FAR Flashcards
Other comprehensive income (PUFI)
- Pension adjustments G/L
- Unrealized gains/losses on AFS securities and hedges
- Foreign currency translation of FSs (Foreign subsidiary)
- Instrument-specific credit risks
Comprehensive income statement = ?
NI + Other Comprehensive income
Currency Exchange Recognized when?
- When transaction occurs
- at every BS date book and gain/loss
- On settlement date book and gain/loss
Currency Exchange
Direct vs Indirect
Direct method: Domestic currency in numerator
Indirect method: Foreign currency in numerator
What is included in the 8-K
Bankrupt, changes in securities / accountant / management / polices / FSs and asset acquisitions/disposals.
Items included in the 10-K and days to fill
(60 days after YE for large accelerated (> 700 mil market value))
(75 days after YE for accelerated (75 mil to 700 mil market value + >100 mil revenues))
(90 days after YE for non-accelerated (< 100 million revenue))
- Audited and unaudited FSs
- MD&A
- Quantitative and Qualitative Disclosures About Market Risk
3 items included in the 10-Q and days to fill
40 days after YE for accelerated (> 700 mil market value)
45 days for all others/non-accelerated
- FSs compared to PY
- (MD&A) Financial condition an operation results
- Quantitative and Qualitative Disclosures About Market Risk
Basic EPS = ?
(Net income - Preferred dividends) / WACSO
Note: WACSO is calculated by taking how many months common stock was owned (For example: Purchased in June, 6/12)
EPS - What is the effect of a stock dividend and stock split?
Add back to shares outstanding (denominator) using 12/12 months even when accruing part way of the year.
Diluted EPS = ?
(NI - preferred dividends + interest on dilutive securities (Face value of bond * Stated rate) NET OF TAX / WACSO (assuming all securities are converted to common stock)
Dilutive when..
Market price > Exercise price
OR
Convertible EPS is LOWER than Basic EPS
Retained earnings =
Beg RE + NI - Dividends = Ending RE
Dividend are always a subtraction
Par/Cost Method - Original Issue
Original issue:
Debit - Cash
Credit - CS (shares * par)
Credit - APIC (Plug)
Study the SIM
Should a change in estimate be corrected prospectively or retrospectively?
prospectively
Should a change in principal, errors, and reporting entity be corrected prospectively or retrospectively?
retrospective with note disclosure.
What should be included on Prior period adjustments?
Net of tax (For REs calculation) and disclosure in notes
What is the JE for pre-payment of a sold item and performance of delivery it?
When item is paid for
1. Cash
Unearned revenue
When delievered
2. Unearned revenue
Sales revenue
- COGS
Inventory
Proprietary and Fiduciary (SE-CIPPOE) - Accrual Basis
Service (Internal) Fund
Enterprise Fund - mostly external (Utilities, fees to recover costs, debt secured by a pledge)
Custodial Fund - Temporary custody of a governmental unit (middle man)
Investment Trust Fund - investment pools
Private Purpose Trust Fund - Investment or pension
Pension Trust Fund (and Other Employee benefits).
NOTE: Uses full accrual and economic resource measurment focus.
Governmental (GRASPP) - Modified Accrual Basis
General fund - Ordinary government operation revenues and expenses
Special Revenue - Revenues from specific taxes like education, public health, transportation
And
Debt Service Fund - is for the payment of interest and principal on debt.
Capital Projects Fund - is for acquiring and constructing major capital assets.
Permanent Fund - Income, not the principal, used for support of reporting the programs
NOTE: Uses modified accrual and current financial resources measurement focus.
What are signifcant accounting policies?
Basis, Methods or principals for determination of accounting
Includes:
1. Basis of consolidation
2. Depreciation methods
3. Inventory pricing
4. Use of estimates
5. Fiscal year
6. Special revenue recognition
What are other footnote items in FSs?
- Change in accounting principals/standards
- Maturity on debt
- Computation of depreciation
- Detailed dollar amounts
- Changes in equity
- Required marketable securities
- Fair value estimates
- Contingency losses / gains
- Pension plans
What are risks and uncertainties that should be disclosed in the FSs?
Change in inventory obsolescence
Capitalized costs
Loan valuation
LT contract
Concentration of risk
When are FSs “Available to be used”?
When FSs are approved and are in form/format
When are FSs “Issued”?
When they are distributed and in form/format
When are private companies cut-off date for FSs?
when “Available to be used”
Note: Must disclose this date
When are public companies cut-off date for FSs?
when “Issued”
Note: No need to disclose this date
What is level 1 in the Hierarchy of inputs?
Quoted prices in active market = “Observable”
What is level 2 in the Hierarchy of inputs?
Quoted prices (similar asset) in NOT active market = “Observable”
Or identical asset in non-active market = “Observable”
What is level 3 in the Hierarchy of inputs?
Projections from management = “Unobservable”
Given no principal market, how would you calculate the most advantagous price?
Higher of the price - costs
Cash –> Accrual Basic
Increase in Current Assets
Decrease in Current Assets
Increase in Accrued Liabilities
Decrease in Accrued Liabilities
Increase in Accrued expense
Decrease in Accrued expense
Increase in Prepaid Expenses
Decrease in Prepaid Expenses
Increase in Current Liabilities
Decrease in Current Liabilities
Increase Unearned Revenue
Decrease Unearned Revenue
+ Increase in Current Assets
- Decrease in Current Assets
+ Increase in Accrued Liabilities
- Decrease in Accrued Liabilities
+ Increase in Accrued expense
- Decrease in Accrued expense
- Increase in Prepaid Expenses
+ Decrease in Prepaid Expenses - Increase in Current Liabilities
+ Decrease in Current Liabilities - Increase Unearned Revenue
+ Decrease Unearned Revenue
Gross margin
= (Sales-COGS) / Sales (net)
ROI = ?
ROE = ?
ROA = ?
DuPont ROA = ?
ROI = Net income / Average invested Capital (Assets-operating liabilities)
ROE = Net income / Average total Equity
ROA = Net income / Average total Assets
DuPont ROA = Profit margin * Asset turnover
Net Profit margin
Net Profit margin = NI/ NET Sales
Current ratio = ?
Quick ratio = ?
Current ratio = Current assets / Current Liabilities
Quick ratio = (Cash + ST Marketable Securities + Receivables) / Current Liabilities
Inventory Turnover = ?
AR Turnover = ?
AP Turnover = ?
Inventory Turnover = COGS / Average inventory (NET)
AR Turnover = Sales / Average AR (NET)
AP Turnover = COGS / Average AP (NET)
Cash Conversion cycle = ?
Days in inventory = ?
Days sales in AR = ?
Days in AP outstanding = ?
Cash Conversion cycle = Days in inventory + Days sales in AR – Days in AP
Days in inventory = Ending inventory / (COGS / 365)
Days sales in AR = Ending AR / (Net Sales / 365)
Days in AP outstanding = Ending AP / (COGS / 365)
Debt-to-equity = ?
Total debt ratio = ?
Equity Multiplier = ?
Times Interest Earned Ratio = ?
Debt-to-equity = Total Liabs / Total Equity
Total debt ratio = Total Liabs / Total Assets
Equity Multiplier = Total Assets / Total Equity
Times Interest Earned Ratio = EBIT/Total interest expense
PAR Method(TS @ Par)
Original issue (Same as Cost method)
Buy back above cost (Affects RE)
Buy back below cost
Reissue shares
TBS 2 - PAR method
D:Cash $200,000.00
8*25000
C:CS 125000 ($5 PAR *25000)
C:APIC 75000 (plug)
Buy back
TS 7500 15005 (PAR)
APIC -CS 4500 15003 (original issuance 8 - $5 par)
RE 6000 RE PLUG
Cash 18000 1500*12
Re-sell 1 (If need debit)
D:Cash 5000 50010
C:TS 2500 5005
C:APIC - CS 2500 Plug
Re-sell 2 (If need credit)
Cash 7500 50015
TS 2500 5005 using buy back price
APIC - CS 5000 Plug
Cost Method
Original issue (Same as Par method)
Buy back
Reissue above cost (RE)
Reissue below cost (APIC)
Cash $200,000.00
CS 125000 (5x25000)
APIC 75000 (plug)
Buy back
TS 18000 1500x12
Cash 18000
Re-sell 1 (If need debit)
Cash 5000 500x10
RE 1000 plug
TS 6000 500x12 using buy back price
Re-sell 2 (If need credit)
Cash 7500 500x15
APIC - CS 1500 Plug
TS 6000 500x12 using buy back price
What are the reconciling items of cash on Bank and Book sides?
Bank Beg Balance
+ Deposits in transit
- outstanding checks
Book Beg Balance
+ Bank collections
+ Interest Income
- NSF Checks
- Service Charge
Trade receivable without recourse does what?
Transfers the risk to the factor
Without recourse = With recourse retains the liability
What are the Lower of cost and market (Middle of 3 items)? How to you calculate them?
Lower of:
1. NRV (Ceiling) = Sales price - Cost to sell
2. Replacement cost = Given
3. Market floor = NRV - profit margin
What are the Lower of cost and NRV? How to you calculate them?
- NRV (Ceiling) = Sales price - Cost to sell
- Cost = Value of the inventory
COGS formula
+ Beggining inventory
+ Purchases
- Ending inventory
Note - This is used for Overstatement and Understatement
How does consignment work?
The inventory stays with the consignor until delivered to the buyer.
What Land items should be capitalized?
+ Land purchase price
+ Broker commision
+ Demolition and clearing land
+ Legal fees
+ Title insurance
- (Salvage materials)
What Building items should be capitalized?
Purchase price
Deferred maintenance
Alteration and improvements
Architects fee
Foundation
Construction interest
What interest should be capitalized?
Capitalize lower of:
Actual interest cost incurred
&
Excess expenditures of loan * Interest rate
Units of production method formula?
Rate per unit = Depreciable base / Estimated units or hours
Rate per unit * Number of units produced = Depreciation expense
What is the Double declining balance formula?
2/N (N=useful life)
(Salvage value will be remaining at the end)
Sum-of-the-years Digits formula?
(N* (N+1)) / 2 , N = Estimated useful life (4)
Year 1= 4/10 , Year 2 = 3/10 , Year 3 = 2/10 , Year 4 = 1/10
What is the recoverability test for impairment of an asset?
Undiscounted future cash flow < Carrying value = Impairment
Impairment loss = Carrying amount - Fair value
Steps in Multiple step income statement?
- Net Sales (- sales returns)
- COGS
- = Gross Profit
- Selling operating expenses
- = Operating income
- Other Income (From sale) non-operating
- Other losses non-operating
- Other Income (From sale) non-operating
- = Income from continuing operations
- Tax expense
- = Income before discontinued operation
- G/L from discontinued operation (Net of tax)
- Net income
Steps in Single step income statement?
- Revenues, Gains
- Expenses, Losses, COGS
- G/L Continuing operations
- G/L Discontinued operations
What is an ARO liability?
Contractual obligation to retire the asset
When can you record a Contingent liability in a range?
(Needs to be Probable and estimate-able) should recognize the lessor of the 2 amounts in a range.
Should be in the FS notes if not probable.
When are Gain contingencies recognized?
They are not recognized until realized, note in the FS should be added.
Stock dividends and stock splits…?
Treated like they happened in the beggining of the year.
What is the Principal/interest formula?
Total payment = Principal - Interest
This can solve for principal, interest, or total payment of a Note payable.
What is a note that is under/over 1 year is reported at?
Any note that is under 1 year is reported at face value. Any note over 1 year is reported at PV.
What is another name for Market rate?
Nominal or Spot rate
(Bonds) Formulas for:
PV of principal?
PV of interest payments?
PV of principal = Mkt rate factor * Face of bond
PV of interest payments = (Coupon rate factor * Face) * Mkt rate factor
Note: These formulas give us the carrying value
Note: Pay attention to annual/semiannual payments for the 2 formulas above. Semiannual halves the % and doubles the amount of payments.
When is there a discount or premium on a bond?
Discount is when Market rate > coupon rate
Premium is when Coupon rate > Market rate
What do you do with the amortization of a discount or premium on a bond?
Add back amortizated discount from the carrying value
Subtract amortizated premium from the carrying value
Settlement price = ?
= 102 * Face value
G/L on retirement of bonds
= Book value (Face + premium - unamortized discounts - unamortized issuance costs) - Settlement price
Loss in continuing operations of a settlement of debt = ?
= Settlement price (Redeemed at) > Face value
Gain in continuing operations of a settlement of debt = ?
= Face value > Settlement price (Redeemed at)
AFS formula?
Credit loss = Amort cost - PV FCF
Gain/losses go to OCI
Recorded at fair value
Trading security formula?
Credit loss = Amort cost - PV FCF
G/L in P/L
Fair value recognized in the P/L
HTM formula?
Credit loss = Amort cost - PV FCF
Reported at amortized cost
Goodwill formula?
Goodwill = Difference between (Excess) Purchase Price and Fair Value of net assets ( % Share)
Investment account for equity method for Net Income and Dividends?
Investment account = + % share of NI - % share of dividends
What are the differnces between fair value and equity method?
Fair value method reports only dividends as income.
Equity reports Share in NI as increase to investment and % share in dividends as a reduction to investment account. (Both instead on reporting income)
What is the Bonus method formula?
(Total interest + new partner’s interest) * new partner’s % in company
(-) New partner’s investment
Difference goes to the new partner as bonus capital
What is the Goodwill method formula?
+ (Total interest with new partner’s interest)
- (New partner’s investment / % share)
Difference goes to the remaining partners capital
What are the steps to partner liquidation?
Starting capital
+ / - % loss/gain on disposal of asset
- loan for partner
-excess liabilities that are unable to be paid off with the cash.
Note: For liabilites to creditors, they should be paid off by remaining creditor’s balance of capital
Calculation of Operating activities?
+ Net Income
+ Payables (Like interest payable)
+ Unearned revenue
+ Goodwill
+ Depreciation
+ Loss on sale
- Gain on Sale
- Expenses
- Inventory
- AR
- Trading securities
- prepaid expenses
Calculation of Financing activities?
+ Notes and bonds payable
+ Line of credit borrowings
+ Proceeds from common stock
+ Proceeds from Long term debt (Remember interest is an operating activity)
- Dividends Paid
Calculation of Investing activities?
+ Capital expenditures (Increase PP&E + Proceeds from sale - Gain on Sale of PP&E)
+ Proceeds from sale of facility
+ Loan made to outside entity
+ Purchase of marketable securities (like CS)
What is included in statement of financial position for a NFP?
Like a balance sheet
- Assets
- Liabilities
- Net assets
What is included in statement of cash flows for a NFP?
Cash flows from operating activities
Cash flows from Investing activities
Cash flows from Financing activities
What is included in statement of activities for a NFP?
Like an income statement (Donor restricted and unrestricted)
- Change in total net assets (Revenues, gains)
- Expenses and losses (Expenses, losses)
a. Functional classification
b. Natural classification
What are examples of NFP support and program expenses? AKA Functional.
Program services
1. Universities
2. Hospitals
3. Union
4. Day care
Support services
1. Fundraising
2. Management and general
3. Membership development
4. recordkeeping
What are the Statements of Cash Flows from operating adjustments indirect method?
- Net income
- Increase Current Assets = deduct from NI
- Increase Current Liabilities = Add to NI
- Add depreciation expense
- Gains and losses (Disposals)
How are operating leases accounted for?
For Operating Lease - Expense/Cash (payment), Lease liability/accumulated amort goes down by principal reduction
ROU Asset is PV of lease payments
ROU Asset $218,115.90
Lease Liability $218,115.90
Lease expense $30,000.00
Lease liability $25,255.98
Cash $30,000.00
Amort $25,255.98
Lease expense $30,000.00
Lease liability $25,805.30
Cash $30,000.00
Amort $25,805.30
Foreign exchange quoted in a different currency formula?
1/FC = amount in US currency @ specific date
What is the order of paying out dividends?
- Dividends in arrears to preferred stock
- Dividends to preferred stock
- Dividends to common stock holders
Dividends in arrears formula?
+Dividends payable from Preferred Stock
+Dividends payable from common stock
- Dividends paid
= remaining dividends in arrears
What is the formula for liquidating dividends?
Liquidating dividends are dividends declaired in excess of REs
Support activities for in NFP? (FAM)
Fundraising, Admin services, membership development expenses
How are finance leases accounted for?
For Finance Lease - debit Interest exp/lease liability credit Cash (Payment amount), Amort exp/accum amort over the life of the lease
ROU Asset is PV of lease payments
1/1/2022
ROU asset $48,338
Lease liability $48,338
12/31/2022
interest exp $2,779
Lease Liab $15,221
Cash $18000
Amort exp $16,113 Accum amort $16,113 JEs 12/31/2023 interest exp $1,904 Lease Liab $16,096 Cash $18000 Amort exp $16,113 Accum amort $16,113 JEs 12/31/2024 interest exp $979 Lease Liab $17,021 Cash $18000 Amort exp $16,112 Accum amort $16,112
In equity method, what is the formula for undervalued assets?
Subtract the % ownership in the amortization of the asset from the net income.
Accrued interest payable formula?
Accrued interest payable formula = Face of bond * coupon % * Months accrued
Which stock dividend is cumulative?
Preferred, should be added back to the numerator.
Are quarterly income statements cumulative?
No
Are gains/losses net of tax on the income statement? Are discontinued operations net of tax?
Both are net of tax (Tax savings)
What are the supplemental disclosures for the Statement of cash flows?
- Cash paid for income tax
- Interest paid
What are the requirements for a financing lease?
- Title transfers
- Purchase option certain
- No alternative use for asset
- Lease length > 75% of assets economic life
- PV of payments > 90% of value of asset.
Tax return > FSs income = ?
DTA
FSs income > Tax return = ?
DTL
How do you account for recognized subsequent event and non-recognized subsequent events?
Recognized subsequent event (arose before and settled after) - Record and disclsoe
non-recognized subsequent event - just disclose
Note: Only “reasonably possible” are disclosed
Year end balance for uncollectable AR formula?
Beg Bal
- write offs
+ former W/O now collectable
+/- uncollectable account expense
= ending balance
How do you answer the understated/overstated question?
As stated - Should be = difference
+ beggining inventory (Difference x 1)
+ purchases
- ending inventory (difference x -1)
What costs should you capitalize for a fixed asset?
- Capitalize all costs necessary to put a fixed asset in place
- Capitalize costs that improve the quality, efficiency, or productive capacity of a fixed asset.
What is the formula for depletion?
Cost to purchase property
+ development costs
+ additional restoration
- Salvage value
= Base
Base * unit = Per tons (Units)
Depletion expense = Per ton * tons (units) sold
How should you record liabilities or receivables greater than 1 year?
At present value
When should you use ordinary annuity or annuity due?
An annuity due is an annuity with payment due or made at the beginning of the payment interval. In contrast, an ordinary annuity generates payments at the end of the period.
What is the loss from dis-continued operations formula?
= Loss from operations + (Book value of assets - FMV of Assets) AKA Impairment loss
What are the bond formulas?
Interest expense?
Cash paid?
Amortization?
Initial bond value?
Gain/loss?
Interest expense = effective rate x CV
Cash paid = Stated rate x face value
Amortization = interest expense - cash paid
Initial bond value = face value + premium- discount
Gain/loss = cost of selling bond - CV of bond
What are the bond formulas?
Interest expense?
Cash paid?
Amortization?
Initial bond value?
Gain/loss?
Interest expense = effective rate x CV
Cash paid = Stated rate x face value
Amortization = interest expense - cash paid
Initial bond value = face value + premium- discount
Gain/loss = cost of selling bond - CV of bond
How do you calculate the CV of a bond?
How do you calculate the amortitized discount/premium?
CV = PV + Interest portion
PV = face * ratio
Interest = interest % of face * ratio
Difference in the following:
interest expense = Carrying Value * Mkt % * 1/2 for half the year
interest paid = Face Value * Cpn % * 1/2 for half the year
= Amort of discount/premium
What is fair value method’s Purchase JE, Liquidation JE and non-liquidating JE?
D: Investment
C: Cash
D: Cash
C: Investment
C: Dividend Income
D: Cash
C: Dividend Income
What is Equity method’s Purchase JE, Investment income, Investee dividends?
D: Investment in investee
C: Cash
D: Investment in investee
C: Equity in earnings
D: Cash
C: Investment in investee
What are permanent differences?
- Municipal bond interest (Book income, never taxable income).
- Dividends received deduction (Book income, partial income on taxes).
- Life insurance policy (Book income, never taxable income).
- Fines or penalties (Book expenses, never tax expenses).
- Entertainment expense (Book expenses, never tax expenses)
What are temporary differences?
DTL
Depreciation/Amortization expense (Tax expense now, book expense later) Liability (+)
Prepaid expenses (Tax expense now, book expense later) Liability (+)
Undistributed dividends (FS income first, Tax income later) Liability (+)
% Completed (FS income first, Tax income later) Liability (+)
Warranty expense (FS expense first, tax expense later) Asset (-)
Bad debt expense (FS expense first, tax expense later) Asset (-)
Start-up expense (FS expense first, tax expense later) Asset (-)
Contingent liabilities (FS expense first, tax expense later) Asset (-)
Investments under equity method (Book income now, tax income later) Asset (-)
Prepaid/unearned rent/interest/royalties (Book income now, tax income later) Asset (-)
