FAR Rereview Concepts 2 Flashcards
Actual return on pension plan assets vs. Pension adjustments.
What is the difference and where are they recorded?
What are investments in trading securities classified as?
Investments in trading securities are classified as current assets because they are highly liquid and intended for short-term sale, typically within a year or operating cycle, to generate profit from price fluctuations.
What is a scrip dividend?
A dividend paid in the form of promissory notes (IOUs) or additional shares instead of cash, allowing the company to conserve cash while rewarding shareholders.
What would be the JE for the following?
Do corporations report treasury stock “gains and losses”?
Corporations are not permitted to report income statement gains and losses from treasury stock transactions
“Gains” Credit APIC - Treasury stock
“Losses” first applied to APIC - Treasury stock (to $0)
Any remaining loss Debited to RE
If dividend is declared and net income is given to find the impact on RE,
How would the JEs be for the following?
Income Summary should match RE when the temporary accounts are closed at the end of the accounting period.
Debit Income Summary
Credit Retained Earnings RE
Note: Stock splits dont require JE
Under U.S. GAAP, is the cumulative effect of an inventory pricing change on prior years earnings reported on the financial statements for
LIFO to weighted average?
Weighted average to LIFO?
LIFO to FIFO: Retrospective: Adj Beginning RE, net of tax
FIFO to LIFO: Prospective: no adj to RE
if collectability is reasonably assured, the extra amount of subscription price paid above the stated value of no-par stock subscribed is recorded as:
APIC: when the subscription is recorded and when the subscription is received
NOT when issued
Under U.S. GAAP, APIC is recognized at the time the subscription is recorded (if collectability is reasonably assured) because it essentially locks in the shareholder’s obligation to pay.
What is a common stock that contains an unconditional redemption feature? How is this reported?
Reported as LIABILITY on the books
Stock that the company is unconditionally required to buy back, as stated in the agreement.
There is an obligation of a cash outflow in the future that the company has no ability to prevent.
Under the cost method vs the legal par/stated value method,
Under the legal (par) method
GAINS and LOSSES from treasury stock transactions DO NOT directly affect Retained Earnings.
They are recorded in APIC or other equity accounts.
If there’s NOT ENOUGH in APIC, RE is further reduced.
OCI: What is further included within PUFI?
Deferred gain on a cash-flow hedge
Deferred gain is considered an UNREALIZED GAIN
Pension adjustments:
Actuarial gains and losses
Prior service costs, credits
Pension plan settlement or curtailment gain
What’s further included in AOCI?
Unrecognized prior service cost?
Unrecognized pension gains?
UNRECOGNIZED gains and losses are effectively the same as UNREALIZED gains and losses in certain contexts, especially in OCI
How are common losses, such as common hail damage to company assets, reported in the financial statements under US GAAP?
For continuing operations and disclosures?
The ACTUAL hail damage loss would be in CONTINUING OPERATIONS, with NO separate disclosure.
Actual and not estimate because of the Reliability Principle: Statements must be based on reliable and verifiable information
No disclosure because hailstorms are frequent
If a company declared and distributed a PROPERTY DIVIDEND on overstocked merchandise, in which the carrying amount is over the market value…
How should this be reported?
Reported as a reduction (LOSS) in income BEFORE income from continuing operations.
Dividends declared and paid in ASSETS remeasured at fair market value on the declaration date
NOT CASH
Declaration of Cash dividends: Reduces the RE
Regarding insurance policies for replacements of assets, what is a deductible clause?
And what exactly is the “replacement cost” for the company?
Would this be a gain if insurance cost exceed the carrying amount of the destroyed assets?
The replacement cost is the cost provided by the insurance policy
A deductible clause: Literally the deductible the company has to pay in order for the insurance coverage kicks in
Yes it would be a gain as a separate component of income from continuing operations
Key foreign currency gains and losses
A stronger foreign currency (you need more of your currency to buy it) = ??
A weaker foreign currency (you need less of your currency to buy it) = ??
Stronger foreign currency =Loss
Weaker foreign currency = Gain
What is the differences
Legal par method vs cost method JEs when Treasury stock is purchased?
