F1 - Financial Reporting

Question 1

Discontinued Operations

Answer 1

Any business component that represents a major shift in the strategy of the company and has a major financial effect.

Always presented net of tax, below Net Income.

When decided and approved by the Board, you must classify as Disc. Ops. on the next set of FS.

Valued at the lessor of BV or NRV.

Will be impaired if Carrying Value > FV. This impairment can be reversed if future FV increases, but never more than the original impaired amount.

Question 2

What is Comprehensive Income?

Answer 2

Comprehensive Income = Net Income + Other Comprehensive Income.

OCI closes out to Accumulated OCI on the BS when the books are closed.

A Statement of Comprehensive Income is a needed FS.

Question 3

What is Other Comprehensive Income?

Answer 3

Pension Adjustments

Unrealized Gains and Losses on AFS Debt Securities and Cashflow Hedges

Foreign Currency Items - Translation Adjustments

Instrument-Specific Credit Risk??

Question 4

How are PY adjustments to Income Statement accounts recorded?

Answer 4

Via Retained Earnings, not to the accounts themselves.

Question 5

Answer 5

Question 6

Answer 6

Dividends paid are not part of the IS calculation of Net Income, they are part of the equity section of the BS.

Owner investments are excluded from the calculation of comprehensive income because comprehensive income is designed to reflect all changes in equity that arise from non-owner sources. According to both IFRS and US GAAP, comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners

This distinction is important because comprehensive income aims to provide a clear picture of a company’s financial performance and health by focusing on operational and market-related changes, rather than changes due to transactions with owners. This helps investors and analysts better understand the company’s true economic performance and potential risks

Question 7

10-K Filing Deadline for Large Accelerated Filers ($700M plus Market Value)

Answer 7

60 days

Question 8

10-K Filing Deadline for Accelerated Filers ($75-700M plus Market Value & $100M Revenue)

Answer 8

75 days

Question 9

10-K Filing Deadline for all other registrants ($100M Revenue or less)

Answer 9

90 days

Question 10

10-Q Filing Deadlines for:

Large Accelerated and Accelerated Filers

All other registrants

Answer 10

Large Accelerated and Accelerated - 40 days

All others - 45 days

Question 11

Form 8-K

Answer 11

Question 12

Foreign Exchange - Direct Method

Answer 12

How many of the domestic currency equals one unit of the foreign currency?

1.26 USD = 1 GPB

**Be careful, they might ask to quote from the perspective of another foreign currency being the ‘domestic’ currency.

Question 13

Classification of Marketable Securities

Bond - AFS
Bond - Held to Maturity
Bond - Trading Security
Stocks - Trading Security

Answer 13

Bond - AFS - Recorded in OCI
Bond - Held to Maturity - Recorded on the BS (Amortized Cost)
Bond - Trading Security- Recorded on the IS
Stocks - Trading Security - Recorded on the IS

Question 14

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Question 15

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Question 16

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Question 17

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Question 18

Question 19

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Question 20

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Question 21

Question 22

Form 8-K

Answer 22

Question 23

How to Calculate the Gain on Disposal of a Discontinued Operation

Answer 23

Selling Price (*net of selling expenses) - BV (net of impairments)

Be careful to look for any selling fees associated with the disposal and, unless otherwise noted, the BV will most likely have been impaired when they declared it as a discontinued operation.

Also, if the BV was impaired and then adjusted up in FV again, it cannot be appreciated up more than the original impairment amount.

Question 24

M1 Simulation #2

Depreciation was overstated in PY

How is the listing of Allowance for Doubtful Accounts and Discount on Bonds Payable recorded?

Treatment of un-expensed Prepaid Insurance

Current Principal amount of Notes Payable - 500k with 100k due next month

Answer 24

Depreciation expense will be corrected via Retained Earnings (added to fix overstatement), but also added to the asset being depreciated in the same amount.

They are recorded alongside their associated accounts.
Allowance with AR, Discounts on BPs with Bonds Payable account.

Reduce the prepaid insurance account to reflect the % that needs to be expensed. Also Retained Earnings needs to be reduced to reflect the expense.

You would have 400k current Notes Payable Non-Current Liabilities portion, with the 100k as Notes Payable in Current Liabilities.

Question 25

Basic EPS Formula

Answer 25

Income Available to Common Shareholders / WACSO Subtract Preferred Stock Dividends, Common Stock Dividends are income still available to Common Shareholders Preferred Stock % X Par Value If Cumulative, it will be the amount of dividends that accumulate for that year. If Non-Cumulative, it will be the amount of dividends declared. Treasury Stock that is Purchased is subtracted from the WACSO calculation.

Question 26

Company A has Basic EPS of $15/share. They also have convertible bonds that would lower EPS by .75 and stock options that would raise EPS by .10. What would the Diluted EPS be for Company A?

Answer 26

$14.25 Only convertible securities that would lower EPS are included in the calculation for Diluted EPS.

Question 27

Net income from January 1 to December 31 - $125,000 Number of outstanding shares: January 1 to March 31 15,000 April 1 to May 31 12,500 June 1 to December 31 17,000 What is the WACSO?

Answer 27

3/12 x 15,000 = 3,750 2/12 X 12,500 = 2,083.33 7/12 X 17,000 = 9,917 = 15,750 Reminder - Treasury Stock that is Purchased is subtracted from the WACSO calculation.

Question 28

Stock options are granted at an exercise price of $30. At YE, the market price is $25. Are these options dilutive?

Answer 28

No - they are out of the money and would likely not be exercised at a loss by the holders of the options.

Question 29

Answer 29

Question 30

Answer 30

Gain on Sale of Equipment is to be recorded in the period/Quarter of the sale Cumulative-Effect Losses are to be adjusted out of Beginning RE, so this recorded loss is to be added back to reverse its effect. Property Taxes effect the total year, so should be allocated among the quarters. Thus, no error and no adjustment is necessary.

Question 31

Answer 31

Question 32

Answer 32

Stock Splits - treat them as if the stocks were outstanding from the beginning of the year through the period of time of the stock split.

Question 33

Answer 33

To evaluate if the security is dilutive, evaluate each separately - Convertible Bonds and other Interest Bearing Securities: $ saved from not paying interest X (1-Tax Rate) / # of CS added Be careful to see the % of the year that applies to the interest expense saved. They may ask for only 1 Qtr instead of the whole year. Convertible Preferred Dividends: $ saved from not paying dividends / # of CS added If the dividends are cumulative, then the amount of $ accumulated in the period (not total, just the period) are used.

Question 34

Answer 34

You will add back the interest expense that you save from the dilutive bonds, but the preferred dividends, you simply don't subtract them from Net Income, since if they are converted, they would not be paid.

Question 35

Answer 35

Discounts that are being amortized are an expense that will be saved from converting the bonds to stocks. The amortized discount amount is added to the $ saved as interest expense that won't need to be paid in the numerator, *net of taxes*

Question 36

Treasury Stock Cost Method

Answer 36

Treasury Stock is recorded at cost, and gain/loss calculated when the TS is reissued (resold). When Treasure Stock is resold Issuance Cash - Shares X $ TS - Shares x Price Paid when Bought TS - # x $ Cash - # x $ Re-Issuance RE - debited when loss -plug APIC TS - credited when gain - plug

Question 37

Gains/Losses on Treasury Stock that is reissued is recorded as?

Answer 37

An adjustment to APIC-TS, it is never recorded to Net Income or Retained Earnings.

Question 38

Treasury Stock Par (Legal) Method

Answer 38

Treasury Stock records a gain/loss immediately after the repurchase, as opposed to the Cost Method that calculated gain/loss when the TS is reissued (resold). APIC - TS is not used APIC - CS is used When TS is purchased, TS - at par value APIC CS - at APIC/share when CS was originally issued RE - Plug Cash - Shares x $

Question 39

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Question 40

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Question 41

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Question 42

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Question 43

Answer 43

Dividends Declared is a temporary contra-equity account.

Question 44

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Question 45

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Question 46

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Question 47

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Question 48

Stock Dividends What is the key difference between a small stock distribution and a large stock distribution?

Answer 48

Small stock distributions (less than 20-25% of OS shares) will record the stock dividends at FV. Large stock dividends (equal to or greater than 20-25%) are recorded at Par Value instead.

Question 49

How are the following accounts presented on the BS? AR & Allowance for Doubtful Account Bonds Payable and Discount/Premium on Bonds Payable?

Answer 49

They are listed in the same sections in the BS with the contra-account shown as a negative number.

Question 50

How are adjustments made from PY mistakes corrected on CY BS?

Answer 50

The adjustments correct the ending balances for RE and their associated accounts. i.e.) RE -25K Prepaid Ins -25K