F2 Flashcards
The contents of the Summary of Significant Accounting Policies note to the financial statements.
Measurement bases used in preparing the financial statements
Specific accounting policies and methods used
What are the U.S. GAAP disclosure requirements for risks and uncertainties?
Nature of operations
Use of estimates in preparing the financial statements
Significant estimates
Current vulnerability due to certain concentrations
What is a subsequent event and what are the two categories of subsequent events?
An event or transaction that occurs after the balance sheet date but before the financial statements are issued or are available to be issued
Recognized subsequent events -
provide additional information about conditions that existed at the balance sheet date
Nonrecognized subsequent events
provide information about conditions that occurred after the balance sheet date and did not exist on the balance sheet date
Fair Value
The price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date
Valuation techniques that can be used to measure the fair value of an asset or liability
Market approach
Income approach
Cost approach
Market Approach
Uses price and other relevant information about market transactions involving identical or comparable assets or liabilities to measure fair value
Income approach
Converts future amounts, including cash flows or earnings, to a single discounted amount to measure the fair value of assets or liabilities
Cost approach
Uses current replacement cost to measure the fair value of assets
Level 1 Input
Highest priority
quotes prices in active markets for identical assets or liabilities
Level 2 Input
inputs other than quoted market prices that are directly or indirectly observable for an asset or liability
Level 3 Inputs
Lowest priority
unobservable inputs for the asset or liability that reflect the entities assumptions and are based on the best available information
Four required disclosures for segments of an enterprise
Operating segments
Products and services
Geographic areas
Major customers
10% size test
10% of revenue, assets, or profit/loss
If met, reportable segment
75% Test
75% of the total consolidate revenue of the entity
Only includes external revenues
Disclosure requirements for reportable operating segments
Must report: Identifying factors Products or services Profit/loss details Asset details Measurement criteria Reconciliations
Form 10-K
Filed annually
Summary of financial data, MD&A, audited
Form 10-Q
Filed quarterly
Unaudited financial statements, interim MD&A, certain disclosures
Form 11-K
Employee benefit plans
Form 20-F
Non U.S. (10-K) annual report
Form 40-F
Canadian (10K) annual report
Form 6-K
Similar to 10-Q
filed semiannually by foreign private issuers
Form 8-K
Major events
Forms 3, 4, and 5
10% ownership files
Regulation S-X
sets forth the form and content of and requirements for interim and annual financial statements to be filed with the SEC
2 yrs BS
3 yrs IS and Statement of Cash flows
Guidelines for interim reporting
same accounting principles used in most recent annual report
Allocate expenses to the interim period benefited
Revenues are recognized in the period in which they are earned and realized or realizable
A total for comprehensive income in condensed FS of interim periods
General guidelines for OCBOA financial statement presentation:
Different titles from accrual basis financial statements
Required financial statements are the equivalent of the accrual basis balance sheet and income statement
Financial statements should explain changes in equity accounts
A statement of cash flows is not required
Disclosures should be similar to GAAP financial statement disclosures
Working Capital
= Current assets - Current liabilities
Current ratio
= current assets/current liabilities
Quick ratio
[Cash and cash equivalents + ST marketable securities + Receivables(Net)]/CL
AR Turnover
Sales / Avg AR (net)
Days Sales in AR
Ending AR (net) / [Sales(net)/365]
Inventory turnover
COGS / Avg. Inv
Days in inventory
Ending inventory / [COGS/365]
AP Turnover
COGS / Avg. AP
Days of Payables Outstanding
Days sales in AR + Days in Inv. - Days of payables outstanding
Asset turnover
Sales / Avg. Total Assets
Profit Margin
Net income / Sales
ROA
Net Income / Avg. total assets
Dupont ROA
Profit Margin x Asset Turnover
Cash Conversion Cycle
Days sales in AR + Days in inv. - Days of payables outstanding
Return on Equity
Net Income / Avg. Total Equity
Return on Sales
Income before int. income, int. exp., taxes / Sales(net)
Gross (Profit) Margin
Cash flows from ops / Current liabilities
Debt-to-Equity
Total liabilities / Total equity
Total Debt Ratio
Total liabilities/Total Assets
Equity Multiplier
Total Assets / Total Equity
Times Interest Earned
Income before int. exp. & taxes / Int. Exp
EPS
Income available to common shareholders / weighted avg. common shares outstanding
Price earnings ratio
Price per share / Basic earnings per share
Dividend payout
cash dividends / Net Income
Working Capital
CA - CL
Working Capital Turnover
Sales / Avg. Working Capital
In creating a new partnership interest with an investment of additional capital, what three methods can be used?
Exact method
Bonus method
Goodwill method
Exact method (partnerships)
The purchase price equals the BV of the capital account purchased
No adjustment to the existing partners’ capital accounts
No goodwill or bonus
Bonus method (partnerships)
New partner’s capital account = (A + B + C) x C’s percentage ownership
Excess of new partner’s contribution over capital interest received is a bonus to old partners
Excess of capital interest received over new partners contributions is a bonus to the new partner
Goodwill method (partnerships)
Goodwill is recognized based on the total value of the partnership by the new partner’s contribution
Goodwill is shared by the existing partners using the agreed profit/loss ratio
Bonus method (withdrawal of partner)
The difference between the balance of the withdrawing partner’s capital account and the amount that person is paid is the amount of the bonus
The bonus is allocated among the remaining partners’ capital accounts in accordance with their remaining profit and loss ratios
Goodwill method of withdrawal of a partner
The partner may elect to record the implied goodwill in the partnership based on the payment to the withdrawing partners. The amount of the implied goodwill is allocated to all of the partners in accordance with their profit and loss ratios
After allocating goodwill, the balance in the withdrawing partners’ capital account should equal the final distribution to the withdrawing partner
In liquidating a partnership, what is the order of preference?
- creditors
- loans and advances to partners
- capital accounts to partners
All losses must be provided for before disposal, that is, maximum potential losses before distribution of cash
