F1 M1 Balance Sheet, Income Statement, & Comprehensive Income Flashcards
What effect does treasury stock have on stockholders’ equity?
Treasury stock reduces stockholders’ equity.
A gain that is both unusual and infrequent should be reported where?
On the income statement as part of income from continuing operations, gross of tax.
Gains and losses from discontinued operations are presented net of tax or gross of tax on the income statement?
Net of tax.
If a company decides to sell a division on July 31, how many months of its income (loss) should be reported as discontinued operations on the Dec. 31 income statement?
The full 12 months of income (loss) should be reported as discontinued operations regardless of when the company decided to sell the division.
Where in the financial statements should the balance of the accumulated other comprehensive income account be shown?
In the balance sheet as a reduction of equity.
Where in the financial statements should a foreign currency translation loss from a wholly owned subsidiary be shown?
It would be included in other comprehensive income in shareholders’ equity after retained earnings.
Where in the financial statements should a foreign currency transaction gain on accounts payable be shown?
It would be included in gains from continuing operations in the income statement.
What is the following exchange rate quoted in US dollars: 0.79 €?
1 / 0.79 = $1.27
What is included in comprehensive income?
Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
Comprehensive Income = Net Income + Other Comprehensive Income
What is included in other comprehensive income?
- Unrealized gains/losses on available-for-sale (AFS) debt securities
- Unrealized gains/losses on derivatives qualifying as cash flow hedges
- Foreign currency translation adjustments
- Pension and post-retirement benefit plan adjustments
Where in the financial statements will an unrealized loss on a trading security be recorded?
An unrealized loss on a trading security will be recorded as a loss on the income statement.
What is a prior service cost and what effect does it have on the financial statements?
A prior service cost is a pension plan amendment that increases employees’ benefits for service already rendered. The initial entry decreases (debits) OCI and increases (credits) pension plan liability. Then the amount is amortized to increase (debit) pension plan expense and increase (credit) OCI using the straight-line method over the average remaining service period of active employees.
What is a prior service credit and what effect does it have on the financial statements?
A prior service credit is a pension plan amendment that decreases employees’ benefits for service already rendered. The initial entry increases (credits) OCI and decreases (debits) pension plan liability. Then the amount is amortized to decrease (credit) pension plan expense and decrease (debit) OCI using the straight-line method over the average remaining service period of active employees.
What is an actuarial loss and what effect does it have on the financial statements?
An actuarial loss is a change in actuarial assumptions that results in pension plan assets earning less than expected. The initial entry decreases (debits) OCI and increases (credits) pension plan liability (projected beneift obligation, or PBO). U.S. GAAP allows (but doesn’t require) the loss to be amortized to increase (debit) pension expense and increase (credit) OCI over time using the corridor method.
What is an actuarial gain and what effect does it have on the financial statements?
An actuarial gain is a change in actuarial assumptions that results in pension plan assets earning more than expected. The initial entry increases (credits) OCI and decreases (debits) pension plan liability (projected beneift obligation, or PBO). U.S. GAAP allows (but doesn’t require) the gain to be amortized to decrease (credit) pension expense and decrease (debit) OCI over time using the corridor method.
How should the tax on individual components of other comprehensive income be reported?
The individual components of other comprehensive income may be either reported on a before tax basis with an aggregate tax amount reported after these items or individually on a net of tax basis.
Where should a company report unrealized losses in an available-for-sale equity securities portfolio?
As part of income from continuing operations in the income statement.
How should a company account for a subsequent increase in the fair value of a discontinued component?
Recognize a gain in fair value minus selling costs but not in excess of a previously recognized cumulative loss. Report the gain in the period of increase.
What are the criteria for reporting a disposal in discontinued operations?
It must represent a strategic shift that has a major effect on an entity’s operations and financial results.
A company’s second quarter provision for income taxes uses an effective tax rate expected to apply for the full fiscal year. What anticipated factors should be reflected in the effective tax rate?
- foreign tax rates
- available tax planning alternatives
- tax credits
- capital gains rates
- foreign tax credits
What is a sinking fund cash account?
An asset account to record cash restricted for the retirement of bonds. It typically reduces regular cash.
How should a company present on its income statement a material transaction that is infrequent in occurrence but not unusual in nature and results in a loss?
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 when the transaction results in a gain or loss.
