FAR 1 Flashcards
How to reconcile cash basis expenses to accrual basis expenses:
Take cash basis expenses - increase (+ decrease) in prepaid expenses (asset) - decrease (+ increase) in accrued expenses and/or accrued liabilities.
How do uncollectible A/R write-offs affect cash basis sales?
These write-offs deduct cash basis sales.
How to reconcile accrual basis expenses to cash basis expenses:
Take accrual basis expenses + increase (- decrease) in prepaid expenses (asset) + decrease (- increase) in cash basis expenses and/or cash basis liabilities.
How is recovery of accounts written off?
As an adjustment (increase) to allowance for uncollectible accounts (does not affect revenue)
The two primary qualitative characteristics of financial information:
Relevance and faithful representation (same with IASB framework)
Ingredients of relevance:
Predictive value, confirmatory value, materiality (same with IASB framework)
Ingredients of faithful representation:
Completeness, neutrality, freedom from material error
Enhancing qualitative characteristics:
Comparability, verifiability, timeliness, understandability
In determining the fair value of an asset in the most advantageous market, the market-based exit price should be adjusted for:
Transportation cost
If no principal market for an asset, the most advantageous market is determined by:
Higher exit (selling) price
Cost approach to determining fair value:
When the fair value of an asset is determined as the amount that currently would be required to replace the service capacity of an asset.
A held-to-maturity debt investment can be measured and reported by:
Amortized cost (traditionally done) or by fair value (per the fair value option)
Five elements of IASB framework:
Asset, liability, equity, income, expense
Are EPS and information by segment required under IFRS for SMEs in financial statements?
No. SMEs are not traded on public exchanges nor are required to file with regulatory agencies.
How to calculate ending retained earnings:
Revenue - expenses = net income before taxes > Net income before taxes - taxes = current retained earnings > Current retained earnings + beginning retained earnings = ending retained earnings
Other Comprehensive Income (OCI) items:
Unrealized gain/loss on available-for-sale debt securities, unrealized gain/loss on pension costs, foreign currency translation adjustments, unrealized gain/loss on certain derivative transactions.
Are cumulative effects of changes in accounting principles or common stock changes in comprehensive income?
No. Not part of net income or OCI (instead are balance sheet items).
Cash flows from financing activities can include:
Payment of dividends, proceeds from common stock issuance, borrowings under a line of credit, proceeds from issuance of bonds, mortgage (or other debt) principal (but not interest) payments
Is gain on sale of a plant asset included on the cash flow statement?
Yes, under the indirect method, as a noncash activity used to reconcile net income to cash flow from operations (subtracts from income)
Disclosures are required when events of risk and uncertainty pertaining to concentration are:
At least reasonably possible (does not have to be probable)
