FAR 2 Flashcards
Sources of risk and uncertainty requiring disclosures per GAAP:
Nature of a firm’s operations, use of estimates in financial statements, vulnerability to significant concentrations, certain significant estimates, going concern assessments.
When do you recognize subsequent events?
Only if the conditions for subsequent events occurred BEFORE the balance sheet date. Otherwise, a footnote disclosure is required if conditions exist after balance sheet date but before financial statements are issued.
Inventory turnover ratio:
Cost of goods sold (COGS)/Average inventory
Defensive interval ratio
Quick assets/daily operating expenditures
Book value per share:
Total owner’s equity/number of shares outstanding
Are the results of the consolidating process recorded on the books of the parent or subsidiary?
Neither, but on the consolidated financial statements.
Will intercompany A/R and A/P be eliminated in the consolidation process?
Only if the A/R and A/P are between the consolidated companies
Can consolidated financial statements still be prepared for companies consolidated under the pooling of interests method?
Yes, although the pooling of interests method was disallowed on June 30, 2001.
Definition of goodwill
Purchase price of a company - fair value of that company’s net assets (difference has to be positive amount)
Under which method of carrying a subsidiary on its books will the carrying value of an investment normally change following a combination?
The equity method. Carrying value of subsidiary changes as its equity changes.
When the parent uses the cost method on its books to carry its investment in a subsidiary, what will be recorded by the parent in its books?
Only the parent’s share of the subsidiary’s dividends declared.
What’s the purpose of the reciprocity entry?
To bring the investment account (on the worksheet) in balance with the subsidiary’s retained earnings as of the beginning of the period being consolidated.
What are net assets of a nongovernmental not-for-profit organization characterized as
Residual interest
Not-for-profit entities are required to report separate dollar amounts for:
Net assets without donor restriction, net assets with donor restriction, and total net assets
Cash contributions, related dividends and interest that are all donor-restricted for the long term are all classified as:
Financing activities on the cash flow statement.
Unrestricted cash contributions should be reported as:
Operating activities on the cash flow statement
A statement of activities is similar to:
An income statement
The cash flows from operating activities section for a private not-for-profit organization, under the indirect method, starts with
Total changes in net assets
If a donation for a beneficiary was received by an intermediary, how does the intermediary report the donation?
As a liability
What is a “term endowment”?
A donor-restricted endowment that allows part of the principle to be spent in a period
