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CPA EXAM > FAR > Flashcards

FAR Flashcards

1
Q

Conceptual Framework (2 characteristics)

A

Faithful representation & Relevance

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2
Q

Conceptual Framework - Enhancing Characteristics

A
  1. Comparability
  2. Verifiability
  3. Timeliness
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3
Q

Relevance - Qualitative Characteristics

A
  1. Predictive Value
  2. Confirmatory Value
  3. Materiality
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4
Q

Faithful Representation - Qualitative Characteristics

A
  1. Completeness
  2. Neutrality
  3. Free from Error
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5
Q

Gross Profit (Formula)

A

Gross Profit = Sales - COGS

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6
Q

IFCO (Formula)

A

IFCO = Gross Profit - Expenses/Taxes

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7
Q

Net Income (Formula)

A

Net Income = IFCO +/- Discontinued Operations, Extraordinary Items

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8
Q

Cash Flows - Operating Section (Direct)

A

Interest and Dividend Income, trading investments, suppliers, employees, government

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9
Q

Cash Flows - Operating Section (Indirect)

A

Reconciliation

Change in Cash = Ch. in Liabilities + Ch. in Equity - Ch. in Other Assets

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10
Q

Cash Flows - Investing Section

A

Addition/Disposal of Assets, collection of loan principle

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11
Q

Cash Flows - Financing Section

A

Sale of Equity/Debt, dividends paid, treasury stock

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12
Q

Statement of Cash Flows - Summary

A

O - Income Statement
I - Assets, Liabilities, Loan Principle
F - Owner’s Equity

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13
Q

A/R - Allowance Method

A

Credit Sales x % Sales Collectible = Allowance

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14
Q

A/R - Balance Sheet vs. Income Statement Approach

A

B/S - Aged A/R

I/S - Sales

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15
Q

Factoring A/R - With or Without Recourse

A

With - factor not responsible

Without - factor responsible for non-collectibles

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16
Q

Inventory Costs

A

Capitalize costs except for goods on consignment

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17
Q

Inventory Costs -

Returns, Freight In/Out, Interest, Sales Tax, Packaging, Insurance

A 
Returns - Y 
Freight in - Y
Freight out - N
Interest - N 
Sales Tax - Y
Packaging - Y
Insurance - Y
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18
Q

COGS (Formula)

A

Beginning + Net Purchases = Goods Available - Ending = COGS

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19
Q

FIFO

A

oldest costs in COGS, newest costs in Inventory, Increase N/I

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20
Q

LIFO

A

newest costs in COGS, oldest costs in Inventory, Decrease N/I

LIFO is generally used to minimize income taxes.

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21
Q

LIFO allowed/not allowed under IFRS?

A

Not allowed

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22
Q

PP&E - Depreciable Cost

A

Cost – Salvage

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23
Q

Straight Line Depreciation

A

Cost – Salvage/# yrs.

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24
Q

Service Hours Depreciation

A

[(Cost – Salvage)/Total hours] x Hours used

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25
Q

Sum of the Year’s Digits Depreciation

A

yrs. Remain/sum years x (Cost – Salvage)

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26
Q

Double Declining Balance Depreciation

A

SL Rate x 2 NO SALVAGE

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27
Q

Average Accumulated Expenditures

A

average cash (or other qualifying expenditures) investment in the project during the period. This is the amount of debt that could have been retired during the period.

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28
Q

Weighted Average Method - PP&E

A

Capitalizes interest using the weighted average rate on all interest bearing debt.

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29
Q

Specific Method - PP&E

A

Capitalizes the interest on specific construction loans first. Then, if needed, capitalize interest on all other debt based on the average interest rate for that debt.

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30
Q

Trading Investments (Definition)

A

Debt and Equity securities bought and held principally for the purpose of selling them in the near term

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31
Q

Trading - Recognition

A

B/S: Reported at fair market value, usually a current assets on the balance sheet

I/S: Unrealized holding gains or losses will already have been recognized, and should not be reversed. Dividends are income.

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32
Q

Trading - Gains & Losses

A

Recorded: Unrealized gains and losses are included in earnings in the period they occur

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33
Q

Available for Sale Investments (Definition)

A

Debt and Equitysecurities not classified as trading or held-to-maturity

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34
Q

AFS - Recognition

A

B/S: Reported at fair market value, and may be classified as current or noncurrent

I/S: Realized gains and losses are recognized (gain or loss will be difference between selling price and carrying value less any permanent decline in value recognized). Dividends are income.

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35
Q

AFS - Gains & Losses

A

Recorded: Unrealized gains and losses are excluded from earnings - reported as OCI–unless the decline is considered to be “other than temporary” then–recognized in earnings

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36
Q

Held to Maturity Investments (Definition)

A

Debt securities that the organization has the positive intent and ability to hold to the maturity date

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37
Q

HTM - Recognition

A

B/S: Reported at amortized cost and grouped with non-current assets on the balance sheet

I/S: Realized gains and losses are recognized in accordance with amortized cost method. No dividends on debt.

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38
Q

HTM - Gains & Losses

A

Unrealized gains and losses are excluded from earnings–unless the decline is considered to be “other-than-temporary” or the Fair Value Option is selected

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39
Q

Equity Method Securities (Definition)

A

An Equity investment whereby the investor has significant influence over investee–generally >20% voting shares.

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40
Q

Equity Method - Recognition

A

B/S: Reported in accordance with the Equity Method - if control >50% must consolidate

I/S: Realized gains and losses from transactions are recognized for the difference between selling price and the equity basis of the stock. Dividends are NOT income.

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41
Q

Equity Method - Gains & Losses

A

These securities are not adjusted for changes in market value unless the decline is considered to be “other-than-temporary” or the Fair Value Option is selected

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42
Q

Cost Method Securities (Definition)

A

An Equity investment where there is no significant influence and it is a security with no readily determinable market value (privately held)

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43
Q

Cost Method - Recognition

A

B/S: At cost. Cost basis is reduced if there is a liquidating dividend where the dividends declared exceed the investee’s profits. Dividends and profits are measured from the date the investee was purchased.

I/S: Realized gains and losses are recognized (gain or loss will be difference between selling price and carrying value less any permanent decline in value recognized). Dividends are income. WATCH for liquidating dividends!

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44
Q

Cost Method - Gains & Losses

A

There are no unrealized gains and losses because the cost method is not marked-to-market.

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45
Q

Securities (Trading, HTM, AFS) - Debt vs. Equity

A

HTM – Debt, Trading – debt/equity, AFS – debt/equity

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46
Q

Securities (Trading, HTM, AFS) - Gains & Losses

A

HTM – No G/L, Trading – G/L on I/S, AFS – G/L in AOCI

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47
Q

Securities - IFRS

A

IFRS – 1. Business Model Test, 2. Cash Flow Characteristic Test

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48
Q

Equity Method (Sig. Influence) - Decomposition Tool

A

Net BV = CS + R/E + APIC
Net FMV = Assets – Liabilities
Price Paid – Net FMV = Goodwill

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49
Q

Intangibles - Definite Life

A

BV > Recoverable Cost = Impairment (Definite Life)

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50
Q

Intangibles - Indefinite Life

A

BV > FV = Impairment (Indefinite Life)

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51
Q

Impairment Loss (Formula)

A

Impairment Loss = BV – FV

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52
Q

Implied Goodwill

A

FV of Reporting Unit < CV

CV of GW > Implied GW

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53
Q

Employer Payroll Expense

A

(FICA + Medicare) x ½ + (FUTA + SUTA) = ER Payroll Expense

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54
Q

Gift Card Revenues vs. Extended Warranties

A

Gift Card Revenues – Unearned Rev, Extended Warranties – separate contract in addition

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55
Q

Notes Payable - Gross vs. Net Method

A

Gross – Prem/Disc recorded in JE

Net – Prem/Disc included

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56
Q

Notes Payable - Discount vs. Premium

A

Market > Stated = Discount

Stated > Market = Premium

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57
Q

Bonds Payable - Effective Interest Method

A

This method first computes interest expense based on the beginning book value of the bond and the market rate at issuance. The difference between interest expense and the cash interest paid is the amortization of the discount or the premium. The market rate at issuance is always used. The rate is not changed after issuance because it represents the true interest rate over the bond term. The amortization of discount or premium is a “plug” figure.

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58
Q

Bonds Payable - Straight Line Method

A

This method recognizes a constant amount of amortization each month of the bond term. The straight-line method should not be used when

(a) the term to maturity is quite long and there is more than a minor difference between the market and stated rates, or
(b) when there is a very significant difference between the market and stated rates regardless of the length of the term.

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59
Q

Bonds Payable - Stated Rate vs. Market Rate

A

Stated Rate – Interest, Market Rate – face value of single payment

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60
Q

Troubled Debt - Gains & Losses

A 
Gain = BV of Debt – FV 
Loss = BV of debt – FV received
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61
Q

Troubled Debt - IFRS

A

Sum of Net flows

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62
Q

Treasury Stock - Cost Method

A

T/S debited for cost, reissue > cost = APIC

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63
Q

Treasury Stock - Par Method

A

T/S debited at par, APIC debited, reissue > cost = addt’l APIC

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64
Q

BV/Share - Common Stock (Formula)

A

Common Stockholder’s Equity/Common Shares Out = BV/Share

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65
Q

Pension Expense Breakdown

A
  1. Service Cost 2. Interest Cost 3. Expected Return on Plan Assets 4&5. Amortization
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66
Q

Pension Expense - Interest

A

Interest = Begin PBO x Discount Rate

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67
Q

Pension Expense - Expected Return

A

Exp. Return = Begin FV of Assets x Exp. ROR on Assets

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68
Q

Accounting Changes/Errors

A

Restrospective – restate previous F/S’s
Prospective – use new estimate at current point forward
Restatement – correct R/E

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69
Q

Adjustment to R/E vs. Error

A

Adjustment to R/E – cumulative effect

Error – prior period adjustment

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70
Q

Type of Change - Accounting Principle

A

Restrospective

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71
Q

Type of Change - Accounting Principle, prior year effects impracticable

A

Prospective

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72
Q

Type of Change - Accounting Estimate

A

Prospective

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73
Q

Type of Change - Change in Reporting Entity

A

Retrospective

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74
Q

Type of Change - Correction of Error

A

Restatement (correct retained earnings)

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75
Q

Cost Method vs. Equity Method Adjustments for Business Consolidations

A

Cost Method: no adjustments, Equity Method: adjustments

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76
Q

Contingency - Possible

A

Disclose

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77
Q

Contingency - Can’t Estimate

A

Disclose

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78
Q

Contingency - Probable & Estimable

A

Accrue liability and disclose

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79
Q

Contingency - IFRS

A

“More likely than not”

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80
Q

Basic EPS (Formula)

A

Income avail to common shareholders/ Weighted avg. shares out = Basic EPS

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81
Q

Diluted EPS (Formula)

A

N/I – Preferred Stock Dividends / WA Shares Out = Diluted EPS

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82
Q

Cash Flow vs. Fair Value Hedge

A

Cash Flow Hedge – effects OCI

Fair Value Hedge – effects N/I

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83
Q

Translation - Exchange Rates for Conversion

A

B/S Current, I/S Historical or WA, R/E formula, plug for Translation Adjust

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84
Q

Remeasurement - Exchange Rates for Conversion

A

Monetary - current, Non-monetary - Historical

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85
Q

Total Rentals - Leases (Formula)

A

Damage/Service Payments/# years = Rent Expense/Revenue

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86
Q

Lease Improvements

A

capitalized over the shorter of the lease term or useful life

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87
Q

Capital Lease (Components)

A

ANY of the 4 criteria can be met to qualify:
1. Ownership Transfer 2. BPO 3. Lease Term 75% of useful life 4. PV of MLP 90%

Lessor has 2 additional criteria: 1. Collectability, 2. Substantial completion

If none of the criteria are met - Operating Lease

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88
Q

Direct Financing vs. Sales-Type Lease

A

Direct Financing - BV = FV

Sales-Type - BV not = FV

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89
Q

Executory Costs - Incl./Excl. from MLP’s & Net Account Balance?

A

MLP’s - Lessee: Exclude; Lessor: Exclude

Net Account Balance - Liability: Exclude; Receivable: Exclude

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90
Q

Annual Lease Payment - Incl./Excl. from MLP’s & Net Account Balance?

A

MLP’s - Lessee: Include; Lessor: Include

Net Account Balance - Liability: Include; Receivable: Include

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91
Q

Bargain Purchase Option - Incl./Excl. from MLP’s & Net Account Balance?

A

MLP’s - Lessee: Include; Lessor: Include

Net Account Balance - Liability: Include; Receivable: Include

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92
Q

Unguaranteed Residual - Incl./Excl. from MLP’s & Net Account Balance?

A

MLP’s - Lessee: Exclude; Lessor: Exclude

Net Account Balance - Liability: Exclude; Receivable: Include

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93
Q

Lessee Guarantee of Residual - Incl./Excl. from MLP’s & Net Account Balance?

A

MLP’s - Lessee: Include; Lessor: Include

Net Account Balance - Liability: Include; Receivable: Include

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94
Q

3rd Party Guarantee of Residual - Incl./Excl. from MLP’s & Net Account Balance?

A

MLP’s - Lessee: Exclude; Lessor: Include

Net Account Balance - Liability: Exclude; Receivable: Include

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95
Q

Non-Monetary Exchange - Commercial Substance

A

new CF’s generate significantly different CF’s from old asset

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96
Q

Non-Monetary Exchange (Formula)

A

FV New Asset = FV Old + Cash

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97
Q

Lacks Commercial Substance

A
  • Cash not received, no gain or loss recorded.

- Cash received, gains are recognized in proportion to the amount of cash received.

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98
Q

Commercial Substance - Gain (Formula)

A

FV of Asset Exchanged - BV of Asset Exchanged

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99
Q

Commercial Substance - Loss (Formula)

A

BV of Asset Exchanged - FV of Asset Exchanged

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100
Q

Not for Profit Accounting - Net Assets Model

A
  1. Unrestricted 2. Temporary 3. Permanent
101
Q

Statement of Functional Expenses (Not for Profit)

A

optional ONPO’s, program and supporting expenses broken out

102
Q

Unrestricted Funds

A

resources are available for expenditure in the current period for any purpose

103
Q

Temporarily Restricted Funds - Program Restrictions

A

resources are available for expenditure in the current period but only for specified (operating) purposes

104
Q

Temporarily Restricted Funds - Asset Acquisition/Capital Restrictions

A

resources are available for expenditure in the current period but only for capital purposes

105
Q

Temporarily Restricted Funds - Time Restrictions

A

resources are available only after a specified time has elapsed or event has taken place

106
Q

Permanently Restricted

A

resources are not available for expenditure at any time, although the earnings on the resources may be expended; permanently restricted assets are known as “endowments”

107
Q

Governmental Accounting - Fund Balance

A
  1. Nonspendable 2. Restricted 3. Committed 4. Assigned 5. Unassigned
108
Q

Governmental Accounting - Net Position

A
  1. Investment in Capital Assets 2. Restricted 3. Unrestricted
109
Q

Governmental Fund Category - Accounting Method & Statements

A
  • Modified Accrual Basis Accounting

- Balance Sheet, Statement of Revenues, Expendituers, and Change in Fund Balance

110
Q

Governmental Funds

A
  1. General 2. Debt Service 3. Special Revenue 4. Internal Service 5. Permanent
111
Q

Proprietary Fund Category - Accounting Method & Statements

A
  • Accrual Accounting

- Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, Statement of Cash Flows

112
Q

Proprietary Funds

A
  1. Internal Service 2. Enterprise
113
Q

Fiduciary Fund Category - Accounting Method & Statements

A
  • Accrual Accounting

- Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position

114
Q

Fiduciary Funds

A
  1. Pension Trust Funds 2. Investment Trust Funds 3. Private Purpose Trust Funds 4. Agency Funds
115
Q

IFRS - Inventory

A

LIFO is not allowed under IFRS

116
Q

IFRS - Off-Balance-Sheet Activity

A

Under IFRS the focus is on whether a company controls an entity; off balance-sheet treatment is less frequent

117
Q

IFRS - Fair Value Disclosure

A

There is no “fair value hierarchy” or required disclosures about level 3 assets/liabilities under IFRS

118
Q

IFRS - PP&E, Intangibles

A

PP&E and Intangibles can be treated similarly to U.S. GAAP, held at historical cost, depreciated/amortized and reviewed for impairment, or the assets can be revalued to fair value

119
Q

IFRS - Revenue Recognition

A

Much less detailed revenue recognition guidance. Completed Contract method is not allowed under IFRS.

120
Q

IFRS - Research & Development

A

R&D is expensed under GAAP. Under IFRS, research is expensed but development costs could be capitalized and later amortized.

121
Q

IFRS - Convertible Debt

A

Under IFRS convertible debt is generally split between its equity and debt components

122
Q

IFRS - Pension Accounting

A

Under IFRS pension costs can be split into its financing and compensation components, the pension plan’s funded states may not appear on the balance sheet, and fair value of plan’s assets is used to calculated expected return, and actuarial gains/losses can be recognized in equity (excluded from income)

123
Q

IFRS - I/S Expenses

A

Under IFRS expenses can be displayed by either “function” or “nature” and if function is chosen, then nature must be disclosed in the footnotes.

124
Q

IFRS - Impairment Write-downs

A

Under IFRS a more conservative one-step impairment test is used for non-financial assets. “Write-ups” are allowed, but only back to the original cost.

125
Q

IFRS - Employee Stock Options

A

Employee stock options are expensed

126
Q

IFRS - Contingencies

A

Probable is a lower threshold “more likely than not”. If a range of losses is possible, then the midpoint is chosen as contrasted with the low point under U.S. GAAP.

127
Q

IFRS - “Netting” of Financial Instruments

A

Netting is allowed, however the criteria are more restricted than U.S. GAAP.

128
Q

IFRS - Uncertain Tax Positions

A

Under IFRS there are many fewer detailed rules for dealing with uncertain tax positions.

129
Q

Equity - Contributed Capital vs. Retained Earnings

A

Contributed Capital - Contributed by Owners

R/E - retained by the entity

130
Q

Gross Profit (Formula)

A

Sales - COGS = Gross Profit

131
Q

Income from Continuing Ops (Formula)

A

Gross Profit - Operating Expenses - Income Taxes = IFCO

132
Q

Net Income (Formula)

A

IFCO +/- Discontinued Operations, Extraordinary Items = Net Income

133
Q

IFRS - Income Statement

A

Extraordinary items are not allowed

134
Q

Comprehensive Income (Formula)

A

N/I + OCI = Comprehensive Income

135
Q

IFRS - Revaluation of PP&E

A

permits revaluation of PP&E through OCI.

136
Q

Cash Equivalents

A

short-term, highly liquid (ex: Treasury bills, money market funds)

137
Q

IFRS - Statements of Changes in Equity

A

Must be a separate statement.

138
Q

Types of OCBOA

A

Cash, Modified Cash, Income Tax, Regulatory

139
Q

Personal F/S (Formula)

A

Begin Net Worth +/ Ch. in Assets +/- Ch. in Liabilities = End Net Worth

140
Q

Valuation of Personal F/S

A

Estimated Current Value = FV

141
Q

A/R - Gross vs. Net Method

A

Gross - without discount, Net - with discount

142
Q

Allowance Method - B/S vs. I/S (Formula)

A

B/S - A/R x % A/R uncollectible = Allowance
I/S - Credit Sales x % Sales uncollectible = Allowance

Watch for beginning debit balances.

143
Q

LIFO vs. FIFO

A

LIFO - newest costs in COGS, oldest costs in Inventory

FIFO - oldest costs in COGS, newest costs in Inventory

144
Q

Inventory Valuation

A

Lower of Cost or Market

145
Q

Types of Capitalized Costs

A
  1. Get ready costs 2. Intended condition/use
146
Q

Natural Resources

A

does not include the cost of extraction; includes successful efforts/full cost methods

147
Q

Stock Dividends - are/are not income?

A

Stock divdends are never income.

148
Q

Selling Securities - HTM, T & AFS

A

Ability & Intent - HTM

No Ability or Intent - T & AFS

149
Q

Debt vs. Equity - Securities

A

HTM - debt
Trading - debt/equity
AFS - debt/equity

150
Q

IFRS - Impairment Loss

A

Impairment losses can be reversed

151
Q

IFRS - Investments (Tests)

A
  1. Business Model Test

2. Cash Flow Characteristic Test

152
Q

Liquidating Dividend

A

dividends exceed N/I for the year

153
Q

Income Effect on Stock Dividends

A

NO income effect for stock dividends!

154
Q

Identifiable Intangible Assets

A

copyrights, patents, trademarks, etc.

155
Q

Unidentifiable Intangibles

A

Goodwill

156
Q

Definite Life Intangibles

A

capitalize external costs, amortize using the SL method

157
Q

Indefinite Life Intangibles

A

capitalize external costs, no amortization!

158
Q

Impairment Test

A
  1. Qualitative Assessment
  2. Quantitative Assessment
    a. FV of Reporting Unit < CV of RU
    b. CV of Goodwill > Implied Goodwill
159
Q

IFRS - Intangibles

A

Can reverse impairment losses, one-step goodwill test

160
Q

Operating vs. Financing Liabilities

A

Operating - Current

Financing - Noncurrent

161
Q

Deferred Revenue

A

liability for future goods and services

162
Q

Notes Payable - Gross vs. Net Method

A

Gross - uses premium/discount account

Net - does not, directly into N/P account

163
Q

Bonds Payable - Market vs. Stated

A

Market > Stated - Discount
Market < Stated - Premium
Market = Stated - Face Value

164
Q

B/P Discount - Type of Account?

A

contra liability

165
Q

Total Interest Expense - B/P (Formula)

A

Cash + Interest Discount = Interest Expense

Cash - Interest Premium = Interest Expense

166
Q

Bond Issue Costs

A

capitalized to deferred charge account, amortized as expense over bond term.

167
Q

Bond FV Option - IFRS

A

irrevocable at bond issue

168
Q

Convertible Bonds - BV vs. MV Method

A

BV - bond account balances transferred to stock accounts

MV - G/L recorded between BV & MV

169
Q

Bonds w/ Detachable Warrants

A
  1. Separate accrued interest
  2. Allocate total bond price
  3. Record allocation to O/E (warrant)
170
Q

Document issued through due process activities of FASB for amending the Codification?

A

Changes and updates to the Codification are accomplished through Accounting Standards Updates (ASUs).

171
Q

FV of a Financial Asset

A

The quoted price in the most advantageous market

172
Q

Total Revenues

A

economic benefit rec’d, does not include discounts and accounts written off that are recovered.

173
Q

IFRS for SME’s

A

does not have public accountability, publishes F/S for external users

174
Q

Comprehensive Income (Formula)

A

N/I + AOCI

175
Q

AOCI (Formula)

A

Running O/E account, increased or decreased by OCI for the period.

176
Q

Material Loss - Unusal/Infrequent

A

When a loss is not both unusual and infrequent, it is reported as a component of income from continuing operations.

When a loss is both unusual and infrequent, it is classified as an extraordinary item and reported separately from income from continuing operations.

177
Q

OCI - Components

A

G/L on AFS securities and foreign currency translation adjustments

178
Q

Operating Activities - Direct Method

A

Income Statement - Revenues/Expenses

Inflows: from customers, interest income or dividend income, sale of trading investments

Outflows: to suppliers, employees, government, for interest or operational expenses

179
Q

Investing Activities

A

Balance Sheet - Assets/Liabilities

Inflows: sale of property, plant or equipment, sale of debt or equity securities of other entities, collection of loan principal

Outflows: Purchase of PP&E, purchase of debt or equity securities of other entities

180
Q

Financing Activities

A

Owner’s Equity, L/T Debt

Inflows: from sale of equity securities, from issuance of debt

Outflows: to stockholders as dividends, to redeem long-term debt, to re-acquire capital stock

181
Q

IFRS for SME’s - Goodwill

A

Under IFRS for SMEs, goodwill is assumed to have a limited life and is amortized over that life, or a period not to exceed 10 years if the life cannot be reasonably estimated.

182
Q

If a note receivable is determined to be impaired…

A

A loss or expense is recognized as equal to the difference between the note carrying value and the present value of the cash flows expected to be received..

183
Q

Total Interest Revenue (Formula)

A

equals the total amount paid by Ace over the life of the note less the proceeds to Ace.

184
Q

Lower of Cost or Market - Market Value Ceiling/Floor

A

market value is replacement cost if replacement cost is between the ceiling value (net realizable value) and the floor value (net realizable value less normal profit margin)

185
Q

Perpetual vs. Periodic Inventory - FIFO and LIFO

A

Perpetual -
COGS FIFO - Earliest goods acquired
COGS LIFO - Latest goods acquired prior to each sale
Periodic -
COGS FIFO - Earliest goods acquired
COGS LIFO - Latest goods acquired during the period

186
Q

IFRS - Inventory Valuation

A

Lower of Cost or NRV

187
Q

PP&E - Capitalized Costs

A

Get ready costs, anything necessary to bring the asset to its intended condition and location

188
Q

PP&E - Interest Cost

A

Interest cost is capitalized only during the construction period. Prior to the construction period, interest cost was expensed. Any interest cost incurred subsequent to the construction period will likewise be expensed.

189
Q

Interest Capitalization - Matching Principle

A

Interest capitalization exemplifies the matching principle. Until the asset is in service, it cannot produce revenue. The asset is also not yet in its intended condition and location. Thus, expensing of the interest is deferred until the asset can provide revenues against which to match the interest expense.

190
Q

Recording Stock Dividends

A

Under any method used to account for an investment in common stock, the investor records a stock dividend received by a memorandum entry to increase the number of shares owned. Since the cost of the investment does not change, the per share cost of the stock decreases.

191
Q

IFRS - Investments to Receive Cash Flow

A

Under Business Model, solely to receive cash flow from interest and principal repayments - Amortized Cost

Not Under Business Model, solely to receive cash flow from interest and principal repayments - Fair Value

192
Q

Liquidating Dividends - Cost vs. Equity Method

A

Cost Method - liquidating dividends are treated as a reduction in the investment account whereas normal dividends are treated as income.

Equity Method - all dividends are treated as a reduction in the investment account. No dividends received are treated as income under the equity method.

193
Q

FV & Cost Method - Investment Reconciliation

A

When either the cost method or the fair value method is used to measure investment property; the entity must provide a reconciliation showing the causes of changes in the carrying amounts of investment property between the beginning and end of a period.

194
Q

Serial Bonds

A

Mature at regular intervals rather than on one single date

195
Q

Debenture Bonds

A

not secured, backed by only the general credit of the issuing firm. Debenture bonds can also be serial bonds.

196
Q

Market Price of a Bond (Formula)

A

PV of all remaining payments, (principal and interest) at the effective interest rate

197
Q

Bond Premium (Formula)

A

difference between the bond carrying value and the bond face value.
Amortization of bond premium + interest expense = Cash Interest Paid

198
Q

Term Bonds

A

Mature on a single date

199
Q

Interest Expense vs. Interest Payable vs. Unamortized Bond Premium/Discount

A

Interest Expense = Face Amount +/- Premium or Discount x Market Rate x Time

Interest Payable = Face Amount x Stated Rate x Time

Unamortized Bond Premium/Discount = Current Premium/Discount - (diff in Interest Exp and Payable)

200
Q

When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid

A

Plus discount

201
Q

When a company declares a cash dividend, retained earnings is decreased by the amount of the dividend on the date of

A

Declaration - A legal liability comes into existence at declaration. The firm has committed itself to paying resources to shareholders from retained earnings on that date.

202
Q

When collectability is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed should be recorded as

A

Additional paid-in capital when the subscription is recorded

203
Q

Net effect of R/E - Property Dividends

A

Property dividends are recorded at market value at the date of declaration, then reduced by the amount of gain/loss to find the net effect of retained earnings.

204
Q

Effects of preferred stock called/retired

A

When a firm retires preferred stock, cash is paid to the shareholders reducing total owners’ equity. Retained earnings can never be increased when shares are retired, redeemed, or converted into another class of stock.

205
Q

Benefit Pension Plans - w/in the same company

A

Within the same firm, overfunded plans are not offset with underfunded plans because a plan’s funds can be used only for the benefits payable under that plan.

206
Q

Pension Liability (Formula)

A

PBO - Plan Assets

207
Q

Gains/Losses on Pensions

A

effects pension expense, not pension liability

208
Q

Prior Period Adjustment

A

A Prior period adjustment is defined as the correction of an error affecting prior-year income.

209
Q

Change in Accounting Basis

A

Therefore, the change to the accrual basis is a change from an unacceptable method or basis of accounting to an acceptable method or basis. Such a change is treated as an error correction, which is reported as a Prior period adjustment.

210
Q

Change in Accounting Principle (i.e. FIFO to LIFO)

A

Accounting-principle changes are reported as an adjustment to retained earnings at the beginning of the year of change. Prior financial statements are retrospectively adjusted.

211
Q

What legal form of business combination will result in the need to prepare consolidated financial statements?

A

Only an acquisition form of business combination will require the preparation of consolidated financial statements. In the merger and consolidation forms of business combination, only one firm will remain after the combination.

212
Q

Mergers vs. Consolidations vs. Acquisitions

A

Mergers & Consolidations - the assets and liabilities of the acquired entity/entities are recorded on the books of the acquiring entity. At least one preexisting entity ceases to exist, and the assets and liabilities are recorded on the books of the surviving entity.

Acquisition - the assets and liabilities of the acquired entity remain on the books of the acquired entity. One preexisting entity acquires controlling interest in another preexisting entity, and both continue to exist as separate legal entities.

213
Q

Changes in contingent consideration in a business combination after the acquisition date

A

Changes in the fair value of contingent consideration resulting from occurrences that occur after the acquisition date are recognized as gains or losses when the contingent consideration is classified as an asset or a liability.

214
Q

Contingent Consideration - Recognition

A

Contingent consideration liabilities are initially recognized at fair value and adjusted to fair value each period until the contingency is resolved or expires. A change in fair value resulting from occurrences after the acquisition date would be recognized as a gain or loss in income in the period of the change, not as an adjustment to the consideration paid to acquire the acquiree.

215
Q

Cost of Carrying out Combination

A

Should be expensed, not included in total cost/consideration transferred amount.

216
Q

IFRS - Contingent Assets in Business Combinations

A

Not recognized

217
Q

IFRS - Goodwill in Business Combinations

A

Goodwill is allocated to Cash Generating Units

218
Q

Intercompany Receivables/Payables

A

100% of the transaction should be elimintated, even if the primary company owns less than 100% of the subsidiary.

219
Q

Cost Method - Subsidiary Investment

A

When a parent company uses the cost method to account for its investment in a subsidiary, the parent will recognize its share of the subsidiary’s dividends declared as income to the parent.

220
Q

Cash Flow Hedge - Recognition (Effective vs. Ineffective)

A

To the extent the change in the fair value of the hedging instrument offsets the change in the fair value of the hedged item, the hedge is effective, and that amount is recognized in other comprehensive income, not current income. To the extent the change in the fair value of the hedging instrument is different than the change in the fair value of the hedged item, the hedge is ineffective, and that amount is recognized in current income.

221
Q

Disclosure - Significant Concentrations of Credit Risk

A

All entities must disclose all significant concentrations of credit risk arising from all financial instruments, whether from a single entity or a group of parties that engage in similar activities and that have similar economic characteristics.

222
Q

IFRS - Impairment Testing

A

Impairment testing is completed relative to the recoverable amount

223
Q

Contingency - Recognition

A

Must be probable and estimable

224
Q

Contingencies - IFRS

A

If a range is provided, the median of the range is used for the accrued liability.

225
Q

Dividends subtracted in computing Basic EPS

A

(1) the annual dividend commitment on cumulative preferred whether or not declared or paid, and (2) declared dividends on noncumulative preferred whether paid or not.

Arrear dividends are never included in EPS because they were subtracted in computing EPS in a previous year.

226
Q

Basic vs. Diluted EPS - Calculation differences

A

Diluted EPS does assume the conversion of securities that have not yet converted as of the balance sheet date, but basic EPS is limited to actual shares of common stock outstanding.

227
Q

Translation G/L in Financial Statements

A

Under Translation (method of converting) the Translation Adjustment does NOT enter into determination of Net Income, but is treated as “Other Comprehensive Income” for reporting purposes.

228
Q

Translation

A

convert from foreign currency to the reporting currency

229
Q

Functional Currency - Translation vs. Remeasurement

A

Translation - local currency is functional currency

Remeasurement - primary entity’s currency (i.e. U.S.) is the functional currency

230
Q

Leases - Recognition of Rent Expense/Revenue (Definition)

A

Operating - recognized on a SL basis even if the annual rentals are not equal

Sales-type - initial direct costs recognized as selling expense

Direct financing - initial direct costs are included in lessor’s gross receivable, included in the based on which the annual payments are computed

231
Q

Operating vs. Capital Leases - Definition

A

Operating - accounted for as rental agreements, no transfer of effective ownership associated with the lease

Capital - accounted for as if the lease agreement transfers ownership of the asset from the lessor to the lessee

232
Q

Leasehold Improvement - Recognition

A

capitalized to a Leasehold Improvement asset account

Amortized over the shorter of the remaining lease term, or the useful life of the improvement

Improvements made in place of rent are expensed in the period incurred.

233
Q

Leases - Executory Costs

A

insurance, maintenance, and property taxes

Expensed by: lessor in an operating lease, lessee in a capital lease

234
Q

Capital Lease Criteria

A

If ANY of these criteria are met, the lessee has a capital lease:

  1. Title transfer - an installment purchase is implied
  2. BPO - allows lessee to purchase the asset for less than its estimated fair value at the end of the term
  3. Lease term is >75% of the asset’s remaining useful life
  4. PV of MLP’s is >90% of the FV of the asset at inception

Lessor has 2 additional criteria: 1. Lease payments are collectible, 2. No material cost uncertainties for the lessor

235
Q

Lease Classifications - Lessor & Lessee

A

Lessee: Operating or Capital
Lessor: Operating, Capital - Direct Financing, Capital - Sales-Type

236
Q

Capital - Sales-Type Lease

A

Leased Asset BV does not = FV

Lessor earns:

  1. Immediately: Gross Margin = FV - BV
  2. Interest over the Lease Term
237
Q

Capital - Direct-Financing Lease (Gross vs. Net Method)

A

Gross - Unearned interest is a contra receivable account

Net - Interest is included in Lease receivable account

238
Q

IFRS - Capital Leases Criteria

A

If ANY of the 5 criteria are met, the lease is a capital lease.

  1. Title Transfer (SAME)
  2. BPO (SAME)
  3. Term is for a major portion of the remaining life of the asset —- More judgmental
  4. The PV of MLP’s is substantially all of the FV of the asset —– More judgmental
  5. The asset under lease is specialized or unique such that only the specific lessee can use it w/o major modification. —- NEW
239
Q

IFRS - Bonds

A

Debt issue costs (transaction costs) reduce any premium or increase any discount: a reduction in the proceeds from the debt.

240
Q

Types of Non Profit Organizations

A
  1. Voluntary Health & Welfare Organizations
  2. Other NPO
  3. Healthcare
  4. Colleges & Universities
241
Q

G/L on Cash Flow & FV Hedges

A

Cash Flow - Reported in OCI

Fair Value - Reported in Income

242
Q

IFRS - Revenue Recognition on L/T Contracts

A

international standards require a modified version of completed contract—the cost recovery method, when the percentage of completion method is not allowed.

243
Q

Contingencies - Probable

A

Based on professional judgment, the probability of occurrence is considered very high or a near certainty.

244
Q

Contingencies - Reasonably Possible

A

Based on professional judgment, the probability of occurrence is neither very high nor remote. In other words, when probability of occurrence is considered along a spectrum of possibilities, the probability of occurrence is not at either end of the spectrum, but is in the large middle section of the spectrum.

245
Q

Contingencies - Remote

A

Based on professional judgment, the probability of occurrence is considered to be very low, or as the title implies, remote.

246
Q

Contingencies - Recognition, Probable but cannot be estimated

A

In this situation, the loss contingency should be disclosed in the footnotes to the financial statements.

247
Q

Contingencies - Recognition, Reasonably Possible

A

In this situation, whether the loss can be reasonably estimated or not, the loss contingency is disclosed in the footnotes to the financial statements.

248
Q

Contingencies - Recognition, Remote

A

In this situation, whether the loss can be reasonably estimated or not, the loss contingency can be disclosed in the footnotes to the financial statements. Please note that footnote disclosure is permitted but not required.

CPA EXAM (25 decks)

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