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FAR > FAR Deck 2 > Flashcards

FAR Deck 2 Flashcards

1
Q

How is bond liability calculated?

A

Net bond liability ( Face Amount +/- Bond discount or premium minus (-) bond issue costs.

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2
Q

Guidelines for electing fair value option (FVO)

A

-Decision is final and irrevocable until next election date.
-Election may applied to individual items not entire class of financial instruments

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3
Q

How is equipment purchased by note payable recorded on statement of cashflow?

A

-Noncash transaction, that will not be included within statement of cashflow.
-Only disclosure is required.

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4
Q

How is financial investments are measured under the Fair Value Option (FVO)?

A

-Unrealized gains and losses are recognized on income statement.
-Dividend income is recognized as income.

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5
Q

Lease liability fundamentals

A

-Summation of PV of lease payments.
-Lease liability is decreased by the cash lease payment minus the allocable interest expense.

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6
Q

Why would a entity elect LIFO under an inflationary environment?

A

-Lowest ending inventory value
-Highest COGS expense
-Lowest gross profit that will reduce taxable income, more cash is preserved.

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7
Q

How is Account Receivable net carry value is calculated?

A

-Gross Account Receivable minus(-) amounts deemed uncollectible.
-Allowance for credit losses per books is not used, because it is unadjusted balance.

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8
Q

How to calculate intra-entity payable from a intra-entity sales between subsidiary with parent company?

A

-Step 1: From consolidated statement, combine the parent and subsidiary account receivable.
-Step 2: Take the Consolidated A/R - Step 1 to undo the eliminated accounts payable (A/R).

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9
Q

How does NFP report expenses reporting?

A

-By Functional expenses and Natural expense classification

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10
Q

Under percentage completion profit calculation

A

Profit is the current completion % times the contract profit.

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11
Q

Equity method goodwill calculation:

A

Step1: Fair Value of Assets times Ownership %= Investor share of FV Asset
Step2: Cash minus Investor % in Asset = Goodwill

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12
Q

Interim period tax expense calculation

A

Step 1: Add Q1 and Q2 pre-tax income = year-to-date income
Step 2: Take Q2 effective tax rate (most current) times year-to-date income= Total Tax Expense
Step 3: Total Tax Expense minus Previous Q1 tax expense= Income tax expense for Q2.

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13
Q

Sample of calculating Weighted Average Common Stock involving stock split

A

1-Jan 1 initial stock 100,00 X 12 /12 X 1.05=105,000
2-Apr 1 Issuance Stock 30,000 X 9/12 X 1.05=23,625
3-June 1 Issuance Stock 36,000 X 7/12 X 1.05= 22,050
4-*July 5% Stock Dividend see above 1.05 reflection
5-Sept/1 Treasury Purchase (35,000) X 4/12 = (11,667)

Total 139,008

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14
Q

How does Stock Split and Stock Dividend impact Retained Earnings?

A

-Cash and Stock Dividend requires available Retained Earnings. That will impact future ability to pay dividends. Stock dividends is a reclassification of retained earnings into common stock.
-Stock split does not impact Retain Earnings at all.

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15
Q

What qualifies as Current liability?

A

1- Portion of Obligations due within 12 months
2-Obligations callable by Creditor in event of debt covenant violations. Exception is when Creditor waives right to demand repayment.

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16
Q

How should Note Payable be recorded on Statement of financial position when no stated interest % is provided?

A

1-The market value of the note.
2- Fair value of goods/services received for the Note Payable.
3- If FV of goods is less than the Note’s face amount, a discount % is applied.

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17
Q

Times-Interest-Earned Ratio

A

“Earnings before interest expense” divided by “Interest Expense”

**Ability to cover interest expense.

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18
Q

How is functional currency translated?

A

Take the average currency rate

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19
Q

LIFO or Retail Inventory Method Or LCM Method

A

Pick the lower value.
Compare current cost to the middle value of the following 3:

1-(Ceiling) NRV= Selling price minus cost completion/disposal
2-Replacement cost
3-(Floor) NRV minus normal profit

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20
Q

Lower of Cost or NRV FIFO Method

A

Pick the lower of Actual cost or NRV.
NRV= Selling Price minus completion cost/ Disposal cost.

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21
Q

Bond concept, what is recorded as current liabilities on the BS?

A

-Coupon payment minus the Interest Expense= reduction of bond liability
-! IE is not a liability, it is treated as a periodic expense

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22
Q

-Inventory value Lost In Q1 is $50
-Inventory value Gain in Q3 is $60
How is it recorded on each quarter interim statement?

A

Q1 and Q3= $0
Justification, market temporary decline that will be recovered later on. Plus, Recoveries allowed up to original amount, no additional gains allowed.

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23
Q

What is discussed in MD&A ?

A

-Disclose material information impacting future results.
-Disclosure involving commitments and events that affect the business operations and liquidity.
-Discuss the 3 following topics, liquidity , capital resources, and results from operations. It emphasis on forward looking approach.
-! Does not contain discuss EPS, Market & Product matters, and are not technical analysis.

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24
Q

Is 3rd party party fees a part of the contract transaction price?

A

No, contract price includes consideration involving goods and services. City sales tax are 3rd party fees that is not included in the contract price.

25
Q

Eliminating Intra-entity Inventory Sales concepts, including Gross Profit elimination.

A

1- COGS elimination: Consolidated COGS minus (Parent+Sub COGS)
2-Sales Revenue elimination: Consolidated Sales minus (Parent+Sub Sales)

26
Q

How does the change of expected service life of depreciable asset effect financial reporting?

A

-It is an change in estimate that is prospective that impact current and future period.
-No retrospective approach
-No disclosure of Pro Forma effects on prior periods.

27
Q

What GAAP principles determines income tax expense?

A

Asset-and liability approach, involving DTL and DTA

28
Q

Bonds Payable with varying maturity dates are classified as?

A

-Serial Bonds that matures in installments in various dates. Not term bonds, it is a single date.

29
Q

How is investment in equity securities measured under alternative method?

A

-Measured under Fair Value when no control or significant influence on Investee.
-Alternative method is only allowed when Fair Value is not available.
-Cost minus impairment +/- changes in observable price change that are identical/similar investment by same issuer

30
Q

How is debt security measured when Fair Value is greater/lower than cost?

A

-Trading securities, unrealized gains/losses are recorded in income statement/earnings
-Available-for-sale securities, unrealized gains/losses are recorded in Other Comprehensive income. Impairment is recorded in earnings.

31
Q

In June, there is change in accounting principle, how does this impact the interim statements including cumulative effect?

A

-Accounting principle changes are not permitted until beginning of the new year. Interim statement will not be affected by the accounting

32
Q

Primary purpose of statement of cashflow?

A

1-Primary to provide cash collected and cash disbursed within a period.
!!! Secondary purpose is ability to generate future net cash flow
!!! Secondary purpose is meet cash operating needs.

33
Q

How is Equity Securities investment recorded on the balance sheet year end?

A

-Remeasured under Fair value when no significant control
-Unrealized Gains/Losses reported on net income

34
Q

EPS is reported on the income statement concept:

A

1-Income from continuing operations to be reported on face of income statement.
2-Discontinued operations maybe disclosed on the face of instatement or in a note.
3-!!! Do not record EPS involving Cumulative effect on changes of accounting principle.

35
Q

What needs supplemental disclosures needed for statement of cashflow under indirect method?

A

-Only interest paid (not including capitalized ) and income taxes paid

36
Q

How is interest payable recognized on the balance sheet for noninterest bearing note?

A

None, no cash payment of interest. The interest expense is the amortization of deep discounted on the note.

37
Q

When does long term asset are treated as current assets?

A

Assets are consumed or sold within 1 year. Example Land held for sale qualifies as current asset if it is sold within a year.

38
Q

How does allowance method’ A/R write-off impact the current income and current asset?

A

-No impact on the current income statement, current asset and current expense.
-Because prior period the write-off was recognized by deducted on as an expense, deducted from current asset A/R and income statement

39
Q

What is the primary goal for income tax accounting?

A

-The current tax liability or refund
-Deferred tax liability or tax asset on future tax outcome/event.

40
Q

When rights are issued to acquire additional common stocks without consideration, how are common stock impacted when “Rights are issued” and When “ Rights are lapsed”?

A

-No impact under “rights are issued” and rights are lapsed”, only memo entry is recorded.
-However if rights are issued and common stock issued, the common stock at par value and additional paid-in capital will increase.

41
Q

When a parent company acquired a sub that has developed internal research and development projects. Should the parent company recognize the Fair Value of R&D, only capitalize the internal expense spent by Sub, or treat the R&D as expense immediately?

A

-Under the consolidation, the R&D is recognized by the Fair Value as if the Parent bought the completed R&D from a 3rd party.
-The Sub will expense the R&D under it’s stand alone statements.

42
Q

Does stock dividend increase or decrease shareholder’s equity?

A

-No it does not increase or decrease shareholder’s equity. The portion of retained earnings as reclassified as contributed capital.
-It is a wash, net effect is zero.

43
Q

How is comprehensive income calculated?

A

-Comprehensive income is the total changes in the Business equity that does not include investment by owners and distribution to owners.
-Comprehensive income = Net Income + Other Comprehensive income
-Net Income = continuing and discontinued operation

44
Q

What inventory method does Dollar-value pool use?

A
45
Q

How are revenue accounted when estimated total cost/profit is not available for completion contract?

A

Only the cost occurred in the period is recognized as revenue even though profit can not be estimated.

46
Q

Is a CD maturing in 6 months considered as cash equivalent?

A

No, only CDs are consider as cash equivalent when it is under 3 months

47
Q

What is Regulation S-X Disclosure SEC requirement?

A

Governs financial reporting including notes/schedule for interim and annual statements.

48
Q

How are split interest agreement setup?

A

By a charitable remainder trust. The NFP will receive/share the assets with associated beneficiary.

49
Q

If coupon amount and interest rate are provided, how do you calculate the future value?

A

Take the coupon amount divided by the “future value of ordinary annuity”. !!! Do not use “present value of ordinary annuity” when trying to get future value.

50
Q

Foreign currency remeasurement should be reported in which section of the financial statement?

A

Under income from continuing operations.
!!! Remeasurement is not foreign translation, do not list it under OCI.

51
Q

What cost do you add to the business combination cost?

A

Finder’s fee, professional & consulting fee, and general administrative related expense. Plus direct cost to issue equity.

52
Q

How does treasury stock acquisition impact total equity and “Book value per share” ?

A

-Total equity and total asset drops because cash is credited to acquire the treasury stock. Remember treasure stock is a contra-equity account.
-If the acquisition cost is less than book value, it will increase book value.

53
Q

How does reissuance of treasury stock impacting retained earning and APIC.

A

Be mindful when reissuance price is lower than the acquisition cost. Debit Retained Earning to record the loss if APIC-treasury is zero balance. Zero balance APIC-Treasury is when no prior reissuance surplus gain.

54
Q

How to find carrying value on a discounted noninterest-bearing note $500k at 10.8%?

A

Take the maturity value 500000 X 10.8%= $54000.

Minus 500000-54000=446000.

55
Q

If coupon amount and interest rate are provided, how do you calculate the future value?

A

Take the coupon amount divided by the “future value of ordinary annuity”.
!!! Do not use “present value of ordinary annuity” when trying to get future value.

56
Q

Foreign currency remeasurement should be reported in which section of the financial statement?

A

Under income from continuing operations.

!!! Remeasurement is not foreign translation, do not list it under OCI.

57
Q
A
57
Q
A

FAR (9 decks)

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