F8 Flashcards
How is basic EPS calculated?
Income available to c/s SH’s / W.a # of c/s outstanding
What does it mean if an entity has a simple capital structure?
Only common stock outstanding.
No warrants, options, etc.
Where is EPS shown in the financials?
Face of the income statement.
What is the income available to common shareholders when calculating EPS?
Net income - Preferred Dividends
What is the income available to common shareholders when calculating EPS?
Net income - Preferred Dividends
What does the weighted average # of common shares outstanding mean?
How is it calculated?
of shares changes throughout the year due to repurchase of shares, issuing new shares, and stock splits. You need to weight the amount of shares held at each point the # of shares outstanding changes, then come up with the w.a during the whole year.
Total shares X Period outstanding for = #
Total shares X Period outstanding for = #
Total shares X Period outstanding for = #
= # + # + #
What is unique about stock splits when it comes to calculating EPS?
Retroactive treatment of shares outstanding.
If I have 1,000,000 shares outstanding in the beginning of the year, and have a 2 for 1 stock split in the middle of the year, I’ll pretend I had 2,000,000 the whole time.
Where is Diluted EPS shown in the financial statements?
On the face of the income statement.
How is diluted EPS calculated?
Income available to c/s SH’s + Int. on dilutive securities / W.a # of c/s outstanding (assuming the what if factor)
**What if factor is assuming all dilutive securities are converted to common stock.
How do you know if something is dilutive or anti-dilutive?
Dilutive only if the average price > strike price
*“In the money”
**Otherwise it would not be exercised.
What kind of activity belongs in the operating section of the Statement of cash flows?
Core business.
What is the correct order of the statement of cash flows under GAAP?
- ) Operating
- ) Investing
- ) Financing
What kind of activity belongs in the investing section of the Statement of Cash flows?
Buying / selling non-current assets.
What kind of activity belongs in the financing section of the Statement of Cash flows?
Our own debt/equity activity.
**Includes dividends as an outflow
What is the end result from performing the direct and indirect methods of the stmt of cash flows?
Cash flow from operations.
*Both get to answer same way, just different ways of getting there
Which method for the stmt of cash flows starts with net income and reconciles down to cash flow from operations?
Indirect method (easier).
Conceptually, how is the indirect method of the stmt of cash flows calculated?
Reconciliation starting with net income and taking out noncash/nonoperating items.
*Accrual basis to cash flow from operations.
When you choose the direct method for stmt of cash flows, what does GAAP require that you do?
Show the indirect method separately as a supplemental schedule.
What is a major difference between IFRS & GAAP concerning the statement of cash flows?
GAAP treats interest & divs received as an operating inflow.
IFRS treats as interst & divs as operating or investing or financing
Where do changes in cash get reported on the statement of cash flows?
NOT REPORTED.
What items are included on a statement of financial position for a NFP entity?
All assets, liab’s, and net assets (equity) are carried on the “balance sheet” of a NFP.
- ) FA
- ) LTD
What kind of information is shown on a statement of activities for a NFP entity?
The total change in net assets:
- ) Change in unrestricted
- ) Change in temp. restricted
- ) Change in permanently restricted
If a contribution is made to a NFP entity with restrictions (either temporary or permanent), when is that recognized as revenue?
In the period received.
Once the restriction is satisfied, reclassify on statement of activities to unrestricted.
Notice there would be no net change to net assets on the reclassification as it’s just going from one category to another.
If a NFP entity receives contributions with restrictions, and those restrictions are satisfied in the same period as they are received, how should those contributions be booked?
Record as unrestricted.
What is a helpful mnemonic to remember what makes up the net assets section of the statement of financial position for a NFP and also the categories on the statement of activities?
PUT.
- ) Permanently restricted
- ) Unrestricted
- ) Temporarily restricted
If you look at the statement of activities for a NFP entity, you’ll notice that only the unrestricted column has expenses, why is that?
You can’t recognize an expense until it’s been released from it’s restrictions. If you spend money that was temporarily restricted, it is reclassified to the unrestricted column and recognized as an expense.
If a board of directors for a NFP designates funds for a specific purpose, where should the funds be shown on the statement of financial position (balance sheet) ?
Unrestricted, the board can’t restrict funds
*They can always change their minds.
What are the different expense classifications on the statement of activities for a NFP and what kind of expenses are reported in each category/bucket?
- ) Program Service (Hospital = Patient Care, main purpose)
- ) Support Service (everything not program services)
- ) Combined Costs (allocate between Program/Support)
When preparing NFP financials, you can’t prepare a statement of financial position until you prepare the statement of activities. Why is that?
The statement of activities shows all the changes in unrestricted, permanently restricted, and temporarily restricted net assets. Until you see where those end up at year end, you won’t be able to complete the net assets section of the statement of financial position.
What method/principle of accounting do NFP entities use?
Full accrual accounting.
When is revenue from exchange transactions recognized by a NFP?
When realized & earned (full accrual)
When is pledge revenue for a unconditional promise to pay recognized by a NFP?
When the promise is made.
When is pledge revenue for a conditional promise to pay recognized by a NFP?
Not recognized until the conditions are met. If the donater gives money in advance on a conditional promise to pay, the JE is:
DR: Cash
CR: Refundable Advance
When are donated services recorded by a NFP?
Usually not recorded unless:
- ) Create/enhance a nonfinancial asset
- ) Require specialized skill
If a lawyer donates their services to a NFP entity, what is the JE to record the service?
DR: Expense of FV of asset
CR: Contributions - unrestricted
*Net = no change on income statement
Are conditions the same thing as restrictions regarding NFP entities?
No, restrictions are put to either temporary or restricted net assets/revenue.
Conditions are made before receiving money, once the conditions are met the NFP gets paid. If a good faith deposit is made prior to the conditions being met, it’s booked as a liability.
How are donated collection items (works of art or historical treasures) recorded by a NFP?
Not required to be recorded if all met:
- ) Part of a collection w/ public viewing
- ) Cared for/preserved by organization
- ) Policy in place of proceeds reinvestment into other items if sold
*If above aren’t met, recognize as an asset and revenue.
**Same as government
When are restricted contributions earned by a NFP entity?
When the money is spent on what is was restricted for.
*Spent = Earned.
What is an example of a permanently restricted net asset?
Endowment fund of $25 million of which the principal can never be spent, but the earnings can be.
Earnings can be restricted or unrestricted.
Regarding NFP entities, what does it mean to be interrelated?
Both:
- ) Ability to influence
- ) Economic interest
What does variance power mean regarding NFP’s?
Just think “power”
A NFP that receives an asset from a resource provider that are not financially related and have no variance power would record the JE as:
DR: Asset (@ FV)
CR: Refundable advance liability
- NFP acts as an agent (no power or benefit to allocate the assets)
- With no variance power, the giver has all the power. With variance power, the NFP can control where the asset goes
A NFP that receives an asset from a resource provider that are not financially related and have variance power would record the JE as:
DR: Asset
CR: Contribution
*NFP acts as agent, but can control where the asset
**Expensed when distributed
A NFP that receives an asset from a resource provider that are financially related and have/don’t have variance power would record the JE as:
DR: Asset
CR: Contribution
*Expensed when distributed
When a NFP is the beneficiary of a contribution that is held by another entity that is not financially interrelated and does not have variance power would make the following JE:
DR: Receivable
CR: Contribution (revenue)
*Agent can’t direct resources elsewhere, ok to record.
When a NFP is the beneficiary of a contribution that is held by another entity that is not financially interrelated but does have a beneficial interest would make the following JE:
DR: Beneficial Interest
CR: Contribution
When a NFP is the beneficiary of a contribution that is held by another entity that is financially interrelated would make the following JE:
DR: Interest in Recipient Net Assets
CR: Change in interest in recipient net assets
Are works of art & historical treasures depreciated?
NO.
Where do losses on permanently restricted funds get booked?
First go to reduce temporarily restricted net assets, then reduce unrestricted net assets if excess.
If a NFP entity receives a temporarily restricted contribution in year 1, and the restriction is met in year 2, how much unrestricted revenue should be recognized in year 2?
Zero.
Already recognized temporarily restricted revenue in year 1, just reclassify amount in net assets section of statement of financial position to unrestricted.
Do NFP’s have a statement of cash flows?
Yes - required.
How should a NFP entity report investments in it’s financial statements?
Fair value with gains & losses reported in the statement of activities for changes in market value.
Who prescribes standards and guidance for NFP entities?
FASB.
What is the main difference between conditions and restrictions regarding NFP entities?
Conditions: not satisfied by use of resources. Instead, condition must be resolved before the pledge can be recognized as a revenue/receivable. We’ll give you the money, but you have to do this first. Can’t even record a pledge receivable until you satisfy the condition. Not even a JE until the condition is satisfied. If they give you money before the condition is satisfied, then you need to record a contingent liability until you satisfy it
Restriction: satisfied by the NFP by use of the donated resources. We give you the money, and here’s how you need to use it (satisfaction of restriction)
