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FAR - CPA > FAR CPA Lessons 209-233 > Flashcards

FAR CPA Lessons 209-233 Flashcards

1
Q

Foreign Currency Transactions

A

Transactions of a domestic entity denominated in (to be settled in) a foreign currency, but to be recorded on the domestic entity’s books in the domestic currency.

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2
Q

Foreign Currency Translation

A

Financial statements denominated in (expressed in terms of) a foreign currency, but to be reported in the financial statements expressed in the domestic currency.

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3
Q

Direct Quote

A

This is a direct exchange rate and it measures how much domestic currency must be exchanged to receive one unit of a foreign currency. $1.25 = 1 €.

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4
Q

Indirect Quote

A

This is an indirect exchange rate and it measures how many units of foreign currency may be purchased with one unit of domestic currency. $1.00 = .80 €. The indirect quote is the reciprocal of the direct quote (1 € / $1.25 = .80 €).

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5
Q

Spot Rate

A

The number of units of a currency that would be exchanged for one unit of another currency on a given date.

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6
Q

Forward Rate

A

The number of units of one currency that would be exchanged for units of another currency at a specified future point in time.

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7
Q

If the dollar weakens

A

It will take more U.S. dollars to acquire one unit of foreign currency

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8
Q

If the dollar strengthens

A

It will take fewer U.S. dollars to acquire one unit of foreign currency.

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9
Q

Dollar Amount to Settle

A

Foreign Currency Units × Spot Exchange Rate

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10
Q

Dollar Amount at Balance Sheet Date

A

Foreign Currency Units × Balance Sheet Date Spot Exchange Rate

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11
Q

Forward Contracts

A

Agreements (contracts) to buy or sell (or which give the right to buy or sell) a specified commodity in the future at a price (rate) determined at the time the forward contract is executed.

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12
Q

Foreign Currency Forward Exchange Contracts (FXFC)

A

An agreement to buy or sell a specified amount of a foreign currency at a specified future date at a specified (forward) rate.

the obligation to buy or sell is firm; the exchange must occur.

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13
Q

Foreign Currency Option Contracts (FCO)

A

An agreement that gives the right (option) to buy (call option) or sell (put option) a specified amount of a foreign currency at a specified (forward) rate during or at the end of a specified time period.

the party holding the option has the right (option) to buy or sell, but does not have to exercise that option.

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14
Q

How to determine the fair value of a forward exchange contract

A

Changes in the forward (exchange) rate during the life of the contract, discounted to its present value.

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15
Q

Intrinsic value

A

The difference between the current spot rate for the currency and the strike price—that is, the price at which exercise of the option would result in a gain

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16
Q

Time value

A

The “value“ assigned to the probability that the relationship between the changing spot price and the strike price will increase the value of the option during its life

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17
Q

Hedging

A

A risk management strategy, which generally involves offsetting or counter transactions so that a loss on one transaction would be offset (at least in part) by a gain on the other transaction.

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18
Q

Why do you Hedge a forecasted transaction?

A

to offset the risk of exchange rate changes on nonfirm but budgeted (planned) transactions to be denominated in a foreign currency

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19
Q

Why do you Hedge an unrecognized, but firm commitment?

A

to offset the risk of exchange rate changes on firm commitments for a future purchase or sale to be denominated in a foreign currency

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20
Q

Why do you Hedge recognized (exposed) assets (e.g., receivables) or liabilities (e.g., payables)

A

to offset the risk of exchange rate changes on already booked assets and liabilities denominated in a foreign currency

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21
Q

Why do you Hedge an investment in available-for-sale securities?

A

to offset the risk of exchange rate changes on this class of investments denominated in a foreign currency

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22
Q

Why do you Hedge a net investment in a foreign operation?

A

to offset the risk of exchange rate changes on an investment in a foreign operation (e.g., translated value of financial statements expressed in a foreign currency)

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23
Q

Types of forward contracts for hedging purposes (According to GAAP)

A
  1. Forecasted Transaction
  2. Unrecognized, Firm Commitment
  3. Recognized Assets or Liabilities
  4. Available-for-Sale Investment
  5. Net Investment in Foreign Operation
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24
Q

What kind of hedge is an available-for-sale invenstment?

A

Fair Value Hedge

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25
Q

What kind of hedge is a Forecasted Transaction

A

cash flow hedge

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26
Q

What kind of hedge is an Unrecognized, Firm Commitment

A

fair value hedge

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27
Q

The purpose of speculation

A

To make a profit as a result of exchange rate changes either by buying foreign currency for future delivery at a price lower than its value when delivered or by selling foreign currency for future delivery at a price higher than it can be bought at the delivery date.

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28
Q

When does foreign currency conversion occur?

A

when a domestic (U.S.) entity must convert financial statements denominated (expressed) in a foreign currency into their domestic (dollar) equivalents.

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29
Q

Reasons conversion of financial statements might be needed

A
  1. Apply equity method by U.S. investor
  2. Combine with other entities
  3. Consolidate with U.S. parent (and other subsidiaries)
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30
Q

The objectives of foreign-currency conversion are

A
  1. To provide information that is generally compatible with the expected economic effects of rate changes on an enterprise’s cash flows and equity, and
  2. To reflect in consolidated statements the financial results and relationships of the individual consolidated entities as measured in their functional primary currencies in conformity with U.S. GAAP.
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31
Q

Recording Currency

A

The currency in which the foreign entity’s books of account are maintained

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32
Q

Reporting Currency

A

The currency in which the final (e.g., consolidated) financial statements are expressed

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33
Q

Functional Currency

A

The currency of the primary economic environment in which an entity operates and generates net cash flows

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34
Q

What is considered inflation?

A

cumulative inflation of 100% or more over a three-year period

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35
Q

Requirements for the function currency to equal the US Reporting Currency

A
  1. If operations are a direct and integral component or extension of a U.S. entity’s (e.g., Parent’s) operations, or
  2. When the foreign entity is located in a country with a highly inflationary economy, defined as cumulative inflation of 100% or more over a three-year period.
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36
Q

Requirements for the function currency to equal the another foreign Currency

A

If the foreign entity generates most of its cash flows in the currency of another foreign country or if required by law or contract.

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37
Q

What currency rate is used for revenues, expenses, gains and losses?

A

Use exchange rate at dates on which earned or incurred - or a weighted average

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38
Q

What currency rate is used for assets & liabilities?

A

Use spot rate at balance sheet date

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39
Q

What currency rate is used for paid-in-capital

A

Use historic rate in existence when paid-in-capital rose

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40
Q

Translation Adjustment

A

The amount needed to make the Balance Sheet (expressed in dollars) balance is the amount of the translation adjustment.

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41
Q

What currency rate is used for retained earnings

A

calculated as beginning retained earnings + translated net income - dividends declared converted at spot rate at date of declaration

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42
Q

Examples when you should use historic exchange rates

A

Assets and liabilities valued at past prices:

  • Securities carried at cost, if any
  • Inventories carried at cost
  • Prepaid costs
  • Fixed assets/accumulated depreciation
  • Intangibles (goodwill, etc.)
  • Deferred revenue
  • Paid-in capital

Revenue and expenses related to assets and liabilities converted at Historic Rate (only):

  • COGS (when Inventory at cost)
  • Depreciation
  • Amortization of Intangibles (not GW!)
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43
Q

Remeasurement Adjustment

A

Amount needed to make the trial balance debits and credits (expressed in dollars) balance is amount of remeasurement adjustment

-reported as a gain or loss in the income from continuing operations on the income statement

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44
Q

When should the remeasurement process be used rather than the translation process?

A

If the U.S. dollar is the functional currency of a foreign entity, the financial statements of that entity should be converted to U.S. dollars using the remeasurement process

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45
Q

Remeasurement converts foreign currency amounts to reporting currency amounts using different exchange rates for different accounts based on two distinctions

A

Monetary and non-monetary

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46
Q

When to use remeasurement, then translation

A

A foreign currency other than the recording currency equals the functional currency

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47
Q

For IFRS currencies are defined as

A

Foreign, functional and presentation

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48
Q

Define Lease

A

A lease is a contractual agreement between a lessor and lessee conveying the right to use property, plant, or equipment for a specified period of time in exchange for consideration (“consideration” is usually cash payments).

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49
Q

Define Operating Lease

A

A lease that does not transfer control (or ownership) of the leased asset to the lessee. This is a lease that is not classified as a finance lease by the lessee, is not classified as a sales-type lease or direct-financing lease by the lessor, and has a lease term greater than 12 months.

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50
Q

Define Finance Lease

A

A lease that transfers control (or ownership) of the leased asset to the lessee. The lessee recognizes a right-of-use asset and a lease liability on its books and recognizes interest expense and amortization over the lease term

The lessee “capitalizes” the leased asset. The lessor removes the asset from its books, replaces it with a financial asset (lease receivable), and recognizes interest revenue over the lease term.

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51
Q

How does the lessee record a finance lease?

A

the present value of the future lease payments is debited to the leased asset (right-of-use asset) and credited to the lease liability accounts

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52
Q

How does the lessee record a finance lease?

A

the present value of the future lease payments is debited to the leased asset (right-of-use asset) and credited to the lease liability accounts

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53
Q

How does the lessor record a finance lease?

A

the present value of lease payments is debited to the financial asset (a receivable) created at inception (beginning of the lease)

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54
Q

How does the lessee record a short term lease?

A

records lease or rent expense as time passes, typically on a monthly basis.

  • Lessee monthly journal entries:
    - Lease Expense (debit)
    - Cash or Accounts Payable (credit)
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55
Q

How does the lessor record a short term lease?

A

records lease or rent revenue as earned, also typically on a monthly basis.

  • Lessor monthly journal entries:
    - Cash or Accounts Receivable (debit)
    - Lease Revenue (credit)
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56
Q

The lessee must complete two calculations to determine how to record subsequent lease payments.

A
  1. Calculate the interest to be included in the lease expense by using the effective interest method.
  2. Calculate the amortization of the right-of-use asset based on the portion of lease payment assigned to the lease liability and to the amortization of the right-of-use asset.
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57
Q

Lease Term

A

he period during which the lessee can reasonably be expected to continue leasing the asset. It is the fixed noncancelable term of the lease plus periods covered by bargain renewal options plus all periods covered by renewal options during which there is a loan outstanding from the lessor to the lessee.

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58
Q

Bargain purchase option (BPO)

A

an option whereby the lessee will have an opportunity in the future to purchase the asset at an amount that is significantly less than the asset’s fair market value on that future date.

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59
Q

Guaranteed residual value

A

related to the condition of the property at the time that it reverts back to the lessor. If the lessee guarantees the residual value, the lessee is responsible for the condition of the asset at the conclusion of the lease term

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60
Q

No guaranteed residual value

A

the lessee is not responsible for the condition of the asset at the conclusion of the lease agreement

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61
Q

Executory Costs

A
  • casualty insurance
  • maintenance
  • property taxes

These costs are usually not capitalized by either party; rather they represent annual expenses associated with owning and maintaining the asset.

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62
Q

Lessee Minimum Lease Payments

A

All the payments the lessee is expected to make under the lease

  1. The annual lease payments
  2. Bargain purchase option
  3. If no bargain purchase option exists, any residual value guaranteed and expected to be paid by the lessee at the expiration of the lease term
  4. . Any penalty payments the lessee is required to make for not renewing the lease term
  5. Excluded are payments required by the lessee for damage, extraordinary wear and tear, or excessive usage because they cannot be estimated
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63
Q

Lessor Minimum Lease Payments

A

All the payments the lessor is expected to receive the lease

  1. The annual lease payments
  2. Bargain purchase option
  3. If no bargain purchase option exists, any residual value guaranteed and expected to be paid by the lessee at the expiration of the lease term
  4. . Any penalty payments the lessee is required to make for not renewing the lease term
  5. Excluded are payments required by the lessee for damage, extraordinary wear and tear, or excessive usage because they cannot be estimated
  6. Any residual value guaranteed by a third party unrelated to either the lessee or the lessor
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64
Q

5 criteria used to determine whether a lease is a finance lease

A
  1. The lease agreement transfers ownership of the leased asset to the lessee at the conclusion of the lease term
  2. The lease contains a bargain purchase option (BPO)
  3. The lease term is 75% or more of useful life
  4. Present Value is 90% or more of market value
  5. The asset does not have any alternative use to the lessor
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65
Q

If one or more of the finance lease criteria is met

A

the lease is a finance lease for the lessee

the lease is a sales-type lease for the lessor

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66
Q

If no finance lease criteria are met and the lease is greater than 12 months

A

the lessee has an operating lease

the lessor has either an operating lease or a direct-financing lease

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67
Q

How to determine the differences between an operating lease or a direct-financing lease for the lessor

A

1—The present value of the sum of the lease payments and guaranteed residual value is greater than or equal to the fair value of the asset.
2—Collectibility of the lease payments and guaranteed residual value is probable.

If the two criteria are both met, then the lessor has a direct-financing lease. If they are not met, then the lessor has an operating lease.

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68
Q

Types of leases for a lessee

A
  1. Short-Term
  2. Operating
  3. Finance
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69
Q

Types of leases for a lessor

A
  1. Operating
  2. Sale-type
  3. Direct financing
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70
Q

3 costs incurred by a lessee during a finance lease

A
  1. Interest Expense
  2. Amortization Expense
  3. Executory costs
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71
Q

Explain an annuity due

A

an annuity with the first payment occurring at the beginning of the first period

72
Q

For a finance lease, what amount should the lessee capitalize as the lease liability?

A

The lessee capitalizes the lease at the lesser of the present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease.

73
Q

What account does the lessee capitalize in a finance lease?

A

A right-to-use asset account

  • The leased asset is typically included in plant assets or property, plant, and equipment - At the present value of minimum lease payments
74
Q

For the lessee - how is the present value of the minimum lease payments computed?

A

computed using the lower of the implicit interest rate (the rate of return set by the lessor), if the lessee knows the rate or can determine it, and the lessee’s incremental borrowing rate.

75
Q

residual value

A

a best estimate of what the asset will be worth at the end of the lease

76
Q

Lessor derives two types of income from a Sales-Type Lease (STL)

A

interest revenue

gross profit

77
Q

How does the lessor repord a sales-type lease?

A

At inception (lessor assumes a new asset, i.e. Lease Receivable)

Lease Receivable (Debit) - Sum of min lease payment + residual value
Unearned Interest Receivable (Credit) - Total interest over term
Sales (Credit) - Fair value = Selling price
Cost of Goods sold (Debit) - Cost of asset
Asset (Credit) - Cost of asset

78
Q

When does a lessor account for a lease as a direct fiance lease?

A

when the lease does not meet any of the five lease criteria for a sales-type lease and essentially there is a guarantee of residual value by a third party.

79
Q

Lessors journal entries for direct finance leases at inception

A

Lease Receivable (Debit) - Fair value of the leased asset
Deferred gross profit (Credit) - Difference b/t fair value and cost
Inventory (Credit) - Cost of the asset

80
Q

How to calculate deferred gross profit for a direct finance lease

A

calculate the interest on the receivable as if it were a sales-type lease and then calculate the interest on the receivable as a direct financing lease. The difference between the two interest calculations tells us what the deferred gross profit is

81
Q

Lessors journal entries for direct finance leases when a payment is received

A 
Cash (Debit) - Total cash received
Deferred gross profit (Debit) - difference in interest calcualted for STL and DF lease
Lease Revenue (Credit) - Using interest percentage
Lease receivable (Credit) - Lease principle reduction based on STL calcualtion
82
Q

Lessor records lease revenue at what rate?

A

Rate that effectively amortizes the net lease receivable to zero over the lease term

83
Q

sale-leaseback transaction

A

The owner of the property sells its asset and immediately leases it back. The asset is not physically moved. The transaction is entirely financial.

84
Q

To qualify as a sale-leased back transaction:

A

the control of the asset should transfer to the buyer-lessor from the seller-lessee (Must meet the revenue recognition criteria for a sale)

85
Q

Usually a lease-back is recorded as a

A

an operating lease or a short-term lease

86
Q

Lesses disclosure requirements

A
  1. Assets obtained through finance and operating leases.
  2. General description of the leases, including important terms and features such as residual values and discount (interest) rates.
  3. Breakout of the cost associated with finance leases between the amortization of the right-of-use asset and the interest on the lease liabilities.
  4. The cost of operating and short-term leases.
  5. Future minimum lease payments in the aggregate and for each of the five succeeding years for both finance and operating leases.
87
Q

Lessors disclosure requirements

A
  1. General description of the leases, including terms such as purchase or renewal options.
  2. Allocation of lease payments between lease and nonlease components.
  3. A breakout of lease income—from sales-type leases, direct financing leases and interest income.
  4. A breakout of the net lease receivable—amount of gross lease receivable, deferred gross profit, and any residual value assumptions.
88
Q

How is amortization determined for the lessee under a finance lease?

A

Using the shorter of the lease term or the useful life of the asset

89
Q

When can a legal fee be included in the initial measurement of the right-to-use asset?

A

A legal fee that is incurred because the lease was executed is considered an initial direct cost; this cost is included in the initial measurement of the right-of-use asset.

A legal fee that is incurred before the execution of the lease may not be considered an initial direct cost and is expenses when incurred

90
Q

Examples of initial direct costs

A
  • legal fee that is incurred because the lease was executed
  • document fees associated with preparing the lease documents
  • commissions paid to agents to secure the lease
  • fees paid for third-party guaranteed residual values
91
Q

Accounting for initial direct costs

A

An initial direct cost is included in the right-of-use asset and is amortized as part of the right-of-use asset over the life of the lease. Use actual value not present value like BPO etc.

92
Q

Examples of Executory costs

A
  • property taxes
  • insurance
  • maintenance costs
93
Q

Accounting for Executory costs

A
  • When the lessee makes payments directly to the third party, then the lessee should expense the payments as incurred (most likely scenario to see on the exam).
  • When the payments are required fixed amounts and are made to the lessor (similar to how lease payments are made), then the costs should be included in the measurement of the lease liability.
94
Q

Accounting for variable lease payaments

A

The lessee will include the present value of yea payment increase in the lease liability.

If the variable lease payment amount is unknown then the variable lease payment is not included in the lease liability and is expensed in the period incurred.

95
Q

How does guaranteed/ungaranteed residual value effect initial journal entries?

A

guaranteed - include in cost of goods sold and sales revenue

unguaranteed - subtract from cost of goods sold and sales revenue

No effect either way on lease receivable, unearned interest and equipment/inventory accounts
*Gross profit is not effected because the residual value effects revenue and expenses equally

96
Q

How is gross profit calculated?

A

sales revenue minus cost of goods sold

*No present value factors included

97
Q

4 categories for not-for-profit accounting and financial reporting

A
  1. Hospitals and other healthcare entities
  2. Colleges, universities and other educational organizations
  3. Voluntary health and welfare organizations (VHWOs)
  4. Other nonprofit organizations (ONPOs)
98
Q

Who regulates not-for-profit entities?

A

FASB regulates the accounting and reporting practices for all private not-for-profit-organizations; GASB governs governmentally affiliated organizations.

Colleges and universities and healthcare organizations can be organized as not-for-profit, governmental, or for-profit commercial entities. If organized as a governmental entity, GASB standards apply. When organized as a not-for-profit or for-profit entity, FASB standards apply.

99
Q

Accounting for private not-for-profits

A

Most not-for-profit organizations fall under this category

Traditional reporting practices (fund model) are still expected to be used for internal reporting, however, funds are not used for external reporting.

100
Q

Accounting for public not-for-profits

A

These organizations are predominantly publicly funded hospitals and universities, although museums, parks, and landmarks can fall into this category as well

They use fund reporting in their independent statements and for reporting purposes are usually combined with the primary government entity and accounting and financial reporting is determined by the GASB.

101
Q

The main objective of financial reporting for not-for-profit entities

A

to disclose the sources of an NFP’s resources and how they were expended rather than the determination of net income.

102
Q

Nongovernmental not-for-profit organizations are required to report their financial statements on

A

An economic resource measurement focus

103
Q

Financial statements required for not-for-profit companies

A
  1. Statement of Financial Position
  2. Statement of Activity
  3. Statement of Cash Flows
  4. Expenses by nature and function in one place, either on the face of the state of activity or as a separate financial statement
104
Q

NFP requirements on the Statement of Financial Position

A
  • It does not include any fund information but instead is presented “for the organization as a whole”
  • Net assets (the residual of assets over liabilities) are broken down into two categories based on whether or not there are any donor-imposed restrictions
105
Q

Net assets without donor restrictions

A

These net assets represent net assets that are free of donor restrictions on usage and the NFP can use these net assets for any purpose.

106
Q

Net assets with donor restrictions

A

A donor may place permanent or temporary restrictions on a donation. These are only the assets with permanent restrictions

107
Q

Two types of temporary donor restrictions

A
  1. Purpose-type restriction

2. Time restriction

108
Q

Purpose-type restriction

A

occurs when the donor stipulates that the resources from the donation must be spent on something specific (For example a drug-free youth education programs at the YMCA)

109
Q

Time restriction

A

occurs when the donor stipulates that the resources must be spent in a certain time period

110
Q

Permanent restriction.

A

A donor may make a contribution with restrictions that it never be spent, such as an endowment fund that is to remain intact but the income from the endowment can be used by the NFP in accordance with the donor’s stipulations, if any.

111
Q

The Statement of Activity reporting on the changes in net assets without donor restrictions has four principal sections:

A
  1. Revenues and Gains
  2. Net Assets Released from Restrictions
  3. Expenses and Losses
  4. Change in Net Assets (including reconciliation of beginning and ending Net Assets)
112
Q

Types of revenue reported on a NFP statement of activity

A 
From donors without restruction
  1. Contributions
  2. Fees
  3. Other Investment Income
  4. Net Unrealized and Realized Gains and Endowment
  5. Net unrealized and Realized Gains on other investments
  6. Other
From donors with restrictions - total
113
Q

Types of expenses reported on a NFP statement of activity

A

Expenses by nature and function

  1. Program A
  2. Program B etc
  3. Management and General
  4. Fun Raising
  5. Fire Loss

List Changes in net assets with donor restrictions
Contributions
Investment Income on Annuity Agreements etc
List Changes in permanent restrictions net assets

114
Q

Programming services

A

Expenditures made to further the main mission of the organization

115
Q

Supporting services

A

Expenditures made to provide the organizational infrastructure and to raise resources. Supporting services are always reported on two line items:

  • Management and general
  • Fund raising
116
Q

Satisfaction of asset acquisition restrictions

A

The resources have been spent for the intended capital purpose, which always results in the increase of an asset account.

117
Q

Satisfaction of program restrictions

A

The resources have been spent for the intended operating purpose, which always results in the recognition of an expense.

118
Q

Satisfaction of time restrictions

A

The time or event specified in the restriction on the resources has occurred; note that it is not necessary that the resources be spent.

119
Q

What do NFP companies call net income?

A

Changes in Net Assets

120
Q

Cash flows from operating activities NFP

A
  • unrestricted contributions
  • unrestricted investment earnings
  • revenue restricted for operating purposes
  • revenue from exchange transactions
  • operating expenditures (salaries, supplies, interest expense)
  • grants to other organizations;
121
Q

Cash flows from investing activities NFP

A
  • inflows from the sale of capital assets
  • marketable securities wtc
  • outflows for the purchase of capital assets etc
122
Q

Cash flows from financing activities NFP

A

Has two subsections

(i) include contributions and investment revenues restricted for long-term purposes
(e. g., restrictions for acquisition of capital assets, endowments)
(ii) other financing activities for debt proceeds, debt repayment, lease payments, etc.

123
Q

three options for the report of expenses by nature and function:

A

(1) within the face of the Statement of Activities in the net assets without donor restrictions
(2) as a schedule in the notes to the financial statements
(3) as a separate financial statement

124
Q

Residual Interest

A

the appropriate characterization of the net assets of a nongovernmental not-for-profit organization

125
Q

When are unconditional contributions as revenue?

A

In the period they are received, regardless of if it is received inc ash.

Donations other than cash are recorded at fair value as of the date of the gift.

126
Q

When are conditional contributions as revenue?

A

Because conditional contributions depends on the occurrence of some future uncertain event, revenue recognition occurs when the condition is met or the chance of not meeting the condition becomes remote.

Record as a refundable advance until the condition is met.

127
Q

Two categories of revenue for NFP

A
  1. Contributions without donor restrictions

2. Contributions with donor restrictions

128
Q

When can a promises to give (pledges) be recognized as revenue?

A

may be recognized as contributions as long as they are unconditional. Conditional promises to give are promises that depend on a specific event occurring in the future. They cannot be recognized as contributions until the uncertain future event has occurred.

129
Q

Accounting for pledges

A

An allowance for uncollectible pledges should be recorded in a manner similar to a for-profit organization’s accounting for accounts receivable.

130
Q

How are fundraiser drive pledges recognized?

A

Recognized as contribution revenue net of the estimated uncollectible pledges

131
Q

Recognizing revenue for promises to give over multiple years

A

Recognize revenue at the net present value of the contributions. The portion to be collected in following years is put to the donor restriction account while the current year has no donor restrictions. As the cash is received reclass the revenue from restrictions to no restrictions.

132
Q

When can revenue for services donated be recognized

A

recognize the value of services that are donated to the organization if two conditions are met:

  1. Nonfinancial assets are enhanced
  2. Services required a) special skills provided b) by persons possess those skills and the services would c) normally have been purchased by the organization
133
Q

Accounting for services donated

A

Debit an asset or expense account

Credit Contributed revenue

134
Q

When does a NFP entity have the option to not recognize revenue for donated assets such as works fo art, historical artifacts etc

A
  1. Held for public exhibition, education, or research in furtherance of public sector rather than financial gain
  2. Protected, kept unencumbered, care for, and preserved
  3. Subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.
135
Q

When is a donation classified as a liability rather than a contribution?

A

When a resource provider transfers assets to a nonprofit entity and (1) does not grant the recipient organization variance power and (2) the recipient organization and the beneficiaries are not financially interrelated

136
Q

Split Interest Agreement

A

Both a donor (or beneficiary) and a not-for-profit organization receive benefits, often at different times in a multiyear arrangement

A donor makes an initial gift to a trust or directly to the not-for-profit organization, in which the not-for-profit organization has a beneficial interest but is not the sole beneficiary.

137
Q

Inexhaustible fixed assets

A

include works of art, cultural treasures, historical documents and property, and so on.

Donated inexhaustible fixed assets do not need to be capitalized and are not depreciated

138
Q

3 conditions for inexhaustible fixed assets

A
  1. Held for public exhibition, education, or research rather than financial gain;
  2. Protected, kept unencumbered, cared for, and preserved; and
  3. Subject to a policy that requires proceeds from sales of collection items to be used to acquire other items for collections.
139
Q

Permanent endowments

A

contributions to the organization from third parties for which the principal (corpus) must remain intact in perpetuity.

Recorded in net assets with donor restrictions

Earnings on the endowment may be:

  • expendable-restricted
  • expendable-unrestricted
  • nonexpendable
140
Q

expendable-restricted

A

Earnings from a permanent endowment that are expendable but only for specified purposes

141
Q

expendable-unrestricted

A

Earnings from a permanent endowment that are expendable at any time, for any purpose

142
Q

nonexpendable

A

depending on the stipulations of the donor

143
Q

Board-designated fund

A

the principal can be spent

Amounts set aside by the governing board of the organization to be spent for specific purposes

shown as a line item in the Net Assets without a Donor Restriction category as “Net assets without donor restrictions designated for ________”

144
Q

Quasi-endowment

A

only the earnings can be spent

Amounts set aside by the governing board of the organization, rather than outside sources, of which the principal must be retained and invested.

Quasi-endowments are included in Net Assets without a Donor Restriction.

145
Q

Term endowments

A

Gifts and bequests from third parties that are to be retained and invested for a period of time or until a specific event occurs.

they can ultimately be spent, they are classified as Net Assets with a Donor Restriction until the criterion is me

146
Q

Recognizing pure (regular) endowments

A

Earnings on pure endowments are reported as Endowment Income or Investment Income on the accrual basis. The regular endowment does not allow any of the principal to be spent, original asset is a net asset with donor restrictions

Interest Earned Recorded as:

  • If there are no restrictions on use, then report income under Net Assets without a Donor Restriction.
  • If the income must be spent for specified purposes, or may not be spent until a specified time or event, report under Net Assets with a Donor Restriction.
  • If the income may not be spent but must be used to increase or maintain the corpus, report under Net Assets with a Donor Restriction.
147
Q

Underwater Endowment Funds

A

An endowment is underwater when its fair value is less than original gift amount or a level stipulated by the external donor or by law.

Disclose:

  • The fair value of the endowment
  • The original endowment amount or the level required by the donor or by law
  • The amount of deficiency in the underwater endowment fund
148
Q

What type of cash flow is most cash inflow from donated financial assets?

A

Investing activity

149
Q

What type of cash flow is donated financial assets without a donor restriction that is converted nearly immediately to cash classified?

A

Operating activity

150
Q

What type of cash flow a long-term purpose, such as the construction of a building or creation of an endowment classified as?

A

Financing activity

151
Q

Accounting for Investments in equity securities with readily determinable market values should be included in what kind of net assets?

A

Net Asset without donor restrictions

152
Q

Donated securities are reported at

A

fair value at the time of donation

153
Q

Debt securities are reported at

A

at fair value or quoted market prices

154
Q

Patient Service Revenues

A

These are gross charges for direct patient care.

  • Room charges
  • Doctors’ fees
  • Medicine
  • Bandages
155
Q

Charity Care

A

When patients enter the hospital, the charity cases are immediately identified and eliminated from the patient service revenue calculations.

The amount of donated charity cases are identified and disclosed in the notes

156
Q

How to determine Net Patient Service Revenues

A

+ Gross Patient Service Revenues (including Ancillary Revenues)
− Charitable Services
= Patient Service Revenue
− Less Contractual Adjustments and Estimated Uncollectible Amounts
= Net Patient Service Revenue (first line in Statement Activities)

157
Q

Healthcare - Revenue from Contracts with Customers

A

determine the transaction price, which is the amount of consideration a hospital expects to be entitled to receive in exchange for services and goods to be delivered.

158
Q

Healthcare Operating Revenue

A

revenues from items related to the main operations of the hospital, but not directly related to patient care

  • Cafeteria sales
  • Research grants
  • Gift of medicine
  • Parking garage
  • Tuition from classes
159
Q

Capitation Fee Revenues (Premium Revenues)

A

ayments made to healthcare providers for comprehensive client coverage provided for a fixed fee (e.g., HMOs)

revenues should be recognized during the period covered and estimated obligations related to patient care for this period should be accrued. - Shows as a separate line item in the operating section

160
Q

Healthcare program services

A
  • Inpatient services
  • outpatient procedures
  • home health services
  • research
  • teaching
161
Q

Healthcare Supporting activities

A
  • Management
  • Administrative
  • Fiscal
162
Q

The financial statements of a governmental healthcare entity include:

A
  1. Statement of Net Position (Changes in assets or balances sheet)
  2. Statement of Revenues, Expenses, and Changes in Net Position
  3. Statement of Cash Flows
163
Q

Donated supplies to a hospital are recorded as what type of income?

A

Other Operating Revenues

164
Q

ancillary revenues

A

revenues for patient-related services such as radiology, pathology, laboratory work, and so on—are part of patient services revenues.

165
Q

items that must be reported separately from the performance indicator for health care organizations

A
  • equity transfers
  • receipt of restricted contributions
  • contributions of long-lived assets
  • restricted investment returns
  • unrealized gains/losses of unrestricted investments (except trading securities)
166
Q

Government hospitals classify revenues into three broad categories:

A
  • Patient Service Revenues
  • Premium Fees
  • Other Revenues
167
Q

Government report unrestricted gifts as:

A

Nonoperating Gains in the General Fund

168
Q

How is tuition revenue recorded?

A

Net of scholarship allowances and uncollectible amounts

169
Q

Scholarship allowances

A

Scholarship allowances are the difference between the stated tuition rate and the amount that is actually paid by the student and/or third parties making payments on behalf of the student.

170
Q

Scholarships

A

Scholarships are actual amounts paid to students by the college rather than a reduction of charges

171
Q

Auxiliary Enterprises

A

Activities carried on by the educational institution but not related to the delivery of instruction. Examples include housing services, dining services, athletic programs, college stores, student unions, etc.

172
Q

Financial Statements for Not-for-Profit Colleges and Universities

A
  • Statement of Financial Position
  • Statement of Activities
  • Statement of Cash Flows following FASB standards.

Two classifications of net assets:

  1. Net Assets without a donor restriction
  2. Net Assets with a donor restriction
173
Q

Financial Statements for Governmental Colleges and Universities

A
  • Statement of Net Position
  • Statement of Revenues, Expenses, and Changes in Net Position
  • Statement of Cash Flows
  • Followng GASB guidelines

Three components of Net Position are reported:
Net investment in Capital Assets
Restricted
Unrestricted

174
Q

a recognized foreign currency asset or liability is treated as a:

A

either as a cash flow hedge or as a fair value hedge, generally, at management’s discretion

175
Q

What is the maximum amount that can be used to hedge?

A

if the forward contract exceeds the investment being hedged, then the percentage of investments units/forward contract units is the percent of the forward contract that can offset an investment

176
Q

Functional classifications used by private sector health care organizations should be based on

A

Full cost allocations

FAR - CPA (15 decks)

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