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
What are the two distinct characteristics of accounting using the acquisition method
1) 100% of the Net Assets acquired are recorded at fair value with any excess being recorded as goodwill
2) When the companies are consolidated, the subsidiaries’ entire equity is eliminated
What is the JE to record the acquisition of a subsidiary by issuing common stock?
Investment in Subsidiary $XX
Common Stock Issued $XX
APIC $XX
What is the eliminating JE when consolidating a subsidiary
CAR IN BIG
C - Common Stock - Subsidiary
A - Additional Paid-In Capital - Subsidiary
R - Retained Earnings - Subsidiary
I - Investment in Subsidiary
N- Noncontrolling interest (if not 100% owned)
B - Balance Sheet adjustments to FV
I - Identifiable intangible Assets to FV
G - Goodwill
What is the order of presentation of line items on a proprietary Income Statement
INCASE T
Income
Nonoperating
Capital Contributions
Additions to Endowments
Special Items
Extraordinary Items
Transfers
What is the criteria to use blended presentation?
1) Is the board of the primary government the same as the component unit?
2) Does the component unit serve the primary government exclusively?
3) Does the organization not qualify as a legal entity?
***Yes to any of these answers would trigger blended presentation, otherwise discrete presentation will be applied
Remember this when identifying where proceeds should be recorded in a internal service fund
Even though billings and collection services are between funds, they are not interfund transfers because they are an exchange transaction
What is the Formula for retained earnings
What are the components of the Basic Financial Statements section of the ACFR?
1) MD&A
2) Government Wide FSs
3) Fund FSs (all funds types
4) Notes to FSs
***Integrated Approach must be applied between parts 1 - 3 meaning that there must be a reconciliation between all parts.
In the Statement of Net Position and Statement of Activities remember
Aside from a column of Governmental Activities, there is also a column for Business Type activates (Enterprise Funds)
What is the Net Position of Proprietary Funds comprised of?
Restricted for debt services
Unrestricted
Net Investment in Capital Assets
What are the Proprietary Fund Types and what do they track?
Internal Service Fund - tracks goods and services provided to other governmental units
Enterprise Fund -track acquisition and operations of facilities and services that are intended to be primarily self-supported by user charges (thing utilities)
When assessing impairment related to goodwill what should you remember?
That the impairment loss will only be as large as the goodwill already recorded in the books.
What are the criteria to recognize in-kind for contributed services
- Specialized Skill is required
-Otherwise be needed
-Measurable
-Easily
What are the columns that occupy most of the Statement of Activity of the Government Wide FSs and what are their components?
1) Program Revenues
-Charges for
Service
-Operating Grants
and Contributions
- Capital Grants and
Contributions
2) Net (Expenses) Revenues
-Governmental Activities -Business Type of actives
What is the formula to calculate Book Value per Common Share
Common Stock Holder’s Equity/Common Shares Outstanding
What are the entries to record the re-purchase of treasury stock under the cost method
Original Issue:
Cash
Common Stock
APIC
Repurchase of
Treasury Stock:
Treasury Stock
Cash
Reissue above cost:
Cash
Treasury Stock
APIC
Reissue below cost:
Cash
APIC
Retained Earnings***
Treasury Stock
***Plug-in
What is the eliminating intercompany entry when inventory sales are made between parent/subsidiary
Sales Revenue
COGS - Parent
COGS - Sub
Inventory - Sub
AP
AR
What are Program and Support Services?
Program - activities for which the organization is chartered
Support Services -
1) Fundraising
2) Management and General
3) Membership Development
Which Fund Types Require a Statement of CF?
Proprietary Funds
What should be disclosed when an endowment is considered to be “underwater”
- FV
-Endowment’s original amount
-Deficiency
Non-compensatory and Compensatory stock options
Non-compensatory - Compensation Expense is not recognized at all
Compensatory -
Compensation Expense is allocated over the service/vesting period
What are the Governmental Fund Types and what do they track?
General Fund - tracks ordinary operation financed by taxes and other general revenues. Is also a “Catch all”
Debt Service Fund - tracks the accumulate of resources and the payment of interest and principal on all “general obligation debt”. Resources are RESTRICTED
Permanent Fund - tracks resources that are legally restricted to the extent that income, not principal, may be used to support government’s program
Special Revenue Fund - tracks revenues from specific taxes or earmarked sources
Capital Projects Fund - tracks resources committed to acquire or construct major capital assets that are not already financed by an enterprise fund
What are the categories of a HCO’s Income Statemen
-Patient Service Revenue
-Other Operating Revenue
-Nonoperating Revenue
What are the Fiduciary Fund Types and what do they track?
Investment Trust Funds - external investment pools
Custodial Funds - tracks funds held for others
Private Purpose Trust Funds - Catch all for activities not fitting into Investment or pension funds
Pension Trust Funds - tracks pensions DCP, DFB, etc…
What is the definition of authorized, issued, and outstanding capital stock
Authorized - the amount of each class of stock that a company may legally issue
Issued - When part or all of the authorized capital stock is issued
Outstanding - the amount of issued capital stock that is in the hands of the shareholders
What are the two governmental type funds that do not record encumbrances
Debt and Permanent Funds
What are the financial statements produced by each category of fund?
Government FSs:
1) Balance Sheet
2) Statement of Revenues, Expenditures, and changes in fund balance
Proprietary FSs:
1) Statement of Net Position
2) Statement of Revenues, Expenses, and changes in fund net position
3) Statement of Cash Flows
Fiduciary FSs:
1) Statement of Fiduciary Net Position
2) Statements of changes in fund balance
What are the components of the Annual Comprehensive Financial Report (ACFR)
- Introductory Section (Unaudited)
-Basic Financial Statements and Required Supplementary Information (Audited)
-Statistical Section (Unaudited)
In general, what are the components of the of the Operating, Investing, and Financing sections of the statement of CF under the indirect method
Operating - Cash Receipts and Disbursements from transactions reported in the operating section of the income statement and Current Assets and Current Liabilities
Investments - Cash Receipts and Disbursements from transactions related to non-current assets
Financing - Cash Receipts and Disbursements from transactions related to debt and equity
What is the difference between an ordinary annuity and an annuity due?
WILL BE UPDATED
What are the criteria that defines a major fund?
A major fund must meet the 10% criteria within its category and also meet the 5% criteria associated with both categories
Remember this when identifying where proceeds should be recorded in a capital project fund
1) Bond Issue proceeds and Transfers from other funds should be recorded under “Other Financing Sources”
What is the criteria to be considered a primary government?
Primary government reports by itSELF
Separately
Elected Governing Body
Legally Separate
Fiscally Independent
***Must meet all 3 otherwise it is considered a component unit
What are the entries for an Asset Retirement Obligation (ARO)?
1) To initially record the ARO:
Asset Retirement Cost (ARC)
Asset Retirement Obligation
2) To record the Accretion Expense:
Accretion Expense
ARO
3) Depreciation Expense
Accumulated Depreciation
***Entries 1 & 2 income statement accounts should add up to the total ARO
How do we treat bond issuance costs and how do we determine what they are?
What are the entries to record bond issuances issued at a premium and discount included interest expense
What is the criteria to determine whether a lease is a finances lease
OWNES
How should amortization of leasehold improvements be factored into a lease
Should be over the life of the improvement or the remaining life of the lease, which ever is shorter
What is the denominator in calculating depreciation expense under an operating and finance lease
How should purchase options be factored into a lease
How to calculate the lease liability at inception regardless of whether it is a finance lease or not
What methods are used to translate Assets/Liabilities and Revenues
