Ace FAR Flashcards
When should F/S of all prior periods presented be restated when there is a “change in entity”?
- Changing companies in consolidated F/S
- Consolidated F/S vs. previous F/S
What are the steps to compute gross profit earned for the current year of a long-term construction contract?
1) Compute gross profit of completed contract: Contract Price - Cost to Date - Estimated Cost to Complete = Expected Gross Profit
2) Compute percentage of completion: Total Cost to Date / Total Estimated Cost of Contract
3) Compute gross profit earned to date: step 1 x step 2
4) Compute gross profit earned for current year: Profit to Date - Profit Previously Recognized
How do you recognize a current liability at year end (construction contracts), if revenue is recognized over time?
Firstly, identify the current asset amount: CA = (Accumulated Costs + Estimated Earnings) / Related Billings
Secondly, remember a liability only exists when Progress Billings exceeds Costs and Estimated Earnings.
When does a seller book the sales transaction of a good as a financing arrangement, if the seller is obligated to repurchase the good?
When the repurchase price is equal to or greater than the original sale price and the expected market value.
What is the max number of days each of the three filer types have to file Form 10-K with the SEC after their company’s FY end?
- Large accelerated filers have floats > $700M and file 10-K within 60 days.
- An accelerated filer is identified as an issuer with a public float > $75M and has 75 days to file Form 10-K.
- Non-accelerated filers have annual revenues < $100M and must file 10-K within 90 days.
When is the filing of the 10-Q form with the SEC due for Large Accerlerated, Accelerated Filers, and Non-accelerated filers?
- Large Accelerated and Accelerated Filers are boh required to file the 10-Q within 40 days of the period end.
- Non-accelerated filers are required to file form 10-Q within 45 days of period end.
How is TS cost method treated for gain/loss?
- Gains and losses on treasury stock transactions are never recorded on the income statement.
- There are no TS gains, but are instead recorded by increasing APIC - TS.
- Losses are recorded by first eliminating any balance in APIC - TS and then decreasing retained earnings.
When do you translate exchange rates?
When the company is a U.S. company importing goods in euro payment, for example, its gains and losses will be recorded in U.S. dollars. Lastly, if the exchange rates are quoted in euros, they must be translated into U.S. dollars. This requires $1/euro rate from the two dates mentioned in the question (e.g., transaction date and balance sheet date), taking that euro rate difference and multiplying it by the euro transaction price.
When calculating the number of CS shares outstanding, what should you keep in mind for purchased shares, reissued shares, and stock splits?
Regardless of when shares are purchased or reissued, they are considered treasury shares and should be considered wholly outstanding the entire year. Similarly, stock splits are considered outstanding the entire year too.
How are issued stock dividends and stock splits calculated under the current year weighted average shares outstanding method for basic EPS?
They are considered to be outstanding the entire year, regardless of what date in the year they were issued. At each given stock dividend, issuance, or split, make sure to take the outstanding shares at that date and divide by two then sume those averages to get WACSO.
Explain in-the-money and out-of-the-money when it comes to comparing the average market price of a company’s stock against the strike price for warrants outstanding. How does this affect adjustments needed for diluted EPS?
- If a warrant’s strike price is out-of-the-money, this means the strike price is greater than the average market price of the stock. No adjustments for DEPS is needed.
- Inversely, when a warrant’s strike price is in-the-money, it means the strike price is lesser than the average market price of the stock. This requires an adjustment for DEPS.
How do you calculate the amount of dividends payable to C/S shareholders when there are fully participating P/S shareholders?
1) P/S shares x % of cumulative P/S x par value per P/S share
2) C/S shares x same cumulative % x par value of C/S share ([since P/S is fully participating and C/S doesn’t have cumulative %])
3) Whatever remaining declared dividends, use the total weighted relation of par value ([without cumulative percentage]) to find the C/S ratio
4) add 2 & 3
How would the purchase of TS affect S/E and EPS?
It would decrease S/E and the number of outstanding shares, thus increasing the amount of EPS.
How should Other Comprehensive Income (OCI) items be reported for tax reporting purposes?
OCI items can either be reported individually on a net of tax basis, or each OCI component can be reported before tax basis with one after-tax aggregate amount.
How do you adjust Beg. R/E for Year 2 upon discovering the unrecorded inventory for Year 1?
BI + Purchases - COGS = EI
This is an understatement of EI which results in overstatement of COGS which results in understatement of NI for Year 1.
To correct this understatment, you must add back the inventory not recorded (net of tax) to Beg. R/E.
What are the required footnote disclosures of concentration vulnerability?
- Concentration exists as of the F/S date.
- The concentration makes the entity vulnerable to the risk of a near-term severe impact.
- It’s at least reasonably possible that the vulnerable events that could cause a severe impact will occur in the near term.
What are the main subsequent disclosure diffreences between a company that files with the SEC and a company that does not?
An SEC filer does not need to disclose the subsequent evaluation date, and their evaluation period runs through to the F/S issued date.
A non-SEC filer must disclose the subsequent evaluation date, and their evalution period runs through to when F/S are available to issued (GAAP format and all approvals for issuance obtained).
What are common modifications made to caash basis F/S?
Modifications that should have substantial support (logical and equivalent like accrual basis) include:
1) Capitalizing and depreciating fiexed assets.
2) Accrual of income taxes
3) Recording liabilities for LT & ST borrowings with related exp.
4) Capitalizing Inventory
5) Reporting investments at FV and recognizing unrealized gains and losses
Formula to calculate days sales in AR.
Net AR / (Net Sales / 365)
Calculate days in inventory.
EI / (COGS / 365)
Formula for Credit Loss (ABD).
Beg. Allowance for Credit Losses (ABD) + Recoveries - Writeoffs + Credit Loss Exp. = End. Allowance for Credit Losses (AR - NRV of AR)
How do you calculate the proceeds from a bank loan at a discount percentage?
The discount is always applied on the maturity value. Start by identifying:
1. Face value of note
2. Stated Rate (consider the number months over 12 months)
3. Maturtity value equals the Face Value x State Rate
4. Discount Rate (consider the number of remaining months on loan over 12 months) will give you the Discount Monetary Value
5. Proceeds from the bank = Maturity Value - Discount Value
How is a negative cash value accounted for on the balance sheet?
As a current liability. This result is from a positive bank balance pending outstanding checks.
How do you determine the final fair value measurement of an asset, regardless of principal and/or most advantageous market?
- Firstly, always use the principal market’s fair value (FV) even if there is a more advantageous market.
- Secondly, the determination of the FV is the exit price (sales price or liability transfer) and you must consider costs to sale (transaction costs and transportation costs) to get the net amount.
- Lastly, if you are comparing markets to identify the most advantageous market, due to the abcense of a principal market, you must add back transportation costs the get the FV.
How is Market Value determined for Lower of Cost or Market (GAAP) when inventory is costed using LIFO?
Market value is median (middle value) of an inventory’s:
* Replacement Cost: given
* Market Ceiling: NRV (net selling price - cost to dispose or complete)
* Market Floow: NRV - profit margin
Calculate Depletion Base.
REAL property:
R - residual value (subtract)
E - extraction/development cost
A - anticipated restoration cost
L - land purchase price
Test and calculate impairment loss.
- Positive Test: the sum of undiscounted expected (future) cash flows is less than the carrying amount (ignore PV)
-
Calculate impairment loss:
FV or PV of future net cash flows
< less: Net carrying value >
add: disposal cost
= Total impairment loss
Calculate Accretion Expense.
Beginning ARO (Asset Retirement Obligation) x Credit Adjusted Risk Free Rate %
Calculate the LT liability of an issued bond with present value table when the stated rate and effective yield rate are different %.
- calculate interest payment: face value x stated rate x the yield rate for PV annuity
- calculate principal payment: face value x the yield rate PV
- add both to get LT liability
Always use the yield’s PV
What are supplemental disclosures in the statement of cash flows prepared using the indirect method?
Supplemental disclosures cover items that are not line-items in the CF statement. For example, cash paid for interest (interest paid) and income taxes, but not dividends paid or capital expenditures or capital lease payments.
Calculate the parent’s stockholders’ equity section in a consolidated balance sheet:
- C - common stock
- A - APIC
- R - Retained Earnings
- N - Noncontrolling Interest
- T - Total S/E
Calculate goodwill:
It is the excess of Purchase over FV
When is dividend income from an equity security investment not recognized in Net Income?
When the dividend is a liquidating dividend. In such case, the liquidating dividend would be accounted for as a reduction of the investment account.
Is there a reporting of investment income when using the equity method?
Under the equity method of accounting, investment income is equal to the investor’s proportional share of the investee’s net income. Cash dividends are treated as a return of capital rather than investment income.
What items are subject to the application of intraperiod income tax allocation?
Only select items on the income statement are show “net of income tax,” and operating is not one of them. GAAP requires intraperiod income tax allocation to:
1. Discontinued operations
2. Income from continuing operations
3. Accounting principle changes treated retrospectively
Calculate deferred tax expense:
=Increase in DTL - Increase in DTA
How does a deferred tax asset (DTA) occur?
DTA occurs when a temporary difference results in more taxes paid now and less taxes owed in the future.
This occurs when income appears on a tax return before the income statement, or when expenses appear on an income statement before they appear on a tax return. In short, DTA results when the amount of taxes paid in the currenty period exceeds the amount of income tax expense.
When is a deferred tax liability (DTL) recorded?
when F/S income exceeds taxable income, because more tax will be owed in the future when that temporary difference reverses.
For example, if I have a $100K exp. that’s recognized in this year’s tax return but will not be recorded in the accounting records until next year (i.e., $100K pretax income more than taxable income this year).
What is a valuation allowance and its impact?
- Valuation allowance is needed whenever it is more likely than not that part or all of a DTA will not be realized.
- Any changes in the circumstantial judgment of the potential realization of a DTA should be recognized in income from continuing operations in the period of the change.
- Valuation allowances are only applicable to DTAs.
What is the ruling of an operating loss being carried forward for tax purposes?
An operating loss may be carried forward indefinitely, but in tax years 2021 and beyond, is limited to 80% of taxable income (calculated without regard to the NOL deduction).
Any excess of the NOL carryforward against the CY’s taxable income will then need to be multiplied by the effective CY effective tax rate, which will result in a tax benefit.
When should the recognition of a lease expense for a new office begin?
The lessee should recognize lease expense starting on the commencement date, which is the date the office was made available to the lessee for use (i.e., entered into the operating lease).
Days sales in accounts receivable is calculated as:
Ending accounts
receivable (net) / Sales (net) / 365
Calculate ending Asset Retirement Obligation (ARO):
Ending ARO = Beginning ARO + PV of new ARO + Accretion expense − Dep. Exp. - ARO settled during the period
Calculate rental revenue when provided with cash from tenants, Beg. & End. balances for both, Rent Rec. and Unearned Rent:
Beg. Net Unearned Rentals (AR - UE) + Cash Collections - Rental Revenue = End. Net Unearned Rentals
What’s the formula for converting operating expense on an accrual basis to a cash basis and NI cash basis to accrual basis?
NI Accrual | Cash Oper. Exp. → ΔE = ΔA - ΔL
What’s the formula for converting operating expense on a cash basis to an accrual basis and NI to from accrual basis to cash basis?
Accrual Oper. Exp. | NI ΔCash = ΔL + ΔE - ΔOA
What is the formula for Uncollectible Account Expense?
Beg. ABD + Uncollectible Acct. Exp. - Writeoffs + Recoveries = End. ABD (AR - NRV of AR)
Calculate times interest earned:
Earnings before interes and taxes (EBIT) / Interest Exp.
Calculate days in inventory:
End. Inv. / (COGS/365)
Accounts Receivable Turnover:
Net Sales / Avg. AR
Beg. & End. AR should each be net of ABD
Formula to compute dilutive effect of options:
Number of shares - [ (Number of shares x Exercise price)/(Avg. market price)] = Additional shares outstanding
What is the recoverability test and its steps?
The recoverability test is performed on an intangible asset with a definite life like a patent.
1) Compare Undiscounted Cash Flows against CV
2) If UDCF > CV, perform FV test
3) If FV < CV, realized the impairment loss and devalue the CV to the FV amoun
GW and trademark are intangible assets with indefinite lives. No test!
Estimating Current Expected Credit Loss (CECL) - accrual method for GAAP - and JE for write-off of a specific account.
Initial estimated JE:
Dr. Credit Loss Expense XXX
Cr. Allowance for Credit Losses (ABD) XXX
The ABD is a contra-asset acct. to AR. To write-off a specific uncollectible account JE:
Dr. ABD
Cr. AR
The second JE credit loss adj. would have a net of no effect on NI and A
What criteria would not satisfy the classification of a crypto asset as a an indefinite-lived intangible asset?
A crypto asset has similar characteristics as an intangible asset with an indefinite life, because it is created and resides on a distributed ledger like blockchain (secured through cryptography).
Thus, a key criteria is the asset does not provide the asset holder with enforceable rights or claims to an underlying good.
What is the different between reported and recorded?
FV is reported.
BV is recorded.
How do you set up the magic table?
FUNKY CASH INT. is AMORT.
Face | UnP/D | CVB | FaceInt. Cash | CV Int. | Amort.
How do you calculate COGS if sales are $600k and average markup on cost is 25%?
If: Sales = Cost x 1.25
Then: Cost = Sales / 1.25
How do you identify the cost of land for the purpose of constructing a building
All costs incurred up to the excavation of the new buildign are identified as land costs, including:
- Purchase price
- Broker’s commisions
- Title and recording fees
- Legal fees
- Draining of swamps
- Clearing of brush and trees
- Site development (grading)
- Existing obligations assumed by buyer (mortgages & back taxes)
- Cost of razing (tearing down) an old building (demolistion)
- Less proceeds form sale of existing buildings, timber, etc.
What are the required F/S for NFPs?
- Statement of financial position
- Statement of activities
- Statement of cash flows
