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1
Q

How is a fixed asset used for operations that is sold for greater than its carrying amount recorded in the income statement?

A

Net concept

total gain as part of CONTINUING operations
not net of income taxes

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2
Q

are gains reported at their net or gross amount?

A

net amount (proceeds less net book value)

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3
Q

are fixed assets considered as a component of an entity?

A

no

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4
Q

what are the 4 purposes of the income statement?

A

show the sources of funds created by expenses (revenues)
show the uses of funds in the income process (expenses)
show the sources of funds not associated with the earning process (gains)
show the uses of funds that will never be used to earn income (losses)

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5
Q

What does PUFI stand for and in what part of the I/S is it used?

A

Pension adjustments
Unrealized gain and losses on AFS debt securities and cash flow hedges
Foreign currency translation items
Instrument specific credit risk

used in OCI

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6
Q

are OCI/PUFI items reported individually as net of tax or before tax?

A

either is fine as long as the total OCI/PUFI items are net of tax

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7
Q

what is included in the single step income statement in regards to…
total revenues
purchase discounts
recovery of accounts written off

A

total revenues includes all sales of goods, services, and rentals
purchase discounts reduce COGS
recovery of accounts written off is a B/S only entry

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8
Q

Comprehensive income includes all changes in equity except…

A

those resulting from owner investments and distributions to owners

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9
Q

items that are both unusual and infrequent are reported as a separate component of income from _________

A

continuing operations

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10
Q

what two things does the B/S help us determine?

A

financial risk: short term & long term
growth potential

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11
Q

what three things does the I/S help us determine?

A

indicate performance for a period of time
operating risk
information about REGL (revenues, expenses, gains, losses)

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12
Q

unexpired cost

A

ASSET
appears on the B/S
expensed in future periods based on matching principle

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13
Q

what are 4 examples of unexpired costs (B/S) to expired costs (I/S)

A

inventory -> COGS
prepaid insurance -> insurance expense
net BV of fixed assets -> depreciation expense
unexpired cost of patents -> patent expense (amortization exp.)

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14
Q

6 unusual and infrequent revenues and expenses

A

sale of something other than inventory
write-downs
write-offs
sale of PP&E
sale of investment in another company
unusual operating expense

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15
Q

what does it mean for a company to be aggressive in terms of their I/S?

A

booking higher revenue, lower expense, higher profits by:

booking revenue should have been deferred
capitalizing expenses that should have been booked

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16
Q

what does it mean for a company to be conservative in terms of their I/S?

A

booking lower revenue, higher expenses, lower profit by:

deferring revenue instead of recognizing
booking expenses instead of capitalizing

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17
Q

3 examples of discontinued operations

A
  1. disposal of major geographic area
  2. disposal of major equity method investment
  3. disposal of a major line of business
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18
Q

is depreciation or amortization still conducted for discontinued operations?

A

no

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19
Q

What are the 6 “held for sale” criteria necessary for a component of an entity to be reported in discontinued operations?

A
  1. Management commits to a plan to sell the component.
  2. The component is available for immediate sale in its present condition.
  3. An active program to locate a buyer has been initiated.
  4. The sale of the component is probable and the sale is expected to be completed within one year.
  5. The sale of the component 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.
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20
Q

what is the purpose of reporting comprehensive income?

A

to summarize all changes in equity from nonowner sources

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21
Q

what is the foreign currency exchange rate direct method?

A

domestic price of one unit of another currency
domestic currency is in the numerator (DC IS NEVER 1)

$1.47 buys 1 euro or 1 euro buys $1.47

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22
Q

what is the foreign currency exchange rate indirect method?

A

foreign price of one unit of domestic currency
foreign currency in the numerator

0.68 euros buys $1 or $1 buys 0.68 euros

(DC always 1)

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23
Q

how do gain and losses work with AR denominated in foreign currency?

A

if FC increases then it is a gain
if FC decreases then it is a loss

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24
Q

how do gain and losses work with AP denominated in foreign currency?

A

if FC increases then it is a loss
if FC decreases then it is a gain

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25
how do gains and losses work with instrument-specific credit risks?
if risk goes up, discount rate goes up which means market value of the liability goes down causing a gain if risk goes down, discount rate goes down which means market value of the liability goes up causing a loss
26
what is equation for ending balance of accumulated OCI?
beg OCI +/- current year OCI +/- reclassification adjustments
27
where is disclosure of income tax expense or benefit of allocation of each comprehensive income and OCI item located?
on face of the FS or in the notes of the FS
28
what are the 3 components of equity?
paid in capital minus treasury stock earned capital (RE) ending accumulated OCI
29
what is the purpose of reclassification adjustments in equity?
avoid double counting does this by moving OCI items from accumulated OCI to I/S which then goes to RE
30
what is the difference between foreign transaction g/l and foreign translation g/l?
transactions go on income statement translations go on OCI and recognized as a separate component of SE
31
what is equation to determine the book value of a company?
total assets - total liabilities = shareholders' equity (net worth of the company)
32
what is a form 8-K filed for and when do you have to file this?
disclose changes whenever a material event occurs 4 business days after any material event occurs
33
what are the filing deadlines relative to fiscal year end for Form 10-K?
60 days for large accelerated filers (at least $700M market value) 75 days for accelerated filers ($75M to $700M market value & $100M revenue) 90 days for everyone else ($100M revenue OR LESS)
34
what is the objective of the MD&A (part II, item 7 of 10-K)?
provide perspective of business results through eyes of management and known trends and uncertainties
35
what components are in MD&A of 10-K?
material information summarized financial and operating results material changes and uncertainties from prior period accounting estimates and assumptions
36
what are the time period requirements for 10-K FS reports (part II, item 8)
BS for 2 most recent years IS for 3 most recent years SCF for 3 most recent years
37
what are the filing deadlines relative to fiscal quarter-end for Form 10-Q?
40 days for large accelerated and accelerated filers 45 days for everyone else
38
what are the time period requirements for 10-Q FS reports (part I, item 1)
BS for end of most recent quarter and end of previous FY IS for the quarter, IS YTD, IS for quarter of PY, IS from PY SCF for the quarter, SCF YTD, SCF for quarter of PY, SCF from PY
39
what are examples of material events that would require a Form 8-K?
bankruptcy acquisition or disposition of assets changes in auditor changes in securities and trading markets changes in BOD amendment of bylaws change in fiscal year FS changes
40
what is in a simple capital structure?
only common stock
41
where is EPS for discontinued operations shown?
on the face of IS or in the notes
42
what are examples of potentially dilutive shares?
convertible securities (bonds, preferred stock) warrants and other options contracts that may be settled in cash or stock contingent shares
43
how does preferred dividends affect profit/(loss) per share in EPS calculation?
if there is net income, then preferred dividends REDUCE *profit* per share if there is net loss, then preferred dividends INCREASE *loss* per share
44
does diluted EPS have to be less than or equal to basis EPS for calculation to be performed?
yes
45
how do you know if options and warrants are dilutive?
average price > strike (exercise) price
46
what are the two methods used in diluted EPS calculation?
if-converted method (for convertible securities) treasury stock method (for options and warrants)
47
if average price is not given for options and warrants in dilutive calculation what do you compare exercise price to?
year/period end market price
48
if all conditions are fully satisfied at year end for contingent shares how are they incorporated into EPS calc?
retroactively and in both BEPS and DEPS
49
are costs that benefit multiple periods allocated equally to those periods on the 10-Q?
yes, these costs must be allocated to each calendar quarter
50
why is SE also referred to as residual interest?
because creditors (from liabilities) have first stake at net assets in liquidation so owners of equity get whatever is left over
51
what form of SE can never be used to pay dividends?
capital stock (capital equal to par value) APIC can be used to pay out dividends if RE is not able to depending on the state you are in
52
where is treasury stock located when using the cost method?
after RE and accumulated OCI
53
what is the trade off of high debt to equity ratio?
more risk but higher ROE
54
what does preemptive right allow common shareholders to do?
maintain voting strength when new shares are issued by allowing shareholder to buy shares to maintain same proportion of ownership
55
what is equation for common shareholders' equity?
assets - liabilities - preferred equity - dividends in arrears use higher of call price or par value for PS dividends in arrears only exist with cumulative PS
56
where is dividend in arrears located in the FS?
on the B/S or in the footnotes
57
what does participating preferred stock mean?
participating feature allows PS to share (participate) with CS in dividends in excess of a certain amount on a pro-rata basis
58
what is difference between fully and partially participating PS?
fully participating means PS have no limit on pro-rata of excess dividends partially participating means PS participate on excess dividends but to a limited extent
59
what is convertible preferred stock?
may be exchanged for CS at specified conversion rate
60
what is callable (redeemable preferred stock?
may be called (repurchased) at a specific price less valuable because you as the owner do not own the option the company does
61
what is mandatorily redeemable preferred stock and how does it relate to debt in terms of flexibility?
classified as a LIABILITY because it is issued with a maturity date more flexible than debt because dividend is not legally required
62
what are 5 examples of APIC?
contributed capital in excess of par treasury stock issued at a gain liquidating dividends conversion of bonds small stock dividends
63
is contributed capital in excess of par the ONLY way to contribute to APIC?
no
64
what are the two ways retained earnings is reduced by dividends?
distributions to stockholders (cash or property) transfers to APIC for stock dividends
65
what is it called when retained earnings has a negative balance?
deficit
66
what is equation for CY retained earnings?
net income (loss) - dividends declared (cash, property, stock) +/- prior period adjustments +/- accounting changes reported retrospectively
67
how is debt to equity ratio affected when dividend is declared?
debt increases, equity decreases meaning financial risk increases
68
how is treasury stock recorded under the cost method and when is g/l recorded?
at repurchase cost gain or loss calculated upon reISSUE ## Footnote used 95% of the time
69
how is treasury stock recorded under the legal (par/state value) method and when is g/l recorded?
TS recorded at par value gain or loss calculated immediately upon rePURCHASE
70
if there is a loss from reissuance or repurchase of treasury stock and there is no balance in APIC TS, what account is reduced?
retained earnings
71
are treasury stock gain and losses ever on the income statement?
no
72
under the par value method how do you calculate gain or loss for treasury stock?
original selling price - repurchase price gain = buy back for LESS than you sold loss = buy back for MORE than you sold
73
what is the initial journal entry for donated stock?
DR: donated treasury stock (at FMV) CR: APIC (at FMV)
74
how should owning shares of the company's own stock be classified on the B/S?
classified as TS to reduce SE
75
Do you allocate issue proceeds of basket purchase or sale of convertible PS based on par value or FMV?
FMV
76
if no market value is provided for a small stock dividend what do you use to record it?
par value and debit RE, credit CS like a large stock dividend
77
what is stock subscriptions and what account is used in the JE?
contractual agreement to sell a specified number of shares at an agreed-upon price on credit when sale of subscription occurs you debit subscriptions receivable (contra equity)
78
what if subscription is paid AFTER year end but before FS are issued?
subscriptions receivable may be reported as an asset which will increase paid in capital at year end
79
what if there is a default/forfeiture of a subscription, and what are the 3 options?
terms of agreement and corporate policy determine the treatment issue stock in proportion to amount paid (if partially collected) refund the partial payment retain the partial payment with a credit to APIC
80
when does JE occur with stock rights?
once the right is exercised
81
what is the JE on the date of declaration for a cash dividend?
DR: retained earnings CR: dividends payable
82
what is the JE on the date of record for a cash dividend?
no JE specifies which shareholders receive dividend
83
what is the JE on the date of payment for a cash dividend?
DR: dividend payable CR: cash
84
is book value or fair market value of property used for property (in-kind) dividends and what is included in the JE?
fair market value DR: retained earnings (equals FMV), accumulated depreciation CR: PPE determine gain or loss in JE on date of declaration
85
what is a scrip dividend and the associated JE?
form of notes payable where corporation commits to paying a dividend at a later date due to a cash shortage DR: retained earnings CR: note payable
86
what is a liquidating dividend and the associated JE?
dividends to shareholders exceed retained earnings (RE is at $0) DR: RE, APIC, CS (or PS) CR: cash
87
what are the 5 types of dividends?
cash property (in-kind) scrip liquidating stock
88
what is a stock dividend and the associated JE?
distribute additional shares to shareholders (no change in equity) small stock dividend (debits are RE at FMV, credits are CS at par and APIC) large stock dividend (debits are RE at par, credit is CS at par)
89
what is the exception to a large stock dividend?
treat it like a stock split where RE is not touched, # of shares outstanding increase and par value per share decrease
90
why issue a reverse stock split?
reduce the # of outstanding shares, to increase the par value per share, to increase the FMV per share
91
if a change in accounting principle is inseparable from a change in accounting estimate is this recorded prospectively or retrospectively?
prospectively... no effect on statement of changes in SE
92
is a change in accounting principle recorded prospectively or retrospectively?
retrospectively
93
is a change in accounting estimate recorded prospectively or retrospectively?
prospectively

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