FAR D1 Flashcards
Accrual Basis Purchases Equation
Beginning AP + Accrual purchases—Cash payments = Ending AP
Prepaid Expense Equation
Beginning prepaid balance + Premiums paid − Expense charges = Ending prepaid balance
Determining Fair Value & Transaction Cost
FV is not adjusted for Transaction costs for assets in most advantageous market
Indirect CF Method - bond discount is amortized
Added back to net income in Operating Activities section of the Indirect method
4 sources of risk & Uncertainty
Nature of firm’s operation - products/services, geo location, principal markets
Use of estimates
Vulnerability to significant concentrations
4 concentrations required disclosure
Concentration in revenue
Concentration in supply source
Concetration in market for firms product
Concentration in volume of business w/a particular clent
Prepaid Insurance Equation
Beg PP + insurance pmt-insurance exp=End PPBal
Monetary Items
Advances to unconsolidated subsidaries
Allowance for doubtful accounts
unamortized bond premiums
Avg Days to Collect AR
365/AR Turnover
AR Turnover=Net Credit Sales/avg AR
Days in Operating Cycle
Days Sales in Inventory + #Days Sales in AR
Times Int Earned Ratio
Income b4 Int Exp & Inc Tax/Int Exp
AR T/O in Days
365/AR T/O
AR Turnover (T/O)
Net Cred Sales/AVG A/R
Defensive Interval Ratio
Quik Assets/daily operating expenditures
Avg Total Assets
(AR T/O / Asset T/O) X Avg AR
Book Value per share
Total Owner Equity / #shares outstanding (O/S)
Converting Cash Basis Sale to Accrual Basis Sales
Sales is adjusted for the Net Change in AR
Calculate the Bond Premium or Bond Discount
The premium or discount on a bond investment is the difference between the par value of the bonds and the price paid for the bonds in the market.
If the price paid is more than par value, there is a premium on the bond investment.
If the price paid is less than par value, there is a discount on the bond investment.
Simplified Hedge accounting approach
Variable int rate on the int rate swap and variable int rate on the hedged borrowing are linked to the same index.
Private Company Council
Steps to Compute DEPS using Treasury Stock Method
- Compute the
Treasury Stock Method
of unexercised stock options x $option price = $xxx,xxx
$xxx,xxx / $mkt price of stock = # shares to buy back
# of unexercised stock - #shares to buy back = amount to add to the denominator to calculate DEPS
Interim Income Tax Expenses
Total Inc Tax til end of interim period at tax rate - Inc Tax exp recog in previous interim period for same year.
Non Controlling Interest
FV NCI at acqisition + Share of NI - Share of dividends
Days Sales AVG Inventories
Avg Inventory at Cost / Avg Sales per day
cash collections from customers equal sales adjusted for the addition or deduction of the following amount
Under the terms of the question, accounts receivable increased during the year.
Increase in AR = sales − cash collections − write-offs
cash collections = sales − increase in AR − write-offs.
LCM
Current market price is less than what I paid (cost) for the inventory then inventory is reported at Market Price
If the Cost of the inventory is less that the current market price today then I record the inventory at the Cost I paid for the inventory.
Overstating Inventory Error requires PPA
The overstatement of inventory caused UNDERSTATED cost of goods sold and OVERSTATED income
Inventory Error
Use the equation BI + PUR = EI + CGS. When EI is understated, CGS must be overstated to maintain the equation. Net income, therefore, is understated (20x5). Then next year, BI is also understated because BI for 20x6 is EI for 20x5. Using the equation, if BI is understated, CGS is also understated to maintain the equation.
Inventory Error
Beginning inventory + Purchases-Ending inventory = Cost of goods sold
For example, if beginning inventory is understated, then the right hand side of the equation (cost of goods sold) must also be understated by the same amount.
Understating Inventory Ending Balance
Understating ending inventory results in OVERSTATED cost of goods sold and UNDERSTATED net income.
Interest Capitalization Basics
Depreciation Method - Production or Use Method
Cost - Salvage Value / (Total ESTIMATED production)(Units produced each year)
Double Declining Deprec Method at 150% or 1.50
Step 1: 1.50/useful life Double Decling Multiplier x Asset Cost (do not subtract salvage value = Accum deprec
Step 2: Asset cost - Accum Depreciation x 1.50/useful life
Double Declining Deprec Method at 200% or 2
Step 1: 2/useful life Double Decling Multiplier x Asset Cost (do not subtract salvage value = Accum deprec
Step 2: Asset cost - Accum Depreciation x 2/useful life
Gross Receivables Balance
AR BegBal + Credit Sales - Sales REturns - Write Offs - Collections = AR End Bal
