CPA FAR - F1

Question 1

How do you calculate Comprehensive Income?

Answer 1

NI + AOCI (essentially includes all changes in equity EXCEPT from investments by owners and distributions to owners i.e., dividends)

Question 2

How should income from discontinued operations be showed on the income statement?

Answer 2

Should be showed separated at the bottom and should be net of tax.

Question 3

What is the criteria a segment of the business needs to meet to be considered discounted operations?

Answer 3

1. Management commits to a plan to sell the segment
2. Segment is available for immediate sale in its present condition
3. An active program to locate a buyer has been initiated
4. The same of the segment is probable and the sale is expected within one year
5. The sale is being actively marketed
6. It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn

Question 4

Exchange Rate Direct Method

Answer 4

Method of saying the $1 domestic price as of foreign price

Question 5

Stock Dividend EPS Formula

Answer 5

Add to the shares outstanding from the beginning of the period (regardless of when it occurred)

Question 6

Basic EPS Formula

Answer 6

(NI - Cumulative Preferred Stock Dividend regardless on if they’ve been paid - dividends accumulated regardless on if they’ve been declared) / Average Common Shares Outstanding

Question 7

Antidilution

Answer 7

You cannot make EPS bigger, so you can only put stuff into the denominator instead of subtracting stuff

Question 8

Stock-Split Timing

Answer 8

Treated as if it occurred at the beginning of the year

Question 9

Components of OCI

Answer 9

1. Foreign Currency Translation Gains/Losses
2. Unrealized holding gains/losses on AFS debt securities
3. Pension Gains/Losses (amortization, not actual returns)
4. Instrument-specific credit risk/CF hedges

Question 10

Treasury Stock

Answer 10

When repurchasing CS, it becomes TS. The cost of repurchase per share is the new par value. Must be time-weighted and subtracted from shares outstanding.

Question 11

Cost Method

Answer 11

Gain/Loss occurs when RE-ISSUE stock. There is no distinguishment between par value and APIC until RE-ISSUE.

Question 12

Par Value Method

Answer 12

Gain/Loss occurs when RE-PURCHASE stock. When RE-PURCHASE occurs, journal entry has both par value and APIC.

Question 13

Dividend Declaration effect on Retained Earnings

Answer 13

Retained earnings should be decreased on the date of declaration

Question 14

Liquidating Dividend Formula

Answer 14

Total cash dividend declared - Retained Earnings

Question 15

Stock Dividend

Answer 15

When a company issues new shares as a dividend. This is retroactive and for the full year when calculating shares outstanding.

Question 16

Where does Treasury Stock go on the Balance Sheet?

Answer 16

Treasury Stock is in equity, but it is a contra-equity account.

Question 17

How do you calculate Gross Profit?

Answer 17

NI - COGS

Question 18

How do you calculate preferred dividends when calculating the numerator for EPS?

Answer 18

You need to multiply through the # of preferred shares * % (but NOT the price per share). This will give you the numerator amount. Even if the question gives you preferred dividends paid, it could be partially from last year so you need to calculate the yearly amount.