F1/M1 Standards and Conceptual framework Flashcards
How to calculate Gross Margin? Multi-step I/S
Net Sales (-) Cost of Sales
How to calculate “Income (loss) from Operations”? Multi-step I/S
Gross Margin
(-) Selling Expenses
(-) General and Administrative Expenses
(-) Depreciation Expense
Land held for resale should be classified as:
Current Asset
The line item displayed before considering income tax effect on the income statement is:
“Income (loss) from operations”
“Income (loss) from continuing operations” = “Net Income” and is shown after-tax
“Discount on Bonds Payable” reduces the amount of “Bonds Payable”. True/False
True.
Revenue from the sale of a right to return can be recognized in full if all these conditions are met:
- Price is substantially fixed
- Buyer assumes all risk
- Consideration is paid
- Product sold is substantially complete
- Returns can be reasonably estimable
J/E for sale w/ right to return
Cr: A/R
Dr: Sales Revenue (for Full Amount)
When estimated returns at year end
Cr: Sales Returns and allowances
Dr: Allowance for sales returns and allowances
Criteria to recognize revenue for Sale with Buyback
Must transfer risk and reward
Cr. Cash
Dr. Revenue
If no risk transfers…
Cr. Cash
Dr. Liability
Criteria to recognize revenue for Bill and Hold Sales
- Risk of ownership has passed to buyer
- Commitment to purchase, delivery date, and fixed price
- Goods are separated
Criteria to recognize revenue under Multiple Element Arrangments
- Delivered item has value to the customer on a stand alone basis
- Right of return
- Delivery or performance is probable
Use Fair Value of separate items and distribute value on pro-rata basis
Franchisee Revenue
- Initial Franchise Fees
- Record when “Substantially performed”
- Typically, not until first day of operations - Continuing Franchisee Fees
- Revenue when earned each period
Example: Cr. Cash Cr. Notes Receivable Dr. Discount on notes reveivable Dr. Unearned franchise fee revenues
If a landlord receives a nonrefundable security deposit, how should you record as revenue?
Evenly over the time of the lease
If ticket sales are nonrefundable, should you record the entire sale of tickets before the performance as revenue?
No, recognize after performance
Completed contract method is U.S. GAAP only?
True
- Difficult to estimate costs
- More than one project outstanding
- Projects are of a short duration
Losses should be recognized in full the year they are discovered under the Completed Contract Method; T/F?
True;
- Matching principle is not achieved
- Never record profit, just loss if applicable
Percentage of completion Method
Record % of Gross Profit based on % Completed
Record loss in period discovered and reverse profit from prior periods
Matching principle used
The installment method is used when there is no reasonable basis to estimate the degree of collectibility (T/F)
True;
Cr: Installment Sales Receivable
Dr: Inventory
Dr: Deferred Gross Profit
Record Gross Profit when cash is collected, not Revenue
Discontinued operations are reported net of tax: (T/F)
True
- Impairment loss
- G/L on Disposal
- G/L from actual operations
A business component is “Held for Sale” for reporting under “Discontinued Operations” when the following criteria is met:
- Management has a plan to sell
- Component is available for sale
- Management is actively trying to sell it
- Sale is probable and can be sold within 1 year
Must be a STRATEGIC SHIFT i.e.
- Geographic area
- Major line of business
- Major equity investment
CONDUCT IMPAIRMENT IF “HELD FOR SALE”
- Lower of CV or (FV - Costs to sell)
Stop depreciating
Types of items included in Results of Discontinued Operations
- Initial Impairment loss and subsequent increase in FV
- Lower of CV or (FV - Costs to sell)
- Results of operations
- G/L on disposal of operations (in year of disposal)
Do not
Net Realizable Value =
Fair Value (-) Costs to Sell
T/F: Results of Discontinued Operations are reported net of tax
True
Events resulting in a change in Accounting Estimate (Prospective Change)
- To LIFO
- Change in Depreciation Method
- Direct Recognition Method of receivable to Installment Method
- Settlement of litigation
- Change in the useful life of an asset
Events resulting in a change in Accounting Principal (Retrospective Change)
GAAP to GAAP (Non-GAAP to GAAP) is correction of an error
Rule of Preferability (Justification)
Events:
- LIFO to FIFO
- Change from Completed Contract to % of Completion
- Adjustments must be net of tax