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Yaeger FAR > 9D Basic Theory And Financial Reporting > Flashcards

9D Basic Theory And Financial Reporting Flashcards

0
Q

Equation for net sales

A

Gross sales
- sales discounts
- sales returns and allowances
= net sales

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1
Q

Multiple step income statement:
Totman Company
Statement of Earnings and Comprehensive Income
For the Year Ended December 31, Year 2

include all line items

A 
Sales
COGS
Gross margin on sales
Operating expenses:
   Selling expenses
   Administrative expenses
Operating income
Other revenues and gains:
   Interest revenue
   Equity in investee earnings
   Gain on sale of AFS securities
Other expenses and losses:
   Interest expense
   Loss from permanent impairment of facilities
Income from continuing operations before provision for income taxes
Provision for income taxes
   Current
   Deferred
Income from continuing operations 
Discontinued operations:
   Loss from operations of discontinued division Z
   Income tax benefit
Income (loss) before extraordinary item:
   Extraordinary item: loss due to earthquake 
Net earnings (loss)
Other comprehensive income:
   Foreign currency translation adjustments
   Unrealized gains on securities:
      Unrealized holding gains arising during period
      Less: reclassification adjustment for gain included in net income
Other comprehensive income
Comprehensive income
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2
Q

COGS AKA COS is a…

A

Product cost

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3
Q

Equation for gross margin AKA gross profit

A

Net sales
- COGS/COS
= gross margin/or gross profit

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4
Q

Equation for cost of goods sold under the periodic system of inventory

A 
Beginning inventory
\+ COG Purchased
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
cost of goods available for sale
- ending inventory
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
COGS
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5
Q

COGAS

A

Cost of goods available for sale

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6
Q

Periodic inventory system of inventory calculation for Cost of goods purchased

A 
Gross purchases
- purchase discounts
- purchase returns and allowances
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Net purchases
\+ freight in/or transportation in
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
COG Purchased
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7
Q

Operating expenses include 6 expenses

A 
1 selling
2 R&D
3 general + administrative 
4 organizational costs
5 impairment loss (for SEC registered)
6 Bad debt expense
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8
Q

Organizational costs

A

Start up/ pre opening costs for businesses

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9
Q

G + A

A

General and administrative expense

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10
Q

2 common examples of General and administrative expenses

A

1 pay auditors

2 internal controls

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11
Q

How do you calculate operating income/operating profit?

A

Gross margin/GP
- Operating expenses
________________
Operating income/operating profit

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12
Q

How do you calculate income from continuing operation (before taxes)?

A 
Operating Income/operating profit 
\+ other revenues and gains
- other expenses and losses
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Inc. from continuing. Operations (before taxes)
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13
Q

How do you calculate income from continuing operations Net of Tax?

A

Income from continuing operations before taxes
- income taxes (current and deferred)
_______________________________
Income from operations (net of tax)

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14
Q

NOT

A

Net of tax

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15
Q

How do you calculate net income, starting from income from operations NOT?

A 
Income from operations NOT
\+/- discontinued operations NOT
\+/- extraordinary gain/loss NOT
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Net income
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16
Q

How do you calculate comprehensive income?

A

Net income
+ other comprehensive income NOT
_____________________
Comprehensive income

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17
Q

Freight out

A

Cost to ship to customer

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18
Q

Freight in

A

Cost to get inventory sent to your business

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19
Q

In the multiple step format of the income statement, the SEC requires that public companies place impairment losses in…

A

Operating income. (Instead of “other expenses and losses”

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20
Q

Single step income statement format, 5 items under revenue, 6 items under expenses

A 
Revenues:
   Sales.                         
   Interest
   Gain on sale of available for sale securities
   Equity in investee earnings
         Total revenues
Expenses:
   COGS
   Selling exp.
   Administrative exp.
   Interest exp.
   Loss from permanent impairment of value to facilities
      Total expenses
   Income from continuing operations before provision for income taxes
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21
Q

Unusual or infrequent items definition

A

Unusual or infrequent event considered to be material

that does not qualify as extraordinary

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22
Q

Unusual or infrequent item, placement on income statement or statement of retained earnings

A

Placed as part of income from continuing operations after normal
Recurring revenues and expenses

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23
Q

Discontinued operations, definition

A

Results from disposal of business component

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24
Q

Discontinued operations, placement on income statement or statement of retained earnings

A

Placed as separate category after income from continuing

operations

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25
Q

Extraordinary items, definition

A

An unusual and infrequent no recurring event, which has material
Effects

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26
Q

Extraordinary items, placement on income statement or statement of retained earnings

A

Placed in separate category after discontinued operations

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27
Q

Items that are never extraordinary 3

A

1 foreign currency devaluation

2 labor strike effects

3 write downs of assets (inventory, PPE, Intangibles, receivables)

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28
Q

An extraordinary gain can result from…

A

Really good insurance

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29
Q

Infrequent and unusual items: Restructuring

A

Program that is planned and controlled by management and
Materially changes scope of business undertaken by company

Or manner which the business is conducted

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30
Q

5 common examples of restructuring

A

1 sale or termination of line of business
2 closure of business activities in particular location
3 relocation of business activities from one location to another
4 changes in management structure
5 fundamental reorganizations that affect nature and focus of
Operations

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31
Q

Another unusual or infrequent item is accounting for the costs of…

A

Exit and disposal activities (includes restructuring)

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32
Q

A liability for a cost associated with an exit or disposal activity should be recognized and measured…

A

Initially at fair value in period where liability is incurred

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33
Q

How is fair value usually determined for a liability for a cost associated with an exit or disposal activity?

A

Determined as present value of estimated future payments

Discounted at credit adjusted, risk free rate of interest

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34
Q

In the unusual circumstance when fair value can’t be reasonably estimated, the liability shall be initially recognized in period where fair value can be reasonably estimated. 3 examples of these liabilities include…

A

1 onetime termination benefits provided to current employees
That are involuntarily terminated
2 costs to terminate contract that is not a capital lease
3 costs to consolidate facilities or relocate employees

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35
Q

Recognition of the liability and expense for onetime termination benefits depends on whether…

A

The employees are required to provide services beyond minimum
Retention period

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36
Q

If The employees are required to provide services beyond minimum
Retention period, the expense is recognized…

A

Over the period the services are provided

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37
Q

Costs associated with an exit or disposal activity that does not involve discontinued operations shall be included in…

2) the footnotes to the financial statements should provided…

A

Income from continuing operations before income taxes

2) extensive disclosure of the activities

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38
Q

Discontinued operations: to qualify for treatment as discontinued operations, assets must comprise a component of the entity with…

A

Operations and cashflows that are clearly distinguished,
operationally and for financial reporting purposes, from the
Rest of the entity

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39
Q

4 things a component may be?

A

1 reportable or operating segment
2 reporting unit
3 subsidiary
4 asset group

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40
Q

To be reported as discontinued operations 2 requirements must be met

A

1 the operations and cash flows of the component have been
(Or will be) eliminated from ongoing operations due to disposal

2 entity won’t have significant involvement in operations of
Component after disposal

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41
Q

Many assets disposed of as discontinued operations are…

A

Long lived assets

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42
Q

The component is classified as discontinued operations in the first period it meets the criteria as…

A

Being held for sale

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43
Q

6 requirements to classify disposed assets in discontinued operations

A

1 management commits to a plan of disposal
2 assets are available for sale
3 active program to locate buyer has been initiated
4 sale is probable
5 asset is being actively marketed for sale at fair price
6 it is unlikely that disposal plan will significantly change

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44
Q

Long lived assets classified as held for sale are reported at the…

A

Lower of their carrying amounts or fair values less costs to sell

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45
Q

The gain or loss on disposal of discontinued operations is the actual gain or loss if the disposal occurs in…

A

The same period that the component meets the criteria being

Classified as held for sale

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46
Q

When discontinued operations are disclosed in a comparative income statement, the income statement presented for each previous year must be…

A

Adjusted retroactively to enhance comparability with current

Year’s income statement

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47
Q

Accordingly the revenues, cost of goods sold and operating expenses (including income taxes) for the discontinued component are removed from the revenues, costs of goods sold and operating expenses of continuing operations and are meted into one figure that is…

A

Income (loss) from discontinued operations

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48
Q

Organization of discontinued operation on the income statement

A

Discontinued operations:
Loss from operations of discontinued division z
Income tax benefit

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49
Q 
Acronym 
I
D
E
NI
A

Income from continuing operations NOT
Discontinued income from operation NOT
Extraordinary Gain/loss NOT
NI net income

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50
Q

2 choices for presenting other comprehensive income

A

1 at bottom of income statement, continue from net income to
Arrive at a comprehensive income

2 in separate statement, start from net income and directly follows
Statement of income

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51
Q

When presenting other comprehensive income at the bottom of the income statement, an entity should present the following 3 items…

A

1 total amount of net income and its components

2 total amount for other comprehensive income and its components

3 total comprehensive income

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52
Q

When presenting other comprehensive income in a separate statement, the entity should present the 2 following items…

A

1 net income and its components in the statement of net income

2 comprehensive and its components along with
total comprehensive income

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53
Q

The accumulated (total) comprehensive income shall be presented…

A

Separately from retained earnings and additional paid in capital
In the statement of financial position

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54
Q

Accumulated comprehensive income:

The changes in the accumulated balances are to be presented in…

A

The notes of financial statements or on face of financial

Statements

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55
Q

Each component of other comprehensive income and reclassifications shall be presented…

A

Separately

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56
Q

Current assets

A

Cash and other assets/resources commonly identified as those
Reasonably expected to be realized in cash

Or sold or consumed during normal operating cycle of business

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57
Q

Current liabilities

A

Used principally to designate obligations whose liquidation is
Reasonably expected to require the use of existing resources
(Classified as current assets)

Or creation of other current liabilities

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58
Q

SHE

A

Shareholders equity

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59
Q

Comprehensive income

A

Total of net income and other comprehensive income

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60
Q

2 approaches for reporting comprehensive income

A

1 present a combined statement of income with OCI at bottom

2 present a second statement that directly follows income statement

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61
Q

Present combined statement of income and comprehensive income with OCI at bottom:

Layout with 7 line items

A 
Sales revenue
COGS
Gross profit
Operating Exp.
Net income
Other comprehensive income 
   Unrealized holding gain NOT
Comprehensive income
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62
Q

What would be the layout of a comprehensive income statement that follows the income statement, in 3 line items?

A

Net income
Other comprehensive income:
Unrealized holding gain NOT
Comprehensive income

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63
Q

How does accumulated other comprehensive income look in the Statement of Stockholder’s equity (4 items across and 4 down)

A

Total. R/E. Acc. Other Common
Comp. Inc. stock

Beg. Balance
   Net income
   Other comp. Inc:
      Unrealized holding gain NOT
End balance
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64
Q

Regardless of which approach you choose, you must show the ending balance of accumulated other comprehensive income on…

A

The balance sheet after retained earnings

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65
Q

Examples of other comprehensive income items: 5

A

1 reclassification adjustments
2 unrealized holding gain/loss AFS securities
3 pension or other post retirement benefit adjustments
4 unrealized G/L on derivatives held as cash flow hedges, foreign
Currency hedges held as cash flow hedges
5 cumulative foreign currency translation adjustment

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66
Q

What method is used for cumulative foreign currency translation adjustments?

A

Current rate method

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67
Q

Historical cost/constant $

A

Increases in prices due to inflation

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68
Q

Monetary assets and liabilities, what are they?7

A 
1 cash
2 A/R
3 N/R
4 A/P
5 N/P
6 B/P
7 HTM investments in bonds
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69
Q

What do you do with monetary assets and liabilities, when there is an increase in price due to inflation?

Treatment in supplementary info

A

Net them and calculate a purchasing power gain or loss

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70
Q

Purchasing power gain or loss calculation for mon. Asset or mon liability

Treatment in supplementary info

A

Purchasing power G/L =
Mon asset. [(EOY CPI - BOY CPI)/BOY CPI]
or Mon liability x

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71
Q

Treatment in supplementary info: increases in price due to inflation

Nonmonetary assets what are they?

A

Everything else (so not cash, receivables, payables or bonds)

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72
Q

Treatment in supplementary info

What do you do to nonmonetary assets when there is an increase in prices due to inflation?

A

Convert them

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73
Q

Treatment in supplementary info:

Increase in prices due to inflation, what is the conversion factor equation and 2nd step for converting nonmonetary items?

A

1 Conversion factor =
(Current period CPI/Base Year CPI)

2 conversion factor x nonmonetary item

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74
Q

Treatment in supplementary info:

Current cost define

A

Increases in prices due to demand/market appreciation

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75
Q

Treatment in supplementary info:

Current cost, increases in price due to demand/market appreciation, what do you do with monetary assets and liabilities?

A

Do nothing

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76
Q

Treatment in supplementary info:

Current cost, increases in price due to demand/market appreciation, what do you do with nonmonetary items?

A

Restate current costs and calculate a holding gain/loss

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77
Q

Nonmonetary items:

Holding gains/losses for PPE and inventory

A

Use current cost

Or use recoverable amount if lower than current cost

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78
Q

Nonmonetary items:

Holding gains/losses for depreciation exp. And COGS

A

Use average current cost = (BOY + EOY)/2

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79
Q

If $2,450 NOT is being deducted from other comprehensive income as a reclassification adjustment, $2,450 must be the amount of…

A

Unrealized gains NOT that have been recognized in other

Comprehensive income

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80
Q

If a reclassification entry is significant, you must do…

A

Parenthetical disclosures or footnote disclosures

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81
Q

sinking fund

A

For bond retirement

Accumulates cash to pay B/P

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82
Q

Bond issue cost is…

A

Deferred charge for registering bonds with SEC

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83
Q

Classified balance sheet:

Current assets: the layout of cash and bank deposits section
2 line items below

A

Cash and bank deposits:
Restricted to current bond maturity
Unrestricted

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84
Q

Classified balance sheet:

Current assets: inventories (carried at lower cost or market by FIFO) 3 line item layout

A

Inventories
Finished goods
Work in process
Raw materials

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85
Q

Rent revenue collected in advance is classified as…

A

A current liability

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86
Q

Contra account to A/R

A

Allowance for doubtful accounts

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87
Q

Advances to employees are classified as…

A

A current asset

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88
Q

Short term portion of accrued warranty is classified as…

A

A current liability

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89
Q

Classified balance sheet:

Noncurrent liabilities, Notes payable due after 3 years, what is the layout of this on the balance sheet. (1 item below it)

A

Notes payable due after 3 years. Xxx

Plus unamortized note premium. Xxx. Xxx

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90
Q

Classified balance sheet:

Cash surrender value of officers life insurance policies is classified as?

A

Long term investment

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91
Q

Classified balance sheet:

Sinking fund for bond retirement is classified as…

A

Long term investment

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92
Q

Classified balance sheet:

Plant expansion fund is classified as…

A

Long term investment

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93
Q

Classified balance sheet:

What is the layout for leased assets in PPE? (One item below it)

A

Leased assets. Xxx
Less: acc. Depreciation and amortization (xxx)

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94
Q

Classified balance sheet:

3 common examples of line items in the other assets section

A

1 installment notes due after year 3

2 unamortized bond issue costs

3 equipment to be disposed of

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95
Q

Classified balance sheet:

Accrued pension costs would be classified as a…

A

Noncurrent liability

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96
Q

Classified balance sheet:

Convertible preferred stock would be classified in…

A

Capital stock

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97
Q

Classified balance sheet:

6 items included in additional paid in capital

A 
1 from 12% cumulative preferred
2 from common stock
3 from treasury stock transactions
4 from stock dividends
5 from expiration of stock options
6 warrants outstanding
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98
Q

Classified balance sheet:

Layout of retained earnings (2 items below retained earnings)

A

Retained earnings:
Appropriated for bond indebtedness
Free and unappropriated

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99
Q

Additional disclosures required for specific situations were specified at…

A

End of most pronouncements

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100
Q

Accounting policies must be set forth as…

A

The initial footnote to the statements

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101
Q

Accounting policies: disclosures are required of… 3 things

A

1 accounting principles used when alternatives exist

2 principles peculiar to particular industry

3 unusual or innovative applications of accounting principles

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102
Q

Subsequent events are those occurring…

A

After the balance sheet date but before the financial statements
Are issued or available to be issued

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103
Q

Financial statements are issued when they are…

A

Distributed to shareholders and other users

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104
Q

Financial statements are available to be issued when they are in a form and format hat is complete and complies with GAAP and all…

A

Necessary approvals for issuance have been obtained

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105
Q

An entity that is an SEC filer or is a conduit bond Obligor for conduit debt securities traded in public market must evaluate subsequent events through date…

2) all other entities must evaluate subsequent events through the date…

A

Financial statements are issued

2) the financial statements are available to be issued

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106
Q

2 types of subsequent events

A

1 recognized subsequent events

2 nonrecognized subsequent events

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107
Q

Recognized subsequent event is one in which…

A

The condition existed at the balance sheet date

And is recognized on financial statements

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108
Q

Examples of recognized subsequent events 3

A

1 estimate for warranty liability

2 estimate of contingent liability due to lawsuit

3 estimate of allowance for uncollectible accounts

109
Q

If recognized subsequent event is settled after the balance sheet date but before the financial statements are issued or available to be issued, then the settlement amounts should be…

A

Used as the liability in the balance sheet

110
Q

Nonrecognized subsequent event is one in which the condition…

A

Did not exist at the balance sheet date,

but arose after the balance sheet date

111
Q

Nonrecognized subsequent events are…

2) however, if the event is such that the financial statements would be misleading, then…

A

Not recognized in financial statements

2) footnote disclosure should be made indicating nature of event
And estimate of financial statement effects

112
Q

An entity that is an SEC filer is not required to disclose the date through which…

A

Subsequent events are evaluated

113
Q

Non SEC filers must also disclose the date through which subsequent events were…

A

Evaluated and whether that date is the date the financial

statements are issued/available to be issued

114
Q

Related party disclosures:

Affiliate

A

Party is controlled by another enterprise that controls, or is under
Common control with another enterprise

Directly or indirectly

115
Q

Related party disclosures:

Control

A

Power to direct or cause direction of management through

ownerships contract or other means

116
Q

Related party disclosures:

Immediate family

A

Family members whom principal owners or management might
Control/influence

Or be controlled or influenced by

117
Q

Related party disclosures:

Managment

A

Persons responsible for enterprise objectives who have policy-making and decision making authority

118
Q

4 examples of people included in management

A

1 board of directors
2 CEO and COO
3 Vice Presidents
4 persons without formal titles

119
Q

Related party disclosures:

Principal owners

A

Owners of more than 10% of firm’s voting interests

Includes known beneficial owners

120
Q

Equity method investees

A

Use equity method of accounting

121
Q

Related party disclosures:

Related parties 6

A 
1 affiliates
2 equity method investees 
3 employee benefit trusts
4 principal owners
5 management
6 any party that can significantly influence transaction
122
Q

Related party disclosures:

Financial statements shall include disclosures (footnotes) of material transactions between related parties except: 2

A

1 compensation agreements, expense allowances and other similar
Items

2 transactions eliminated in preparation of consolidated FS

123
Q

FS

A

Financial statements

124
Q

Related party disclosures:

Disclosures of material transactions shall include 4

A

1 nature of relationships
2 description of transaction
3 dollar amounts of transactions
4 amounts due to/from related parties

125
Q

Related party disclosures:

Description of transactions including those assigned…

A

Zero or nominal amounts

126
Q

Related party disclosures:

Dollar amounts of transactions for each income statement period and effect of…

A

Any change in method of establishing terms

127
Q

Related party disclosures:

Amounts due to/from related parties, including…

A

Terms and manner of settlement

128
Q

Related party disclosures:

Representations concerning related party transactions shall not imply that terms were equivalent to those resulting in…

A

Arms length bargaining unless statement can be substantiated

129
Q

Related party disclosures:

When control relationship exists, disclose…

A

Such relationship even though no transactions have occurred

130
Q

Writing down inventory is never…

A

Extraordinary

131
Q

In related party transactions don’t disclose officers salaries/expenses unless…

2) Also don’t disclose…

A

They are excessive

2) intercompany sales

132
Q

In related party transactions, loans to officers…

A

Must be disclosed

133
Q

Disclosure of accounting policies should identify and describe the accounting principles followed by the reporting entity and…

A

Methods of applying those principles

134
Q

The criteria for determining which investments are treated as cash equivalents is an example of how the entity…

A

Entity applies accounting principles

135
Q

If fair value option is chose you must use it for…

A

All similar securities

136
Q

CPI

A

Consumer price index

137
Q

EOY

BOY

A

End of year

Beginning of year

138
Q

For valuation approaches level 1 is better than…

A

Level 2 and level 2 is better than level 3

139
Q

Fair value is the price that would be received to…

A

Sell an asset or paid to transfer a liability in an orderly transaction
Between market participants

at the measurement date (an exit price)

140
Q

Applying the fair value approach involves:

Identify the asset or…

A

Liability to be measured

141
Q

Applying the fair value approach involves:

Determine the principal or…

A

Most advantageous market (highest and best use)

142
Q

Applying the fair value approach involves:

Determine the valuation…

A

Premise (in use or in exchange)

143
Q

Applying the fair value approach involves:

Determine the appropriate…

A

Valuation technique (market, income or cost approach)

144
Q

Applying the fair value approach involves:

Obtain inputs for…

A

Valuation (level 1, level 2, level 3)

145
Q

Fair value approach:

Level 1

A

Market approach

146
Q

Applying the fair value approach involves:

Calculate the…

A

Fair value of the asset

147
Q

Fair value approach:

Level 2

A

Cost approach

148
Q

Fair value approach:

Level 3

A

Income approach

149
Q

Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:

Principal market has…

A

Greatest volume and level of activity

150
Q

Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:

Most advantageous market…

A

Maximizes the price received for the asset or minimizes amount
Paid to transfer the liability

151
Q

Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:

Market participants have the 4 following characteristics

A

1 independent of reporting entity (not related parties)
2 knowledgeable
3 able to transact
4 willing to transact (motivated, but not compelled to transact)

152
Q

Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:

Do not adjust…

A

Prices for costs to sell

153
Q

Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:

If location is attribute of asset or liability, price is adjusted for…

A

Costs necessary to transport asset or liability to market

154
Q

Fair value approach assumes…

A

Highest and best use of the asset

155
Q

Highest and best use…

A

Maximizes the value of asset or group of assets

156
Q

Fair value measurement:

Highest and best use must be…3

A

1 physically possible

2 legally permissible

3 financial feasible at measurement date

157
Q

Fair value measurement:

Highest and best use determines…

A

The valuation premise used

158
Q

Valuation premise:

In use 2

A

1 asset provides maximum value by using it with other assets as
A group

2 valuation based on price to sell asset assuming it is used
With other assets

159
Q

In exchange

A

By itself

160
Q

Valuation premise:

In exchange 2

A

1 asset provides maximum value on standalone basis

2 valuation based on price to sell the asset standalone

161
Q

Valuation techniques:

Market approach (level 1)

A

Uses prices and relevant info from market transactions for identical
Or comparable assets or liabilities

162
Q

Valuation techniques:

Income approach (level 3)

A

Uses present value techniques to discount cash flows or earnings
To present value amounts

163
Q

Valuation techniques:

Cost approach (level 2)

A

Relies on current replacement cost to replace the asset with
Comparable asset, adjusted for obsolescence

164
Q

Levels of input for valuation:

Use fair value hierarchy to…

A

Prioritize inputs to valuation techniques

165
Q

Levels of input for valuation:

Fair value hierarchy is…

A

Level 1, level 2, level 3

166
Q

Levels of input for valuation:

Inputs should be based on…

A

Lowest level of input (highest priority is lowest level)

167
Q

Levels of input for valuation:

Level 1 inputs (lowest level, highest priority) 2

A

1 uses quoted prices (unadjusted prices from active markets)

2 examples are quotes from NYSE, quotations from dealer markets

168
Q

Levels of input for valuation:

Level 2 inputs

A

1 inputs that are directly or indirectly observable other than quoted
Prices of level 1

169
Q

8 Examples of level 2 inputs

A 
1 quoted prices for similar assets or liabilities
2 observable inputs such as yield curves
3 bank prime rates
4 interest rates
5 volatilities 
6 loss severities
7 credit risks
8 default rates
170
Q

Levels of input for valuation:

Level 3 inputs, 4 characteristics

A

1 unobservable inputs
2 may only be used if observable inputs aren’t available
3 may reflect reporting entity’s own assumption about market
4 based on best information available

171
Q

Change in valuation premise or technique, how should it be treated A?

A

Treat as change in estimate on prospective basis

172
Q

The fair value option for financial assets and financial liabilities:

Scope applies to:

Financial assets and…

A 
Financial liabilities (includes AFS, held to maturity, equity 
investments and liabilities)
173
Q

The fair value option for financial assets and financial liabilities:

Scope applies to:

Firm commitments that…

A

Involve financial instruments

174
Q

The fair value option for financial assets and financial liabilities:

Scope applies to:

Written loan…

A

Commitments

175
Q

The fair value option for financial assets and financial liabilities:

Scope applies to:

Nonfinancial insurance contracts that…

A

Can be settled by paying third party

176
Q

The fair value option for financial assets and financial liabilities:

Scope applies to:

Warranties that can…

A

Be settled by paying third party

177
Q

The fair value option for financial assets and financial liabilities:

Scope applies to:

Host financial instruments resulting from separation of embedded…

A

Nonfinancial derivative instrument from a nonfinancial hybrid
Instrument

178
Q

The fair value option for financial assets and liabilities does not apply to…8

A 
1 consolidations
2 pensions
3 share based payments
4 stock options
5 other post employment benefits (OPEB)
6 exit or disposal activity
7 leases
8 financial instruments that are component of equity
179
Q

Fair value, definition

A

Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

At the measurement date

180
Q

Financial asset, definition

A

Cash, evidence of an ownership interest in an entity or a contract
That conveys a right to receive cash Or another financial instrument

or to exchange other financial instruments on potentially
Favorable items

181
Q

Financial liability, definition

A

Contract that imposes an obligation to deliver cash or another
Financial instrument

To exchange other financial instruments on potentially unfavorable
Terms

182
Q

Firm commitment, definition

A

Agreement, usually legally enforceable, that specifies all significant
Terms including quantity, fixed price and timing of transaction

The agreement includes disincentive for nonperformance that
Makes performance probable

183
Q

Fair value option (FVO) 2

A

1 can elect to measure financial asset or financial liability at
Fair value

2 must elect to use fair value method on specific item

184
Q

Fair value option can be elected on…

A

Instrument by instrument basis if certain criteria are met

185
Q

Condition to elect fair value option on an instrument by instrument basis:

If multiple advances to one borrower for single contract, fair value options is applied to…

A

Larger balance and not each individual balance

186
Q

Condition to elect fair value option on an instrument by instrument basis:

If fair value applied to investment that can use equity method, it must be applied to…

A

All interests in same entity (debt and equity)

187
Q

Condition to elect fair value option on an instrument by instrument basis:

If applied to insurance contracts, must be applied to…

A

All claims and obligation for that contract

188
Q

Must elect to use fair value method on specific items if…3 situations

A

1 can be elected on instrument by instrument basis

2 is irrevocable

3 must apply to entire instrument, not portion of instrument

189
Q

Under fair value option, you report unrealized gains and losses in…

A

Earnings

190
Q

Fair value option:

Classification on statement of cashflows, rules of FAS 95…

A

Apply

191
Q

Fair value option, election dates:

The date an eligible item is…

A

First recognized

192
Q

Fair value option, election dates:

The date an entity enters into…

A

A firm commitment

193
Q

Fair value option, election dates:

When financial assets cease to qualify for fair value treatment due to specialized accounting rules, can elect to use fair value (ex. Equity method investments), therefor going from consolidation to…

A

Equity method can elect fair value option

194
Q

Fair value option, election dates:

Percentage of ownership change and can…

A

No longer consolidate

195
Q

Fair value option, election dates:

Modifications of…

A

Debt

196
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

The fair value measurement at the…

A

End of the reporting date

197
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

The level within the fair value hierarchy used, segregating…

A

The fair value measurements, which use levels 1, 2 and 3 inputs

198
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

The amount of any transfers between….

A

Level 1 and level 2 of fair value hierarchy and reason for transfer
Along with entities transfer policy

199
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

Transfers into and out of level 1 and level 2 are disclosed…

A

Separately

200
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

For fair value measures using significant other observable inputs (level 2) and significant unobservable inputs (level 3) a description of…

A 
Valuation techniques is used, the inputs used to determine fair
Values of each class of assets or liabilities
201
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

If the is a change in valuation techniques, the…

A

Reason for the change must be disclosed

202
Q

For fair value measurements using unobservable inputs (level 3) a reconciliation of the beginning and ending balance showing:

Total gains and losses for the period realized and unrealized, presenting gains and losses in…

2) and a description of where those gains or losses are…

A

Earnings and gains and losses in other comprehensive income

2) included in the income statement or in other comprehensive
Income

203
Q

For fair value measurements using unobservable inputs (level 3) a reconciliation of the beginning and ending balance showing:

What 4 items are shown separately

A

1 purchases
2 sales
3 issues
4 settlements

204
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

For fair value measurements using unobservable inputs (level 3) the amount of total gains or losses for the period included in…

2) and the line item in the statement of…

A

Earnings from unrealized gains and losses for those assets and liabilities still held at end of period

2) income where gains and losses are recognized

205
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

For fair value measurements using unobservable inputs (level 3), a description of…

A

The valuation processes, the sensitivity of measurement and

The relationships

206
Q

For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:

For fair value measurements, a description of nonfinancial assets with a…

A

Current use differing from the highest and best use

207
Q

For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:

The fair value measurement at the end…

A

Of the reporting period and the reasons for measurement

208
Q

For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:

The level within the…

A

Fair value hierarchy, level 1, 2 and 3

209
Q

For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:

For fair value measurements categorized within level 2 or level 3 of the fair value hierarchy, the…

A

Inputs and valuation techniques used to measure fair value

210
Q

For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:

For fair value measurements using significant unobservable inputs (level 3) a description of…

A

Valuation processes

211
Q

Valuation processes

A

Policies, procedures and analyses of change from period to period

212
Q

For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:

For fair value measurement a description of nonfinancial assets with…

A

A current use differing from the highest and best use

213
Q

Report info about changing prices in…

A

Unaudited info, which is supplementary info

214
Q

8Ks provide info on…

A

Material events

215
Q

ABS

A

Asset backed securities

216
Q

Regulation FD Disclosure

A

Everyone receives same information at same time

217
Q

Large accelerated filer has a market cap…

A

Over $700 million

218
Q

Accelerated filer has market cap…

2) all other filers have makes caps…

A

Over $75 million but under $700 million

2) under $75 million

219
Q

Form S-1

A

Registration statement

220
Q

OCBOA

A

Other comprehensive bases of accounting

221
Q

Other comprehensive bases of accounting:

Financial statements may be prepared in conformity with a comprehensive basis of accounting other than…

A

GAAP or IFRS

222
Q

4 types of Other comprehensive bases of accounting (OCBOA)

A

1 cash basis financial statements
2 modified cash basis FS
3 tax basis FS
4 regulatory basis FS

223
Q

Cash basis financial statements

A

In pure cash basis financial statements the only asset is cash,
Revenue is recognized when cash is received

Expenses are recognized when cash is paid

224
Q

The pure basis of cash accounting is…

A

Rarely used

225
Q

Modified cash basis financial statements, define

with example of what’s usually recorded in modified cash basis financial statements

A

Cash basis statements with modifications that have substantial
Support

Ex. Fixed assets, inventories and related liabilities are typically
Recorded in modified cash basis financial statements

226
Q

Modified cash basis financial statements:

Modifications that have substantial support involve presenting items as they would be in…

A

GAAP financial statements providing that the presentation is not
Illogical

227
Q

Modified cash basis financial statements:

As an example, an illogical modification would involve…

A

Recording inventories but not recording the accounts payable

Related to the inventories

228
Q

Tax basis financial statements: define

A

Statements prepared on basis of tax laws and regulations

229
Q

Tax basis financial statements:

When financial statements are prepared on an income tax basis, the financial statements should not…

A

Simply repeat items and amounts reported in the tax return

230
Q

Tax basis financial statements:

What 2 items should be fully reflected in a tax basis income statement?

A

1 nontaxable municipal interest

2 nondeductible portion of travel and entertainment expense

231
Q

Regulatory basis financial statements

A

Regulatory financial statements are prepared based on rules

Established by a regulatory agency

232
Q

OCBOA financial statements should not included titles such as…

A

Balance sheet and statement of income, because they are reserved
For GAAP basis statements

233
Q

OCBOA:

notes of financial statements should disclose…

A

Differences between OCBOA and GAAP basis financial statements
As well as other info normally included in GAAP FS

234
Q

The liquidation basis of accounting is to be used when liquidation is…

A

Imminent

235
Q

Liquidation is imminent

2) and if either of the following 2 conditions exist

A

Remote likelihood the entity will return from liquidation

2) a) approved liquidation plan with remote likelihood of being
Blocked
B) outside force imposed plan

236
Q

Liquidation basis of accounting: measurement

Assets are to be presented at…

2) assets should include…

A

The amounts reflecting expected cash proceeds

2) sellable items not previously recognized under US GAAP
Ex trademarks

237
Q

Liquidation basis of accounting: measurement

Liabilities are to be presented using…

A

Current US GAAP guidance

238
Q

Liquidation basis of accounting: measurement

Accrue expected liquidation…

A

Period costs and income

239
Q

Liquidation basis of accounting:

Disclosure 4

A

1 plan of liquidation
2 measurement methods and assumptions
3 expected liquidation period costs and income
4 expected liquidation time frame

240
Q

SEC reporting requirements:

Unless exempt by regulation, companies with what 3 characteristics must have their securities registered?

A

1 Assets of more than $10 million
2 over 500 shareholders
3 securities that trade on national stock exchange or over the
counter market

241
Q

Termed issuers

A

Companies with registered securities

242
Q

Companies with registered securities (termed issuers) must…

A

Follow SEC rules and regulations

243
Q

4 major securities regulations

A

1 regulation S-X
2 regulation S-K
3 regulation AB
4 regulation Fair disclosure (Reg FD)

244
Q

Regulation S-X

A

Describes the form and content of financial statements filed

With the SEC

245
Q

Regulation S-K

A

Describes the requirements for information and forms required
By regulation S-X

246
Q

Regulation AB

A

Describes reporting requirements for asset backed securities

247
Q

Regulation Fair Disclosure (Reg FD)

A

Mandates that publicly traded companies disclose material

information to all investors simultaneously

248
Q

Companies with registered securities (termed issuers) must file the following 5 reports with the SEC

A 
1 Form S-1/F-1
2 Form 8-K/6-K
3 Form 10-K/20F
4 Form 10-Q
5 Schedule 14A
249
Q

Form S-1/F-1

A

Registration statement for US/foreign companies

250
Q

Form 8-K/6-K

A

Information about material events for US/foreign companies

251
Q

Form 10-K/20-F

A

Annual report for US/foreign company

252
Q

A foreign registrant can omit reconciliation between US GAAP and home country GAAP if the…

A

Foreign based company follows IFRS as issued by IASB

253
Q

Form 10-Q

A

Quarterly reports

254
Q

Schedule 14-A

A

Proxy statement

255
Q

Information statements (Form 8-K), provide information about material events that affect the company including…4

A

1 mergers and acquisitions
2 changes in directors or CEO
3 major changes in operations or status
4 changes in auditors

256
Q

Form 8-K must be filed within…

A

4 business days of occurrence of events

257
Q

How many 10 Qs does the company file each year? Why?

A

3, because 10-K contains 4th quarter

258
Q

When are form 10-Qs due for large accelerated filers?

Accelerated filers? Everyone else?

A

40 days after end of fiscal quarter for large accelerated and
accelerated filers

45 days after end of fiscal quarter for all other filers

259
Q

When are 10-Ks due for large accelerated filers? Accelerated filers?
All other filers?

A

Due 60 days after end of fiscal year for large accelerated filers

Due 75 days after end of fiscal year for accelerated filers

Due 90 days after end of fiscal year for all other companies

260
Q

SEC releases administrative interpretations:

Accounting and auditing enforcement releases (AAERs)

A

Announce enforcement actions of the SEC’s reporting and

disclosure requirements

261
Q

SEC releases administrative interpretations:

Accounting Series Releases (ASRs) issued from 1937-1982

A

Are predecessor or financial reporting releases

ASRs still in effect are codified

262
Q

SEC releases administrative interpretations:

Financial Reporting Releases (FRRs)

A

Update the SEC codification of financial reporting policies

And Regulations S-K and S-X

263
Q

SEC releases administrative interpretations:

Staff Accounting Bulletins (SABs)

A

Unofficial interpretations relating to accounting and disclosure
Practices

SEC staff follow SABs when administering disclosure requirements

264
Q

SEC releases administrative interpretations:

Staff Legal Bulletins

A

Summarize the Commission staff’s views related to SEC regulations
And federal securities laws

265
Q

SEC releases administrative interpretations:

Staff no-action, Interpretive, and Exemptive letters, are published SEC Staff responses to…

A

Interpretation inquiries

266
Q

SEC releases administrative interpretations:

3 that are not legally binding

A

1 Staff Accounting Bulletins (SABs)

2 Staff Legal Bulletins

3 Staff no-action, interpretive and Exemptive letters

267
Q

SEC releases administrative interpretations:

3 releases that are legally binding

A

1 Accounting and Auditing Enforcement Releases (AAERs)

2 Accounting Series Releases (ASRs)

3 Financial Reporting Releases (FRRs)

268
Q

Financial Statements of Trusts:

Trusts are entities formed to…

A

Hold assets for the benefit of beneficiaries

269
Q

Trusts are administered by…

A

Trustees

270
Q

Trusts generally present the following 3 financial statements

A

1 statement of assets and liabilities

2 statement of operations

3 statement of changes in net assets

271
Q

Financial statements of a trust are generally presented…

2) and the assets are generally presented at…

A

On the accrual basis

2) at their fair values

Yaeger FAR (59 decks)

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