FAR 2 Flashcards
Process of issuing an accounting standards update.
The FASB identifies a financial reporting issue.
The FASB Chairman adds a project to the technical agenda.
Public meetings are held.
An exposure draft (proposed accounting standards update) is issued.
A public roundtable is held.
The FASB staff collects and analyzes all comments and the FASB redeliberates the proposed standard at public meetings.
The FASB issues an Accounting Standards Update. It becomes part of the Accounting Standards Codification.
AR Turnover
Accounting receivable turnover = Net credit sales ÷ Average receivables:
Turnover in days = 365 days ÷ Turnover in a year:
Current Assets
Current assets are cash and other assets that can be expected to be used, sold, or converted to cash during the current business cycle, generally one year.
Examples of current assets include cash, raw materials, trade accounts receivable, and marketable securities.
Refinancing Liabilities/debts
When a debt that is due within the next 12 months is refinanced (repaid with the proceeds of a long-term debt) after the balance sheet date, but prior to balance sheet issuance, the debt that was due in 12 months can be classified as a non-current liability, as long as the refinance was intended by management as of the balance sheet date. A disclosure of the details is required in the footnotes to the balance sheet.
Research and Development
Research and development (R&D) includes costs incurred in a planned search or critical investigation aimed at the discovery of new knowledge with the hope that such knowledge will be useful in developing a new product or service, developing a new process or technique, bringing about a significant improvement to an existing product (“research”), or translating research findings or other knowledge into a plan or design for a new product or process (“development”). R&D is expensed as incurred. (FASB ASC 730-10-25-1)
R&D includes materials, equipment, and facilities with no alternative use, personnel, intangibles purchased from others, contract services, and an allocation of indirect costs.
R&D acquired as part of a business acquisition may be capitalized. Capitalized R&D should be reviewed periodically for impairment.
Unrestricted Asset
FASB ASC 958-605-45-6 states that gifts of long-lived assets should be reported as unrestricted support unless the organization has an accounting policy that implies a time restriction that expires over the useful life of a donated asset.
Estimates are Disclosured
- It is at least reasonably possible that the estimate of the effect on the financial statements will change in the near term due to one or more future confirming events (reasonably possible is the chance is more than remote but less than likely).
- The effect of the change would be material.
Deferred Tax
Deferred tax is the amount of future tax consequences attributable to temporary differences that will result in net taxable amounts (deductions) in future years, as computed currently. Recognition and measurement generally does not anticipate the tax consequences of losses or expenses (gains or revenue) that may be incurred (earned) in future years. (Valuation allowances of deferred tax assets may depend on future estimated income.)
Deferred tax is generally computed by multiplying the amount of the temporary difference by the current income tax rate (future tax rates if different from the present rates).
A deferred tax liability is a credit balance (a future taxable amount) and a deferred tax asset is a debit balance (a future deductible amount). The liability will be paid (asset will be recovered) in future years.
Cash flow per share
FASB ASC 230-10-45-3 states that “Financial statements shall not report an amount of cash flow per share.”
Times preferred dividend earned retio
Net Income divided by Preferred stock dividends.
Equity Method
The equity method is appropriate when an investor has “significant influence” but no controlling interest over an investee. Typically, this occurs with a 20%–50% ownership interest. The equity method is required when ownership is 20% or greater because “significant influence” is assumed.
Under the equity method, investor’s share or percentage of investee’s income is recognized by increasing the investment account balance when income is reported by the investee.
Dollar Value Lifo
Dollar-value LIFO is a short-cut cost flow method that approximates the results of LIFO, which measures inventory layers in terms of dollars rather than physical units. Dollar-value LIFO requires the use of a price index and the concept of a base year (the year in which dollar-value LIFO is adopted).
Business Combination
A business combination occurs when an entity acquires net assets that constitute a business or acquires equity interests of one or more other entities and obtains control over that entity or entities. Transactions sometimes referred to as true mergers or mergers of equals are also business combinations.
