FAR Flashcards
Discount on bonds payable reported as what on balance sheet
A debit balance liability
Percent completion method
To calculate total costs you…
Total profit x (actual costs in the period of question/total costs)
Add costs incurred to date plus costs estimated to complete
Change in accounting estimate affects these periods
Change in accounting principle does this:
Current and future
Shown as an adjustment to beginning balance of retained earnings on the retained earnings statement
If there is a change in accounting estimate and it is inseparable from a change in accounting principle, you treat it as:
A change in estimate, which means a change prospectively as a component of income from
Continuing operations
For changes in accounting principle (like weighted average to LIFO), adjust retained earnings how
By the difference as of the end of the prior year/beginning of this year amount
Changes in accounting estimates affects which periods
Current and future. Does not affect prior periods nor will require any adjustment to retained earnings.
If inventory is understated, what effect does that have on net income?
Net income will be understated also.
OCI items include:
changes in funded status of a pension plan, unrealized gains/losses on AFS debt securities, foreign currency items, instrument specific credit risk, and effective portion of cash flow hedges
Subsequent event period for a non-filer is the period at which:
If the entity is a filer, this changes the above by adding the additional criterion of:
The financial statement have been created in US GAAP compliant fashion AND all necessary approvals have been obtained
The subsequent event period extends to the point at which the financial statements have been ‘widely distributed’ to financial statement users in a GAAP compliant format (but they don’t have to disclose this date)
When there is no principal market for a financial asset, the fair value measurement is:
The price in the most advantageous market AKA the highest price. Note: Include the transaction costs in determining which market is the most advantageous.
The principal market for a fair value question is the market that:
Has the highest volume of activity, as long as the market participant has access to that particular market
The 3 criteria to know when to report on a business segment
10% or greater or:
1) identifiable assets
2) operating profit (of all segments not having an operating loss)
3) combined revenue
When determining business segment profit and loss, do you include ‘general expenses’ or ‘expenses not traceable to any one division’ kind of stuff?
No
This is the form to file when there is a major corporate event
8k
This regulation from the US Securities and Exchange commission contains the regulations for financial statement presentation and disclosure requirements:
Regulation S-X (SEC brings the SEX)
SEC filing form 3 contains
Information regarding the filer’s ownership of the business’s securities
The enhancing qualitative characteristics in SFAC number 8 of the conceptual framework for financial reporting are:
comparability, verifiability, timeliness, understandability
Cumulative effect from a change in accounting principle is shown as
an adjustment to beginning retained earnings
Large accelerated filers have (x) days to file their 10-Q after the end of the quarter and small filers have (y) days
40 for large, 45 for small
To convert cash to accrual accounts:
Liabilities add what balance:
Assets add what balance
Liabilities: Add Beginning balance
Assets: Add ending balance
The conversion of cash basis revenue (aka cash receipts from customers) to accrual basis includes:
1) add ending accounts receivable
2) subtract beginning accounts receivable
3) subtract ending unearned revenue
4) add beginning unearned revenue
For adjustments from cash basis to non cash basis, remember if you’re working expenses or revenues to adjust the signs on your beginning asset and liability balances
just a standalone fact
To calculate expenses on accrual basis, or any part of the equation, the equation is
Beginning balance + payments made - additional expense amounts = ending balance
Debt ratio is calculated as:
Total liabilities/total assets
A/R Turnover is calculated as:
end of year sales divided by AVERAGE a/r
OCI includes:
1) changes in the funded status of a pension plan
2 unrealized gains and losses on available-for-sale debt securities
3) foreign currency items
4) instrument-specific credit risk
5) the effective portion of cash flow hedges
For something to be classified as a financing arrangement:
The repurchase price should be greater than purchase price and expected market value
For financial information to be relevant, it must:
Have predictive value, confirming value, and be material
Inventory turnover is defined as:
COGS/Avg. Inventory ‘ENDING INVENTORY DIVIDED BY COST OF GOODS SOLD PER DAY’
Working Capital is defined as:
Current assets - current liabilities
Days in Inventory is defined as:
Ending Inventory/(COGS/365)
Asset Turnover is defined as:
Sales/avg. total assets
Dupont return on assets is defined as:
net income/average total assets
Return on equity is calculated as:
(Net income-preferred dividends)/average equity
Calculation metrics for COGS, purchases, and all that stuff:
Beginning inventory+purchases = goods available for sale
Goods available for sales-ending inventory = COGS
Times interest earned =
(net income + interest expense)/interest expense
Quick ration =
cash+net receivables+marketable securities/current liabilities
Net profit margin is calculated as:
net income/net sales
For problems with salary allowances and distribution percentages, follow these steps:
Subtract the sum of the salary allowances from the net income.
Multiply the difference by the pre-determined sharing percentages.
Subtract that amount from the salary allowance for each partner respectively based on their predetermined sharing percentage.
For capital account problems, subtract the sold price from the book price. Allocate that amount proportionately to the partners based on their profit/losses share percentage, and subtract any loan amount
no answer card here
The reporting sufficiency test uses what type of revenue to calculate the threshold and sufficiency amounts
External revenue only
For cash and cash equivalents, maturities have to be with 90 days of what to be considered cash (assuming that is the company’s stated policy)
90 days of the origination date
A write off under the allowance method of maintaining uncollectable accounts does what to net income, a/r, and the allowance
decrease a/r with a credit and decrease the allowance with a debit, no impact to net income
For inventory/cogs problems, you add _____ and subtract _____ amounts to calculate amount COGS is over or understated (this is a very specific example, but just use as a reference for other similar problems)
add beginning inventory understatement and substract ending inventory overstatement
For lower of cost or market, market value is middle value of cost, net realizable value (ceiling), and net realizable value minus normal profit margin (floor). How are these calculated?
Cost = the cost of the item, aka replacement cost Ceiling = selling price minus any costs to sell Floor = ceiling minus profit margin. profit margin is calculated as selling price times (1-profit margin). Take the middle of these 3 to compare to cost
For the ‘market’ in lower of cost or market, it’s the middle value of what three: (this is a duplicate card)
replacement cost (just a given number) NRV (ceiling) = sales value minus any costs to get it ready for sale Floor = NRV minus normal profit margin
In nonmonetary exchanges with commercial substance, the steps are:
If there is fair value, record the fair value of the received item, eliminate the asset on the books with a credit and accum dep with a debit, and credit a loss or debit a gain for whatever the difference is to balance the entry
the value of a loss on an involuntary conversion is equal to
the carrying value plus any costs to associated with the transaction
Costs to be expenses for computer software are included from which date window:
Date technological feasibility is established to date the product is released for sale
You recognize gain in a transaction that lacks commercial substance by:
taking the amount of cash received and dividing by the total value receiving (cash plus fv of new object) and multiplying that percentage by fv of old object minus bv of old object
The lower of cost or net realizable value is used to cost all inventory that is not costed using:
LIFO or retail costing method
Unrealized holding gains in AFSDS are reported where?
In other comprehensive income WHEN
Fair value is below present value of expected cash flow AND
present value is below amortized cost
Equity securities are reported at:
FVTNI (not sure why they made an acronym for this). IT means fair value through net income.
Based on the CECL model, a HTMDS would record a loss when:
Amortized cost is above present value of principal and interest expected to be collected, and record a loss that is the difference of these two numbers
Under the equity method, undervalued asset amortization does what to the financial statements? How about a cash dividend?
Undervalued asset amortization: decreases investment account on balance sheet and equity investment revenue on income statement
Cash dividend just reduces investment account on balance sheet, and increases cash
Cash, new truck, gain, old truck
gain is % of consideration received, new truck bv is a plug to make journal entry work
To calculate non controlling interest, do this:
take amount paid for the portion of the business bought, calculate fair value of entire sub.
Subtract 1-purchased percentage, and multiply by the fair value of the entire sub
In acquisition method, to determine goodwill:
Take total fv and subtract bv of acquiree as calculated in the purchase transaction. Then subtract any excess of fv over bv from individual assets, or fv of anything that has to be added to the balance sheet of the acquiree to make it’s book value equal its fair value
Deferred income tax payable is reported as: (current or non current)
non current
working capital =
and
working capital turnover =
current assets minus current liabilities
and
sales/average working capital
To calculate depreciation expense to be removed from intercompany transaction, you:
take new carrying value (the value the asset was just purchased at) and subtract the previous owner’s carrying value, and divided by the remaining useful life of the equipment
72-48 = 24. 24/3 = 8. 8 is the amount eliminated
For intercompany transactions, take total balance sheet item asked for and reduce by what to get consolidated financial information:
unrealized profit on sale.
so if b sold c 240k, but 60 was left unsold by c, then the profit b would realized from sale to c is unrealized and removed from consolidated amount.
60/240 x (whatever gross profit was) = amount to be removed
To adjust a yearly change to a HTM debt security (held at amortized cost) your journal entry looks like
for a debit
debit cash for the face value x interest rate of bond
reduce the discount with a debit
Credit interest revenue for the difference
For consolidating entry at year end,
CAR
IN
BIG
Eliminate -
common stock
APIC
Retained Earnings
Investment in sub
noncontrolling interest
B - adjusting the subs accounts to fair value, because n acquisition subs are adjusted to fair value
I - Intangibles
G - Goodwill for the plug to make the whole journal entry work
For available for sale debt securities:
Expected credit loss =
(and what are my journal entries)
Remainder of loss =
(and what are those journal entries)
present value of future payments - amortized cost aka book value
(Debit credit loss, credit allowance for credit loss)
Difference between fair value and amortized cost, minus the difference from above
(if a loss, debit unrealized loss, credit valuation account)
To increase the carrying value of a bond issued at a discount:
multiply the issued cost times the market rate
multiply the face amount times the face rate
The difference is how much you’d increase the carrying value over a year, aka ‘amortizing the discount’
If you issue bonds, then buy them back when they’re quoted on the market at 106, but you’re carrying them at 105, how is this recorded on the balance sheet?
A loss from continuing operations
Book a transaction as a financing arrangement when:
repurchase price is greater than the other two prices
when calculating the issue price of a bond, how do you calculate if you have face value, coupon rate, and market interest rate?
take the present value of the interest payments (based on face value and coupon rate) discounted at the market interest rate + the present value of the face value at the market interest rate
To calculate the lease liability you use what numbers in terms of the balance sheet amount vs and implicit rate
take the current lease liability and multiply by the implicit rate to the lease. subtract that from the actual lease payment that occurs. This remainder reduces the lease liability
Fair value hedge gains/losses are recorded in the:
Cash flow hedge gains/losses are recorded in the:
Income Statement
(to the extent they are effective) Statement of comprehensive income
report losses from discontinues operations HOW: (net of tax or not net of tax)
Net of tax
for foreign currency translation, measure assets/liabilities at BLANK
measure income at BLANK
point in time spot rate
average exchange rate
remeasurement gain to the income statement
translation gains to the what
other comprehensive income
income tax asset increases in the current year, income tax expense does what
decreases
For the installment sales problems, add accrual total, subtract installment sales total and multiply by what:
the tax rate that is effective as of the balance sheet day in question
Examples of financing section of statement of cash flows activities:
Proceeds from issuance of long term debt Purchase of treasury stock Issuing/selling company stock getting a loan issuing bonds paying dividends
Examples of investing section of statement of cash flows activities:
Proceeds from sales of available for sale securities making loans (don't confuse with taking out a loan to receive cash) purchase/sale of investments or long-term assets
Examples of operating section of statement of cash flows activities:
Dividends received from investments
Interest income/expense
cash paid/received for business purposes
dollar gets stronger versus other currency for A/R, you have a (gain or loss?)
gain
Just remember these are current resources and modified accrual, the others are economic resources and accrual:
general spesh rev debt serv cap proj permanent
The journal entry for when a budget is adopted is (assuming a surplus)
Debit estimated revenue
Credit appropriations control
Credit budgetary control for the surplus
call option premium is an amount (above or below selling price)
above
fiduciary funds follow which format of assets, liabilities and net position
(assets + DO) - (liabilities + DI) = net position
In foreign currency translation gains and losses:
remeasurement gains/losses are reported in: 1 -
translation gains/losses are reported in: 2 -
1 - net income
2 - other comprehensive income
translation - is reported where
remeasurement - is reported where
OCI
income statement
when do you amortize leased property over the economic life of the asset
when there is a written purchase option or when the lessee takes ownership at the end of the lease
in equity method, (and 90% sure of this, not 100% sure)
dividends reduce investment in s, income is reported as income from investment (at percentage of ownership)
If a company distributed dividends other than cash, how is it recorded if carrying value is above market value
the difference should be a reduction in income from continuing operations
in a tax by quarter tax calculation problem, these are the steps
sum year to date income and multiply by expected tax rate, then subtract income tax expense previously recorded
put option means you can do what
and when would an option be ‘in the money’ accordingly
buy a stock at a certain price
when stock is below the put option price (duh)
upon adoption of a budget, this is the journal entry:
Debit estimated revenues
Credit appropriations
and debit or credit budgetary control for the difference
In the statement of cash flows, you do what to the amortization of a bond discount
it’s an addition to net income
use blended criteria of presentation WHEN:
when the boards are substantially the same people
futures contracts are made through a what
a clearinghouse
