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Path To CPA > Far > Flashcards

Far Flashcards

1
Q

Other comprehensive income includes

A

PUFI

Pension Adjustments
Unrealized Gains/Losses on AFS debt securities and hedges
Foreign Currency Translation Adjustments
Instrument-specific Credit Risk

+Adjust for tax-effect

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2
Q

What is comprehensive income?

A

It is net income including:
1) income from continuing operations
2) loss from discontinued operations
3) OCI - other comprehensive income

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3
Q

What is a single step income statement?

A

It includes all gains, losses, and a calculation for income tax expense

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4
Q

What is an accelerated filer?

What are their SEC deadlines for their
10-Q and 10-K?

A

Registered US companies equal or greater than 75M, less than 700M public float

10-Q 40 days

10-K 75 days

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5
Q

What is the diluted EPS calculation?

A

(Income available to the common stock shareholders + interest on dilutive securities less tax effect) /
Weighted average # of common shares

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6
Q

What is a stock warrant?

What is considered “in-the-money” and “out-of-the-money” (EPS)?

A

A stock warrant: the right to purchase company stock at a specific price.

In the money: MP > SP; dilutive

Out of the money: MP < SP; anti-dilutive

MP Market price
SP Strike Price

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7
Q

EPS calculation

A

NI - PD
/
WA-CS

Net income - preferred dividends /

weighted average shares outstanding

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8
Q

Dilution test

A

Stock options: MP > EP (dilutive)

MP Market Price
EP Exercise Price

If the conversion will increase the EPS calculation, then it is anti-dilutive.

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9
Q

How do you calculate weighted average outstanding shares with a stock split?

A

Use the earliest date that it could be split, including retrospective application.

Multiply everything by 2 (using 2-for-1 stock split)

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10
Q

What is the JE for a repurchase of stock using the par method? What about a subsequent resale?

A

DR Treasury stock at par value
DR APIC-CS for previous $ attributed to APIC-CS from sale transaction;
CR Cash for actual received
CR APIC-TS for difference (gain)

Subsequent Resale:
Credit APIC-CS (gain, APIC has a natural credit balance)

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11
Q

How do you calculate the gain or loss when using the cost method to account for treasury stock and what does the loss or gain entry affect?

A

Loss affect:
DR APIC-TS only if there’s a balance there prior
DR RE - Excess amount will go to RE

Gain affect:
CR APIC-TS

Gain or Loss: RIP - RPP

RIP Reissue Price
RPP Repurchase Price

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12
Q

What is a large stock dividend and how is it accounted for in regards to FMV vs par value?

A

A large stock dividend is >20-25% of total shares and is accounted for at it’s par value only. It is assumed that the size of the dividend will affect the market price of the stock.

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13
Q

Treasury stock
How do you calculate the gain or loss when using the par method to account for treasury stock

and what account does the loss or gain entry affect?

A

Gain or loss par method: Original selling price - repurchase price
APIC-TS is credited for gains and debits for losses when TS is repurchased.

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14
Q

How do you calculate the % of completion method for long-term construction contracts?

A

Take the actual costs over the expected total costs for the % . Then that % is taken on the expected profit.

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15
Q

How does the percentage of completion method in long term construction contracts treat losses?

A

The loss is taken fully as soon as it is anticipated.

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16
Q

What is the proper treatment of a change from FIFO to LIFO under US GAAP?

A

Prospective application - it is impractical to calculate the cumulative effect adjustment

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17
Q

What is the general format of account analysis?

A

BASE
Beginning
Add
Subtract
Ending

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18
Q

How do you determine if an impairment loss exists?

A

UCF < CV

UCF: Undiscounted Cash Flows
CV: Carrying Value

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19
Q

What are considered organizational expenses that should be expensed when incurred under GAAP?

A

Legal fees, printing, registration costs

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20
Q

What is the investing activities section of the statement of cash flows?

A

Cash inflows and outflows related to the purchase or sale of long-term assets

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21
Q

What are the 3 categories in a not-for-profit Statement of Financial Position?

A

Assets, Liabilities, and Net Assets (Equity)

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22
Q

How does a statement of cash flows flow for a non-governmental, not-for-profit organization?

A

They are identical to the standards for a for-profit entity. Grants paid are disbursements and reported within the operating activities section.

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23
Q

How do you record the purchase of trade receiveables sold without recourse?

A

The factor records the gross amount of receivables purchased and records the fee as a gain.

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24
Q

The modified cash basis of accounting is a basis of accounting that presents financial statements in accordance with:

A

A special purpose framework

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25
Q

What inventory valuation method is the best for keeping the most cash in the business?

A

LIFO

26
Q

Describe the sum-of-the-years digits method of depreciation.

A

(Remaining life /
SYD) × (Cost – Salvage)

27
Q

What are the differences between equity securities and debt securities?

A

Equity securities are generally reported in net income and are reported at FMV, regardless of the intentions for holding length.

Debt securities take into account intentions for holding length.

28
Q

How do you record the purchase of an intangible asset?

A

Price paid or the fair market value of the asset, whichever is more clearly evident.

Legal and registration fees are also included and capitalized.

29
Q

What is recorded on a dividend declaration date?

A

Declaration date: A liability is created and retained earnings is reduced.

30
Q

What is the effective interest method in regards to a non-interest bearing note?

A

The effective interest method calculates interest expense based on the carrying value of the note multiplied by the market rate.

31
Q

If impairment is determined, then how do you calculate the amount of impairment?

A

The amount of impairment is the difference between the carrying amount and the fair value. Make sure you calculate need for impairment by comparing separately (first) the undiscounted cash flows to the carrying amount of the asset (if former is less than carrying value, then impairment with calculation described in this card).

32
Q

How do you calculate Net Present Value?

A

Future Value / (1 + interest rate) raised to the # of years until amount received

33
Q

How do we calculate bonds?

A
  1. Face Amount Bond x Stated Interest Rate = Payment
  2. Face Amount Bond x PV Yield %
  3. Payment x PV annuity yield %
  4. Add #2 and #3 for Total issue price of the bonds
34
Q

What is the effective interest rate method?

A

When a bond is issued at a discount or premium, the difference between the issue price and the face value must be amortized over the life of the bond.
The effective interest rate is the bond’s yield, which equates the PV of the bond’s future cash flows to the bond’s issue issue price.

35
Q

How do you calculate the credit loss to be reported on the income statement for both a HTM security and an AFS security?

A

For HTM: AC > PV

For AFS: AC < FV

AC: Amortized Cost

36
Q

How do you report an unrealized holding gain or loss for an AFS security?

A

As long as it’s not a credit loss, it would be reported on the balance sheet and included in other comprehensive income as a part of accumulated other comprehensive income on the balance sheet.
If it’s a credit loss then it would be reported in earnings (net income).

37
Q

How do you use the equity method when calculating goodwill?

A

Investment price is allocated to identifiable net assets.

Excess is booked to goodwill.

38
Q

What is the fair value method for reporting equity investments? and when do you use it?

A

When you have nonvoting stock and no significant influence, you will report using the fair value method, and cannot use the equity method. You will report the share of any dividends on your income statement.

39
Q

How do you calculate dollar-value LIFO?

A

The first step would be to deflate the inventory at Year 2 year-end prices using the index ($YE2 / 1.1). Then take the difference from the previous inventory YE1

The second step would be to inflate the increase for the year by the same index ($DIFF × 1.1) and then to add that value to the beginning of year inventory at dollar-value LIFO to get your answer.

40
Q

For FOB Shipping Point, do the goods have to be in transit to be counted or not counted in inventory? True or False

A

True, must be in transit and not on the loading dock.

41
Q

How do you calculate market price when using the lower-of-cost-or-market to value your inventory?

A

Ceiling: SP (selling price) - Costs of Completion

Floor: ceiling - normal profit margin.

42
Q

Calculate COGS

A

Beginning inventory
+Purchases
-Ending Inventory
=COGS

43
Q

How do you capitalize interest expense during construction?

A

WA-ACE x IR-CD

Weighted Average Accumulated Construction Expenditures x Interest Rate on Construction Debt

44
Q

What is the OWNES criteria for leases?

A

Ownership (transfers ownership to the lessee by the end of the lease term)
Written Option (grants the lessee an option to purchase and lessee is reasonably certain to exercise)
Net Present Value (equals or exceeds FV of underlying asset)
Economic Life (lease term is for the major part of the remaining economic life)
Specialized (no alternative use to the lessor at the end of the lease term)

If any one of them is met, a lease is considered a finance lease.

45
Q

What items do you track when you’re booking a finance lease for Amortization?

A

First, carrying value of the lease. Then, Annual Lease Payments, Interest, and Payment of Lease Liability.

46
Q

How does the lessor record a finance lease?

A

DR lease receivable (PV)
DR residual asset (PV)
CR equipment

47
Q

How do you calculate average accumulated expenditures for capitalized interest calculations?

A

Look at costs incurred monthly, and weight it according to the month incurred e.g. 12/12 for January expenses, 11/12 for February expenses, etc.

48
Q

Is a change in cost method for inventory a change in accounting estimate or principle?

A

Accounting principle = Retrospective application, cumulative effect

49
Q

What application or approach is used for a change in accounting estimate?

A

Prospective application

50
Q

How do you treat a correction of an error in previously presented financial statements?

A

Restatement approach

51
Q

Is a change from completed contract method to % of completion method a change in accounting estimate or principle?

A

Accounting Principle

52
Q

Is a change in depreciation methods an accounting change in estimate or principle?

A

Accounting Estimate

53
Q

How do you treat a change in accounting principle?

A

Retrospective Application, cumulative effect

54
Q

How do you calculate depreciation expense using 150%?

A

(1/15) x NBV

Recalculate each year at new NBV

55
Q

Enterprise Fund Type

A

Proprietary fund which reports using the economic resources measurement focus and uses the accrual basis of accounting

56
Q

Custodial Fund Treatment

A

Fiduciary Funds - Use the economic resources measurement focus and accrual method

57
Q

Capital Projects Fund Treatment

A

Governmental - Use the current financial resources measurement focus and modified accrual method.

58
Q

Goodwill Method for Partnerships

A

Implied Value (“IV”) of the partnership is calculated

IV = Contribution from New Partner / % of New Partner

Goodwill = IV - ExistingCapitalwithContribution (“ECC”)

59
Q

Bonds: What is the difference between SL and Effective interest methods?

A

The CV will be higher in EIM.
The PA will be lower in EIM.

Due to the lower PA, the CV will be higher earlier in the life of the bond using EIM than it would be under SL. This will reverse in later years. SL = premium amortization / # of years

CV: Carrying Value
PA: Premium Amortization

60
Q

Describe the relationship between inventory, COGs, and NI.

A

If inventory is overstated, then COGS is overstated, which means NI is understated.

61
Q

Asset retirement cost (ARC)

A

Amount recorded to both asset and liability will be equal to the FV of the ARO

ARO determined by discounting the future cash flows req.

62
Q

Accretion expense

A

The increase in the ARO lability due to the passage of time

Beginning ARO x risk-adjusted rate

Path To CPA (2 decks)

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