What is IDEA?
- I = income (loss) from continuing operations - gross and net of tax
- D = income (loss) from discontinued operations - net of tax
- E = Extraordinary items - net of tax
- A = Cumulative effect of change in accounting principle - net of tax
IDE = income statement
A = retained earnings
How do you treat a correction of an error?
Adjustment to the beginning retained earnings of the earliest period presented.
How do you treat a change in depreciation method?
This is considered BOTH a change in principle and a change in estimate and you treat it like a change in estimate. A change in estimate is treated PROSPECTIVELY.
What types of costs are included in General and Administrative on the income statement?
- Officer’s salaries
- Accounting and legal
- Insurance
What types of costs are included in Selling Expense on the income statement?
- Fright out
- Salaries and commissions
- Advertising
What types of costs are considered inventory costs?
- Purchase price
- Fright in
What criteria must be met before you can recognize a liability for exit/disposal activities?
- 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 transfer of assets or providing of services.
What are examples of events allowed to be classified as extraordinary items?
- Abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood.
- An expropriation of a plant by the government
- A prohibition of a product line by a newly enacted law or regulation.
- Certin gains/losses from extinguishment of LT debt, provided they are NOT part of the entity’s recurring operations and thus meet the criteria of unusual and infrequent.
Note, extraordinary items are only allowed under GAAP. IFRS does NOT allow anything to be classified as extraordinary.
What are examples of non-extraordinary items?
- Gain/loss from sale or abandonment of PPE used in the business
- Large write-downs or write-offs of:
- Receivables
- Inventories
- Intangibles (including goodwill)
- LT securities (permanent decline)
- Gain/loss from foreign currency transactions or translation
- Loss from major strike by employees
- LT debt extinguishment that are part of a common mgmt stratety (not unusual and infrequent).
In a single-step income statement, what is included in total revenues line item?
- Sales of goods
- Sales of services
- Interest income
- Rental income
- Gain on sale of fixed asset
- Other income
In a single-step income statement, how do you handle purchase discounts?
What about recovery of AR previously written off?
In a signle-step income statement, purchase discounts are NOT included in revenue. They are included in cost of goods sold!
Recovery of AR previously written off is NOT included in revenue.
How do you treat a change from LIFO to FIFO inventory costing methods?
Report the cumulative effect of the change as an adjustment to beginning retained earnings, net of tax.
How do you treat a change from direct recognition to installment method?
Treated as a change in accounting principle inseparable from a change in accounting estimate, which means you would treat it as a change in estimate: prospectively.
If a company that issues quarterly financials incurs an extraordinary loss in of of the first 3 quarters, how do you handle that?
- An extraordinary loss is to be reported entirely in the quarter that the loss occurs.
- You do NOT prorate the extraordinary loss over remaining quarters.
- It is NOT appropriate to only disclose the extraordinary item in the quarter the loss occurs. Extraordinary items must be separately disclosed in the income statement, net of any related tax effects, after discontinued operations.
For an accelerated filer, how many days do they have to file:
- 10-K
- 10-Q
- 10-K must be filed within 60 days
- 10-Q must be filed within 40 days
For an accelerated filer, how many days do they have to file:
- 10-K
- 10-Q
- 10-K must be filed within 75 days
- 10-Q must be filed within 45 days
For normal filer (not a Large Accelerated or an Accelerated) how many days do they have to file:
- 10-K
- 10-Q
- 10-K must be filed within 90 days
- 10-Q must be filed within 45 days
What are the fundamental qualitative characteristics of useful information?
- Relevance
- Faithful Representation
What are the characteristics of Relevance?
- Predictive Value
- Confirming Value
- Materiality
PCM = Passing Confirms Money
What are the characteristics of Faithful Representation?
- Comleteness
- Neutrality
- Freedom from Error
What are Enhancing Qualitative Characteristics of useful information?
- Comparability
- Verifiability
- Timeliness
- Understandability
