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FAR > F1 > Flashcards

F1 Flashcards

1
Q

What account are purchase discounts included in?

A

Cost of goods sold (reduction)

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2
Q

When are operating losses with discontinued operations recognized?

A

In the year they occur

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3
Q

What kind of changes in equity are includes in comprehensive income?

A

All changes to equity except those resulting from owners investments and distributions to owners.

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4
Q

When purchasing merchandise from an unaffiliated foreign company on account, how do you determine the foreign currency transaction gain/loss at year end?

A

Taking the difference between the spot rate at the time the liability was incurred and the spot rate on Dec 31st

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5
Q

Where do unrealized gains and losses on debt securities classified as available-for-sale or a hedge get reported?

A

Other comprehensive income

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6
Q

Where does a gain on disposal of a discontinued business segment show up on the income statement?

A

After income tax expense is removed from income from continuing operations. Multiply by (1-tax rate) to get net of tax income.

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7
Q

When is the earliest period that a component of an entity can be reported in discontinued operations?

A

When the component meets the “held for sale” criteria

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8
Q

When are impairment losses recognized?

A

Once the condition for disposal or held for sale status are met

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9
Q

How to quote the exchange rate using the direct method?

A

Quote the domestic price of one unit of another currency

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10
Q

If the exchange rate is 1.59 U.S. dollars per British Pound. If a retailer in Great Britain were to quote the exchange rate using the direct method, he would say:

A

1/1.59 = .63
.63 British Pounds are equal to 1 U.S. dollar

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11
Q

A Japanese company exports goods to a U.S. company. If the transaction is settled in Yen currency and the U.S. dollar appreciated versus the Japanese Yen, who will book a gain?

A

The U.S company will book the gain

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12
Q

What account is net income closed to?

A

Retained earnings

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13
Q

What account is other comprehensive income closed to?

A

Accumulated other comprehensive income

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14
Q

What do retained earnings and accumulated other comprehensive income both serve to do?

A

Sum up the undistributed earnings of a corporation over its operating life

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15
Q

What financial statement do foreign transaction gains and losses go to?

A

Income statement

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16
Q

What financial statement do foreign translation gains and losses go to?

A

Balance sheet (other comprehensive income)

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17
Q

What foreign currency rate is used to record a 30-day receivable on the date of a transaction?
A. the spot rate on the day of the transaction
B. the 30-day forward rate
C. the spot rate on the day of payment

A

A. Spot rate on the day of a transaction

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17
Q

What are net assets equivalent to?

A

Change in equity

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18
Q

What is comprehensive income?

A

Net assets (change in equity)

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19
Q

How to calculate comprehensive income?

A

Net income + Other comprehensive income

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20
Q

Where do unrealized gains and losses on trading securities get reported?

A

Income statement

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21
Q

What impact do sales prior to maturity (held-to-maturity) have on other comprehensive income?

A

No impact

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22
Q

What does other comprehensive income represent?

A

Changes in equity from transactions related to nonowner sources

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23
Q

When would prior service cost be a positive addition to comprehensive income?

A

In the year that it was amortized to net periodic pension cost

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24
Q

What are the 2 ways a company can report the tax on individual components of other comprehensive income ?

A

1 - reported on a before tax basis with an aggregate tax amount reported after these items
2 - reported individually on a net of tax basis

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25
Q

If there is a stock split or stock dividend, what happens to the amount of shares outstanding?

A

Shares outstanding will increase by the amount of shares issued in the stock split or stock dividend

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26
Q

When determining basic EPS, how do you calculate income available to shareholders when there is cumulative preferred stock?

A

Need to subtract the amount of preferred dividends accumulated during the period from net income

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27
Q

When determining basic EPS, how do you calculate income available to shareholders when there is noncumulative preferred stock?

A

Need to subtract the amount of preferred dividends declared during the period from net income

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28
Q

How does the possible exercise of common stock options effect diluted EPS

A

No effect because they are antidilutive

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29
Q

How does the possible conversion of convertible bonds effect diluted EPS?

A

The possible increase to EPS would be added and the possible decrease to EPS would be subtracted

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30
Q

What does “out of the money” mean when referring to stock options?

A

When the exercise price exceeds the market price of the stock

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31
Q

When stock options are out of the money, are they included in diluted earnings per share?

A

No because out of the money stock options are antidilutive

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32
Q

A company is an accelerated filer that is required to file form 10-K, what is the maximum number of days after the company’s fiscal year end that the company has to file form 10-K with the SEC?

A

75 days

33
Q

Where is the adjustment for “cumulative effect” type of accounting change made?

A

Beginning retained earnings

34
Q

How should expenses that benefit more than one interim period be allocated?

A

Allocated among the periods benefited

35
Q

For large accelerated and accelerated filers, the 10-Q is due within how many days of the period end?

A

40 days

36
Q

How is a stock split or stock dividend that occurred during the year treated when calculating weighted-average shares outstanding for EPS?

A

It is treated as if it occurred at the beginning of the year

37
Q

When a cash dividend is paid to common shareholders and preferred shareholders, how do you compute income available to common shareholders?

A

Subtract only the cash dividend paid to preferred shareholders

38
Q

Will a dilutive security produce an EPS above or below basic EPS?

A

Below

39
Q

What is the rule on potentially dilutive convertible bonds and preferred stock?

A

They are used in computing dilutive EPS

39
Q

What is the computation for the numerator of diluted EPS ?

A

Income available to common shareholders + after-tax interest expense that would not have been incurred if the bonds were converted

40
Q

What are dilutive securities?

A

When converted into common stock, they increase the number of shares outstanding which can reduce the price of shares and EPS

41
Q

Examples of dilutive securities

A
  • Convertible securities
  • Options
  • Warrants
  • Preferred stock
42
Q

What are antidilutive securities?

A

When converted into common stock, they do not decrease ESP

43
Q

Examples of anti-dilutive securities

A
  • Convertible notes
  • Clauses that protect shareholders from dilution
  • Provisions that allow owners to purchase additional shares
44
Q

Cumulative preferred stock

A

Requires the company to pay any missed dividends to preferred stockholders before paying dividends to common stockholders. These dividends can accumulate over time or when certain events occur.

45
Q

Noncumulative preferred stock

A

Does not require the company to pay any missed dividends to preferred stockholders. If a company misses a dividend payment, noncumulative preferred stockholders lose those dividends forever.

46
Q

What is the journal entry for issuing common stock under the cost method?

A

Dr. Cash ($ per share# of shares)
Cr. Additional paid in capital - C/S
(excess of par)
Cr. Common stock (par value# of
shares)

47
Q

What is the journal entry for buying back treasury stock under the cost method?

A

Dr. Treasury stock (repurchase $ per share# of shares)
Cr. Cash (repurchase $ per share#of shares)

48
Q

What is the journal entry to reissue treasury stock above cost under the cost method?

A

Dr. Cash (reissue $ per share# of shares)
Cr. Treasury stock (repurchase $ per
share# of shares)
Cr. Additional paid in capital - T/S
(balance)

49
Q

What is the journal entry to reissue treasury stock below cost under the cost method?

A

Dr. Cash (reissue $ per share# of shares)
Dr. Additional paid in capital - T/S ((original
$ per share at issuance - resell $ per
share)# of shares)
Dr. Retained earnings (balance)
Cr. Treasury stock (repurchase $
per share*#of shares)

50
Q

What is the journal entry for issuing common stock under the par value method?

A

Dr. Cash ($ per share# of shares)
Cr. Additional paid in capital - C/S
(excess of par)
Cr. Common stock (par value# of
shares)

51
Q

What is the journal entry for buying back treasury stock above issue price under the par value method?

A

Dr. Treasury stock (par value# of shares)
Dr. Additional paid in capital - C/S ((original
$ per share at issuance - par value)# of
shares)
Dr. Retained earnings ((original $ per share
at issuance - repurchase $ per share)#
of shares
Cr. Cash (repurchase $ per
share#of shares)

*Retained earnings entry is made only if there is not sufficient funds in APIC-T/S account to

52
Q

What is the journal entry for buying back treasury stock below issue price under the par value method?

A

Dr. Treasury stock (par value# of shares)
Dr. Additional paid in capital - C/S ((original
$ per share at issuance - par value)# of
shares)
Cr. Cash (repurchase $ per
share#of shares)
Cr. Additional paid in capital - T/S
((original $ per share at issuance
- repurchase $ per share)# of
shares

53
Q

What is the journal entry to reissue treasury stock under the par value method?

A

Dr. Cash (reissue $ per share# of shares)
Cr. Treasury stock (par value# of
shares)
Cr. Additional paid in capital - C/S
(balance)

54
Q

Where are gains on treasury stock reported?

A

Increase to additional paid in capital - T/S

55
Q

Where are losses on treasury stock reported?

A

Decrease to additional paid in capital - T/S
Then decrease to retained earnings

56
Q

When are dividends reported as a liability and where are they reported prior?

A

After they are declared, as a disclosure

57
Q

Formula to compute additional shares for options and similar instruments

A

Number of shares - ((# of shares * exercise price)/Average market price)

58
Q

When is the date of declaration of a dividend?

A

The date the board of directors formally approves the dividends

59
Q

When is the liability (dividends payable) created and retained earnings reduced for a dividend?

A

The date of declaration

60
Q

What is a liquidating dividend?

A

The dividend amount in excess of retained earnings balance

61
Q

When calculating dividend income, how are stock dividends treated?

A

They are not recorded as income on the books of the recipient but the total number of stock dividend shares are included when calculating total amount of shares

62
Q

What is a stock dividends impact on stockholders equity on a small stock (20%-25%)?

A

The stock dividend will not impact total stockholders equity
The stock dividend will be distributed between capital stock and paid-in-capital

63
Q

How do we know if a stock dividend qualifies as a small stock?

A

Less than 20-25% of previously outstanding shares are distributed and is not expected to affect the market price of the stock

64
Q

Why is treasury stock affected by stock split?

A

Assumed that the shares of treasury stock will be used to help satisfy stock option commitments

65
Q

What impact does a purchase of treasury stock have on weighted average shares outstanding?

A

Will reduce shares outstanding by the increase in treasury stock

66
Q

What impact do prior service cost not recognized in periodic pension cost have on comprehensive income?

A

Decrease comprehensive income

67
Q

How do you determine the dilutive effect of convertible securities?

A

Perform the “if-converted” method and see if the diluted EPS is greater than or less than basic EPS

68
Q

When is a convertible security included in the computation of diluted EPS?

A

After performing the “if-converted method”, the diluted EPS is less than basic EPS (the security would reduce EPS if converted to common shares)

69
Q

When performing the “if-converted” method to determine if preferred stock is dilutive, why are the declared dividends on preferred stock not subtracted from income available to shareholders in the diluted EPS calculation like you would for basic EPS?

A

The preferred stock dividends are not subtracted when performing the “if-converted” method, we are assuming the preferred stock is converted into common stock so the dividends would not be paid

70
Q

“Authorized” capital stock

A

Amount of each class of stock that is legally able to be issued

71
Q

“Issued” capital stock

A

When part of or all of authorized capital stock is issued

72
Q

“Outstanding” capital stock

A

The amount of capital stock in the hands of the shareholders (issued stock - treasury stock)

73
Q

Where do pension adjustments go?

A

Other comprehensive income

74
Q

What happens on the date of declaration of a property dividend?

A

The property to be distributed should be restated to its fair value and any gains or losses on disposal of asset should be recognized in net income

75
Q

Where are cash dividends paid from?

A

Retained earnings

76
Q

What happens to retained earnings when a property dividend is delcared?

A

The FMV of the asset reduces retained earnings

77
Q

What is a stock dividends impact on stockholders equity on a large stock (>20%-25%)?

A

The stock dividend will not impact total stockholders equity
Retained earnings is debited for the par value of the additional shares and common stock is credits

78
Q

How are estimated losses recognized for discontinued operations?

A

They are not accrued, losses are recognized as they occur

79
Q

Book value per share formula

A

(Total shareholders equity-preferred equity)/Common shares outstanding

FAR (6 decks)

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