FAR Flashcards
In transactions with commercial substance, what is recognized
All gains and losses.
In transactions lacking commercial substance, the asset is recorded at the lower of
o FMV given up + Cash Paid – cash received
o FMV of asset received
o BV of asset given up + cash paid – cash received
In transactions with commercial substance, the new asset book value is determined in what order
- FMV given up + Cash Paid – cash received
- FMV of asset received
- BV of asset given up + cash paid – cash received
If know #1, use it as the debit to the new asset. If #1 not known, use #2, etc
In a transaction lacking commercial substance where boot is received, what is the formula to recognize gain?
FMV Received Add: Boot Received Equals: Total Consideration Less: BV given up Total*(Boot Received/Total Consideration) = Gain
What is the formula for Sum of Years Digits?
What is the formula to find the sum of years?
Years Left of Life/Sum of Years
Sum of years can be found using the formula ((n(n+1))/2
How are infinite intangible assets amortized?
If they have a finite useful life, they are amortized by the useful life
If they have a infinite useful like, they are checked for impairment annually.
How do private companies to be amortize goodwill?
To be amortized Straight line over useful life not to exceed 10 years.
If there is a triggering event, impairment will be tested
If it is decided to test impairment on the entity level, and not the reporting unit level, then one-step testing is used
How is the cash surrender value of a life insurance policy for an office recognized?
It is recognized as an asset.
What acronym is used to determine if a lease is to be capitalized?
TT, BPO, 75, 90
If in last in last 25% of estimated economic life, criterion 3 and 4 are not used.
What does TT, BPO, 75, 90 stand for?
- TT – Title Transfer
- BPO – Bargain Purchase Option
- 75 – Non-cancellable lease-term is equal to 75% of asset’s life
- 90 – Lease is 90% of FMV of the leased asset
What is a sales type lease?
A lease where the seller is usually the manufacturer or dealer of the asset, and uses the lease as a way of selling the lease on an installment basis.
What is a direct financing lease?
A lease where the lessor is financing the acquisition of an asset by the lessee but is not earning a manufacturer’s or dealer’s profit.
What is diluted stock?
Convertible stock that is assumed to have been converted at the beginning of the period.
When is the Form 10K due to the SEC?
60 days: Large Filer (Makes $700M or more)
75 Days: Accelerated Filer (Revenues are $75M but less than $700)
90 Days: Small Filer (Revenues are less than $75
When is the Form 10Q due to the SEC?
40 Days: Large Filer (Makes $700M or more)
40 Days: Accelerated Filer (Revenues are $75M but less than $700)
45 Days: Small Filer (Revenues are less than $75)
When is a 8K due with the SEC?
File within four days of major event. Ex: Intent for officer to sell a large amount of stock, change in CEO, Bankruptcy, Acquisition or disposal of assets. Basically anything that materially changes management or any part of the balance sheet.
Other than the timing, what is the key difference between a 10K and a 10Q for auditing purposes?
10K’s go through a full audit, but 10Q’s only go through inquiries and analytical procedures. 10Q’s get limited or negative assurance.
What are the outlines to ASC 270 (interim reporting) for losses, gains, and ammortizations?
• Annual amortizations are broken down by quarter
• The effective tax rate for the whole year is used
• Items that are incurred in a quarter are specific to that quarter and should only be reported in that quarter
o However if the affect is expect to reverse by the end of the year (such as a loss), then don’t record it
o Increases in inventory (gains) are not recognized mid-year since inventory is not values at market when it is higher than cost. See: Lower of Cost or Market
Under the Completed Contract Method, when is revenue recognized?
Reports no profit unitl the job is finished
What is the difference between the Direct Method and the Indirect Method?
When building the cash flow statement, the indirect method reconciles net income to find cash. The direct method adjusts each section of the income statement (COGS, operating, etc) to find cash.
What four things need to happen to recognize revenue
Binding arrangement exists
Services rendered or delivery has occurred
Fixed or determinable price exists
Collection is reasonably assured
What is the breakdown of the FASB ASC Topics
Presentation: 200-299 Assets: 300-399 Liabilities: 400-499 Equity: 500-599 Revenues: 600-699 Expenses: 700-799 Broad Transactions: 800-899 Industry: 900-999
What is the most authoritative source of GAAP?
FASB Accounting Standards Codification (ASC)
This is the single source of authoritative US GAAP for nongovernmental entities. This replaces all previously issued non-SEC literature.
What is the second most authoritative source of GAAP?
Statements on Finanicial Accounting Concepts (SFAC)
Represent the ideas of the FASB as to the theoreitcal framework which it believes should guide financial accounting and reporting.
What is the third most authoritative source of GAAP?
Emerging Issues Taskforce (EITF)
Created in 1984 by FASB to reasch a consensus on how to account for new and unusual financial transactions.
Where are earnings show from equity in earnings on the Financial Statement?
In the income statement as continuing operations.
If no market value exist for a security, what method is used?
Cost Method
Debit Cash
Creidt Invenstment
What asset are trading securities treated as?
As a form of inventory. Changes to the value of trading securities are recognized in the operating section of the income statement
How are trading securities measured on the balance sheet?
At FMV
For available for sales securities, which financial statement shows the changes in value?
Other Comprehensive Income
Where are realized gains for available for securities shown?
The income statement
At what value are held to maturity securities recorded?
Cost
What method is used to account for the difference between cost and the maturity value of held to maturity securities?
HTM securities are recorded at amortized cost. The effective rate method is used.
How are securities measured when the fair value option is elected?
They are recorded at FMV with the gains and losses going to the operating section of the income statement.
Where does the realized gain and loss for securities go on the financial statements?
Realized gains and losses go in the operating section of the Income Statement, regardless of the method used.
What does not need to be disclosed for related party transactions?
Disclosure of any material related-party transactions except
1. Compensation agreements, expense allowances, and similar items in the ordinary course of business.
2. Transactions which are eliminated in the preparation of consolidated or combined financial statements.
How are errors restated for past financial statements?
Provides that an error in the financial statements requires restatement of the financial statements with an adjusting entry to retained earnings for the earliest period presented.
What does ASC 360 require to be used for recoverability of operational assets?
Undiscounted cash flows less related outflows
With exchanges of notes for assets when the interest rate is not fair, and the face amount of the note does not equal its present value, the present value of a note is determined according to the following three priorities:
(1) If available, Fair market value of goods is presumed to be the present value of the note.
(2) If fair market value for goods is not available, but there is a FMV for the note, then the note’s market value is equal to the present value of the note.
(3) Finally, if market values do not exist for either the goods, property, or services or for the note, then an interest rate must be imputed. This imputed interest rate is then used to determine the present value of the note. The imputed interest rate represents the debtor’s incremental borrowing rate.
Per ASC Topic 835, when a note is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless
(1) interest is not stated,
(2) the stated rate is unreasonable
(3) the current cash price of the property, goods, or services is materially different from the market value of the note.
Interest to be recorded under the interest method is ALWAYS to be recorded by
Effective Interest * Net book value
What are the three characteristics of an extraordinary item?
- Unusual
- Infrequent
- Significant amount
In transactions lacking commercial substance, how are gains and losses recognized?
- Recognize all losses
* Defer all gains
What are the spelled out meanings of TT, BPO, 75, 90?
TT: Transfer of Title
BPO: Bargain Purchase Options
75: 75% of useful life
90: 90% of FMV
