57 VOCABULARY Flashcards
Preferred Stock
Preferred stock is ownership interest (class of stock) that carries preferences or specified priorities when compared to common stock; it is usually nonvoting and senior to common stock in dividend and liquidation preference and participation rights (to specified limits). It has characteristics of both debt and equity and may have other features, such as convertibility to other securities, call features, and redemption. Preferred stock is a “security.”
While preferred stockholders generally must be paid before common stockholders, preferred stockholders are paid after creditors.
Dividend preference is usually expressed as a percentage of the par value of the preferred stock but may also be expressed as a specific dollar amount per share. Preference may be cumulative or noncumulative, as well as participating, nonparticipating, or partially participating (where it is participating along with common stock in the receipt of dividends in excess of the stated preferred dividend).
Which of the following assets or transactions is an element of comprehensive income?
Investments by owners
Deferred revenue
Distributions to owners
Sales revenue
Question #301444
Sales revenue
The statement of comprehensive income includes all revenues and expenses contained in the income statement/statement of profit and loss. Consequently, it would include sales revenue but would not include investments or distributions by owners or deferred revenue.
Relevant Terms
Comprehensive Income
Other Comprehensive Income
Revenues
Reference
2113.01
2113.02
2113.03
Authorities
FASB ASC 220-10-20
During the current year, Cooley Co. had an unrealized gain of $100,000 on a debt investment classified as available-for-sale. Cooley’s corporate tax rate is 25%. What amount of the gain should be included in Cooley’s net income and other comprehensive income at the end of the current year?
Net income $100,000
Other comprehensive income $0
Net income $75,000
Other comprehensive income $25,000
Net income $25,000
Other comprehensive income $75,000
Net income $0
Other comprehensive income $75,000
Question #302566
Net income $0
Other comprehensive income $75,000
Available-for-sale debt securities are carried on the balance sheet at fair value. Unrealized changes in fair value between periods are reported in other comprehensive income for the period. Gains and losses are not reported on the income statement until realized. Items in other comprehensive income are reported net of their effective tax.
The unrealized gain in other comprehensive income is $75,000 ($100,000 gain × (1 – .25 tax rate)).
Relevant Terms
Available-for-Sale Debt Securities
Other Comprehensive Income
Reference
2251.19
A company reports the following information as of December 31:
Sales revenue $472,000
Cost of goods sold 343,000
Operating expenses 83,000
Loss associated with pension
benefits, net of tax 17,000
What amount should the company report as comprehensive income, ignoring the effect of taxes, as of December 31?
$46,000
$57,000
$63,000
$29,000
Question #302277
$29,000
Comprehensive income is the sum of net income and other items that must bypass the income statement because they have not been realized, including net unrealized holding gains or losses from available-for-sale debt securities, foreign currency translation gains or losses, gains and losses from and amendments to postretirement plans, and deferred gains and losses on derivatives.
Comprehensive income is computed as follows:
Sales revenue $472,000
Cost of goods sold 343,000
Gross profit $129,000
Operating expenses 83,000
Net income $ 46,000
Pension benefits loss, net of tax 17,000
Comprehensive income $ 29,000
========
Relevant Terms
Comprehensive Income
Other Comprehensive Income
Statement of Earnings and Comprehensive Income
Reference
2113.03
A company reports the following information as of December 31:
Sales revenue $800,000
Cost of goods sold 600,000
Operating expenses 90,000
Unrealized holding gain on available-
for-sale debt securities, net of tax 30,000
What amount should the company report as comprehensive income as of December 31?
$110,000
$200,000
$30,000
$140,000
Question #300111
$140,000
Other comprehensive income is computed as follows:
Sales revenue $800,000
Cost of goods sold 600,000
Gross profit $200,000
Operating expenses 90,000
Net income $110,000
Unrealized holding gain 30,000
Comprehensive income $140,000
Relevant Terms
Holding Gain or Loss
Statement of Earnings and Comprehensive Income
Reference
2113.03
Authorities
FASB ASC 220-10-45-10A
Accounting Period
A basic assumption of accounting is that measurements are made and reports prepared for a specific time period, FASB Concepts Statement 8 indicates that useful financial information reports an entity’s resources and claims and their changes for a specific time period. For taxation, an accounting period is the time a taxpayer uses to determine income, deductions, and tax liability. The accounting period for a taxpayer is normally a calendar year (ends December 31), a fiscal year (ends the last day of any month except December), or a 52–53 week year (ends on the same day of the week each year).
IRC Sections 441 and 443
Additional Paid-in Capital
Additional paid-in capital (APIC) is an increase in equity (net assets) in excess of par or stated value arising from transactions involving the enterprise’s own stock. Usually, it is reported for each class of stock or each type of transaction (e.g., APIC from common, from preferred, from treasury stock (both par and cost methods), from conversion of convertible shares, from retirement of callable or redeemable shares from payment of a liquidating dividend, and from quasi-reorganization).
Additional paid-in capital is sometimes called “paid-in capital in excess of par” or “contributed capital in excess of par.”
Available-for-Sale Debt Securities
Available-for-sale (AFS) debt securities are investments not classified as either trading securities or as held-to-maturity securities.
Change in Accounting Principle
A change in accounting principle is a change from one generally accepted accounting principle to another generally accepted accounting principle when there are two or more generally accepted accounting principles that apply or when the accounting principle formerly used is no longer generally accepted. It is expected that accounting pronouncements normally will provide specific transition requirements. However, in the unusual instance that there are no transition requirements specific to a particular accounting pronouncement, a change in accounting principle effected to adopt the requirements of that accounting pronouncement must be reported as a retrospective application of the new accounting principle to all prior periods, unless it is impracticable to do so. Retrospective application requires the following:
- The cumulative effect of the change to the new accounting principle on periods prior to those presented must be reflected in the carrying amounts of assets and liabilities as of the beginning of the first period presented.
- An offsetting adjustment, if any, shall be made to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that period.
- Financial statements for each individual prior period presented shall be adjusted to reflect the period-specific effects of applying the new accounting principle.
A change in the method of applying an accounting principle also is considered a change in accounting principle.
FASB ASC 250-10-20
Comprehensive Income
Comprehensive Income
Comprehensive income is the change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income comprises both (1) all components of net income and (2) all components of other comprehensive income.
FASB ASC Glossary
Foreign Currency
A foreign currency is a currency other than the functional currency of the reference entity.
Example: Any currency other than the dollar for a U.S. enterprise is a foreign currency.
FASB ASC 830-10-20
Foreign Currency Translation
Foreign currency translation is the process of expressing in the reporting currency of the enterprise amounts that are denominated or measured in a different currency. It is converting financial statements expressed in a foreign currency (i.e., the entity’s functional currency) into the reporting currency. This arises from consolidating a foreign operation into the parent (domestic) operation. Because it is not possible to combine, add, or subtract amounts measured in different currencies, it is necessary to translate elements measured in foreign currencies into a single reporting currency.
FASB ASC 830-10-20
Translation adjustments do not affect cash flows and are not included in net income, but are reported as a separate component of equity. The economic effects are relatively self-contained and integrated within the foreign operation and relate to the net investment in that operation.
Holding Gain or Loss
A holding gain or loss is the net change in fair value of a security. The holding gain or loss does not include dividend or interest income recognized but not yet received, write-offs, or the allowance for credit losses.
FASB ASC Glossary
Income Statement
The income statement is a financial statement that shows an organization’s revenues and expenses for a defined period of time. The income statement is the financial statement used most often by investors as it provides information concerning the firm’s ability to sustain ongoing operations profitably. The income statement is also the statement that is most readily understood.
The single-step income statement displays the net income from ordinary operations without intermediate calculations. The multi-step income statement uses intermediate steps such as gross profit in displaying the net income from ordinary operations.
Interim Financial Information
Interim financial information is financial information prepared and presented in accordance with an applicable financial reporting framework that comprises either a complete or condensed set of financial statements covering a period or periods less than one full year or covering a 12-month period ending on a date other than the entity’s fiscal year-end. (FASB ASC 270-10)
