Completed Outline Flashcards
How is cash collected presented in the statement of cash flows under the direct and indirect method?
Direct Method: Cash collected is presented as a gross amount.
Indirect Method: Cash collected is determined based on adjusting net income to arrive at the total cash collected.
What is the difference between comparability and consistency?
- Comparability shows items that are the same or different
- Consistency shows that the same methods were used for each period across entities.
How are material events that are unusual and infrequent in nature reported on the income statement?
Material events that are unusual and infrequent in nature are reported on the income statement, separate from income from continuing operations and before results from discontinued operations. They are also reported net of tax
What is the role of the SEC?
The SEC makes rules and regulations for public companies in regard to disclosure of financial information.
What information must be included in the Statement of Changes in Net Assets Available for Benefits of a Defined Contribution Plan?
Net appreciation or depreciation of the FV of the investments
Contributions from employers
Contributions from the Participants
Benefits Paid to the Participants
Administrative Expenses
Payments to Insurance Entities to Purchase Contracts
What are the component of changes in net assets available for benefits of a defined benefit pension plan trust?
Employer Contributions
Participant Contributions
Benefits Paid to Participants
Net Change in the Actuarial PV of Accumulated Plan Benefits
What is the Uniform Prudent Management of Institutional Funds Act (UPMIFA)?
UPMIFA is a statute for NFP organizations. This statute extends the donor restrictions that are used for assets, including the return, until the board decides on how to use the donation.
Once the donation is used, the board can decide to either increase net assets without donor restrictions, followed by a decrease in net assets without donor restrictions. If this option is chosen, the board must apply the same policy to contributions, report consistently and disclose the policy chosen.
In a statement of cash flows for NFP, how are noncash investing and financing activities reported?
For the NFP, non-cash investing and financing activities are reported in the statement of cash flows in the related disclosures but in the statement.
What is reported as cash inflows from financing activities for a NFP Statement of Cash Flows?
Cash inflows from financing activities include
- Receipts of restricted resources that by donor stipulation must be used for long-term purposes.
- A cash contribution for the construction of a new building is a resource that must be used for long-term purposes.
What is reported as cash inflows from investing activities for a NFP Statement of Cash Flows?
Investing activities include
- Making and collecting loans
- Acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets.
What activities are classified as supporting activities for not for profit organizations?
Supporting activities include
- management and general
- fundraising
- membership-development activities.
Fundraising expenses include maintaining donor lists. Soliciting members and dues and printing membership benefits brochures are membership-development activities.
What activities are classified as program activities for not for profit organizations?
Program services distribute goods and services to beneficiaries, customers, or members to fulfill the purposes of the entity.
What is a derivative?
- A derivative is a bet on whether the value of something (underlying notional amount) will go up or down.
- A derivative has at least one underlying (interest rate, currency exchange rate, price of a specific financial instrument, etc.) and at least one notional amount (number of units specified in the contract) or payment provision, or both
How is a gain or loss of a derivative calculated?
The change in the market price times the number of shares purchased
The change in the time value, or fair value, of the option
Derivative Gain/(Loss)
What is the basis of the FV of a derivative?
The fair value basis of a derivative is the forward exchange rate.
How is the intrinsic value of a call option calculated?
Market Value of underlying
Exercise Price of the Option
Intrinsic Value
What is the main purpose of the perfect hedge?
The perfect hedge would have no possibility of a future gain or loss.
What is a firm commitment?
A firm commitment is an agreement for unrelated party that is binding to both parties.
A firm commitment specifies all of the terms
What constitutes a derivative?
A derivative is a financial instrument that has
- At least one underlying
- At least one notional amount
- No or small initial net investment
- The ability of net settlement
Cash to Accrual
- Prepaid Expenses: Beginning balance is added, ending balance is subtracted
- Unearned Revenue: Beginning Balance is added, ending balance is subtracted
- Assets: If the difference between the beginning balance is more than the ending balance is a positive number, then the difference should be deducted for accrual
- Liabilities: If the difference between the beginning balance is more than the ending balance, then the difference should be added for accrual
Chapter 15: Derivatives
What is a Hedge?
A hedge is a strategy to protect an entity from adverse price movements
Chapter 15: Derivatives
What is a forward contract?
A forward contract is an agreement customized to the specific needs of the contracting parties
Chapter 15: Derivatives
What is a futures contract?
A futures contract is an agreement that is standardized and traded on an exchange
Chapter 15: Derivatives
What is a swap?
A swap is an agreement to exchange designated cash flows