FAR 1A1 BS Flashcards
How is stockholders’ equity calculated when one company controls another?
✅ It is the total equity of the parent company plus the non-controlling interest (NCI) portion of the subsidiary’s equity.
✅ Parent equity already reflects its investment in the subsidiary
How can you calculate purchases or disposals of PP&E during the year?
✅ Use the formula:
BeginningBalance
+
Purchases
−
Disposals
=
EndingBalance
✅ This formula applies if beginning and ending balances of cost of PP&E and Accumulated Depreciation are provided
How are bonds with sinking funds that mature in less than one year classified?
✅ Long-term liabilities 📅 (NOT current liabilities)
✅ The cash in the sinking fund is restricted and classified as a long-term asset.
How is a bond sinking fund classified on the balance sheet
✅ Long-term asset 💰
✅ Funds are restricted for repaying bonds at maturity and not available for general use.
How are deferred tax liabilities and deferred tax assets classified?
✅ All deferred tax liabilities and deferred tax assets are classified as noncurrent.
How is a refinanced loan classified on the balance sheet?
✅ Included in long-term liabilities if properly refinanced 🔄
When calculating current-year income from a balance sheet, what adjustments should be made?
✅ Increase in assets → Subtract from net income 🔻
✅ Increase in liabilities → Add to net income 🔺
✅ Deduct increase in capital stock and APIC, as these come from equity issuance.
What is the difference between a creditor and a debtor?
✅ Creditor: Gives credit (e.g., bank, lender) 💵
✅ Debtor: Receives credit (e.g., borrower) 💳
📌 Tip: Look where cash is booked for the giver/recipient.
Is a 50% likelihood enough to record a liability?
❌ No, it must be higher than 50% to be recorded as a liability under U.S. GAAP.
How does a change in accounting principle affect financial statements?
✅ An adjustment to retained earnings 🔄
❌ Net income or comprehensive income is NOT affected.
How are prior-period adjustments recorded?
✅ Made to beginning retained earnings 🏦
❌ NOT included in net income.
How are dividends classified in the statement of cash flows?
✅ Dividends Declared: Not reported (increase in dividends payable, NOT included in working capital) 📝
✅ Dividends Paid: Financing activity 💵
✅ Dividends Received: Operating activity 💰
What are non-capitalizable costs when setting up a company?
❌ Legal fees to issue stock
❌ Printing and registration costs for stock certificates
📌 These reduce share proceeds received, instead of being capitalized.
How are stock dividends accounted for?
✅ Retained earnings decrease 📉
✅ Total equity remains unchanged (Value is reallocated to common stock & APIC).
How are PP&E acquisitions classified in the statement of cash flows?
✅ Down payment → Investing Activity 💰
✅ Financing through principal payments → Financing Activity 💳
Does an unconditional promise to pay a debt at a fixed time qualify as a liability?
✅ Yes—it meets the definition of a liability.
✅ Even if the debt will be settled with equity at the settlement date, it still qualifies as a liability.
When can receivables be offset with payables?
✅ The following four conditions must be met:
1️⃣ Determinable amounts 💰
2️⃣ A legal right to set off exists 📜
3️⃣ There is an intention to set off 🔄
4️⃣ Right of setoff is enforceable by law ⚖️
SFAC 8 provides a summary of potential additional disclosures. What does it say for assets?
✅the nature, quality, and location of the asset;
✅future cash flows
✅relation to other line items
✅significant contractual, statutory, regulatory, or judicial restrictions
