CPA FAR - F2 Flashcards
Item Revenue Recognition
Once an item has been manufactured and the item has specifications that separately identify the items (and cannot be given to another customer), you recognize the revenue.
Financing Arrangement
Purchase Price >= Original Sale Price AND Expected Market Value
OCI and Unrealized Losses on Trading Securities
Since Unrealized Losses on Trading Securities are already included in Net Income, they do not go into OCI.
Where on the Balance Sheet does Deferred Tax Liabilities (DTL) go?
Non-Current Liabilities
Financial Reporting Releases (FRR)
These comprise the Financial Reporting Policies which represent the principles of accounting to be followed by registrants.
How is a Change in Estimate accounted for?
The effect is reported PROSPECTIVELY as a component of income from continuing operations
How is a Correction of Error accounted for?
The applicable error is restated retroactively through a prior period adjustment of retained earnings.
How is a Change in Accounting Principle accounted for?
The effect is reported RETROSPECTIVELY to retained earnings with a separate disclosure.
How is a Change in Reporting Entity accounted for?
All prior financial statements that are presented in the financial statements should be restated.
What do you do when you can’t tell the difference between a change in estimate and a change in principle?
You consider it a change in estimate and report PROSPECTIVELY.
When should significant estimates be disclosed in the financial statements?
When it is reasonably possible (not probably) that the estimate will change in the near term and that the effect of the change will be material.
How should a reasonably possible loss be displayed on the financial statements?
It should have a footnote disclosure only.
What are the Special Purpose Frameworks?
- Cash Basis
- Modified Cash Basis
- Tax Basis
What is the equation for Inventory Turnover?
COGS / Average Inventory
What is the equation for Days in Inventory?
Ending Inventory / (COGS/365)
What is the equation for Net Profit Margin?
Net Income after Taxes / Net Sales
What is the equation for Return on Assets?
Net Income / Average Total Assets
What is the equation for Return on Equity?
(Net Income - Preferred Dividends) / Average Total Equity
What is the equation for Working Capital Turnover?
Sales / Average Working Capital (CA-CL)
What is the equation for Current Ratio?
Current Assets / Current Liabilities
What is the equation for Quick Ratio (Acid Test)?
(Cash + Marketable Securities + Net Accounts Receivable) / Current Liabilities
Where is inventory on the balance sheet?
Current asset
What is the equation for A/R Turnover Ratio?
Net Sales / Average Net A/R
What is the equation for Total Debt Ratio?
Total Debt / Total Assets
What is the equation for Times Interest Earned?
EBIT / Interest Expense (NOTE: You may need to add back in interest if it was taken out)
What is the equation for Residual Income?
Net Operating Income (Sales * Return on Sales) - Interest Charge (Average Total Assets (Sales / Asset Turnover) * Imputed Interest Rate)
operating income less imputed interest (the product of a required rate of return and operating assets). The operating assets are equal to the sales divided by the capital turnover ratio
What is the equation for Return on Investment?
Net Income / Average Invested Capital (Avg Op Assets)
