FAR Module 9D Flashcards
How do you state the date on a balance sheet
Specify a specific date
How do you state the date on an income statement
For the year ended …
How do you calculate net sales, which is referred to as simply “sales” on an income statement
Gross sales
- sales discounts
- sales returns and allowances
= net sales
How do you calculate cost of goods sold
Beginning inventory \+ cost of goods purchased = cost of goods available-for-sale - ending inventory = cost of goods sold
To calculate cost of goods sold you must know cost of goods purchased. How do you calculate cost of goods purchased?
Gross purchases - purchase discounts - purchase returns & allowances = net purchases \+ freight in/transport in = COG Purchased
This is an example of a “product” cost while everything else on the income statement is a “period” cost
Cost of goods sold
The following expenses are all examples of what? Selling expenses
General & administrative expenses
Research and development expenses
Organizational costs (also known as preopening costs)
Impairment loss (SEC registrant companies)
These are operating expenses
The following are examples of what: Interest revenue Equity and earnings of investee Gains on sales Unrealized holding gains
Other revenues/gains
The following are examples of what? Interest expense Amortization of bond issue costs Losses on sales of property, plant, and equipment Unrealized holding losses
Other expenses/losses
An event that is considered to be material but does not qualify as extraordinary is called what?
An unusual or infrequent item
This results from disposal of a business component
Discontinued operations
What are selling expenses? Give examples.
All expenses you incur to increase your sales are selling expenses.
Examples: bad debt expense, warranty expense, freight out/transportation out
Give examples of general & administrative expenses?
Paying the auditors, paying the CEO, paying for internal controls & compliance
An unusual and infrequent non recurring event which has material effects
Extraordinary items
Why are unusual or infrequent items not classified as extraordinary items
To be an extraordinary item it must be unusual AND infrequent not one or the other
What is the difference between a multiple step income statement and a single step income statement
They differ up to the line “income from continuing operations before provision for income taxes”, after this point they are identical.
A single step income statement simply splits into two categories: revenues and expenses. It does not calculate gross margin on sales.
On the other hand a multiple step income statement has more categories such as: operating expenses, other revenues and gains, other expenses and losses, etc.
Give examples of items that are NEVER extraordinary
1) foreign currency devaluing
2) effects of a strike
3) write-downs of any assets (inventory, PP&E, intangibles, goodwill, receivables)
A component can only be classified in the line “discontinued operations” in the first period that it meets these six criteria as being “held for sale”
1) management commits to a plan of disposal
2) the assets are available for sale
3) an active program to locate a buyer has been initiated
4) the sale is probable
5) the asset is being actively marketed for sale at a fair price
6) it is unlikely that the disposal plan will significantly change
Define comprehensive income under the FASB ASC definition
Comprehensive income is the sum of net earnings or loss (net income) and other comprehensive income
List examples of other comprehensive income
1) Unrealized gains and losses on available for sale investments (assuming the fair value option is not used), derivatives held as cash flow hedges, and foreign currency items
2) any reclassification adjustments
3) any adjustments necessary to recognize the funding status of pension plans or other postemployment benefits
4) cumulative foreign currency translation adjustment
What are managements two choices for presenting other comprehensive income
1) at the bottom of the income statement they can continue from net income to arrive at comprehensive income. This will include presenting a total amount for net income and its components, a total amount for other comprehensive income and its components, and total comprehensive income
2) on a separate statement that directly follows the statement of income and entity can present:
i) net income
ii) other comprehensive income and its components
iii) total comprehensive income
Regardless of which approach you choose when recording other comprehensive income you must show the ending balance of accumulated other comprehensive income where?
On the balance sheet after retained earnings
As unrealized gains (losses) that have been recorded and reported in other comprehensive income for the current or prior periods are later realized, they are recognized and reported in net income. To avoid double counting it is necessary to reverse the unrealized amounts that have been recognized. What is this called?
A reclassification adjustment
What are the main categories in a balance sheet
Assets, liabilities, and stockholders equity
What are the categories under assets in the balance sheet (5)
Current assets Long-term investments Property, plant, and equipment intangible assets, net of amortization other assets
Give examples of current assets (7)
Cash and cash equivalents Short-term investments accounts receivable notes receivable interest receivable inventory Prepaid expenses
Give examples of current liabilities (10)
Commercial paper accounts payable sales, wages, and commissions taxes withheld from employees dividends payable rent revenue collected in advance current portion of long-term debt current obligations under capital leases Deferred tax liability other accrued liabilities
This party is controlled by another enterprise that controls, or is under common control with another enterprise, directly or indirectly
Affiliate
Owners of more than 10% of the firms voting interests. this includes known beneficiary owners
These are principal owners
Affiliates, equity method investees, employee benefit trusts, principal owners, management or any party that can significantly influence a transaction
These are related parties
The financial statement must include disclosures of material transactions between related parties except for what two exceptions
1) compensation agreements, expense allowances, and other similar items in the ordinary course of business
2) transactions which are eliminated in the preparation of consolidated or combined financial statements
Disclosures of material transactions between related parties must include what
1) the nature of relationships
2) a description of transactions, including those assigned zero or nominal amount
3) dollar amounts of transactions for each income statement period and the effect of any change in method of establishing terms
4) amounts due to/from related parties, including terms and manner of settlement
T/F
When a control relationship exists you do not need to disclose the relationship if no transactions have occurred
FALSE
You must disclose such a relationship even if no transactions have occurred
The initial footnote to the statements should say what
Accounting policies must be set forth as the initial footnote to the statements
Under what situations is it necessary to disclose additional information in regards to accounting policies?
Disclosures are required if:
1) accounting policies are used when alternatives exist
2) principles are peculiar to a particular industry
3) unusual or innovative applications of accounting principles were used
These occur after the balance sheet date but before the financial statements are issued or available to be used
Subsequent events
A subsequent event in which the condition existed at the balance sheet date is called what?
A recognized subsequent event
How do you treat a recognized subsequent event
It must be recognized in the financial statements
A subsequent event in which the condition did not exist at the balance sheet date but arose after the balance sheet date is called what
A nonrecognized subsequent event
How do you treat a nonrecognized subsequent event
A nonrecognized subsequent event is not recognized in the financial statements. However, if the event is such that the financial statements would be misleading then a footnote disclosure should be made indicating the nature of the event and an estimate of the financial statement effects
The price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date (an exit price) is known as what
Fair value
