FAR 2 Module 4 Flashcards
How should a note payable due within 12 months be classified if it is refinanced with long-term debt after year-end but before the financial statements are issued?
Classification of Liability:
Note Disclosure required?
NON CURRENT liability because the refinancing with long-term debt meets the criteria for reclassification
DISCLOSURE IS REQUIRED in the financial statements about the refinancing, as it occurred after year-end but before the statements were issued.
What is the purpose of information presented in the NOTES to the financial statements
The purpose is to provide disclosures required by GAAP
Summary of Significant accounting policies
What are some key policies that should be disclosed?
Criteria for determining cash equivalents.
Depreciation method for PP&E (e.g., straight-line method, which is GAAP-compliant).
BASIS for profit recognition on long-term construction contracts.
BASIS of consolidation for subsidiaries.
If there are significant changes to for example: accounting policies related to valuations of inventory and plant assets…
Should they duplicate a description of its changes to significant accounting policies?
No. Do not duplicate info in note, but instead present calculations of the inventory and plant asset amounts that reflect the new policies
The First or Second note of the financial statements is the Summary of Significant Accounting Policies
and includes information regarding measurement bases used in preparing financial statements.
What are a some disclosure requirements involve related to risks and uncertainties under GAAP?
Disclosure of concentrations when it is reasonably possible that a CONCENTRATION COULD CAUSE a SEVERE impact in the near term
Disclosure of an entity’s MAJOR PRODUCTS or SERVICES and its principle markets
Disclosure of the USE OF ESTIMATES in the preparation of the financial statements
What is the Criterion for Disclosing Vulnerability to a Concentration?
What does Vulnerability to a concentration mean?
Vulnerability to a concentration refers to the RISK from RELIANCE on a SINGLE or SMALL GROUP of sources, customers, suppliers, or other business factors.
Disclosure of Vulnerability to concentration is required if all are met:
