FAR Flashcards
1
Q
Conceptual Framework (2 characteristics)
A
Faithful representation & Relevance
2
Q
Conceptual Framework - Enhancing Characteristics
A
- Comparability
- Verifiability
- Timeliness
3
Q
Relevance - Qualitative Characteristics
A
- Predictive Value
- Confirmatory Value
- Materiality
4
Q
Faithful Representation - Qualitative Characteristics
A
- Completeness
- Neutrality
- Free from Error
5
Q
Gross Profit (Formula)
A
Gross Profit = Sales - COGS
6
Q
IFCO (Formula)
A
IFCO = Gross Profit - Expenses/Taxes
7
Q
Net Income (Formula)
A
Net Income = IFCO +/- Discontinued Operations, Extraordinary Items
8
Q
Cash Flows - Operating Section (Direct)
A
Interest and Dividend Income, trading investments, suppliers, employees, government
9
Q
Cash Flows - Operating Section (Indirect)
A
Reconciliation
Change in Cash = Ch. in Liabilities + Ch. in Equity - Ch. in Other Assets
10
Q
Cash Flows - Investing Section
A
Addition/Disposal of Assets, collection of loan principle
11
Q
Cash Flows - Financing Section
A
Sale of Equity/Debt, dividends paid, treasury stock
12
Q
Statement of Cash Flows - Summary
A
O - Income Statement
I - Assets, Liabilities, Loan Principle
F - Owner’s Equity
13
Q
A/R - Allowance Method
A
Credit Sales x % Sales Collectible = Allowance
14
Q
A/R - Balance Sheet vs. Income Statement Approach
A
B/S - Aged A/R
I/S - Sales
15
Q
Factoring A/R - With or Without Recourse
A
With - factor not responsible
Without - factor responsible for non-collectibles
16
Q
Inventory Costs
A
Capitalize costs except for goods on consignment
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
18
Q
COGS (Formula)
A
Beginning + Net Purchases = Goods Available - Ending = COGS
19
Q
FIFO
A
oldest costs in COGS, newest costs in Inventory, Increase N/I
20
Q
LIFO
A
newest costs in COGS, oldest costs in Inventory, Decrease N/I
LIFO is generally used to minimize income taxes.
21
Q
LIFO allowed/not allowed under IFRS?
A
Not allowed
22
Q
PP&E - Depreciable Cost
A
Cost – Salvage
23
Q
Straight Line Depreciation
A
Cost – Salvage/# yrs.
24
Q
Service Hours Depreciation
A
[(Cost – Salvage)/Total hours] x Hours used
25
Sum of the Year's Digits Depreciation
yrs. Remain/sum years x (Cost – Salvage)
26
Double Declining Balance Depreciation
SL Rate x 2 NO SALVAGE
27
Average Accumulated Expenditures
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.
28
Weighted Average Method - PP&E
Capitalizes interest using the weighted average rate on all interest bearing debt.
29
Specific Method - PP&E
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.
30
Trading Investments (Definition)
Debt and Equity securities bought and held principally for the purpose of selling them in the near term
31
Trading - Recognition
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.
32
Trading - Gains & Losses
Recorded: Unrealized gains and losses are included in earnings in the period they occur
33
Available for Sale Investments (Definition)
Debt and Equitysecurities not classified as trading or held-to-maturity
34
AFS - Recognition
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.
35
AFS - Gains & Losses
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
36
Held to Maturity Investments (Definition)
Debt securities that the organization has the positive intent and ability to hold to the maturity date
37
HTM - Recognition
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.
38
HTM - Gains & Losses
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
39
Equity Method Securities (Definition)
An Equity investment whereby the investor has significant influence over investee--generally >20% voting shares.
40
Equity Method - Recognition
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.
41
Equity Method - Gains & Losses
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
42
Cost Method Securities (Definition)
An Equity investment where there is no significant influence and it is a security with no readily determinable market value (privately held)
43
Cost Method - Recognition
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!
44
Cost Method - Gains & Losses
There are no unrealized gains and losses because the cost method is not marked-to-market.
45
Securities (Trading, HTM, AFS) - Debt vs. Equity
HTM – Debt, Trading – debt/equity, AFS – debt/equity
46
Securities (Trading, HTM, AFS) - Gains & Losses
HTM – No G/L, Trading – G/L on I/S, AFS – G/L in AOCI
47
Securities - IFRS
IFRS – 1. Business Model Test, 2. Cash Flow Characteristic Test
48
Equity Method (Sig. Influence) - Decomposition Tool
Net BV = CS + R/E + APIC
Net FMV = Assets – Liabilities
Price Paid – Net FMV = Goodwill
49
Intangibles - Definite Life
BV > Recoverable Cost = Impairment (Definite Life)
50
Intangibles - Indefinite Life
BV > FV = Impairment (Indefinite Life)
51
Impairment Loss (Formula)
Impairment Loss = BV – FV
52
Implied Goodwill
FV of Reporting Unit < CV
| CV of GW > Implied GW
53
Employer Payroll Expense
(FICA + Medicare) x ½ + (FUTA + SUTA) = ER Payroll Expense
54
Gift Card Revenues vs. Extended Warranties
Gift Card Revenues – Unearned Rev, Extended Warranties – separate contract in addition
55
Notes Payable - Gross vs. Net Method
Gross – Prem/Disc recorded in JE
| Net – Prem/Disc included
56
Notes Payable - Discount vs. Premium
Market > Stated = Discount
| Stated > Market = Premium
57
Bonds Payable - Effective Interest Method
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.
58
Bonds Payable - Straight Line Method
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.
59
Bonds Payable - Stated Rate vs. Market Rate
Stated Rate – Interest, Market Rate – face value of single payment
60
Troubled Debt - Gains & Losses
```
Gain = BV of Debt – FV
Loss = BV of debt – FV received
```
61
Troubled Debt - IFRS
Sum of Net flows
62
Treasury Stock - Cost Method
T/S debited for cost, reissue > cost = APIC
63
Treasury Stock - Par Method
T/S debited at par, APIC debited, reissue > cost = addt’l APIC
64
BV/Share - Common Stock (Formula)
Common Stockholder’s Equity/Common Shares Out = BV/Share
65
Pension Expense Breakdown
1. Service Cost 2. Interest Cost 3. Expected Return on Plan Assets 4&5. Amortization
66
Pension Expense - Interest
Interest = Begin PBO x Discount Rate
67
Pension Expense - Expected Return
Exp. Return = Begin FV of Assets x Exp. ROR on Assets
68
Accounting Changes/Errors
Restrospective – restate previous F/S’s
Prospective – use new estimate at current point forward
Restatement – correct R/E
69
Adjustment to R/E vs. Error
Adjustment to R/E – cumulative effect
| Error – prior period adjustment
70
Type of Change - Accounting Principle
Restrospective
71
Type of Change - Accounting Principle, prior year effects impracticable
Prospective
72
Type of Change - Accounting Estimate
Prospective
73
Type of Change - Change in Reporting Entity
Retrospective
74
Type of Change - Correction of Error
Restatement (correct retained earnings)
75
Cost Method vs. Equity Method Adjustments for Business Consolidations
Cost Method: no adjustments, Equity Method: adjustments
76
Contingency - Possible
Disclose
77
Contingency - Can't Estimate
Disclose
78
Contingency - Probable & Estimable
Accrue liability and disclose
79
Contingency - IFRS
"More likely than not"
80
Basic EPS (Formula)
Income avail to common shareholders/ Weighted avg. shares out = Basic EPS
81
Diluted EPS (Formula)
N/I – Preferred Stock Dividends / WA Shares Out = Diluted EPS
82
Cash Flow vs. Fair Value Hedge
Cash Flow Hedge – effects OCI
| Fair Value Hedge – effects N/I
83
Translation - Exchange Rates for Conversion
B/S Current, I/S Historical or WA, R/E formula, plug for Translation Adjust
84
Remeasurement - Exchange Rates for Conversion
Monetary - current, Non-monetary - Historical
85
Total Rentals - Leases (Formula)
Damage/Service Payments/# years = Rent Expense/Revenue
86
Lease Improvements
capitalized over the shorter of the lease term or useful life
87
Capital Lease (Components)
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
88
Direct Financing vs. Sales-Type Lease
Direct Financing - BV = FV
| Sales-Type - BV not = FV
89
Executory Costs - Incl./Excl. from MLP's & Net Account Balance?
MLP's - Lessee: Exclude; Lessor: Exclude
| Net Account Balance - Liability: Exclude; Receivable: Exclude
90
Annual Lease Payment - Incl./Excl. from MLP's & Net Account Balance?
MLP's - Lessee: Include; Lessor: Include
| Net Account Balance - Liability: Include; Receivable: Include
91
Bargain Purchase Option - Incl./Excl. from MLP's & Net Account Balance?
MLP's - Lessee: Include; Lessor: Include
| Net Account Balance - Liability: Include; Receivable: Include
92
Unguaranteed Residual - Incl./Excl. from MLP's & Net Account Balance?
MLP's - Lessee: Exclude; Lessor: Exclude
| Net Account Balance - Liability: Exclude; Receivable: Include
93
Lessee Guarantee of Residual - Incl./Excl. from MLP's & Net Account Balance?
MLP's - Lessee: Include; Lessor: Include
| Net Account Balance - Liability: Include; Receivable: Include
94
3rd Party Guarantee of Residual - Incl./Excl. from MLP's & Net Account Balance?
MLP's - Lessee: Exclude; Lessor: Include
| Net Account Balance - Liability: Exclude; Receivable: Include
95
Non-Monetary Exchange - Commercial Substance
new CF's generate significantly different CF's from old asset
96
Non-Monetary Exchange (Formula)
FV New Asset = FV Old + Cash
97
Lacks Commercial Substance
- Cash not received, no gain or loss recorded.
| - Cash received, gains are recognized in proportion to the amount of cash received.
98
Commercial Substance - Gain (Formula)
FV of Asset Exchanged - BV of Asset Exchanged
99
Commercial Substance - Loss (Formula)
BV of Asset Exchanged - FV of Asset Exchanged
100
Not for Profit Accounting - Net Assets Model
1. Unrestricted 2. Temporary 3. Permanent
101
Statement of Functional Expenses (Not for Profit)
optional ONPO's, program and supporting expenses broken out
102
Unrestricted Funds
resources are available for expenditure in the current period for any purpose
103
Temporarily Restricted Funds - Program Restrictions
resources are available for expenditure in the current period but only for specified (operating) purposes
104
Temporarily Restricted Funds - Asset Acquisition/Capital Restrictions
resources are available for expenditure in the current period but only for capital purposes
105
Temporarily Restricted Funds - Time Restrictions
resources are available only after a specified time has elapsed or event has taken place
106
Permanently Restricted
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
Governmental Accounting - Fund Balance
1. Nonspendable 2. Restricted 3. Committed 4. Assigned 5. Unassigned
108
Governmental Accounting - Net Position
1. Investment in Capital Assets 2. Restricted 3. Unrestricted
109
Governmental Fund Category - Accounting Method & Statements
- Modified Accrual Basis Accounting
| - Balance Sheet, Statement of Revenues, Expendituers, and Change in Fund Balance
110
Governmental Funds
1. General 2. Debt Service 3. Special Revenue 4. Internal Service 5. Permanent
111
Proprietary Fund Category - Accounting Method & Statements
- Accrual Accounting
| - Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, Statement of Cash Flows
112
Proprietary Funds
1. Internal Service 2. Enterprise
113
Fiduciary Fund Category - Accounting Method & Statements
- Accrual Accounting
| - Statement of Fiduciary Net Position, Statement of Changes in Fiduciary Net Position
114
Fiduciary Funds
1. Pension Trust Funds 2. Investment Trust Funds 3. Private Purpose Trust Funds 4. Agency Funds
115
IFRS - Inventory
LIFO is not allowed under IFRS
116
IFRS - Off-Balance-Sheet Activity
Under IFRS the focus is on whether a company controls an entity; off balance-sheet treatment is less frequent
117
IFRS - Fair Value Disclosure
There is no "fair value hierarchy" or required disclosures about level 3 assets/liabilities under IFRS
118
IFRS - PP&E, Intangibles
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
IFRS - Revenue Recognition
Much less detailed revenue recognition guidance. Completed Contract method is not allowed under IFRS.
120
IFRS - Research & Development
R&D is expensed under GAAP. Under IFRS, research is expensed but development costs could be capitalized and later amortized.
121
IFRS - Convertible Debt
Under IFRS convertible debt is generally split between its equity and debt components
122
IFRS - Pension Accounting
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
IFRS - I/S Expenses
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
IFRS - Impairment Write-downs
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
IFRS - Employee Stock Options
Employee stock options are expensed
126
IFRS - Contingencies
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
IFRS - "Netting" of Financial Instruments
Netting is allowed, however the criteria are more restricted than U.S. GAAP.
128
IFRS - Uncertain Tax Positions
Under IFRS there are many fewer detailed rules for dealing with uncertain tax positions.
129
Equity - Contributed Capital vs. Retained Earnings
Contributed Capital - Contributed by Owners
| R/E - retained by the entity
130
Gross Profit (Formula)
Sales - COGS = Gross Profit
131
Income from Continuing Ops (Formula)
Gross Profit - Operating Expenses - Income Taxes = IFCO
132
Net Income (Formula)
IFCO +/- Discontinued Operations, Extraordinary Items = Net Income
133
IFRS - Income Statement
Extraordinary items are not allowed
134
Comprehensive Income (Formula)
N/I + OCI = Comprehensive Income
135
IFRS - Revaluation of PP&E
permits revaluation of PP&E through OCI.
136
Cash Equivalents
short-term, highly liquid (ex: Treasury bills, money market funds)
137
IFRS - Statements of Changes in Equity
Must be a separate statement.
138
Types of OCBOA
Cash, Modified Cash, Income Tax, Regulatory
139
Personal F/S (Formula)
Begin Net Worth +/ Ch. in Assets +/- Ch. in Liabilities = End Net Worth
140
Valuation of Personal F/S
Estimated Current Value = FV
141
A/R - Gross vs. Net Method
Gross - without discount, Net - with discount
142
Allowance Method - B/S vs. I/S (Formula)
B/S - A/R x % A/R uncollectible = Allowance
I/S - Credit Sales x % Sales uncollectible = Allowance
Watch for beginning debit balances.
143
LIFO vs. FIFO
LIFO - newest costs in COGS, oldest costs in Inventory
| FIFO - oldest costs in COGS, newest costs in Inventory
144
Inventory Valuation
Lower of Cost or Market
145
Types of Capitalized Costs
1. Get ready costs 2. Intended condition/use
146
Natural Resources
does not include the cost of extraction; includes successful efforts/full cost methods
147
Stock Dividends - are/are not income?
Stock divdends are never income.
148
Selling Securities - HTM, T & AFS
Ability & Intent - HTM
| No Ability or Intent - T & AFS
149
Debt vs. Equity - Securities
HTM - debt
Trading - debt/equity
AFS - debt/equity
150
IFRS - Impairment Loss
Impairment losses can be reversed
151
IFRS - Investments (Tests)
1. Business Model Test
| 2. Cash Flow Characteristic Test
152
Liquidating Dividend
dividends exceed N/I for the year
153
Income Effect on Stock Dividends
NO income effect for stock dividends!
154
Identifiable Intangible Assets
copyrights, patents, trademarks, etc.
155
Unidentifiable Intangibles
Goodwill
156
Definite Life Intangibles
capitalize external costs, amortize using the SL method
157
Indefinite Life Intangibles
capitalize external costs, no amortization!
158
Impairment Test
1. Qualitative Assessment
2. Quantitative Assessment
a. FV of Reporting Unit < CV of RU
b. CV of Goodwill > Implied Goodwill
159
IFRS - Intangibles
Can reverse impairment losses, one-step goodwill test
160
Operating vs. Financing Liabilities
Operating - Current
| Financing - Noncurrent
161
Deferred Revenue
liability for future goods and services
162
Notes Payable - Gross vs. Net Method
Gross - uses premium/discount account
| Net - does not, directly into N/P account
163
Bonds Payable - Market vs. Stated
Market > Stated - Discount
Market < Stated - Premium
Market = Stated - Face Value
164
B/P Discount - Type of Account?
contra liability
165
Total Interest Expense - B/P (Formula)
Cash + Interest Discount = Interest Expense
| Cash - Interest Premium = Interest Expense
166
Bond Issue Costs
capitalized to deferred charge account, amortized as expense over bond term.
167
Bond FV Option - IFRS
irrevocable at bond issue
168
Convertible Bonds - BV vs. MV Method
BV - bond account balances transferred to stock accounts
| MV - G/L recorded between BV & MV
169
Bonds w/ Detachable Warrants
1. Separate accrued interest
2. Allocate total bond price
3. Record allocation to O/E (warrant)
170
Document issued through due process activities of FASB for amending the Codification?
Changes and updates to the Codification are accomplished through Accounting Standards Updates (ASUs).
171
FV of a Financial Asset
The quoted price in the most advantageous market
172
Total Revenues
economic benefit rec'd, does not include discounts and accounts written off that are recovered.
173
IFRS for SME's
does not have public accountability, publishes F/S for external users
174
Comprehensive Income (Formula)
N/I + AOCI
175
AOCI (Formula)
Running O/E account, increased or decreased by OCI for the period.
176
Material Loss - Unusal/Infrequent
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
OCI - Components
G/L on AFS securities and foreign currency translation adjustments
178
Operating Activities - Direct Method
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
Investing Activities
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
Financing Activities
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
IFRS for SME's - Goodwill
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
If a note receivable is determined to be impaired...
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
Total Interest Revenue (Formula)
equals the total amount paid by Ace over the life of the note less the proceeds to Ace.
184
Lower of Cost or Market - Market Value Ceiling/Floor
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
Perpetual vs. Periodic Inventory - FIFO and LIFO
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
IFRS - Inventory Valuation
Lower of Cost or NRV
187
PP&E - Capitalized Costs
Get ready costs, anything necessary to bring the asset to its intended condition and location
188
PP&E - Interest Cost
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
Interest Capitalization - Matching Principle
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
Recording Stock Dividends
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
IFRS - Investments to Receive Cash Flow
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
Liquidating Dividends - Cost vs. Equity Method
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
FV & Cost Method - Investment Reconciliation
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
Serial Bonds
Mature at regular intervals rather than on one single date
195
Debenture Bonds
not secured, backed by only the general credit of the issuing firm. Debenture bonds can also be serial bonds.
196
Market Price of a Bond (Formula)
PV of all remaining payments, (principal and interest) at the effective interest rate
197
Bond Premium (Formula)
difference between the bond carrying value and the bond face value.
Amortization of bond premium + interest expense = Cash Interest Paid
198
Term Bonds
Mature on a single date
199
Interest Expense vs. Interest Payable vs. Unamortized Bond Premium/Discount
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
When debt is issued at a discount, interest expense over the term of debt equals the cash interest paid
Plus discount
201
When a company declares a cash dividend, retained earnings is decreased by the amount of the dividend on the date of
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
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
Additional paid-in capital when the subscription is recorded
203
Net effect of R/E - Property Dividends
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
Effects of preferred stock called/retired
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
Benefit Pension Plans - w/in the same company
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
Pension Liability (Formula)
PBO - Plan Assets
207
Gains/Losses on Pensions
effects pension expense, not pension liability
208
Prior Period Adjustment
A Prior period adjustment is defined as the correction of an error affecting prior-year income.
209
Change in Accounting Basis
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
Change in Accounting Principle (i.e. FIFO to LIFO)
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
What legal form of business combination will result in the need to prepare consolidated financial statements?
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
Mergers vs. Consolidations vs. Acquisitions
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
Changes in contingent consideration in a business combination after the acquisition date
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
Contingent Consideration - Recognition
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
Cost of Carrying out Combination
Should be expensed, not included in total cost/consideration transferred amount.
216
IFRS - Contingent Assets in Business Combinations
Not recognized
217
IFRS - Goodwill in Business Combinations
Goodwill is allocated to Cash Generating Units
218
Intercompany Receivables/Payables
100% of the transaction should be elimintated, even if the primary company owns less than 100% of the subsidiary.
219
Cost Method - Subsidiary Investment
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
Cash Flow Hedge - Recognition (Effective vs. Ineffective)
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
Disclosure - Significant Concentrations of Credit Risk
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
IFRS - Impairment Testing
Impairment testing is completed relative to the recoverable amount
223
Contingency - Recognition
Must be probable and estimable
224
Contingencies - IFRS
If a range is provided, the median of the range is used for the accrued liability.
225
Dividends subtracted in computing Basic EPS
(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
Basic vs. Diluted EPS - Calculation differences
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
Translation G/L in Financial Statements
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
Translation
convert from foreign currency to the reporting currency
229
Functional Currency - Translation vs. Remeasurement
Translation - local currency is functional currency
| Remeasurement - primary entity's currency (i.e. U.S.) is the functional currency
230
Leases - Recognition of Rent Expense/Revenue (Definition)
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
Operating vs. Capital Leases - Definition
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
Leasehold Improvement - Recognition
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
Leases - Executory Costs
insurance, maintenance, and property taxes
Expensed by: lessor in an operating lease, lessee in a capital lease
234
Capital Lease Criteria
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
Lease Classifications - Lessor & Lessee
Lessee: Operating or Capital
Lessor: Operating, Capital - Direct Financing, Capital - Sales-Type
236
Capital - Sales-Type Lease
Leased Asset BV does not = FV
Lessor earns:
1. Immediately: Gross Margin = FV - BV
2. Interest over the Lease Term
237
Capital - Direct-Financing Lease (Gross vs. Net Method)
Gross - Unearned interest is a contra receivable account
| Net - Interest is included in Lease receivable account
238
IFRS - Capital Leases Criteria
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
IFRS - Bonds
Debt issue costs (transaction costs) reduce any premium or increase any discount: a reduction in the proceeds from the debt.
240
Types of Non Profit Organizations
1. Voluntary Health & Welfare Organizations
2. Other NPO
3. Healthcare
4. Colleges & Universities
241
G/L on Cash Flow & FV Hedges
Cash Flow - Reported in OCI
| Fair Value - Reported in Income
242
IFRS - Revenue Recognition on L/T Contracts
international standards require a modified version of completed contract—the cost recovery method, when the percentage of completion method is not allowed.
243
Contingencies - Probable
Based on professional judgment, the probability of occurrence is considered very high or a near certainty.
244
Contingencies - Reasonably Possible
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
Contingencies - Remote
Based on professional judgment, the probability of occurrence is considered to be very low, or as the title implies, remote.
246
Contingencies - Recognition, Probable but cannot be estimated
In this situation, the loss contingency should be disclosed in the footnotes to the financial statements.
247
Contingencies - Recognition, Reasonably Possible
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
Contingencies - Recognition, Remote
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.
