FAR deck 1 Flashcards
In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be:
deducted from net income whether declared or not
What are the two required FS for pension plans?
-The Statement of Changes in Net Assets Available for Benefits
-Statement of Net Assets Available for Benefits
How do you recognize a gain for a truck that was exchanged in a transaction that has commercial substance?
The gain is the difference between the FV and BV of the truck given up. For example, if FV is 90k and BV is 60k then a full gain of 30k is recognized.
If the exchange lacked commercial substance, then no gain would be recognized.
What is the accounting treatment for exchanges WITH commercial substance?
The new asset is at FV (+cash given / -cash received) and gains/losses are recognized normally on the exchange.
If no FV available, then no gain/loss is recognized, and the new asset is BV of old asset plus cash paid or less cash received.
What is the journal entry to record the amortization/depreciation of an investment in a subsidiary using the equity method when the FV is greater than the BV?
DR: Equity Revenue (reduces it by the amount of depreciation on the excess of FV over BV)
CR: Investment in Subsidiary (offsets a portion of the NI)
Thus, both accounts would be decreases.
How do you determine and calculate an impairment loss for a long-lived asset?
Verify if the impairment loss is not recoverable by checking if CV > expected (undiscounted) future cash flows.
Calculate impairment loss = CV - FV
In a constant dollar balance sheet, which items are restated to the current price level?
Nonmonetary items like land are restated using the TO/FROM consumer price index.
Monetary items are not restated because they are already state3d in current dollars like investment in nonconvertible bonds or long-term debt.
What must be considered in determining if a business segment is a reportable segment in the F/S?
1) Revenue (including sales to unaffiliated customers and intersegment sales) is 10% or more of the combined revenue of all operating segments. (Note: External revenue reported by operating segments must be at least 75%)
2) Profit/loss is 10% or more of all profiting segments or all reported segments who had losses
3) Assets 10% or more of all operating segments’ assets
NOT Liabilities!
What are the three characteristics of a derivative instrument?
This answer is correct. Under ASC Topic 815, derivative instruments contain
- One or more underlyings and one or more notional amounts
- No initial net investment or smaller net investment than required for contracts with an expected similar response to market changes, and
- Terms that require or permit net settlement, net settlement by means outside the contract, and delivery of an asset that is substantially the same as net settlement.
It does not have to be “highly effective” throughout its life.
Are you allowed to sum all discontinued losses and disposal losses from years 1 & 2 in Year 1 if the decision to dispose was decided in year 1?
No. Only actual operating loss/income is recognized, and estimated and actual disposal losses are recognized. So year 1 actual operating loss, and disposal for year 2 estimated in year 1 will all be losses captured in year 2.
What is times interest earned?
Operating Income / Interest Expense
Operating Income is income before interest expense and income tax expense.
What is the formula for book value per share?
Total SE / Outstanding Shares
Outstanding shares equal all issued shares less any reacquired shares.
What is the formula for rate of return on assets?
NI / Avg. Assets
What is return on common stockholders’ equity?
dividing net income available to common stockholders (net income less preferred dividends) by average common stockholders’ equity
What are the accepted fair value estimate approaches?
Cost approach, Income approach, and Market approach.
What is the entry to record the write-off of a specific account when the allowance method is used to recognize uncollectible accounts?
The write-off of a specific account will decrease AR and ABD b debiting ABD and crediting AR.
What is the JE under the allowance method for an account previously written-off that is now being collected?
There are two JE’s. Firstly, restore the account that was written off by debiting AR and crediting ABD. Secondly, record the cash collection by debiting cash and crediting AR. The overall effect is ABD will increase and AR will have no net effect on.
What is the calculation for DV LIFO?
“CIB LIR”
CY / Index = Base
then
Layer x Index = Result
How much interest should be capitalized for a construction project?
Total actual expenditures incurred (usually divide this by 2 since occurred evenly) X interest% = avoidable interest
The avoidable interest is the potential amount to be capitalized. Compare this to the other interest cost loans.
The lower amount will be capitalized.
