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CPA FAR > FAR 1 : General-Purpose Financial Reporting: For-Profit Business Entities > Flashcards

FAR 1 : General-Purpose Financial Reporting: For-Profit Business Entities Flashcards

1
Q

What assets can be converted into cash within one year?
Examples?

A

Current assets

CASH, AR, INVENTORY, Prepaid Expenses, ST Investments

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2
Q

What are assets called that can’t be converted into cash within one year? Example?

A

Non-current Assets

PPE

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3
Q

What are obligations due within a year called?
Examples?

A

Current Liabilities

AP, Short-term loans
Unearned Revenues
Advances/Deposits from customers
accrued expenses
salaries payable
sales tax payable
income taxes payable
dividends payable

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4
Q

What are obligations due longer than a year called?
Examples?

A

Long term liabilities
Long term loans

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5
Q

What should you deduct from the value of a fixed asset?

A

Accumulated Depreciation from Equipment and buildings

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6
Q

What increases the retained earnings account? What decreases it?

A

Increase: Net Income
Decrease: Net Loss

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7
Q

What happens to the Common stock account when Additional shares are issued?

A

Account increases

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8
Q

What happens to the Retained earnings account when Dividends are declared and paid?

A

Account decreases

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9
Q

How Do you calculate the retained earnings balance and shareholders equity?

EX: the issuance of 10,000 shares of $30 par common stock that was sold at $50 per share -NI Y1 $100K Y2 $200K
-Paid dividends at $25k per share

A

Calculate Retained earnings
1. Add the net income for both years - $100k+$200k
2. Calculate dividends paid - 10,000 x $25 = $250k
3. Subtract them to get balance - $300k - $250k = $50k.

Determine the Share Holders Equity
1. Calculate C/S = 10,000 x $30 = 300,000
2. Determine APIC = $50 - $30= $20 X 10,000= 200,000
3. Add Retained Earnings = $50k + $200k + $300k = $550k

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10
Q

What are expenses that have a direct link with revenue and provide benefits at specific points in time? Example?

A

Cause and Effect
COGS

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11
Q

What are expenses that provide benefits over long periods? Example?

A

Systematic and Rational Allocation
Depreciation

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12
Q

What are expenses with no direct link to specific benefits? Example?

A

Immediate Recognition
R&D

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13
Q

What method is the purchase price of an item?

A

Historical cost

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14
Q

What method is the price from an orderly transaction between market participants?

A

Fair Value

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15
Q

What method is the cost to exchange an item at today’s prices?

A

replacement cost

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16
Q

What method is the estimated amount of cash an item can be converted into?

A

net realizable value

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17
Q

What method is the current amount of a future sum of money

A

Present value

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18
Q

Where are noncredit-related changes in FV for available-for -sale securities reported at? WHere are they transferred at the end of the period?

A
  • OCT
    -Accumulated OCI in the stockholders equity
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19
Q

Where is “Gain on sales “ reported in a single step income statement? What about discontinued operations?

A

Revenue and reported separately.

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20
Q

Discontinued Operation gain/loss formula?

A

Income /Loss from operations + Gain/loss from sale.

-income/loss from the beg of the period up to the disposal date and then add the gain/loss from the disposal of the item.

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21
Q

What are general and admin expenses?

A

Officer’s Salaries
Accounting and Legal
Insurance

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22
Q

What are selling expenses?

A

Freight out
Advertising
sales salaries and commissions
Rent (50%)

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23
Q

Where are gains/loss from Foreign currency transactions reported? what section?

A

Income statement
Other comprehensive income

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24
Q

What is included in other comprehensive income on the income statement? Accroymn DENT

A

-Derivative cash flow hedges
-Excess adjustment on defined benefit pension plans
-Net unrealized gains and losses on available-for-sale debt securities
-Translation adjustments from foreign currency

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25
What do you do with an expected loss from the disposal of assets?
Subtract it immediately even before you dispose of it.
26
At what point can you report a component as a discontinued operation?
When the held-for-sale criteria is met or when a component is sold/disposed of during the reporting period.
27
What is included in revenue for an income statement?
sales interest dividend income
28
What happens to retained earnings when your increase/decrease prepaid expenses
Decrease : Reduces RE Increase : Increases RE
29
Where are Foreign currency transactions recorded?
Component of Income from Continuing Operations
30
How do you determine the direct quotation of a currency exchange?
If it asks if you are buying a specific currency it should say per that country's currency - per USA
31
How is Gross profit (margin) shown in a multi-step income statement?
Shown as a separate Item
32
How do you calculate comprehensive income if you're just given the RE balances and Beg and Ending OCI balances
-Figure out the NI from finding the plug from Beg and ending RE - then find the plug for the Beg and Ending OCI Balances.
33
How are Comprehensive income and its components presented in the Financial statements?
As part of the Income statement or as a separate FS following the IS
34
What is always reported as a reduction in the Stockholder's equity section?
Treasury Stock
35
Where will the noncontrolling interest appear?
Balance sheet under the stockholders' equity section
36
What 3 criteria make up an asset
1 Entity has control of the asset 2. Must provide a future benefit 3. derived from a past event or transaction
37
What's the effect of Inventory being overstated? Why
There were more sales made then reported which affects COGS. You should deduct it to get to NI.
38
What's the effect of Inventory being understated? Why
COGS is still wrong because you're not capturing expenses that you should. You should subtract it from NI.
39
If you purchased a building with cash, where would it be presented on the statement of cash flows?
Investing section
40
In preparing a statement of cash shows, how is a gain on a sale reported?
The cash proceeds - not the gain! is reporting as inflow in INVESTING activities. The gain is deducted from NI and included under operating activities because it is already in NI.
41
For investing activities, how do you find the cash used for items sold that had accum dep and a gain
-Add gain to the cost and then subtract the accum dep
42
Where are dividends declared/paid reported on the cash flow statement?
Declared - Operating Paid - Financing
43
Under the indirect method for operating activities, what happens when AR decreases?
Add it back decrease in a current asset is a source of bash because the asset has been used up or converted to cash.
44
Under the indirect method for operating activities, what happens when AP increases?
Add it back when current liabilities increase its a source of cash because you promise to pay.
45
What are exit and disposal activities classified as?
Unusual or Infrequent income/loss from continuing operations before income taxes
46
When are you required to share Separate Earnings Per Share amounts?
Gains/losses from: -Continuing Operations -Discontinued Operations -Cumulative effect of accounting changes.
47
How is the issuance of bonds reported on a statement of cash flows for the Seller/Buyer?
Seller- Financing Activity Buyer - Investment activity
48
How is the accrual of bond interest expense reported on a statement of cash flows for the seller under the indirect method?
Add it back because that expense will reduce NI
49
Under the indirect cash flow statement, how do you report the change in unamortized bond discounts?
Addition to Net Income in the operating activities section
50
Soco plans to buy 100,000 Euros with U.S. dollars. The exchange rate is $1.00 = 0.75 Euro. Assuming no transaction cost, how much will Soco have to pay in dollars (rounded) for 100,000 Euros?
1. Divide the US dollar by the Euro - $1 / .75 = 1.33 2. Multiply by the amount - $1.2
51
Where are foreign currency exchange gains/loss reported?
Component of income from continuing operations
52
What’s the process if AR is included at consignment isn’t of cost? Ex- AR is 26k at 130%
Divide it which is $20k and subtract it from AR and made it to inventory
53
54
Issued an Interest Bearing Loan. Where is this reported?
Investing section as a deduction since its a receivable
55
Received Proceeds from a corporate-owned life insurance policy. Where is this reported?
addition in the investing section
56
What is the primary purpose of the statement of cash flows?
Provide info about the cash receipts and disbursements during a period.
57
How is the increase of inventory treated using the indirect method?
a deduction from Net income. For example, if inventory goes up, less inventory was sold than bought, leading to a lower cost of goods sold. To find cash from operations, we subtract the increase in inventory from net income.
58
Where are Discontinued operations reported on a single-step income statement?
They are reported separately
59
What is the formula for Comprehensive income?
Net income + Other Incomprehensive income (DENT)
60
What happens in AR increases/decreases on a statement of cash flows?
Increase - Deduct from NI Decrease - Add to NI If it increases it means sales were made on credit, not cash so you deduct it. If it decreases it means cash collection, which increases cash flow.
61
What happens in Inventory increases/decreases on a statement of cash flows?
Increase - Deduct from NI Decrease - Add to NI : If inventory increases, more cash is tied up in inventory, so you deduct it. If it decreases, it implies cash was received from sales, so you add it.
62
What happens in prepaid expenses increases/decreases on a statement of cash flows?
Increase - Deduct from NI Decrease - Add to NI An increase indicates cash was spent (reducing cash flow), so you deduct. A decrease implies the the expense was recognized, so you add it back.
63
What happens in AP increases/decreases on a statement of cash flows?
Increase - ADD from NI Decrease - DEDUCT to NI An increase suggests that the company didn't spend cash (even though it recorded an expense), so you add it. A decrease means cash was used to pay the liability, so you deduct it.
64
What happens in Accrued Expenses increase/decrease on a statement of cash flows?
65
Whats the formula to calculate the intercompany receviable for a consolidation? Company 1 - AR - 50K Company 2 - AR - 30K Consolidated - 70k
You want to to want to add both companies AR together and then subtract from the consolidated total. 50+30=80 - 70 = 10 elimination of IC AR
66
What are the significant accounting policies that would be disclosed?
- Revenue Recognition Policies - Inventory costing system - Depreciation Method ( Straight line, sum of the years digits) - Long-term contract accounting -Criteria for classification of investments ( Cash equivalents, trading securities) - Basis of consolidation
67
What is the calculation to find the net book value of an asset in a consolidation?
1. take the Original cost and subtract the salvage value. 2. Then divide that by the useful life to get yearly depreciation. 3. add that to the accumulated depreciation that's given. 4. subtract that from the original cost.
68
Where is it reported if you purchase another companies stock?
Investing section
69
When would a subsidiary be considered unconsolidated?
Bankruptcy When the parent can't exercise financial and/or operating control
70
If you own a company and that company sells your equipment above its carrying value, what will the carrying amount of the equipment be?
My original cost less the gain
71
How are Retained earnings reported if a company owns greater than 50% of the subsidiary?
Only the parents' equity accounts are shown on the consolidated balance sheet.
72
What happens if a receivable is from an unconsolidated subsidiary?
It will be reported on the balance sheet under receivables
73
What three pieces of information are needed to carry out the consolidation process?
1. Book Values of a subsidiary's assets and liabilities 2. Fair values of a subsidiary's assets and liabilities. 3. Parent's cost of its investment in the subsidiary
74
How do you find the decrease of depreciation when a company is consolidated?
1. Subtract the selling price from the carrying amount. 2. subtract that from the annual depreciation amount.
75
What is the noncontrolling interest? How do you find the share of net income?
The noncontrolling interest is the interest that the parent doesn't own. You take that percentage and multiply it by net income and other items like dividends.
76
Where do you report equity instruments issued?
Financing activities
77
What are the net effects of inventory being overstated and under? Explain!
Inventory Adjustments Beginning Inventory (BI): Understated: Subtract $ from Net Income (COGS too low) Ending Inventory (EI): Overstated: Subtract $ from Net Income (COGS too low) Key Takeaway: Both errors result in subtracting from Net Income.
78
How do you calculate the percentage of a noncontrolling interest in a company?
1. Find the nonconsolidated interest total 2. Divide that by the subsidiary's equity account.
79
What happens when dividends are paid out but you don't own 100% of the company?
You subtract the ownership from 100 to the NCI and multiply that by the dividend paid and include it in income.
80
Explain how to determine either the consolidation/equity method for consolidated financial statements.
Summary -Use Consolidation Accounting when: Ownership exceeds 50% and control is established. -Use the Equity Method when: Ownership is between 20% and 50%, indicating significant influence without control. Evaluate Control vs. Influence: Control: Ownership of more than 50% usually signifies control over the subsidiary, allowing the parent to dictate operational and financial policies. Significant Influence: Ownership between 20% and 50% indicates significant influence, where the parent can affect decisions but not control them.
81
Where is the Accumulated other comprehensive income reported?
Statement of financial position

CPA FAR (5 decks)

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