F1-F4 Topics Flashcards
Formula for Income recognized in current year using Percentage-of-Completion Method
Contract Sales Price
- Estimated Cost of Contract
= Total Gross Profit
x % of Completion
= Gross Profit Earned
- Income Previously Recognized
= Income Recognized in Current Year
Order of Income Statement Items (Multiple Step)
Revs (Operating) - Expenses (Operating) = Income from Operations \+ Other Revs/Gains (Continuing/Non-operating) - Other Exps/Losses (Continuing/Non-operating) = Income Before Income Tax - Income Tax Expense = Income from Continuing Operations -Discontinued Operations (NET OF TAX) = Net Income
When is Net Concept and Gross Concept Used?
Net Concept = Non-operating Gains and Losses
Gross Concept = Operating Revs and Exps
When are current assets recorded and current liabilities recorded during CIP
Current Asset = When Cumulative Costs + Cumulative Estimated Earnings > Cumulative Billings
Current Liability = When Cumulative Billings > Cumulative Costs + Cumulative Estimated Earnings
Explain Forward/Call Option Scenarios
Forward = Obligation to Repurchase Call = Right to Repurchase
If Repurchase Price < Original = LEASE
If Repurchase Price >= Original = FINANCING AGREEMENT
Explain Put Option Scenarios
Put Option = Obligation to Repurchase at Customer’s Request
Repurchase Price < Original
- Repurchase Price > Market Value = LEASE
- Repurchase Price < Market Value = A SALE W/ RIGHT OF RETURN
Repurchase Price >/= Original
- Repurchase Price > Market Value = FINANCING AGREEMENT
- Repurchase Price < Market Value = A SALE W/ RIGHT OF RETURN
Changes in Accounting Estimates
Affect only current and subsequent periods (PROSPECTIVE)
No adjustments to retained earnings
Income from continuing operations
‘Inseparable’ = To LIFO, Change in Depreciation Method
Error Correction
Adjusting beginning retained earnings net of tax (Prior period adjustment)
Restated, Offsetting adjustment NOT made
Non-GAAP -> GAAP
Changes in Accounting Principal
Cumulative effect reported net of tax as an adjustment to beginning retained earnings in earliest period (RETROSPECTIVE)
Other Comprehensive Income Items
PUFIE -> Equity/AOCI
- Pension Adjustment
- Unrealized G/L from AFS
- Foreign Currency Items
- Instrument-Specific Credit Risk
- Effective Portion of CF Hedges
Define: Deferred Revenue Deferred Expense Accrued Revenue Accrued Expense
Deferred Revenue = Cash received before revenue earned
Deferred Expense = Cash paid before expense incurred
Accrued Revenue = Cash received after revenue earned
Accrued Expense = Cash paid after expense incurred
Differentiate Recognized Subsequent Events vs. Non-recognized Subsequent Events
Recognized = Existed @ B/S Date, Record JE and Disclose Non-recognized = Did not Exist @ B/S Date, Disclose only
SEC Filers vs. Non-SEC Filers when it comes to disclosing SE evaluation period
SEC Filers = Not required to disclose
Non-SEC Filers = Required to disclose
Summary of Significant Accounting Policies may include…
Measurement Basis used in preparing F/S and Accounting Principles Basis of Consolidation Depreciation Methods Amortization & Intangibles Inventory Pricing Use of Estimates Fiscal Year Definition Special Revenue Recognition Issues Criteria for which Investments are Cash Equivalents
How to determine FV of Non-financial Asset
Highest and Best Use (Fixed Assets)
Most Advantageous Market Vs Principal Market
Most Advantageous = Market with best price for asset
Principal = Market with greatest activity
10-K 10-Q 11-K 20-F/40-F 6-K 8-K Forms 3,4,5
Annual Quarterly Employee Benefit Plan Non-US Annual/Canadian Annual Semi-annual filed by foreign private users = Unaudited Major Events >10% Owners = NO F/S
Filing Deadlines Form 10-K vs 10-Q
Form 10-K
- Large Accelerated = 60 Days (700M)
- Accelerated = 75 Days (75-700M)
- All Others = 90 Days (75M)
Form 10-Q
- Large Accelerated = 40 Days (700M)
- Accelerated = 40 Days (75-700M)
- All Others = 45 Days (75M)
Converting Cash Basis to Accrual
Balance Sheet vs. Income Statement
B/S: Add Inc. A Subtract Inc. L Add Dec. L Subtract Dec. A
I/S
OPPOSITE
Cash to Accrual REV
Cash Basis Rev \+ Ending AR - Beginning AR - Ending Unearned Rev \+Beginning Unearned Rev
Cash to Accrual COGS
Cash Paid for Purchases \+ Ending AP - Beginning AP - Ending Inventory \+ Beginning Inventory
Cash to Accrual Expenses
Cash Paid for Op. Expenses \+ Ending Accrued Liabilities - Beginning Accrued Liabilities - Ending Prepaid Expenses \+ Beginning Prepaid Expenses
All TURNOVER Ratios
I/S divided by B/S
B/S item = Avg.
All RETURN ON Ratios
Net Income Divided by Avg. B/S item
Partnership Creation Methods
Exact Method
Bonus Method
Goodwill Method
Withdrawal of a Partner Journal Entries
Bonus Method = Capital Accounts Debited (SUBTRACTED)
Goodwill Method = Capital Accounts Credited (ADDED)
Difference between Gross Method and Net Method - Discounts
Gross = Records w/o regard to discount Net = Records net of available discount
Direct Write-Off Method
No journal entry until WO
NOT GAAP - NO ALLOWANCE
Write Off:
Debit Bad Debt Expense
Credit A/R
Collection:
Cash
Uncollected Acc. Recovered (Rev)
Allowance Method (Contra Asset)
Inc. in Allowance
Debit Bad Debt Expense
Credit Allowance
Write Off:
Debit Allowance
Credit A/R
Collection Debit A/R Credit Allowance Debit Cash Credit A/R
Factoring A/R
Without Recourse = Sale is final - Buyer assumes risk
With Recourse = Factor has option to re-sell any uncollected receivables back to seller
Discounting a Note to bank = CASH NOW
Principal x original% x month/year = Interest
Principal + Interest = Maturity
Maturity x discounted% x time remaining = Interest to bank (DISCOUNT)
Interest - Discount = Interest to Seller
Total to seller = Principal + Interest to Seller
Paid by Bank = Maturity - Discount
Lower of Cost and NRV vs Lower of Cost or Market
Lower of Cost and NRV (FIFO/WA)
Lower of Cost or Market
-Choose Middle of Replacement Cost, NRV, and NRV - Profit
Periodic vs Perpetual Inventory
Periodic = 1 JE at time of sale, determined by physical count, COGS determined by plugging
Perpetual = 2 JE at time of sale, Inv. updated for each sale/purchase
Same results for FIFO
Weighted Avg. and Moving Avg.
Weighted Avg.
- Total Costs of Inventory Available/Total number of Units Available
- Periodic
Moving Avg.
- Weighted Cost after each purchase
- Perpetual
Dollar-Value LIFO - Price Index
Price Index = End Inv. @Current Year Cost / End Inv. @Base Year Cost
LIFO Level @Base Year Cost x Price Index = At Dollar-Value LIFO
Beginning Inv. + Layers = End Inv.
Gross Profit Method
- Quarterly/Interim F/S
- Periodic
Sales - (1 - GP%) = COGS
Beg. Inv. + Purchases - COGS = End Inv.
Property, Plant and Equipment Costs
Property:
- Purchase Price
- Broker’s Commission
- Title and Recording Fees
- Legal Fees
- Swamp Draining
- Clearing
- Site Development (Grading)
- Existing Obligations Assumed
- Demolition of Old Buildings
Plant:
- Purchase Price
- Repairs neglected by previous owner
- Alterations/Improvements
- Architect’s Fees
- Construction Period Interest
Equipment:
- Invoice Price
- (Cash Discounts)
- Freight-In
- Installation/Rearrange
- Taxes
- All related to acquisition/construction
Capitalization of Period Interest
- Based on WA of accumulated expenditures as part of cost of producing FA
- Borrowed and Used*
Total Capitalization Cost cannot exceed actual Interest Cost (CAP)
Remaining = Interest Expense on I/S
Capitalized during term of construction/building decisions made/during ordinary delay
Asset Retirement/Sold
Debit Cash Credit Asset (@Historical Cost) *Plug = Accum. Dep.
Units of Production Depreciation
(Cost - Salvage) / Estimated Units per Hour = Rate
Rate x # units = Dep. Exp.
Depletion
Depletion Base = Cost + Development + Restoration - Residual
Rate = Base / Estimated Recoverable Units
Depletion = Rate x Extracted
Non-monetary - Commercial Substance
Debit FV of Given Up
Debit Accum. Dep.
Credit Asset @Historical
Credit Cash Paid
*Plug Gain/Loss
FV - BV of Asset
Non-monetary - Lacks Commercial Substance
No Boot Received = No Gain
Boot is Paid - <25% = No Gain
Boot is Received - <25% = Proportional Gain
Boot is Received - >=25% = All Gain
Plug for Debit
Credit BV of Asset Given UP!
Involuntary Conversions
“Sell” to insurance company
SP = Proceeds
Gain = Condemnation - BV
Intangibles: Capitalized vs. Expensed
Purchased - Capitalized @Cost
Internally Developed - Expensed
Exception: Legal fees to successful defense Registration/Consulting fees Design Costs Direct Costs to secure asset
Franchising
Capitalize Given Up:
- Cash
- FV Asset
- PV Note
- FV Stock
Continuing Franchising Fee = Expensed
Start Up Costs/Research and Development Costs
Start Up - Expensed
Research And Development - Expensed EXCEPT if have alternative uses
Not Considered R&D:
- Routine Design Changes
- Marketing
- Quality Control Testing
- Reformation of Chemical Compund
Computer Software Development Costs
- Exp. until tech feasibility established
- Capitalize until released for sale
- Amortize expenses
Amortization is greater of:
- Capitalized Amount x (Current Rev / Projected Rev)
- Capitalized Amount / Economic Life
Impairment for Intangibles
- Undiscounted CF < Cost
- FV < BV
Restoration not Permitted for Held for Use
Restoration Permitted for Held for Disposal
Investment in Debt Securities Classifications
Trade Securities
- CF from Operations
- Bought and held for purpose of selling in near term
- All G/L on I/S @Fair
AFS
- CF from Investing
- Realized G/L on I/S @Fair
- Unrealized G/L in Equity OCI @Fair
HTM
- CF from Investing
- Intent and ability to hold to maturity
- @Amortized Cost
Valuation @FV
Unrealized TS ->Earnings
Debit Unrealized Loss on TS
Credit Valuation Account
Unrealized AFS -> OCI (NET OF TAX)
Debit Unrealized Loss on AFS
Credit Valuation Account
Impairment of Debt Securities
HTM
-Expected Credit Loss = PV - Amortized Cost (-)
Debit Credit Loss
Credit Allowance for Credit Losses
AFS
- Gain = Unrealized Gain to OCI
- Loss to I/S to extent of ECL
- Excess Loss to OCI
Sale of Debt Securities
TS: Selling Price - Carrying Value @time of sale
Debit Cash
Credit Realized Gain
Credit Trading Security
AFS: Selling Price - Original Cost Debit Cash Debit Unrealized Gain *Reversed from AOCI* Credit AFS Credit Realized Gain
Income from Equity Investments (FVTNI)
-Normal Cash Dividends
Debit Cash
Credit Dividend Income
-Liquidating Dividend (Dividend paid in excess of %RE = ROC)
Debit Cash
Credit Dividend Income
Credit Investment
Equity Method Accounting
Record Investment:
Debit Investment
Credit Cash
Share of Earnings:
Debit Investment
Credit Income
Dividends:
Debit Cash
Credit Investment
Stock Div Memo entry only
Consolidation Adjustments (CAR IN BIG)
Common Stock, APIC, and RE eliminated = A - L Investment in Sub eliminated Non-controlling Interest created B/S of Sub Adj. for FV Identifiable Intangibles recorded @FV Goodwill/Gain required *plug*
- Legal Fees = Expensed
- Registration Fees = Reduce APIC
Contingent Consideration = ADD estimate to Investment and CREDIT liability expected value
Intercompany Bond Transactions
Debt Considered Retired
Gain/Loss Recognized
Eliminate Intercompany Interest and Amort. of Disc./Prem.
Intercompany Sale of Land
G/L remains unrealized until land sold to outsider
Period of sale, eliminate G/L and adjust to original cost
Subsequent years: RE debited and land credited until sold to 3rd party
Intercompany Profit on Sale of Dep. F/A
Unrealized G/L until asset sold to outsider
Eliminate G/L and adjusts asset and Accum. Dep. to original balance on date of sale
Consolidation Rules
Assets/Liabilities: Include Parents and FV of Sub
Investment in Sub: Eliminate
Equity/CAR: Include Parents and Eliminate Subs
NCI: FV of Sub
Income/Expenses: Include Parents and 100% Subs after acquisition
Intercompany Transactions: Eliminate 100%
