory

FENCe
Faithful Rep: free from error, neutral, completeness

Govt:
RrC
CUT

Question 2

Enhancing Qualitative Characteristics

Answer 2

CUT-like-a-V
Comparability
Understandability
Timeliness
Verifiability

Question 3

Constraint

Answer 3

Cost-Benefit

IFRS:
Going Concern
Materiality

Question 4

Elements of Financial Statements - GAAP 10

Answer 4

• Basic Elemts: A-L = Equity
• Elemts of Equity: Contrib., Distrib, and Comp Inc (N/I +OCI-dent)
• Elemts of Inc.: Rev + Exp + G + L (op/nonop)
  = Net Income

Question 5

Elements of Financial Statmts - IFRS 5

Answer 5

• Fin. Elemts: A-L = Equity
• Elemts: Inc+Exp
  = Profit

Question 6

Equity Method 20 - 50%

If elect fair value: recog g/l in i/s. And add share of dividends to the i/s. Thru n/i.

Answer 6

Effect on Investment or I/S:

+Acquisition
+(Earnings x %)
- (Depreciation x %)
- (Inventory Sold x %)

Investment - B/S:
+Acquisition
- (Dividends x %)

I/S: ni - share in dividends - dep - inv sold

Question 7

Cost to Equity

Answer 7

Retro:

Dr Inv = (NI - div declrd) x % owned

Question 8

Goodwill

PPandE, Investment, not land

Answer 8

Purchase > FMV

FMV > BV

Question 9

No election:
Trading Sec/ AFS/ HTM

If FMV election:

Answer 9

I/S: FMV at year-end (this yr only). Need to recog g/l in i/s every year. So when actually sold, do not use orig cost.

B/S - OCI - SE (cumulative, or change in this yr in BS only)

B/S - OCI - CV @ B/S date FMV

All I/S

Question 10

Reclass:

Trading Sec / AFS/ HTM

Answer 10

I/S

I/S, then B/S-OCI

at amortized cost - B/S - OCI at

Question 11

IFRS

Answer 11

All to OCI

Question 12

Derivatives characteristics

Answer 12

NUNS

Question 13

Speculation/
Fair Value Hedge /
Cash Flow Hedge /
Foreign Currency Hedge

Answer 13

• I/S
• I/S - hedge against recog A or L. No n/i effect. Goal
• B/S - OCI - hedge against forecast future trans
• DENT - against currency risk

Question 14

Transactional Currency
Functional Currency
Reporting Currency

Answer 14

I/S - Remeasurement

B/S - OCI - Translation at year end

Question 15

Receivables

Income Statement Approach

Answer 15

Matching principle

% of credit sales:
Uncollectible act: credit sale x % est. not collectible

Question 16

Receivables

Balance Sheet Approach

Always note the Q: adjustment or number?

Answer 16

Asset Valuation principle

B/D exp:
Dr B/D exp, Cr Allow d/a

Write off:
Dr Allow d/b, Cr A/R

No effect in N/I and Working Capital (not AR) and TA
❗️test! Recovery: zero effect on A/R balance

Recovery: 
Dr AR, 
  Cr Allow; 
Dr Cash, 
  Cr AR

Question 17

Recovery of Accounts written off

Answer 17

NO EFFECT in A/R or N/I.

Net effect is zero

Dr AR
Cr Allow
Dr Cash
Cr AR

Question 18

Non-Interest bearing note

Answer 18

SB discounted:

Face of note x disc rate% x period 6/8 mos…. =

Question 19

Discount note sold to another bank

Answer 19

Gross proceeds - disct rate (x time)

Face of note + int. earned - (disct rate sold to bank x period 6/12 mos) = proceeds

Question 20

Sold equip with CV for a nonint. bearing note. No established exch price for equip. Given prevailing rate and PV rate/period.

Answer 20

record at the pv of the pmt tb recvd… $600,000 x .75 = $450,000.

Int. in 1st yr wb $450k x 10%, or $45k

Question 21

note 20. If asking for g/l of equip

Answer 21

compare
the pv of pmt
vs
the CV of equip.

Difference is g/l of equip

Question 22

recvd $500k n/r at 8%. After hldg note 6mos, discount note to Bank at effectv irate 10%. What ant cash recvd from bank?

Answer 22

Calc maturity of note $500k + 1 yr int at 8% or $40k. Since note disct after 6 mos, bank will recv $540k.

The disct wb 540k x 10% x 6/12 or $27k.

Thus rcvd $540k - $27k or $513k from disctg

Question 23

08/01/01 Vann Corp.’s $500k, one year, noninterest-bearing note due 07/31/02, was discounted at Homestead Bank at 10.8%. Vann uses the SL method amortizing bond discount. What amount should Vann report for NP in its 12/31/01 BS?

Answer 23

Note disc for 1 yr prior to maturity, proceeds from discout wb face $500k minus disct $500k x 10.8% = $54k for net amt of $446k. Disct wb amortiz over 1-yr NP at rate of $4,500 per month. As of 12/31/X1, 5 mos have elapsed.

Dr Orig CV $446,000
Dr Amortz disct (5 x $4,500) 22,500
Cr CV at 12/31/X1 $468,500

Question 24

Oci vs aoci

Answer 24

Oci: fmv at b/s dates
Aoci: fmv at b/s date - cost