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FAR Flashcards

1
Q

What are the qualitative characteristics most useful to investors or potential investors?

A

Relevance and
Faithful Representation

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2
Q

To be Relevant and Faithfully Represented, the information the financial information must have/be:

A
  1. Predictive, Confirmatory, Material Values (Relevant)
  2. Complete, Neutral and Free From Material Error
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3
Q

What is the five step approach to revenue recognition?

A

I: Identify Contract With Customer
S: Determine the Separate Performance Obligations
T: Determine the Transaction Price
A: Allocate the Transaction Price to Difference Performance Obligations
R: Recognize Revenue

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4
Q

What is the Formula to Calculate Revenue Using the Percentage of Completion Method?

A

Step 1: Calculate GP

Contract Price - Estmt’d Total Cost

Step 2: Calculate %

Total Cost to Date/Total Estimate Cost of Contract

Step 3: Compute Profit To Date

Step 1 x Step 2

Step 4: Compute Profit Earned for CY:

CY GP - PY GP

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5
Q

What are the Steps in Calculating Gain/Loss From Discontinued Operations?

A

Step 1: Calculate Impairment G/L

SP or NRV < BV

*Only Reported in the Year the Segment is Held for Sale

Step 2: Calculate Operating G/L

*ALL G/L for the CY

Step 3: G/L From Disposal

SP or NRV < than BV

*Only Reported in the Year the Segment is Sold

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6
Q

What are the Components of OCI?

A

PUFI

P: ENSION ADJUSTMENTS
U: NREALIZED GAINS OR LOSSES FROM AFS SECURITIES (OR CLASSIFICTION FROM HTM TO AF)
F: FOREGIN CURRENCY TRANSLATION
I: INSTRUMENT SPECIFIC CREDIT-RISK

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7
Q

What are the Criteria to Calculate the 10% size test for Revenue, P/L, and Assets?

A
  1. Revenue: The segments revenue (external and internal) must be >= to combined segment revenue (external and internal)
  2. P/L: Revenues - Directly Traceable Costs - Reasonable Allocated Costs
  3. Assets: 10% or more of Total Identifiable Assets
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8
Q

What are the Major Forms That are Required to be Filed With the SEC by an Issuer?

A

*Forms 3, 4, & 5
*Form 6K
*Form 8K
*Form 10K
*Form 10Q
*Form 11K
*Form 20F
*Form 40F

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9
Q

What are the Type of Ratio Classes?

A

C - Coverage Ratios: Measure security or Protection for LT Creditors/Investors

P - Profitability Ratios: Measure Success or Failure for a given time period

A - Activity Ratios: Measure how effective the assets are being used

L - Liquidity Ratios: Measures ST ability to pay maturing obligations

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10
Q

What are the three Type of Methods Used to Factor in New Investors and how are they calculated?

A

G - Goodwill Method

Goodwill = Amount (Invested x amount of interest) - Sum of total investments including the incoming one

B - Bonus Method

Bonus = (Sum of total investments including the incoming one x amount of interest) - the amount being invested

E- Exact Method

= (Sum of total investments including the incoming one / (denominator of interest - 1)

***REMEMBER THAT ASSETS CONTRIBUTED IN ARE VALUED AT FAIR VALUE AT THE DATE OF CONTRITBUTION LESS ANY ASSOCIATED LIABILITIES

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11
Q

What are the three generic fund types, how are they reported and what is the purpose of the reporting framework?

A
  1. Government Funds (Modified Accrual Basis of Accounting; Current Economic Resources)
  2. Proprietary Funds (Accrual Basis of Accounting; Economic Resources)
  3. Fiduciary Funds (Accrual Basis of Accounting; Economic Resources)
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12
Q

What are the reconciling items from the Governmental Fund to the Government-wide financial statements (both balance sheet and income statement)

A

Balance sheet:
+ (C)apital Assets
- (A)ccumulated
Depreciation
- (N)on-current
liabilities
+ Internal (s)ervice
fund net position

Income Statement:
+ (C)apital outlay
+ (P)rincipal payments
on non-current debt
- (A)sset disposals NBV
- (S)ources - other than
financing
+(R)evenue
- (I)nterest Expense
-(D)epreciation
(E)xpense
+ (I)nternal service
fund revenue

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13
Q

What is included in the cost of Land, Buildings, and Fixed Assets Constructed by the Company?

A

Land - any costs incurred to get it ready for use (general rule) up to excavation of new building.

  • Title and recording & Legal
    fees
  • Existing obligations including mortgages and back taxes.
  • LESS proceeds from sales of existing buildings.

Building -

  • Repair charges neglected from previous owner
  • Alterations or improvements
  • Architect fees

Const. By the Comp. -

  • Overhead, Direct materials and Labor
  • R&M expenses that add value
  • Construction Period Interest
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14
Q

How should we treat Improvements/Replacements

A

1) If the carrying value of the old asset is known, remove it an recognize gain or loss - capitalize the cost to the asset account.

2) If the carrying value of the old asset is unknown, and the assets life is extended, debit accumulate depreciation and credit cash/AP for the cost.

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15
Q

What are the formulas to calculate depreciation for each depreciation method?

A

1) Straight Line - YOU KNOW THIS ONE

2) SYD= (Cost - Salvage Value) x Remaining Life of Asset/SYD*

*SYD= N x (N+1)/2                     
     N=Useful life

3) Units of Production=
(Cost - Salvage value)/Estmd
units or hrs= Rate per unit or hr

    Rate per unit x Number of Units 
   Produced= Depreciation expense

4) Double-Declining Method = Straight Line method x 2 (exclude salvage value)

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16
Q

What are the components of Accounts Receivable or Allowance for Doubtful Accounts roll forward?

A

BASE

Beginning Balance
Add:
1) Uncollectible
Accounts
Expense (BDE)
2) Recovery of previous
write-offs
Subtract: Accounts Written Off
Ending Balance

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17
Q

How to calculate Gain or Loss on a nonmonetary transaction that lacks commercial substance

A

Scenario #1: No cash is received = No gain

Scenario #2: Cash is paid = No gain

Scenario #3: Cash is Received = Recognize Proportional Gain if cash is less than 25% of total consideration given up (cash + FV)

Scenario #4: Cash is received and is greater than 25% of total consideration = Treat as monetary exchange

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18
Q

What are the $ thresholds to be considered a largely accelerated or accelerated filer types

A

Largely Accelerated: OS Common Equity >$700M

Accelerated: $700M> OS Common Equity >$75M

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19
Q

What are the filing deadlines for 10-k and 10-Q for Largely Accelerated, Accelerated, and other type filers?

A

10-k:

-Largely Accelerated filers: 60 days
-Accelerated filers: 75 days
-Others: 90 days

10-q:

-Largely Accelerated filers: 40 days
-Accelerated filers: 40 days
-Others: 90 days

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20
Q

What is the definition of a principal and most advantageous markets. Further, how is the advantageous market determined?

A

Principal Market: Market with the greatest volume or level of activity for the asset or liability

Most Advantageous Market (EXISTS WHEN THERE IS NO PRINCIPAL MARKET): Market with the best price for the asset or liability after consideration of transaction costs

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21
Q

How to calculate impairment of intangible assets (other than goodwill) and PP&E

A

Intangible Assets other than goodwill:

-Intangible assets with Finite Life:

Step 1: Is the Undiscounted future net cash flows LESS than the CV? Yes = Impaired

Step 2:

Assets Held for Use: FV (or DCF) - Net CV = Impairment Loss

Assets Held for disposal: FV (or DCF) - Net CV = Impairment Loss + Cost of Disposal = Total impairment loss

***For PP&E the process is the same only that DCF is is replaced with PV of future net cash flows in the calculation of Assets Held for Use/Disposal

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22
Q

What are the major components of the multi-step income statement?

A

1: Gross Margin

#2: Income (loss) from operations
#3: Income before income tax
#4: Income from continuing operations
#5: Net Income

***After Income from Continuing operations remember that you have discontinued operations (net of tax)

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23
Q

How to treat the Financial statements when reporting changes in Accounting Principle and Errors

A

Accounting Principle - should be recognized by adjusting beginning retained earnings in the earliest period presented & if comparative financial statements are presented, they should be restated.

Error Correction -

  1) Comparative FSs are presented: 
        - If the year in which the error is presented, correct the error in those financial statements

        -If the year is not presented, adjust the opening retained earnings of the earlies year presented

2) If Comparative FSs are not presented: the correction should be reported as an adjustment to the opening balance of retained earnings

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24
Q

What is the formula to calculate Comprehensive Income?

A

Net Income + OCI

OCI = PUFI

***REMEMBER THAT THE COMPONENTS OF OCI ARE NET OF TAX

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25
Q

What are the journal entries recorded during 1) Construction Period and 2) When construction is completed using the percentage of completion method and the completed contract method?

A

During Construction Period:

-Percentage of Completion Method:

CIP
Materials, cash,etc..
(to record costs incurred)

AR
Progress Billing
(to record billings on contract)

Cash
AR
(to record payments received)

Cost of LT construction contracts
CIP
Revenue

-Complete Contract Method:

CIP
Materials, cash,etc..
(to record costs incurred)

AR
Progress Billing
(to record billings on contract)

Cash
AR
(to record payments received)

When construction is complete:

-Percentage of Completion Method:

Progress Billings
CIP
(to close construction accounts)

-Complete Contract Method:

Progress Billings
Revenue
(to close billings to revenue)

Cost of LT Construction Contracts
CIP
(to close CIP to expense)

26
Q

How to convert cash-basis FS to accrual FS

A

Treat the changes the OPPOSITE as you would when preparing the operating section of the statement of CF prepared using the accrual basis of accounting

27
Q

What are the types of classifications of debt securities and how must those classifications be valued?

A

H - Held to maturity securities (valued at amortized cost/carrying value)
A - Available for sale securities (valued at fair value)***
T - Trading securities (valued at fair value)

***THIS CLASSIFICATION IS A CATCH ALL FOR ALL OTHER SECURITIES THAT DO NOT CLASSIFY AS TRADING OR HTM SECURITIES

28
Q

What are the ins and outs to calculate the carrying value under the equity method?

A

Beginning Balance
Add: Investor’s share of earnings
Subtract: Investor’s share of investee’s dividends
Ending Balance

29
Q

What are the two distinct characteristics of accounting using the acquisition method

A

1) 100% of the Net Assets acquired are recorded at fair value with any excess being recorded as goodwill

2) When the companies are consolidated, the subsidiaries’ entire equity is eliminated

30
Q

What is the JE to record the acquisition of a subsidiary by issuing common stock?

A

Investment in Subsidiary $XX
Common Stock Issued $XX
APIC $XX

31
Q

What is the eliminating JE when consolidating a subsidiary

A

CAR IN BIG

C - Common Stock - Subsidiary
A - Additional Paid-In Capital - Subsidiary
R - Retained Earnings - Subsidiary

I - Investment in Subsidiary
N- Noncontrolling interest (if not 100% owned)

B - Balance Sheet adjustments to FV
I - Identifiable intangible Assets to FV
G - Goodwill

32
Q

When assessing impairment related to goodwill what should you remember?

A

That the impairment loss will only be as large as the goodwill already recorded in the books.

33
Q

What is the eliminating intercompany entry when inventory sales are made between parent/subsidiary

A

Sales Revenue
COGS - Parent
COGS - Sub
Inventory - Sub

AP
AR

34
Q

What is the formula to calculate Book Value per Common Share

A

Common Stock Holder’s Equity/Common Shares Outstanding

35
Q

What is the definition of authorized, issued, and outstanding capital stock

A

Authorized - the amount of each class of stock that a company may legally issue

Issued - When part or all of the authorized capital stock is issued

Outstanding - the amount of issued capital stock that is in the hands of the shareholders

36
Q

What is the Formula for retained earnings

A

Net Income/Loss
- Dividends
+/- Prior Period Adjustments
+/-Accounting Changes Reported Retrospectively

37
Q

What are the entries to record the re-purchase of treasury stock under the cost method

A

Original Issue:

Cash
Common Stock
APIC

Repurchase of

Treasury Stock:

Treasury Stock
Cash

Reissue above cost:

Cash
Treasury Stock
APIC

Reissue below cost:

Cash
APIC
Retained Earnings***
Treasury Stock

***Plug-in

38
Q

Non-compensatory and Compensatory stock options

A

Non-compensatory - Compensation Expense is not recognized at all

Compensatory -

Compensation Expense is allocated over the service/vesting period

39
Q

In general, what are the components of the of the Operating, Investing, and Financing sections of the statement of CF under the indirect method

A

Operating - Cash Receipts and Disbursements from transactions reported in the operating section of the income statement and Current Assets and Current Liabilities

Investments - Cash Receipts and Disbursements from transactions related to non-current assets

Financing - Cash Receipts and Disbursements from transactions related to debt and equity

40
Q

What are the Governmental Fund Types and what do they track?

A

General Fund - tracks ordinary operation financed by taxes and other general revenues. Is also a “Catch all”

Debt Service Fund - tracks the accumulate of resources and the payment of interest and principal on all “general obligation debt”. Resources are RESTRICTED

Permanent Fund - tracks resources that are legally restricted to the extent that income, not principal, may be used to support government’s program

Special Revenue Fund - tracks revenues from specific taxes or earmarked sources

Capital Projects Fund - tracks resources committed to acquire or construct major capital assets that are not already financed by an enterprise fund

41
Q

What are the Proprietary Fund Types and what do they track?

A

Internal Service Fund - tracks goods and services provided to other governmental units

Enterprise Fund -track acquisition and operations of facilities and services that are intended to be primarily self-supported by user charges (thing utilities)

42
Q

What are the Fiduciary Fund Types and what do they track?

A

Investment Trust Funds - external investment pools

Custodial Funds - tracks funds held for others

Private Purpose Trust Funds - Catch all for activities not fitting into Investment or pension funds

Pension Trust Funds - tracks pensions DCP, DFB, etc…

43
Q

Remember this when identifying where proceeds should be recorded in a capital project fund

A

1) Bond Issue proceeds and Transfers from other funds should be recorded under “Other Financing Sources”

44
Q

What are the two governmental type funds that do not record encumbrances

A

Debt and Permanent Funds

45
Q

Remember this when identifying where proceeds should be recorded in a internal service fund

A

Even though billings and collection services are between funds, they are not interfund transfers because they are an exchange transaction

46
Q

What is the Net Position of Proprietary Funds comprised of?

A

Restricted for debt services

Unrestricted

Net Investment in Capital Assets

47
Q

What is the order of presentation of line items on a proprietary Income Statement

A

INCASE T

Income
Nonoperating
Capital Contributions
Additions to Endowments
Special Items
Extraordinary Items
Transfers

48
Q

Which Fund Types Require a Statement of CF?

A

Proprietary Funds

49
Q

What are the financial statements produced by each category of fund?

A

Government FSs:

1) Balance Sheet
2) Statement of Revenues, Expenditures, and changes in fund balance

Proprietary FSs:

1) Statement of Net Position
2) Statement of Revenues, Expenses, and changes in fund net position
3) Statement of Cash Flows

Fiduciary FSs:

1) Statement of Fiduciary Net Position
2) Statements of changes in fund balance

50
Q

What are the components of the Annual Comprehensive Financial Report (ACFR)

A
  • Introductory Section (Unaudited)
    -Basic Financial Statements and Required Supplementary Information (Audited)
    -Statistical Section (Unaudited)
51
Q

What are the components of the Basic Financial Statements section of the ACFR?

A

1) MD&A
2) Government Wide FSs
3) Fund FSs (all funds types
4) Notes to FSs

***Integrated Approach must be applied between parts 1 - 3 meaning that there must be a reconciliation between all parts.

52
Q

What is the criteria to be considered a primary government?

A

Primary government reports by itSELF

Separately
Elected Governing Body
Legally Separate
Fiscally Independent

***Must meet all 3 otherwise it is considered a component unit

53
Q

What is the criteria to use blended presentation?

A

1) Is the board of the primary government the same as the component unit?

2) Does the component unit serve the primary government exclusively?

3) Does the organization not qualify as a legal entity?

***Yes to any of these answers would trigger blended presentation, otherwise discrete presentation will be applied

54
Q

In the Statement of Net Position and Statement of Activities remember

A

Aside from a column of Governmental Activities, there is also a column for Business Type activates (Enterprise Funds)

55
Q

What are the columns that occupy most of the Statement of Activity of the Government Wide FSs and what are their components?

A

1) Program Revenues
-Charges for
Service
-Operating Grants
and Contributions
- Capital Grants and
Contributions

2) Net (Expenses) Revenues

 -Governmental 
 Activities 

 -Business Type of 
 actives
56
Q

What are the criteria that defines a major fund?

A

A major fund must meet the 10% criteria within its category and also meet the 5% criteria associated with both categories

57
Q

What are Program and Support Services?

A

Program - activities for which the organization is chartered

Support Services -

1) Fundraising
2) Management and General
3) Membership Development

58
Q

What are the criteria to recognize in-kind for contributed services

A
  • Specialized Skill is required
    -Otherwise be needed
    -Measurable
    -Easily
59
Q

What are the categories of a HCO’s Income Statement

A

-Patient Service Revenue
-Other Operating Revenue
-Nonoperating Revenue

60
Q

What should be disclosed when an endowment is considered to be “underwater”

A

FED

  • FV
    -Endowment’s original amount
    -Deficiency
61
Q
A
62
Q
A

Mnemonics (10 decks)

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