Chapter 3 Flashcards
A discontinued operation includes a component of an entity (or a group of components) that meets the following criteria:
- It (a) has been disposed of or is classified as held for sale
- Its disposal is a strategic shift
Are discontinued operations reported separately net of tax?
True
How is a component that is held for sale classified?
it is measured at the lower of its carrying amount or fair value minus cost to sell.
List three types of accounting changes
- a change in accounting principle
- a change in accounting estimate
- a change in the reporting entity
Change in Accounting Principle requires _____________ Application
Retrospective application
Retrospective application requires the carrying amounts of (1) assets, (2) liabilities, and (3) retained earnings (or other components of equity or net assets) at the beginning of the first period reported to be adjusted for the cumulative effect (CE) of the new principle on the prior periods.
Change in Accounting Estimate _________ Application
Prospective Application
Its effects must be accounted for only in (1) the period of change and (2) any future periods affected
Change in the Reporting Entity results in what?
A change in the reporting entity results in statements that are effectively those of a different entity.
Error correction in prior period results in what?
must be reported as an error correction by restating the prior-period statements
EPS is calculated for both common and preferred stock?
False, it is only calculated for common stock.
Are dividends subtracting from net income for calculating EPS?
Yes.
When are stock dividends and stock splits assumed to have occurred for calculating BEPS?
At the beginning of the year.
EPS is required for both public and private companies?
False, only for public companies
Income in the BEPS numerator is reduced by dividends
- Declared in the current period on preferred stock (whether or not paid)
- Accumulated for the current period on cumulative preferred stock (whether or not earned).
Define the If-Converted Method
he if-converted method calculates DEPS assuming the conversion of all dilutive convertible securities at the beginning of the period or at the time of issue, if later.
Define the Treasury Stock Method
Call options and warrants are dilutive only if the average market price for the period of the common shares is greater than the exercise price of the options or warrants (they are in the money).
The Completed-Contract Method
Revenue and gross profit are recognized only upon completion.
When is an estimated loss recognized under both the completed-contract and percentage-of-completion methods
As soon as an estimated loss on any project becomes apparent
When is the cost recovery method appropriate for use?
when receivables are collectible over an extended period and no reasonable basis exists for estimating the degree of collectibility.
When is the installment method appropriate for use?
when receivables are collectible over an extended period and no reasonable basis exists for estimating the degree of collectibility.
How do you calculate gross profit percentage
Gross profit % = Gross profit on installment sales/installment sales
How do you calculate realized gross profit
Realized gross profit = cash collected X Gross Profit %
How do you calculate deferred gross profit
Deferred Gross profit = Installment Receivables X Gross Profit %
Valuation Techniques: Define market approach
is based on information, such as multiples of prices, from market transactions involving identical or comparable items.
Valuation Techniques: Define income approach
uses valuation methods based on current market expectations about future amounts, e.g., earnings or cash flows.
Valuation Techniques: Define cost approach
is based on current replacement cost. It is the cost to buy or build a comparable asset.
The Fair Value Hierarchy: Level 1
They are unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
The Fair Value Hierarchy: Level 2
quoted prices for similar items in active markets, quoted prices in markets that are not active, and observable inputs that are not quoted prices.
The Fair Value Hierarchy: Level 3
They are unobservable inputs that are used given no observable inputs. They should be based on the best available information in the circumstances
