FAR - Deck 4 Flashcards
Carry Amount (Book Value) AR
The carrying amount is the “face amount increased or decreased by applicable accrued interest and applicable unamortized premium, discount, finance charges, or issues costs and also an allowance for uncollectible amounts and other valuation accounts.”
Carry Amount (Book Value) AP
The carrying amount is the “face amount increased or decreased by applicable accrued interest and applicable unamortized premium, discount, finance charges, or issue costs.”
Matching
Matching is the process of associating realized revenues with the expenses and expired costs that were necessary to generate the revenues (i.e., that were incurred in the earning process). Matching requires the accrual method of accounting.
Matching Principles
1 - Associating cause and effect (e.g., cost of goods sold and delivery and salary expense),
2 - Systematic and rational allocation (e.g., rent, insurance, and depreciation), and
3 - Immediate recognition as incurred (e.g., advertising, research and development).
Effective Tax Rate
The effective tax rate is the average taxation rate for a corporation or individual.
Income Tax Expenses / EBT
Calculate Implied Value with Partner Investment
(Amount Invested / % of partnership)
Calculate COGS
Beg Inventory \+ Purchase =Goods Available for Sale - Write off Obsolete Inventory - Ending Inventory = COGS
Receivable Turnover Ratio
Net Credit Sales
/ Avg AR (**Remember to take Allowance for doubtful accounts into consideration)
Special Purpose Frameworks
1 - Basis of accounting that the reporting entity uses to comply with the requirements or financial reporting provisions of a governmental regulatory agency to whose jurisdiction the entity is subject. An example is a basis of accounting insurance companies use pursuant to the rules of a state insurance commission.
2 - Basis of accounting that the reporting entity uses or expects to use to file its income tax return for the period covered by the financial statements.
3 - The cash receipts and disbursements basis of accounting, and modifications of the cash basis having substantial support, such as recording depreciation on fixed assets or accruing income taxes.
4 - Definite set of criteria having substantial support that is applied to all material items appearing in financial statements, such as the price-level basis of accounting.
Serial Bonds
Serial bonds are a set of related bonds issued at the same time but which mature at intervals over time
Operating Lease
An operating lease is a lease that does not meet one of the criteria for capitalization: specifically, a lease that does not transfer a material ownership interest in the leased asset from the lessor to the lessee.
What do you do with Broker Fee of operating lease?
Amortize over the life of the lease
Free on Board
Free on board (FOB) is a term used to indicate at which point title to goods is transferred from seller to buyer:
1 - FOB Shipping - Ownership passes when the seller delivers the goods to a common carrier.
2 - FOB Destination - Ownership passes when the goods are delivered to the buyer or when the buyer receives the goods from a common carrier.
Calculate the Markup
1 + % of markup
Dividend Declaration
At the date of dividend declaration (January 15, 20X1), an entry to reduce retained earnings and record a dividend liability is made.
APIC JE’s
Dr. Cr.
Cash (5,000 x $110) $550,000
Convertible preferred
stock (5,000 x $100) $500,000
Additional paid-in capital
preferred ($550,000 - $500,000) 50,000
Summary journal entry to record 12/31/X2 conversion of preferred shares:
Dr. Cr. Convertible preferred stock $500,000 Additional paid-in capital preferred 50,000 Common stock (5,000 x 3 x $25) $375,000 Additional paid-in capital common ($550,000 - $375,000) 175,000
APIC
Additional paid-in capital (APIC) is an increase in equity (net assets) in excess of par or stated value arising from transactions involving the enterprise’s own stock. Usually, it is reported for each class of stock or each type of transaction (e.g., APIC from common, from preferred, from treasury stock (both par and cost methods), from conversion of convertible shares, from retirement of callable or redeemable shares from payment of a liquidating dividend, and from quasi-reorganization).
Capitalized Costs
The capitalized costs here are generally the costs incurred after attaining technological feasibility.
SEC steps in the rulemaking processs
1 - Concept Release: The rulemaking process usually begins with a rule proposal, but sometimes an issue is so unique and/or complicated that the SEC seeks out public input on which, if any, regulatory approach is appropriate. A concept release is issued describing the area of interest and the SEC’s concerns, usually identifying different approaches to addressing the problem, followed by a series of questions that seek the views of the public on the issue. The public’s feedback is taken into consideration as the SEC decides which approach, if any, is appropriate.
2 - Rule Proposal: The SEC publishes a detailed formal rule proposal for public comment. Unlike a concept release, a rule proposal advances specific objectives and methods for achieving them. Typically, the SEC provides between 30 and 60 days for review and comment. Just as with a concept release, the public comment is considered vital to the formulation of a final rule.
3 - Rule Adoption: Finally, the SEC Commissioners consider what they have learned from the public exposure of the proposed rule, and seek to agree on the specifics of a final rule. If a final measure is then adopted by vote of the full Commission, it becomes part of the official rules that govern the securities industry.
Options
Options do not qualify for hedge accounting and the Gain or (Loss) much be currently recognized.
