Assets & Liabilities Flashcards
Cash & Cash Equivalents
They Are?
Carried At?
They Are:
Deposits of less than 90-day maturity and are recorded as the amount of cash held which equals their fair value
Carried At:
Fair Market Value
Short-Term Investments and Marketable Securities
They Are?
Carried At?
They Are:
Interest-bearing deposits, short-term paper, and shares held for trading in the short-term
Carried At:
Fair Value
Receivables
They Are?
Carried At? (Unbiased vs Biased)
Amounts owed to a business
Quasi Fair Value (recorded at the expected amount of cash to be collected, less a discount for amounts not expected to be received due to bad debts or sales returns)
- Unbiased Estimate -> carried at fair value
- Biased Estimate -> may not be carried at fair value
Inventories
They Are?
Carried At? (FIFO vs LIFO definition, affect on P/B ratios)
Raw materials, WIP, and finished goods ready for sale
• Carried at historical cost of acquiring them, which is determined under assumption about the flow of inventory
- FIFO - cost of more recent inventory goes to inventory on the balance sheet, and the cost of older inventory goes to cost of goods sold in the income statement
- LIFO - cost of more recent inventory to the cost of goods sold on the income statement, and the cost of older inventory goes to inventory on the balance sheet
• All else being equal, P/B ratios are higher for LIFO firms than FIFO firms
Long-Term Tangible Assets
They Are?
Carried At? (When impaired?)
Property, plant, and equipment (PP&E)
Carried at historical cost, less accumulated depreciation
- If the market value is less than the amortized historical cost, the assets are impaired (written down to fair value), with the impairment loss as a charge to earnings
Recorded Intangible Assets
They Are?
Carried At?
Purchased copyrights, patents, and other legal rights
Recorded at historical cost and then amortized over the life of the right, or impaired if fair value falls below carrying value
Goodwill
It is?
Carried at?
The difference between the purchase price of an acquired firm and fair value of the net assets acquired
- Carried at cost
- not amortized
- can be impaired
Other Intangible Assets
They Are?
Carried At?
Brand assets, knowledge assets from R&D, and assets from marketing and supplier relationships
They are not recorded on the balance sheet
Long-Term Debt Securities: Investments Held for Active Trading
Carried At?
Recorded at fair market value and the unrealized gains and losses from marking them to market are recorded in the income statement, along with interest
Long-Term Debt Securities: Investments Available for Sale
They Are?
Carried At?
Investments not held for active trading but which may be sold before maturity
- Recorded at fair market value
- unrealized gains and losses are reported outside the income statement as part of other comprehensive income (usually in the equity statement)
- interest is reported in the income statement
Long-Term Debt Securities: Investments Held to Maturity
They Are?
Carried At?
Investments where the intent is to hold them to maturity
- recorded at historical cost
- no unrealized gains or losses recognized
- interest reported in the income statement
- fair market values for these investments are given in the footnotes.
Equity Investments: <20% Ownership in Another Corporation
Carried At?
Either “held for active trading,” “available for sale,” “held to maturity,” with the same accounting for debt investments in these categories
Equity Investments: 20%-50% Ownership in Another Corporation
Carried At?
They are recorded using the “equity method.”
• Investment is recorded at cost
• Balance sheet carrying value is:
- Increased by the share of earnings reported by the subsidiary corporation
- Reduced by dividends paid by the subsidiary
- Reduced by write-offs of goodwill acquired on a purchase
• The share of subsidiaries’ earnings (less any write-off of goodwill) is reported in the income statement
Equity Investments: >50% Ownership in Another Corporation
Carried At?
The financial statements of the parent and subsidiary corporation are consolidated, after the elimination of intercompany transactions, with a deduction for minority interests in the net assets (balance sheet) and net income (income statement)
Short-Term Payables
They Are?
Carried At?
Money owed for services rendered or products provided that have not yet been paid for (accounts payable, interest payable, taxes payable, etc.)
Market Value
• Because these obligations are short-term, the contractual amount is close to its discounted present value, so the amount of these liabilities on the balance sheet approximates market value.
