F8 Flashcards
Under IFRS and GAAP where does EPS go on the income statement?
Face
Simple capital structure must present what kind of EPS?
Basic EPS
Complex capital structure must present what?
Basic and diluted EPS
Simple capital structure
Common stock only
Income available for common shareholders
NI less preferred Dividends
Preferred Dividends
Non-cumulative = Dividends declared
Cumulative = dividends accumulated, ignore dividends declared
How do stock splits factor into WACSO?
They are retroactively applied to everything that came before it. Anything after ignores the split
How are stock splits handled as a subsequent event?
Subsequent event stock splits are included in EPS
Complex capital structure
Securities that can be potentially converted to common stock and therefore would dilute (reduce) EPS
What securities could be converted to common stock?
- Convertible securities (convertible preferred stock / convertible bonds)
- Warrants and other options
- Contracts that can be settled in stock
- Contingent Shares
Contingent Shares
Shares that are issued only if certain conditions are met
In the money
Average price > strike price
Dilutive only if
In the money
Avg price > the strike price
Antidilutive
Out of the money, average price is less than strike price
Stock warrants
Same as stock options
When you see convertible what should you think?
Complex capital structure
Solution from options and warrants effect EPS how?
Denominator only
“No good news”
How to determine if convertible bonds or preferred stock are antidilutive?
Have to compare diluted EPS to basic EPS. If Basic > Diluted, then antidilutive
How to determine if an EPS was diluted?
Diluted = EPS goes down
Preferred Dividends tax rules
Dividends on preferred stock are not tax deductible
GAAP vs IFRS contracts that can be settled in cash or CS
IFRS: always include in diluted EPS
GAAP: judgement call
Is cash flow per share reported?
No
Diluted EPS formula
Basic EPS +
Dilutive securities converted to CS
Where are cash flows per share disclosed?
Not disclosed under GAAP
IFRS doesn’t specify one way or the other
US GAAP bank overdrafts - cash flow
Classified as loan (bank is lending you money)
Financing activities
Treasury stock method for EPS vs If converted method
If converted method considers the interest savings (after tax) in the numerator
Treasury stock method assumes dilution if options are “in the money” and then assumes company will offset dilution with treasury stock - as much as possible
What extra item might be used to calculated basic EPS?
Contingent Shares
What is ignored for basic EPS
Convertible securities are ignored for BASIC EPS
When calculating multiple years of stock splits, does a stock split affect the previous year?
Yes!
Given a basic EPS and convertible securities, how will you know if they are dilutive?
If the convertible security ratio is less than the basic EPS ratio: dilutive
Given a set of convertible securities and their individual effects on EPS, which ones to includes in diluted EPS and which to exclude?
Only include effects that reduce EPS. Do NOT include ones that increase EPS
Operating Asset
All current assets except cash and cash equivalents
Operating Liability
All accruals except interest- bearing liabilities
What special inflows are in cash from operations?
Interest received Dividends received Insurance proceeds Lawsuit settlements Recognized gains on Trading securities
Special outflows in CFO
Interest paid
Income taxes paid
Trading Securities purchased
IFRS vs GAAP statement of cash flow
IFRS is flexible (case by case) for interest, dividends, and tax categories
GAAP is rigid
If statement of cash flows starts with net income what method?
Indirect
What does CFO represent?
Change in operating assets and change in operating liabilities
What does CFI represent?
Change in non-current assets
What does CFF represent?
Change in debt and equity
When are supplemental disclosures required for statement of cash flows?
When indirect method is used
What supplemental disclosures are required for the cash flow statement if indirect method is used?
Cash paid for interest and taxes
If you see ____ the direct method for cash flow statement is being used
Cash received from customers
Difference between indirect and direct methods for cash flow statement
CFO format, do you start from net income or cash from customers?
Investing and financing are the same
Why do no companies use the direct method?
If direct method is used, then indirect method is required as a supplemental disclosure.
So extra work
Except for IFRS
Provided
Cash flow statement
Inflow
Used
Cash flow
Outflows
CFO formula
NI - Depr / Amort \+ Losses - Gains and amort of bond premium - Equity Earnings - change OA \+ change OL
COGS to Cash
COGS
- AP
+ Inv
= Cash
Increase in AP means hasn’t been paid
Inventory was paid, not on IS. Must be added back
Revenue to Cash
Revenue
- AR
+ Unearned
Cash
Increase in AR means hasn’t been received
Unearned HAS been received but not recognized
Expenses to Cash Paid
Expenses
- Accrued Expenses
+ Prepaid Expenses
= Cash
Accd expenses haven’t been paid
Prepaid expenses already paid, not on IS. Must be added back.
Are inflows and outflows netted on statement of cash flows?
No - separate
IFRS Dividends paid
CFO or CFF
Where would this go on statement of cash flows?
Collection of proceeds from note payable
Financing
Cash received from issuing a note payable
Except for subtracting gains - indirect method
Gain on trading securities - do not subtract
Interest paid
Where on cash flow for GAAP?
CFO
Interest received
Where on cash flow for GAAP?
CFO
Purchase of bonds payable
Where on cash flow?
Investing - it’s really a bonds Receivable
Should tax attributable to a gain on an investing activity be included in CFI?
No, the tax remains part of operating activities.
Taxes payable is operating
Codification # for non profit accounting
Codification 958
Which standards board regulates non profit accounting
FASB
NOT GASB
Users of a not for profit financials
Donors / creditors / members
Statement of financial position
BS
Statement of Activities
IS
BS and IS names for non-profit accounting
Statement of financial position
Statement of activities
Which financial statements present funds?
Government
NOT non-profit
What basis of accounting for non-profit?
Full Accrual basis
What is the primary reporting emphasis of non-profit accounting
Disclosing sources of the institution’s resources and how they were expended
Government not for profit are governments by which standards board?
GASB
Program services
Costs related to purpose and mission of non-profit
Support
Management and general fundraising / membership development
Natural Classifications
Expenses such as salaries, rents, utilities, interest expense, supplies
Functional classifications
Categorized Cost by major class of program + support service
Function vs Natural classifications
Function = what they are for Natural = what they are
Where can expenses for a non-profit be reported?
Face
Notes
Separate financial schedule
Assets restricted or designated for non-current purposes - non current or current?
Non-profit
Non-current
Are board designated funds classified as restricted or unrestricted?
Unrestricted
Board cannot restrict use of funds on BS. Only donor can
Categories of net assets for non profits
With and without donor restrictions
Net Income for non profits
Changes in net assets
Statement of cash flows methods for non profit
Same as for profit
GASB is the only different one
Non-profit vs commercial statement of cash flows direct method main difference
Commercial: if direct is used, indirect must be disclosed
Non-profit: if direct is used, indirect is NOT required to be disclosed
Satisfied donor restrictions are reclassified as
“Contributions without donor restrictions”
Yes or no?
No!
Reclassifications aren’t contributions
Support services
For non profit
Fundraising
Management and general administrative
Membership development
Program services can be found where on statement of activities for non-profit? Revenues or expenses?
Expenses
You donate to a non-profit so they can spend the money on their programs, no?
Expenses on a statement of activity are broken up how for non profits?
Between program and support services
Are board designated donor restrictions on the statement of activities?
No
Not for profits financials focus on what?
Basic information for the organization as a whole
Do board designated net assets appear in the financials?
Yes - in the NOTES
Under net assets without donor restrictions
For a non-profit, all expenses are reported as decreases in which net asset classes?
Net assets with donor restrictions
There are NO expenses associated with donor restricted assets
How does a non-profit recognize program revenue?
When a program expense occurs
What is the primary purpose of the statement of activities for a non profit?
Report change in net assets for the period
If a non profit received only donations with restrictions throughout the year, how can assets released from restrictions for the current year be calculated?
Will be equal to the revenue
Non profit fees
Revenue or expense?
Revenues
Net change to net assets for non profit can be calculated as
Earnings of the endowment net of the program deficit classified as Within donor restrictions
Ownership interest is to owner’s equity as ______ is to net assets for non profit
Residual interest
Can contributions with donor restrictions be considered revenue?
Yes
Can contributions with donor restrictions be considered revenue?
Yes, but will have no associated expenses
Should an increase or decrease in FMV change net assets with donor restrictions?
Yes, FMV changes effect the earnings if an investment that is donor restricted
Where would proceeds from insurance for insurance resulting from the loss of of a fixed asset be shown on the statement of cash flows?
CFI
Sale of works of art appear where no the cash flow statement?
CFI
Exchange transaction (Non profit)
Non profit earns resources in exchange for services performed
Are exchange transactions classified as increases to net assets w/o or w/ donor restrictions?
Without
Condition vs Donor restrictions - how different?
Donor restriction - satisfied by /use/ of donated resources
Conditions - not satisfied by use of resources
Difference between non profit and commercial uncollectible pledges
No bad debt expense
SOME
Donated services are recognized only SOME of the time
Non profit
Specialized skills
Otherwise needed by org
Measurable
Easily
Donated Services - when recorded
- Create or enhance nonfinancial asset
2. Specialized skill otherwise needed by an org that is measurable easily
Recruitment of volunteers - how to account for cost?
Fundraising Expense
Doesn’t matter if specialized or non-specialized
What are the conditions for art or historical treasures to NOT be recorded by non profit or gov?
- Item is part of a COLLECTION - held for public viewing, exhibition, or research (NOT profit)
- COLLECTION is cared for, preserved, and protected by org
- Any proceeds from sale is reinvested in other COLLECTION items
How are premiums handled in non profits regarding contributions received?
Contribution Revenue is net of premiums
Cancelled classes - Revenue for non profit universities?
No - revenue from tuition and fees is net of cancelled classes
What deductions are necessary to arrive at “net patient service revenue” did health care non-profits?
- Charity care
- Contractural Adjustments
- Discounts
- Admin Adjustments
- Bad Debts
Capitation Agreement
Charges are “capped”
What are the three categories of revenue for health care non profit?
Patient Service Revenue
Other Operating Revenue
Nonoperating Revenue
Donated supplies vs donated services for health care - which revenue category?
Donated supplies = other operating
Donated services = non operating
Are net assets released from restriction the same as contributions?
No…contributions with donor restrictions are still contributions regardless of whether or not they are satisfied
Other operating revenue revenues for a hospital
Revenues generated by operations other than patient services:
Gift shop revenue
Educational revenue
Parking revenue
Should bad debt be netted against gross patient revenue?
No - not unless it’s bad debt resulting from inability to collect debt never assessed for quality or collectibility (special case)
Does revenue, gains; and other support without donor restrictions include “other revenue”?
Yes
Does revenue, gains; and other support without donor restrictions include “net assets released from restrictions used for operations”?
Yes
How are unconditional promises to contribute in the future reported for non profits?
Contributions WITH donor restrictions. Future = implied time restriction
Are exchange transactions restricted or unrestricted?
Unrestricted. They are a reciprocal transfer
Are split interest agreements restricted or unrestricted?
Unrestricted
How do scholarships, tuition remossion, and fellowships affect net revenue from tuition and fees?
No effect
Beneficial interest
Non profit
Means not interrelated financially
Underwater endowment disclosures
FED
Fair value
Endowment gift’s original amount
Deficiency
“How hard is it for the intended beneficiaries to be FED”
Are works of art or historical treasures depreciated for non profits?
No
If non profit recipient has variance power, and approves money to be allocated to beneficiary, but it doesn’t move yet, how does the beneficiary record?
Beneficiary does NOT record if the recipient has variance power until assets are remitted
JE for beneficiary if the recipient has no variance power and orgs are financially interrelated
Beneficiary:
Interest in investee income
Change in interest in investee income
Recipient:
Cash
Revenue w/o donor restriction
NFP interrelated definition
Both able to influence the operating and financial decisions of the recipient AND
has ongoing economic interest in recipient
Refundable advance liability vs contribution w/ donor restriction
It is a liability if the organization lacks variance power
Variance power
Power to decide who gets resources and when they get it
Can a NFP be interrelated AND have variance power?
No, interrelated requires recipient to not have variance power
Commercial vs NFP basis for how debt and equity securities are measured
NFP - all gains or losses hit statement of activities and measured at fair value
Commercial - much more complicated
Required Supplemental disclosures for indirect method of cash flow
Interest paid
Taxes paid
When preparing statement of cash flows, what special item is in CFF?
Dividends paid
Decrease in deferred taxes (indirect method)
Operating
Operating liabilities are any non interest liabilities (curr or non-curr)
JE of SOME services donated
Expense (FV of services)
Support
Investment income for NFP - debt securities is net of what?
FV adjustment
JE to move cash w/ donor restrictions to cash w/o donor restrictions
Funnel through account satisfaction of restriction
Cash - without donor restriction
Satisfaction of restriction
Satisfaction of restriction
Cash - with donor restriction
Unskilled day laborers donating their time to build a daycare center - contribution or not?
Contribution. The only exception to the SOME rule is the creation or improvement of a fixed asset
If a doctor is paid $20K for their services when they would normally be paid $100K for a non profit, how much is the contribution?
$80K
What would be paid normally net of what was paid. What wasn’t paid is a contribution instead of a cash outlay
Are reclassified net assets due to satisfaction of donor restrictions affect net assets without donor restriction?
No - only affect the satisfaction / reclassification accounts
Does NOT create revenue without donor restrictions
Who prescribes auditing standards for the gov?
Government Accountability Office
Cornerstone of gov accounting
Accountability
