F1 - Conceptual FW and Financial Reporting Flashcards
Basics
What are the fundamental qualitative characteristics of useful financial information?
Faithful representation and relevance.
What are the five elements of present value measurement defined by the FASB SAFC #7?
Price for bearing uncertainty Expectations about Timing of FCF's Other Factors (Liquidity Issues and Market Imperfections) Time Value of Money Estimate of FCF
What are the “ingredients” (components) of faithful representation?
Completeness
Neutrality
Freedom from error
What are the “ingredients” (components) of relevance?
Predictive Value
Confirming Value
Materiality
What are some of the differences between managerial and financial accounting?
Managerial: internal, future focus, doesn’t have to follow GAAP, info helps decision makers at the company, less precise (generally)
Which characteristic(s) enhance both relevance and faithful representation?
Timeliness, verifiability
Under GAAP - a material transaction that is “infrequent in occurrence” and/or “unusual in nature” should be presented:
Separately, as a component of “income from continuing operations.” Gain or loss, doesn’t make a difference.
A few components of net income:
When you see net income, think comprehensive income.
Adjustment for a prior-year understatement of amort expense: Not included. Affects beginning RE, not NI
Gain on AFS securities: Yes
Gain on disposal of discontinued segment: Yes
Unrealized gain on AFS debt: NO, OCI
A few components of selling expenses:
Advertising - yes Freight Out* - yes Office Space for salesmen - yes Sales salaries and commissions - yes *"Freight in" is a part of COGS - so, no Interest expense is classified as a separate line item - so, no
A few components of G&A expenses:
Legal and audit fees: yes
Rent for office space for accounting department: yes
Interest on inventory floorplan: Nope
Single Step Income Statement
All gains and losses get grouped in with “revenues” and “expenses”
Cash bank account is overdrawn. How do we report this on Balance Sheet?
Current liability. Not included in “Cash”
Cash bank account is segregated “solely for a long-term payment in a bond-sinking fund,” which is now a current maturity. How do we report on balance sheet?
Noncurrent asset. Not included in “Cash”
A few components of “current assets”:
Cash (not related to bond sinking funds, etc.)
NET accounts receivable
Merchandise inventory
Investment in TRADING securities
Not included:
Deposits from customers (liability)
Unearned Rent (liability)
A few components of “income from continuing operations” (IFRS or GAAP) on IS:
Large loss from foreign currency translation: yes
Union strike that shuts down operations for 3 months: yes
Foreign government takes possession of only plant: yes
Damage to a factory due to unexpected earthquake: yes
What line item is displayed before considering income tax effect on a multiple step income statement?
Income (loss) from operations.
Note: *Income (loss) from continuing / discontinued operations is always displayed net of taxes.
Fill in the blank: Assets = ?
Liabilities + Stockholder’s Equity.
Franchisor should report fees from franchisee as revenue when
All performance obligations have been satisfied. Usually, initial year of the sale.
Equipment sold WITH a service contract has the following journal entries:
Equipment = sales revenue JE. Service contract = deferred revenue (liability) JE until performed.
What are examples of output methods of revenue recognition?
Milestones achieved;
What are examples of input methods of revenue recognition?
Labor hours expended, resources consumed, costs incurred: total expected costs.
What are the 4 requirements to be satisfied in a bill and hold arrangement for revenue recognition?
- Reason for bill and hold agreement
- Built to customer’s specifications
- Separately identifiable, cannot be directed to another customer
- Completed and ready to transfer to customer.
To qualify as a financing arrangement, the repurchase price must be
Equal to or exceed the original sales price,
Equal to or exceed the expected market value.
Merch is worth $16, sold at $20 to customer. Give me the JE’s:
Debit Cash 20 Debit COGS 16 Credit Revenue 20 Credit Inventory 16 (if there is a refund liability for say 25% of merch, liability = Cash * 25%, reducing revenue)
