Cards

Question 1

Converting accrual basis net income to cash basis:
Add: decrease in AR
Add: increase in AP
Deduct: increase in AR
Deduct: decrease in AP
Add: decrease in prepaid assets (not expensed under cash basis)
Deduct: increase in prepaid assets (expensed when paid under cash basis)

Question 2

Converting cash basis to accrual basis net income
Add: increase in AR
Add: increase in prepaid
Add: decrease in AP
Deduct: decrease in AR
Deduct: decrease in prepaids
Deduct: increase in payables

Question 3

Operating income (loss) of the segment is included as part of income from discontinued operations and is recognized in the period in which it is earned. Any gains on disposal of the segment is deferred until the year in which disposal actually occurs; however, any expected loss on disposal is recognized immediately, even if the disposal has not yet occurred. This differing treatment is due to conservatism. The total amount for discontinued operations is reported net of taxes.

Answer 3

Discontinued operation is treated if it happens within one year. Income of the discontinued part is recognized in the “Income from discontinued operations “ ***net of tax (even if loss, this is tax benefit). Expected gain on disposal is deferred, expected losses recognized immediately.

Question 4

Operating income and losses from the component after the disposal are not part of discontinued operations, but are instead part of income from continuing operations since they relate to parts of the business other then the disposed component.

Answer 4

Loss on sale is recognized immediately (add to gain/loss income in discounted operation section).

Question 5

General and administrative expenses:
- officers’ salaries
- accounting and legal costs
- insurance
Selling expenses:
- sales salaries and commissions
- advertising
- freight-out

Question 6

For single-step IS the purchase discount or recovery is account written off don’t matter. Disregard

Question 7

Charitable contribution expense:
Is amount paid an unconditional voluntary transfer(gift) to a qualifying organization?
Yes - is payment made on behalf of a third party? Yes- exclude from expenses No- charitable contributions
No - payment is related to ongoing operations—— classify as period expenses, capitalize, or expense as R&D as appropriate

Answer 7

Company’s commitment to the environment, company spent $100 to research biodegradable product packing. !!!!

Question 8

Non-operating items:
- interest income and expense
- dividend income
- gain and losses on sale of assets or debt extinguishment
- foreign currency transactional gains and losses
- unrealized gains and losses
- unusual and infrequent items

Question 9

Forward contracts are used in foreign currency speculation, use the Forward rate available!!!

Question 10

Discontinued operation gain/loss= income/loss from operation + gain/loss from SALE.
When an entity commits to sell or disposal the f a component of its business, it reports the results of the component’s operations on a separate line of the income statement.

Question 11

The gain/loss from foreign currency TRANSACTION is reported in income statement. Ex. Purchased merchandise on 11/20, pmt due 1/20. Remesared on financial statement on 12/31.

Foreign currency TRANSLATION adjustment gain, net of tax is included in OCI. !!!!!!

Question 12

Net income + OCI = Comprehensive Income

Question 13

Multi-step Income Statement
Net sale revenue
- COGS
——————————————————-
Gross profit

Selling expenses
Sales salaries and commissions
Advertising
Freight out
General and administrative expenses
Officer’s salaries
Accounting and legal
Insurance
Depreciation expenses
——————————————————
Operating income

Non-operating items
Interest income and expenses
Dividend income
Gain/losses on sale of assets or debt extinguishment
Foreign currency transactional gains and losses
Unrealized gain and losses
Unusually and infrequent items
——————————————————
Income before tax

Provision for income tax
——————————————————-
Income from continuing operations

+- Discontinued operations, net of tax
——————————————————
NET INCOME

Question 14

Steps to convert “cash payments” to accrual basis expenses:
1. Set up journal entry
2. Credit cash for the amount paid
3. Determine “net” increase or decrease in the asset (prepaid) and liability (payable)
a. DEBIT an increase in Prepay or a decrease in AP
b. CREDIT a decrease in prepaid or an increase in AP
4. Amount to balance equals the Accrual Basis Expense

Answer 14

DR Interest expense (plug)
DR Interest Payable - decrease
CR Prepaid interest - decrease
CR Cash (Amy paid)

Question 15

Special Purpose Framework is cash basis financials, to avoid misleading users the content and name of the FS should differ from GAAP. Ex. The statement of revenues collected and expenses paid.
The basis of accounting should be easily identifiable.

Question 16

If company uses the modified cash basis of accounting the modifications must be the same as GAAP and not illogical. Modified cash basis employs some elements of accrual accounting and must have substantial support in practice. Modified cash basis of accounting presents financials statements in accordance with “Special purpose framework “.
SPF (non-GAAP)
1. Cash accounting basis 2. Tax accounting basis 3. Regulatory agency accounting basis 4. Contractual accounting basis
General purpose framework
1. GAAP 2. IFRS 3. SFFAS statements of federal financial accounting standards 3. Statements of Governmental standards

Question 17

Under Modified cash basis of accounting certain accruals and/or deferrals are recorded for financial-statement purposes. The most common modifications are the capitalization and amortization of long-lived assets and the accrual for income taxes ( recognition of income tax expenses and related liability).

Question 18

What are:
Pure cash basis of accounting
Modified cash basis
Pure accrual basis
Income taxes basis

Question 19

Cost of Goods Manufactured can be calculated as: cogs + ending inventory - beginning inventory. OR
COGM X + beginning inventory - ending inventory = COGS
X + 16 - 21 = 43
X = 48

Question 20

COGS formula
Beginning inventory
+ net purchase
——————————
COG available for sale
- ending inventory
——————————-
Cost of goods sold

Question 21

GAAP requires that the provision for income tax (income tax expenses) be shown separately when calculating income from continuing operations, which includes both operating and non-operating items.
Every item listed after continuing operations must be listed net of tax. - this is known as intra-period tax allocation. !!!
Intra-period income tax allocation does NOT include operating income.

Question 22

Single step Income statement
Revenue
- Expenses
————————-
Income from continuing operations
+/- income from discontinued operations, net of tax
———————————-
Net income

Question 23

Increase in AP and inventory should be add or deduct from Cash payments to supplier:
- inventory increase should be deducted because this payment should not be expensed yet, should be deducted from cash payment
- AP increase should be included in expenses so should be added to cash payments.

Question 24

To find how much cash was received from credit sale use A/R T account:
DR beginning balance
DR credit sale
—————————-
End balance

CR sales discount
CR sales return & allowance
CR cash collection - (to find)

Cash sale
Gross cash sale
Less: sales returns & allowances
——————————
Net cash sale

Question 25

Cash to accruals:
Operating expenses were $100
Prepaid expenses:
beg bal $5
end bal $10
———————-
Increase of $5 * we “add” this to operating expenses bc they were included in expenses but not supposed to

AP
beg bal $8
end bal $20
———————
Increase of $12 * we “add” meaning subtract from the operating expenses.

Question 26

Account type and measurement basis

Receivable - net realizable value

Inventory - lower of cost or market, or lower of cost or net realizable value

Investment in Marketable Securities - market value

PPE and Intangible - historical cost and depreciated/amortized historical cost

Liability - present value

Equity - Historical value of cash inflows and residual valuation

Question 27

Disposal of asset could be accounted as discontinued operations or a disposal of asset.
A disposal is reported as discontinued operations when the disposal represents a strategic shift (ex. disposal in a major geographic area, major business line, investment under equity method, or other major part of an entity) that will have significant effect on the entity’s operation and financial results.
!!! Otherwise, the disposal is reported simply as a disposal of asset.

Question 28

Impairment loss (anticipated) occurred when an asset’s books value exceeds its net realizable value ( NRV ie fair value less cost of disposal). NRV - book value.

Question 29

On the IS the gain/loss on disposal and the operating income of the discontinued component can be netted or presented separately.

Question 30

GAAP requires presentation of comprehensive income in one of the ways:
1. Combined statement of comprehensive income- presents the components of net income and OCI
2. Separate statement of comprehensive income

Question 31

Goods on consignments as goods sold, in an agreement a buyer or consignee, receives the goods (ie has physical possession of them) but does not purchase them from the consignment ( seller). The consignor retains legal ownership and reports the goods on its BS until sold.