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FAR > FAR Deck 1 > Flashcards

FAR Deck 1 Flashcards

1
Q

Special Revenue Funds

A

-Cashflow from special revenue stream that are restricted or committed funds. Use of funds are for a specific purpose only, not allowed towards debt service or capital projects.

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2
Q

Basic Earning Per Share (EPS) formula

A

Net Income - Preferred Dividends
_____________________________________________________
Weighted Average of Common Shares Outstanding

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3
Q

Diluted EPS
If-Converted Method formula

A

(NI - PS Dividends) +PS Dividend + Convertible debt interest
“saving dividend exp” “after tax interest exp”
_______________________________________________________________Weighted Average Shares + new shares issued from
conversion

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4
Q

Weighted Average Shares calculation for Stock Dividend or Stock Split

A

Stock Dividend or Stock Split issued anytime of the year is treated as beginning year issuance for weighted average shares calculations.

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5
Q

Deferred Tax Asset (DTA)

A

Deferred Tax Asset (DTA) amount is the full loss carryforward times the tax rate. Valuation Allowance is deducted from the DTA when the portion of carryforward loss is 50% not realizable.

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6
Q

Where are uncommon and infrequent transaction reported on the income statement?

A

Unusual and Infrequent transactions are reported separately within the continuing operation section (income statement) and amount is not net of tax.

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7
Q

What is the Revenue Recognition Concepts

A

-Revenue Recognition Rule is Single Principles-based AKA (5-Step approach). That negates industry-specific policy or unique transaction-specific
-Revenue Recognition rule applies toward product/service warranty contracts. The following contracts does not apply: Insurance contracts, Lease Contracts and Loan Guarantee Contracts.

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8
Q

How are avoidable interest expense treated?

A

Capitalization of avoidable interest expense is computed by the interest rate times the Average Accumulated Expenditures (AAE). Actual Interest expense above the avoidable interest expense is not capitalized but expensed immediately. Note average out the AAE by 50% if expenditures are consistently uniform.

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9
Q

Lease Liability Concept

A

-At inception, lease liability is recorded by the PV of total lease payments. If Bargain purchase option(finance lease) is certain, the PV of the BPO is added to the lease liability.
-Both finance and operating lease at inception must record the lease liability and Right of Asset (ROU).

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10
Q

Carrying Value calculation under Equity method?

A

Beginning CV
(+)add % of income earning
(-)minus % of dividend paid
____________________________
End of year CV

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11
Q

How to fix previous reporting error on understating expenses for Work-in progress (asset)?

A

Correction is by debiting the asset (work-in progress) to properly capitalize the asset. Do not debit Retain Earnings since the expense is capitalized, RE is not effected.

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12
Q

Cash Proceeds from sale of Discounted Note Receivable calculation

A

Step 1: Calculate Total Maturity Value (MV)
Step 2: Minus Discount Fee (MV x Discount Rate x (remaining months to maturity/12)
=Net Cash Proceeds from Bank

*MV={Principal+interest income%+total term}

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13
Q

How are Payables to subcontractor recorded?

A

Not recorded as a liability on Balance sheet just by only entering into a subcontract inception. Liability arises only when the performance obligation has been completed by the subcontractor.

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14
Q

Total equity impact from Treasury stock transactions under Par Value Method?

A

Repurchase of treasury stork is treated as stock retirement that will lower total equity. Reissuance of treasury stock is treated as new stock issuance that will increase total equity.

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15
Q

Asset Impairment loss test?

A

Step 1: Compare asset Carrying Value (CV) to undiscounted future cash inflow.
Step 2: If CV is greater than undiscounted future cashflow. Determine impairment loss by comparing the difference between CV and Fair Value asset (FV).

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16
Q

What is the NFP Statement of Financial Position purpose?

A

Equivalent to balance sheet that shows the present interaction/changes between the asset, liabilities and classes of net asset.

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17
Q

What is the NFP Statement of Activities purpose?

A

Similar to income statement that highlights the changes to net asset classes and reclassifications. Showing how resources are allocated to provides Program and Service.

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18
Q

Units of Production Method formula

A

(Cost minus (-) Salvage Value) /
(Total Units Produced During Assets Life)

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19
Q

Current ratio formula

A

Current Assets / Current Liabilities

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20
Q

How is the HTM debt securities reported on the NFP statement of financial position?

A

Exceptions for nonprofit, all investment must be reported at fair value including HTM debt investment.

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21
Q

Operating Cycle in Days formula

A

(365 / AR Turnover) + (365 / Inventory Turnover)

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22
Q

How are stock dividend recorded?

A

Either fair value or equity method, no entries are made on reporting. Only memo disclosure is made to indicate the additional shares owned.

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23
Q

Governmental accounting Fund concept

A

Each fund is an independent self-balancing accounting unit. Responsible to demonstrate fiscal compliance.

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24
Q

What is the component of bond interest income issued at a discount?

A

The sum of cash interest income(debit) and amortized bond discount (debit).
Dr.Cash XX
Dr.Bond Discount Expense XX
CR. Interest Income XX

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25
Q

How is the financial reporting impacted involving changes of accounting principles in conjunction to changes in estimates?

A

The effect of intertwined changes of accounting principles and estimates will be treated as change in estimates i.e. depreciation, depletion and amortization method. Financial reporting is impacted for the current period and future periods.

26
Q

How are business formation cost treated?

A

For tax purpose, it can be capitalized up to 15 years. However, financial reporting requires immediate expensing for start-up and formation cost.

27
Q

Periodic Inventory method
Cost of Goods Sold Calculations

A

Begin Inventory
+ Purchases
———————————————————————-
=Cost of Goods Available for Sale
-Ending Inventory (physical count)
———————————————————————-
=Cost of Goods Sold

28
Q

What is the PV of note receivable when involving immediate cash payment?

A

PV of note receivable is coupon payment X (PV ordinary annuity or annuity due). If immediate cash payment is made, use the annuity factor minus the immediate payment period. Example 7 year note, only use 6 year annuity factor. The PV of note receivable is full cash payment plus the remaining 6 year PV annuity.

29
Q

Double Decline Depreciation formula

A

2/N * (cost-accumulated depreciation)

~N is the life of asset
~Salvage value is ignored

30
Q

Requirements for large accelerated filers?

A

1- Market value over $700MM
2- 60 days filing for 10-K (annual)
3- 40 days filing for 10-Q (Quarterly)

31
Q

Requirements for accelerated filers?

A
  • Market value over $250MM-$700MM
    -Annual Revenues $100MM & up
  • 75 days filing for 10-K (annual)
  • 40 days filing for 10-Q (Quarterly)
32
Q

Requirements for nonaccelerated filers?

A

-Under $75MM Market value
-Annual Revenues under $100MM
- 90 days filing for 10-K (annual)
- 45 days filing for 10-Q (Quarterly)

33
Q

How are Available-for-sale (AFS) debt securities reported on the financial statements?

A

Recognized at the initial cost. Remeasured at fair value on balance sheet date. Unrealized gain/loss are recorded on Other Comprehensive Income (OCI). Note, realized gain/loss are recorded. Note, Credit losses are recorded on Income Statement/Earnings.

34
Q

Dividend Rights concept

A

When dividend rights are issued, no entries are made. Only memo disclosure are made.

35
Q

What are the NFP classification of Statement of Financial Positions?

A

Net Assets - Liabilities = Residual Interest(Stockholder Equity).
Net Assets minimum classification is reported by:
1-Net Assets without Donor Restrictions
2-Net Assets with Donor Restrictions
3-Total Net Assets

36
Q

Is reconciliation of net income and net cashflow needed if it is direct method or indirect method?

A

Both methods requires reconciliation from operating activities.

37
Q

How is unconditional pledge reported?

A

-Pledge receivable at FV if collected within 1 year
-Pledge receivable at PV if collected after 1 year
–Reported either contribution or pledge receivable as an increase to net assets with donor-imposed restrictions.

38
Q

If periodic inventory is overstated, what is the financial reporting impact?

A

COGS (expense ) is understated
Gross profit/Margin is overstated
Retained Earning is overstated

39
Q

Journal entry sample of Equipment financed with a note payable.

A

Dr Asset 85,132
Dr Note Discount 24,868
Cr Cash Paid 10,000
Cr Note Payable 100,000

40
Q

How is current profit calculated under percentage of completion?

A

For each year to adjust the changing estimated cost/profit steps
Step 1:
Contract price
Minus: Estimated Total Cost:
{Current period/ Cost to date}
{+Remaining Cost to date}
Estimated Total gross profit
Step 2: Each Period find completion percent by: cost to date divided by Estimated total cost to date.
Step 3: Take the current percentage completion X estimated total gross profit to find the cumulative gross profit.
**Note, take the current cumulative gross profit minus previous cumulative gross profit to find the actual current profit to avoid double counting. Exception Year 1 is not requires since no previous profit is recorded.

41
Q

Investing Activities involve what transactions under Statement of cashflow?

A

1- Create and collecting loans
2- Buy and sell Equity/Debt securities
3- Property Plant and Equipment

42
Q

How is contract liability treated when involving financing under effective interest method?

A

When financing involved, under effective interest method the contract lability grows by adding the interest income. Payment collected before performance obligation is completed is treated as contract liability.

43
Q

Requirements needed for Contract Modification

A

1-Both Parties must approve to changes on the price or scope
2-The new changes in goods/service are distinct
3-New changes in goods/services have a standalone/independent selling price

44
Q

How is Asset Retirement Obligation calculated?

A

Beginning ARO balance + Annual Accretion expense = ending ARO balance.
Accretion expense = ARO liability * credit-adjusted risk free rate (CARF).

45
Q

How to calculate bond install payment when PV of total cash payment is presented?

A

Take the PV total cash payment divided by the annuity factor. Do not multiply the annuity factor when total PV is provided.

46
Q

Diluted EPS Bond conversion calculation reminder

A

Add back the interest expense * (1-tax %) * the total months/12. The additional common shares is treated as full 12 month weighted average calculation.

!Note be mindful with months/12 used for the interest expenses add-back. Do not assume full 12 month.

47
Q

How is sales price transaction recorded involving Noninterest-bearing note receivable ?

A

The sales transaction involving noninterest bearing note, the sales prices is recorded at the the fair value(best option), if not able then use the market value of the note.

48
Q

Statement cashflow treatment involving accumulated depreciation involving sale of PPE?

A

Accumulated deprecation expense that was reversed after from the sale of the equipment needs to be added back to depreciation expense.

49
Q

How is weighted-average accumulated expenditures (AAE) calculated for capitalized interest (avoidable interest)?

A

Take each expenditures X actual period. Example July 1 is 6 month for the year / total period. Note the total period is determined by when the construction began. The denominator will be 12 month if started at January. Be mindful the denominator should reflect when construction date started at a different date. Example April construction began, the denominator should be 9 month not 12 months.

50
Q

How is Asset Retirement Obligation recorded?

A

-Based on Fair value
-Each period the accredit expense is added to the ARO carrying balance

51
Q
A

Net Income is mandatory to be reported on the financial statement. OCI or Comprehensive income is not required when Entity does not have OCI items.
However is OCI is reported by 2 ways:
1- Statement of comprehensive income that combine NI and OCI.
2- 2 Separate Statement; Statement of net income and Statement of OCI.

52
Q

Cash Basis Financial Statement

A

-Statement of cash and equity
-Equity =Cash
-No Liabilities are recorded

53
Q

Modified Cash Basis Financial Statement

A

-Capitalize & Depreciate Fixed Asset
-Accrual of income tax
-Record liability long term & short term & interest expense
-Capitalize Inventory
-Report investment in fair value & recognized unrealize gains & losses.

54
Q

Tax Basis Financial Statement

A

Contains the following
*Statement of asset, liabilities & equity
*Balance Sheet
*Statement of revenues and expenses, and retail earnings
*Statement of income

55
Q

Amortization Expense

A

(Cost -Residual Value)

Divided by

(Useful Life)

56
Q

Income From Continuing Operations

A

Income from Operating Nonoperating
Continuing = Income + Income
Operation (Revenue & (Gains & Losses)
Expense)

                        "R" "E"                      "G" "L"
57
Q

Generally Accepted Accounting Principles (GAAP)

A

*General-purpose accounting framework
*Encompasses rules, conventions, & procedures
*Defined accounting practices at a specific time
*Maintained and updated by FASB

58
Q

Summary of significant accounting policies

A

*Revenue recognition policy
*Inventory method
*Depreciation Method
*Long-term contract accounting(overtime,@ a point in time)
*Classification of investment
eg (cash equivalent, trading securities)
*Basis of consolidation

59
Q

EBITDA

A

Net income +Tax expense +interest expense +Depreciation
+Amortization

EBITDA”proxy” is not equal to “operating cashflow”

60
Q

Dividends Arrear

A

Are Recorded as current liability only when dividend are declared.

“Orders of dividends payment”
1-Dividends in arrears(cumulative preferred stock)
2-Current Year Annual Dividends (preferred stock)
3-Current year declared dividend(common stock)

FAR (9 decks)

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