FAR Rereview Concepts Flashcards
What is the affect of the amortization of an actuarial pension loss have to OCI
This causes OCI to increase, while also increasing pension expense and causing net income to decrease
the effect on the OCI is positive because tis being “relieved” of a loss through an amortization expense
Are the purchases of treasury stock by a company added or subtracted to the WASCO when calculating EPS?
Treasury stock would be subtracted to calculated the weighted average because it is a buy back form the company.
Are convertible bonds considered dilutive or antidilutive when calculating WASCO for EPS
Convertible bonds are dilutive because they have the potential to increase the # of company’s outstanding shares upon conversion.
They will be added when computing dilutive shares
If a convertible bond was not converted how would this be calculated?
Issued 50,000
Face value $1,000
Convertible 4%
Convertible into 20 shares of common stock
We would multiply 50K with the 20 shares, weighted average out for the year, and added to calculate the diluted earnings per share
What is included with when calculating discontinued operations?
When are losses transferred to discontinued operations?
gain or loss on disposal of discontinued operations
the operating income or loss of the discontinued component
Operating losses for discontinued operations are included for the entire period, regardless of when the disposal decision was made. Future losses and projected losses are not included or accrued.
In a multistep income statement, what is interest expense a part of?
An interest expense is a non operating expense
Interest expense is typically subtracted by the continuing operations.
What is a liquidating dividend?
The amount in excess of retained earnings balance
Total cash dividend declared - retained earnings = liquidating dividend
When calculating WASCO for repurchases, how should they be averaged out?
They should be averaged by dividing by 52 weeks in a year, since the shares were only outstanding for part of the year.
How should property taxes be treated when it was paid for the calendar year?
Property taxes should be allocated over the periods
If it was in June 1 it will be divided by 2 (6/12)
What happens to APIC and RE when a company declares a stock dividend?
APIC increase, and RE decreases.
RE decrease because the company uses profits to issue more shares, and the value of those shares is added to APIC
What happens to the par value of a stock in a stock split?
In a stock split, the par value per share is reduced proportionally to the split ratio to maintain the same total par value of the company’s stock
Is the fair value or the par value used to allocated proceeds between common and preferred stock?
The fair value is used because it reflects the market price of each stock type, ensuring proceeds are allocated proportionally to their market worth, while par value doesn’t represent the actual value investors are willing to pay.
What’s the key tax reminder for OCI in comprehensive income?
Always adjust OCI items for taxes before including them in comprehensive income:
Subtract the tax effect from gains.
Subtract the tax effect from losses.
How do you calculate the book value per share of common stock?
- Start with total stockholders’ equity (including retained earnings, paid-in capital, and adjustments for treasury stock).
- Subtract any treasury stock to get outstanding shares
Formula:
How does an issue of 5% stock dividend affect assets, stockholders’ equity, and retained earnings, and why?
- Assets: No effect – Stock dividends are non-cash transactions, so assets are unchanged.
- Total stockholders’ equity: No effect – The stock dividend reallocates amounts within equity (from retained earnings to common stock and additional paid-in capital), but total equity remains the same.
- Retained earnings: DEBIT Decrease – The value of the stock dividend is deducted from retained earnings and transferred to common stock and additional paid-in capital.
What is the treasury stock method when calculating the diluted eps?
What is the formula?
The treasury stock method calculates the additional shares that would be added to diluted (EPS) when stock options are exercised. The treasury stock method assumes that proceeds from option exercises are used to buy back shares on the open market.
Formula:
What is the way to calculate WASCO if all is outstanding vs. Issued/declared
If all shares outstanding, no continuous adding of shares when averaging
If issued shares are continuously added when averaging. If declared don’t average the prior. *MCQ-05446
Format
Shares X Months X Stock splits (if any)
_____________________________
12 months (total months in a year)
Stock dividends and stock splits: treated as if they occurred at the beginning of year
How are non convertible preferred stock dividends handled when calculating for EPS?
Are they dilutive?
Non convertible preferred stock is not dilutive
Nonconvertible preferred stock dividends are subtracted with net income on EPS..
because they are paid first to preferred shareholders, before common shareholders get any earnings.
How would you answer this question? Any Journal entries?
Following journal entries to get result:
How would you calculate the profit if revenue is recognized over time?
Note: Y2 Accounts for Y1 actual costs to get a better picture of figures. This is due to the percent of completion method for revenue recognition “over time”
How are prior period errors handled in comparative financial statements?
Prior period errors are corrected retroactively:
Errors from a period not shown are adjusted in the opening retained earnings of the earliest presented year.
Errors in a presented year are corrected by adjusting that year’s net income.
How is common stock reported in the equity section when shares are issued and bought doing the cost method?
When the cost method is used to account for treasury stock, common stock is reported on the balance sheet as the total shares issued at par value:
Treasury stock is shown separately
What is the treatment for a change in the method of applying the lower of FIFO cost or market to inventory (e.g., individual item approach to aggregate approach)?
A change in applying the lower of cost or market (LCM), such as switching from the individual item to aggregate approach in FIFO, is a change in accounting principle.
Retrospective adj on RE
What adjustments are made when an error is discovered where an asset was incorrectly expensed instead of being capitalized and depreciated
Adjust retained earnings, no adjustment to current depreciation expense
What is the difference in reporting between a cash flow hedge, and a fair value hedge?
When does a company recognize revenue when recognized at a point in time for a long-term construction contract under U.S. GAAP?
“costs incurred to date” vs. “total estimated costs” is the basis for recognizing revenue
When should EPS be retroactively adjusted for stock dividends, stock splits, or reverse splits?
EPS should be retroactively adjusted for all periods presented using the new share count whenever a stock dividend, stock split, or reverse split changes the number of common shares outstanding.
Are stock splits considered asset or capital distributions?
No, stock splits are not asset or capital distributions. They increase the number of shares outstanding while proportionally reducing the value per share. Total equity remains unchanged.
