Deck 1 Flashcards
When preparing interim financials, what tax rate should be used?
effective tax rate expected to be applied for the entire year
What is a deferred tax asset?
expenses recognized this year in financial income and deductible next year. They have a future benefit. pay now, save later
What type of intangible asset is tested for recoverability?
A patent. It has a limited useful life. compare future cash flows to carry amnt. record diff between carry value and fair value
How should a change from lower of FIFO cost or market value be accounted for?
This is a change in accounting principle. The cumulative effect of the change in accounting principle is on the retained earnings statement as an adjustment to the beginning balance of retained earnings, in what is called retrospective application.
when are dividends reported as a liability?
When they are declared
are stock splits considered income?
No, not to the recipient so they are not recorded at cost or equity value but do reallocate the investment balance
how should a change be treated if it cannot be determined if its a change in principal or estimate?
the change is considered a change in accounting estimate and is accounted for prospectively. This means in the year of change and so on.
How is cash to accrual reported as?
a correction of an error because cash basis is non-gaap and changing it to GAAP fixes the error correction by adjusting beginning retained earnings.
what does comprehensive income include?
Comprehensive income includes all changes in equity EXCEPT those resulting from investments by owners and distributions to owners. A dividend paid to a shareholder is an owner transaction and is not part of comprehensive income.
when the aquisition method is used how is retained earnings acquired?
The parent company equity account becomes the consolidated equity account when the acquisition method is used. only show parent RE on consolidated financials.
what is the criteria used to classify a lease as a finance lease? any one of these below
Ownership transfers at the end of the lease
Written purchase option the lessee is reasonably certain to exercise
PV of minimum lease payments = Fair value of asset (approximately 90% of FV of leased property)
Lease term = Major part (75%) of the asset’s useful life
how is a liablity recognized for disposal?
A liability is only recognized when ALL of the following criteria are met:
An obligating event has occurred.
The event results in a present obligation to transfer assets or to provide services in the future.
The entity has little or no discretion to avoid the future transfer of assets or providing of services.
explain a DTL
Whenever income is recognized in the financial statement before it is reported as taxable income, a deferred tax liability should be reported. Even though a loss was recognized in Year 2, on a cumulative basis the financial statements have recognized income that has not yet been recognized for tax purposes. Accordingly, a deferred liability will still exist at the end of Year 2 (however, it will be less than the deferred liability reported at the end of Year 1).
what is included in a general fund’s encumbrance account?
outstanding purchase order amounts
What type of financial statement is used for an investment trust fund?
statement of changes in fiduciary net position
