FAR 2.0 Flashcards
What are the qualitative characteristics most useful to investors or potential investors?
Relevance and
Faithful Representation
To be Relevant and Faithfully Represented, the information the financial information must have/be:
- Predictive, Confirmatory, Material Values (Relevant)
- Complete, Neutral and Free From Material Error
What is the five step approach to revenue recognition?
I: Identify Contract With Customer
S: Determine the Separate Performance Obligations
T: Determine the Transaction Price
A: Allocate the Transaction Price to Difference Performance Obligations
R: Recognize Revenue
What is the Formula to Calculate Revenue Using the Percentage of Completion Method?
Step 1: Calculate GP
Contract Price - Estmt’d Total Cost
Step 2: Calculate %
Total Cost to Date/Total Estimate Cost of Contract
Step 3: Compute Profit To Date
Step 1 x Step 2
Step 4: Compute Profit Earned for CY:
CY GP - PY GP
What are the Steps in Calculating Gain/Loss From Discontinued Operations?
Step 1: Calculate Impairment G/L
SP or NRV < BV
*Only Reported in the Year the Segment is Held for Sale
Step 2: Calculate Operating G/L
*ALL G/L for the CY
Step 3: G/L From Disposal
SP or NRV < than BV
*Only Reported in the Year the Segment is Sold
What are the Components of OCI
PUFI
P: ENSION ADJUSTMENTS
U: NREALIZED GAINS OR LOSSES FROM AFS SECURITIES (OR CLASSIFICTION FROM HTM TO AF)
F: FOREGIN CURRENCY TRANSLATION
I: INSTRUMENT SPECIFIC CREDIT-RISK
What are the Criteria to Calculate the 10% size test for Revenue, P/L, and Assets?
- Revenue: The segments revenue (external and internal) must be >= to combined segment revenue (external and internal)
- P/L: Revenues - Directly Traceable Costs - Reasonable Allocated Costs
- Assets: 10% or more of Total Identifiable Assets
What are the Major Forms That are Required to be Filed With the SEC by an Issuer?
*Forms 3, 4, & 5
*Form 6K
*Form 8K
*Form 10K
*Form 10Q
*Form 11K
*Form 20F
*Form 40F
What are the Type of Ratio Classes?
C - Coverage Ratios: Measure security or Protection for LT Creditors/Investors
P - Profitability Ratios: Measure Success or Failure for a given time period
A - Activity Ratios: Measure how effective the assets are being used
L - Liquidity Ratios: Measures ST ability to pay maturing obligations
What are the three Type of Methods Used to Factor in New Investors and how are they calculated?
G - Goodwill Method
Goodwill = Amount (Invested x amount of interest) - Sum of total investments including the incoming one
B - Bonus Method
Bonus = (Sum of total investments including the incoming one x amount of interest) - the amount being invested
E- Exact Method
= (Sum of total investments including the incoming one / (denominator of interest - 1)
***REMEMBER THAT ASSETS CONTRIBUTED IN ARE VALUED AT FAIR VALUE AT THE DATE OF CONTRITBUTION LESS ANY ASSOCIATED LIABILITIES
What are the three generic fund types, how are they reported and what is the purpose of the reporting framework?
- Government Funds (Modified Accrual Basis of Accounting; Current Economic Resources)
- Proprietary Funds (Accrual Basis of Accounting; Economic Resources)
- Fiduciary Funds (Accrual Basis of Accounting; Economic Resources)
What are the reconciling items from the Governmental Fund to the Government-wide financial statements (both balance sheet and income statement)
Balance sheet:
+ (C)apital Assets
- (A)ccumulated
Depreciation
- (N)on-current
liabilities
+ Internal (s)ervice
fund net position
Income Statement:
+ (C)apital outlay
+ (P)rincipal payments
on non-current debt
- (A)sset disposals NBV
- (S)ources - other than
financing
+(R)evenue
- (I)nterest Expense
-(D)epreciation
(E)xpense
+ (I)nternal service
fund revenue
What is included in the cost of Land, Buildings, and Fixed Assets Constructed by the Company?
Land - any costs incurred to get it ready for use (general rule) up to excavation of new building.
- Title and recording & Legal
fees - Existing obligations including mortgages and back taxes.
- LESS proceeds from sales of existing buildings.
Building -
- Repair charges neglected from previous owner
- Alterations or improvements
- Architect fees
Const. By the Comp. -
- Overhead, Direct materials and Labor
- R&M expenses that add value
- Construction Period Interest
How should we treat Improvements/Replacements
1) If the carrying value of the old asset is known, remove it an recognize gain or loss - capitalize the cost to the asset account.
2) If the carrying value of the old asset is unknown, and the assets life is extended, debit accumulate depreciation and credit cash/AP for the cost.
What are the formulas to calculate depreciation for each depreciation method?
1) Straight Line - YOU KNOW THIS ONE
2) SYD= (Cost - Salvage Value) x Remaining Life of Asset/SYD*
*SYD= N x (N+1)/2
N=Useful life
3) Units of Production=
(Cost - Salvage value)/Estmd
units or hrs= Rate per unit or hr
Rate per unit x Number of Units Produced= Depreciation expense
4) Double-Declining Method = Straight Line method x 2 (exclude salvage value)
What are the components of Accounts Receivable or Allowance for Doubtful Accounts roll forward?
BASE
Beginning Balance
Add:
1) Uncollectible
Accounts
Expense (BDE)
2) Recovery of previous
write-offs
Subtract: Accounts Written Off
Ending Balance
How to calculate Gain or Loss on a nonmonetary transaction that lacks commercial substance
Scenario #1: No cash is received = No gain
Scenario #2: Cash is paid = No gain
Scenario #3: Cash is Received = Recognize Proportional Gain if cash is less than 25% of total consideration given up (cash + FV)
Scenario #4: Cash is received and is greater than 25% of total consideration = Treat as monetary exchange
What are the $ thresholds to be considered a largely accelerated or accelerated filer types
Largely Accelerated: OS Common Equity >$700M
Accelerated: $700M> OS Common Equity >$75M
What are the filing deadlines for 10-k and 10-Q for Largely Accelerated, Accelerated, and other type filers?
10-k:
-Largely Accelerated filers: 60 days
-Accelerated filers: 75 days
-Others: 90 days
10-q:
-Largely Accelerated filers: 40 days
-Accelerated filers: 40 days
-Others: 90 days
What is the definition of a principal and most advantageous markets. Further, how is the advantageous market determined?
Principal Market: Market with the greatest volume or level of activity for the asset or liability
Most Advantageous Market (EXISTS WHEN THERE IS NO PRINCIPAL MARKET): Market with the best price for the asset or liability after consideration of transaction costs
How to calculate impairment of intangible assets (other than goodwill) and PP&E
Intangible Assets other than goodwill:
-Intangible assets with Finite Life:
Step 1: Is the Undiscounted future net cash flows LESS than the CV? Yes = Impaired
Step 2:
Assets Held for Use: FV (or DCF) - Net CV = Impairment Loss
Assets Held for disposal: FV (or DCF) - Net CV = Impairment Loss + Cost of Disposal = Total impairment loss
***For PP&E the process is the same only that DCF is is replaced with PV of future net cash flows in the calculation of Assets Held for Use/Disposal
What are the major components of the multi-step income statement?
1: Gross Margin
#2: Income (loss) from operations
#3: Income before income tax
#4: Income from continuing operations
#5: Net Income
***After Income from Continuing operations remember that you have discontinued operations (net of tax)
How to treat the Financial statements when reporting changes in Accounting Principle and Errors
Accounting Principle - should be recognized by adjusting beginning retained earnings in the earliest period presented & if comparative financial statements are presented, they should be restated.
Error Correction -
1) Comparative FSs are presented:
- If the year in which the error is presented, correct the error in those financial statements
-If the year is not presented, adjust the opening retained earnings of the earlies year presented
2) If Comparative FSs are not presented: the correction should be reported as an adjustment to the opening balance of retained earnings
What is the formula to calculate Comprehensive Income?
Net Income + OCI
OCI = PUFI
***REMEMBER THAT THE COMPONENTS OF OCI ARE NET OF TAX
What are the journal entries recorded during 1) Construction Period and 2) When construction is completed using the percentage of completion method and the completed contract method?
During Construction Period:
-Percentage of Completion Method:
CIP
Materials, cash,etc..
(to record costs incurred)
AR
Progress Billing
(to record billings on contract)
Cash
AR
(to record payments received)
Cost of LT construction contracts
CIP
Revenue
-Complete Contract Method:
CIP
Materials, cash,etc..
(to record costs incurred)
AR
Progress Billing
(to record billings on contract)
Cash
AR
(to record payments received)
When construction is complete:
-Percentage of Completion Method:
Progress Billings
CIP
(to close construction accounts)
-Complete Contract Method:
Progress Billings
Revenue
(to close billings to revenue)
Cost of LT Construction Contracts
CIP
(to close CIP to expense)
How to convert cash-basis FS to accrual FS
Treat the changes the OPPOSITE as you would when preparing the operating section of the statement of CF prepared using the accrual basis of accounting
What are the types of classifications of debt securities and how must those classifications be valued?
H - Held to maturity securities (valued at amortized cost/carrying value)
A - Available for sale securities (valued at fair value)***
T - Trading securities (valued at fair value)
***THIS CLASSIFICATION IS A CATCH ALL FOR ALL OTHER SECURITIES THAT DO NOT CLASSIFY AS TRADING OR HTM SECURITIES
What are the ins and outs to calculate the carrying value under the equity method?
Beginning Balance
Add: Investor’s share of earnings
Subtract: Investor’s share of investee’s dividends
Ending Balance
