F1 - FIN REP - 1 Flashcards
GAAP RULES for Deferred Tax Assets & Deferred Tax Liabilities
These are Temporary Differences between tax basis of assets and liabilities and their reported amounts in the FS
Any Gains or Losses from Discontinued Operations
Must be recorded according to order:
Income from Continuing Operations
Income Tax Expense
Gain or Loss from Discontinued Segment (after Tax)
TRANSACTION GAINS/LOSSES
Related to Specific Transactions (sales, purchases)
Affect the Income Stmt, so like the net income
TRANSLATION GAINS/LOSSES
Related overall FS of foreign subsidiaries
Affect OCI and are reflected in equity, NOT in Net Income
Net Income
Includes
Revenues
- Operating Expenses
- Income Tax Expenses
Income from Continuing Operations
(Operating, Non-operating and income tax expense if using the multiple-step format) and discontinued operations
Excludes OCI Items
Gains/losses on a Fair Value Hedge are reported in current income
Gains/losses on a Cash Flow Hedge are deferred and reported as a component of OCI until the hedged transactions impacts earnings
Comprehensive Income MAY be ( NOT MUST BE ) shown on the face of a combined “statement of income and comprehensive income”
A separate section below net income, or in a separate “Statement of Comprehensive Income”
COMPANY has the choice of reporting the components of OCI on either an individual net of tax basis
OR
Each component on a before tax basis with one amount shown after for the aggregate tax effects
EPS FORMULA
& Disclosure - Required for all companies with publicly traded common stock or potential common stock:
Potential Common Stock:
Stock Options
Stock warrants
Convertible Securities
Contingent Stock Agreement
Basic EPS = Net Income - Preferred Dividends / Average Common Shares Outstanding
Anti-Dilution Rule
Helps ensure that the reported EPS reflects a conservative estimate of a company’s earnings
If certain securities would increase the EPS rather than decrease it
The Securities is NOT included in the calculation of Diluted EPS
“OUT OF THE MONEY” Stock options
Are anti-dilutive BC
IF exercise price exceeds the market price of the stock
Form 10-Q
Large Accelerated Filer & Accelerated Filer must file within 40 days
Worldwide Market value of $700 million or more
Small Corps 45 days
Quarterly Reports - Companies must file every 3 months
IF the company has “NO SEASONAL FLUCTUATIONS” means that it just has to report the most recent fiscal year-end balance sheet along with the current quarter’s data.
Contains unaudited financial stmts
The entire amount of a gain or loss from a sale of fixed assets
Should be reported during the period (quarter) incurred
GAAP that was used in the most recent annual report of an enterprise
Should be applied to interim financial stmts of the Current year unless a change in accounting principle is adopted in the current year
S-X Sets forth the form and content of and requirements
For interim and annual financial stmts to be filed with the SEC
Any Prior year EPS data needs to be
Adjusted for stock splits occuring in subsequent years
Components of OCI
PUFI
- Pension adjustments
- Unrealized gains & losses on available-for-sale debt securities
- Foreign currency translation adjustments
- I Instrument-specific credit risk
RULE: Cumulative preferred stock dividends are paid on par value (not sales price) of preferred stock and
Have a “preference” over common stock dividends until all past preferred stock dividends are paid
Dividends are not reported as a liability until
The dividends are declared
The Sale of Treasury Stock at less than cost will result in a net increase in stockholders’ equity
The original cost of TS is credited;
An APIC - TS is debited
Any Excess over the APIC would reduce RE
BUT
The net impact to SE would still be positive as long as cash is received
from the sale of the TS
Using Cost Method
Any excess to acquire the TS is credited to APIC - TS and does NOT affect Retained Earnings
If shares sold for less than their reacquisition cost, the loss can reduce RE only if there is not enough balance in the APIC - T/S account to absorb the loss
RULE: Convertible Securities are recognized
When computing diluted EPS only if the conversion is dilutive
RULE:
There is no requirement to appropriate RE for any purpose
RE may be set aside for future purposes by classifying a portion as “appropriated”
Differences between Issued Shares & Outstanding Shares
Issued Shares - Total Number of shares that a company has ever sold to investors. Held by investors and held in CO Treasury Stock
Outstanding Shares - Subset of issued shares and refers specifically to the shares that are currently held by investors excluding shares that are in CO Treasury Stock
When TS are resold they are considered as outstanding
When Stock rights are “issued” w/o consideration, NO ENTRY is required ONLY Disclosure by the “issuer” or the “recipient”
At the time the rights are “exercised”
APIC would be credited if the purchase price of the stock exceeded the Par value
RE is NOT affected bc this is a “capital” transaction not an “operations” transaction
Know the differences between ‘Other Comprehensive Income’ & ‘Comprehensive Income’
Comprehensive Income = Net Income + OCI
OCI = Unrealized gains & losses on available-for-sale securities
Foreign currency translation adjustments
Pension Adjustments
Instrument Specific Credit Risk - Like a bond or a loan
The acquisition of Treasury Stock at a price less than their book value will:
- Decrease SE in total, All TS transactions decrease total equity
- Increase Book Value per share bc
BV per share is based on outstanding common shares which means that when they are “repurchased” the overall number of shares outstanding is LESS, SO the numerator is reduced by the cost to purchase the shares
Effect is an increase in book value per share
Treasury Stock Method to Calculate the Dilutive effect of Stock Options
To Repurchase shares in the market
Its the difference between the # of shares in the market
Issued vs exercised
of Shares - { # of Shares X Exercise Price / Average Market Price }
When a company declares a Stock Dividend
Net effect on Stockholder’s Equity is zero bc
The Reduction in RE is offset by an equal increase in CS
RULE: Stock dividends and stock splits are not considered income to the recipient
Investors do NOT record stock dividends at Fair Market Value
Simply reallocate the investment account balance (under either method – cost or equity) over more shares so that value per share decreases
Reverse Stock Split
Reduces the number of shares
Increases the Par Value per share BUT does not affect total par value of shares issued
Contingent Shares (that are dilutive) are included in the calculation of basis earnings per share (EPS) if (and as of the date)
All conditions for issuance are met
Stock options do not enter into the calculation of basic EPS
If an entity reports a DISCONTINUED OPERATION
The entity presents the basic and diluted (if applicable) per share amounts for those items either on the face of the income stmt or in the notes to the financial stmts
Basic and diluted per share amounts for income from continuing operations and for net income should be presented on the face of the income stmt with equal prominence
Comprehensive Income
Net Income +
Other Comprehensive Income
An unrealized loss on a trading security will be recorded as a loss on the income stmt, which will reduce net income and then Comprehensive Income
Accumulated OCI is a component of Stockholders’ Equity
On the balance sheet
Unrecognized prior service cost and unrecognized net gains or losses
Must be reported in Accumulated Other Comprehensive Income, Net of Tax, Until recognized as part of pension expense through amortization.
Prior service cost increases pension expense and is recorded as a debit to OCI
Net gains decrease pension expense and are recorded as a credit to OCI
