Chapter 3: Income Statement Items Flashcards
What is the equation for Basic Earning per Share (BEPS)?
Income available to common shareholders divided by the weighted-average number of common shares outstanding.
How is the weighted-average number of common shares outstanding determined?
By related the portion of the period that the shares were outstanding to the total time in the period.
Early in the performance of a contract, it cannot reasonable estimate the outcome, but expects to recover the costs. The revenue should be recognized based on
Zero profit margin
Change in accounting estimate
Prospectively applied. This is because of new information that results in change of the FUTURE status of assets or liabilities, ie depreciation, bad debt.
A change is estimate inseparable from a change in principle IS a change in estimate and prospectively applied. (depreciation, amortization, depletion of long-lived assets).
Change in accounting principle
Retrospectively applied. This is due to an adoption of GAAP differently than one used, changes the METHOD of the application of GAAP, or changes to GAAP when the principle previously used is no longer GAAP.
Cumlative effect (CE) on the Assets, Liabilities or Retained Earnings.
When is an option not antidilutive?
When the exercise price is < the average market price.
When computing earnings per share, cumulative preferred dividends should be
Deducted from the income from the year whether or not the cumulative preferred dividends have been earned or not.
When computing loss per share, cumulative preferred dividends should be
Added to the loss for the year.
What reduces the BEPS numerator?
Cumulative preferred dividends, whether declared or not and declared noncumulative preferred dividends.
If a nonmonetary exchange lacks commercial substance, how is the asset measured?
It is measured at the carrying amount of the assets given up.
According to the guidance for recognition of revenue from contracts with customers (ASC 606), the incremental costs of obtaining a contract with a customer that are expected to be recovered must be
Recognized as an asset and amortized in subsequent periods.
How is the BEPS numerator adjusted for convertible bonds?
The numerator is adjusted to add back the AFTER-TAX amount of interest expense recognized in the current period. If issued at par, interest expense is calculated using bonds’ stated rate
= Face Amount x stated rate x (1-TR)
How is the BEPS denominator adjusted for convertible bonds?
It is increased to include the weight-average number of additional share of common stock that would have been outstanding if the dilutive convertible bonds (PCS) had been converted.
