FAR Superfast Deck Flashcards
Unrealized losses of what kind of security go on the Income Statement?
Trading Securities
Comprehensive Income =?
Net Income + Other Comprehensive Income
Unrealized gains and losses on debt securities classified as WHAT will be recorded in other comprehensive income?
Available-For-Sale
Accelerated Filers of Form 10-K have how many days to file?
75
For accelerated filers the 10Q is due within how many days?
40
Stock splits specifically are treated as if what?
- They had occurred at the beginning of the year for weighted average calculations
Basic EPS =?
Income available to C.S. holders divided by the weighted average number of common shares outstanding
Net of Tax =?
(1-Tax Rate)
A _________ is the amount in exceess of what you have in RE.
“liquidating dividend”
When a stock dividend is made. How does this affect Equity?
Net equity DOES NOT CHANGE. Funds are moved from RE into C.S. & APIC
Available for Sale securities unrealized gains/losses go on what?
OCI (Other Comprehensive Income)
Equity Method Take your investment &?
Add portion of N.I. and subtract portion of Dividends
Significant Concentrations is required for which financial instruments?
All of them
How do you report debt securities classified as Trading?
FMV with holding gains/losses included in earnings
Under the indirect method, cash flow from operations increases when _______ decrease and when __________ increase.
current assets, current liabilities
Held to Maturity bonds should be accounted at what?
Amortized Cost
Tell me where you put unrealized gains/losses for trading securities vs Available-for-sale (AFS)
Trading go on the Income Statement in earnings, AFS go on OCI until realized
When you see consolidated/consolidation you think _________?
Acquisition Method
What is the line between classifying something as trading vs AFS
If its for sale in the next 12 months its trading. If there is no intent to hold to maturity but they plan to sell after 12 months this is classified as AFS
You cannot use the “Fair Value” measure option for 3 things. What are they?
Investments in subsidiaries, Pension benefit assets/liabilities, and asset/liabilities recognized under leases
The Income Statement does not include ______?
OCI (Other Comprehensive Income)
Any dividends paid in excess of retained earnings are treated as ________?
A return of Capital. Which means you’d actually reduce the investment account if the dividend exceeded the amount of RE’s.
These should be applied retrospectively in calculations using weighted shares
Stock Splits
When you are doing the weighted shares calculations what three columns will you use and why?
1) The shares outstanding (running net balance) 2) The months outstanding before something new happened 4) The applicable stock split multiplier. Then add up all the balances and divide by 12 months to get the weighted average shares used in EPS calculation.
Comprehensive Income represents _______?
All changes to Stockholders equity that come from non-owner sources
What needs to be disclosed for financial instruments?
Carrying Value and Fair Value
When a bond is issued at a premium what does that mean about the effective interest rate vs the stated coupon rate and consequent interest expense? why?
the effective rate will be lower than the coupon rate. Interest expense will also be lower and this is because more cash was received up front so less interest will be required over the life of the bond.
Whats the trick with equity securities when it comes to “trading” and “AFS”?
All equity securities are now done using FMV method unless you get into equity or acquisition methods (20-50 + sig inf) or (>50%)
Depreciation Expense falls under what part of the Income Statement?
Selling, general, and administrative expenses. (Debit dep exp, and credit Acc Dep)
Give me three examples of general and administrative fee’s. Where would “Freight-In” be included? Where would “Freight-out” and Sales representative salaries be included?
Accounting and legal fees, Officers salaries, Insurance. COGS. Selling Expenses.
What’s the Interim Tax Calc?
Estimated annual effective tax rate LESS any tax expense recognized in previous interim periods
Explain the permanent differences on life insurance for key officers.
The premiums cannot be deducted and the life insurance proceeds after death are NOT taxable
Indirect method statement of cash flows where do gains/losses hit?
Operating Section
Where would borrowing on a line of credit hit on an indirect method statement of cash flows?
Financing Section
For an NFP there are three main expense categories what are they? Provide a short description of each.
1) Program Services (related directly to MISSION of organization)
2) Management & General (Admin Expenses)
3) Fundraising
Define Conservatism
“Anticipate all losses but not gains”
What are the conditions to record liabilities resultant of litigation. What value do you use in a range?
has to be PROBABLE and ESTIMABLE. If the estimable portion is a range, you use the lower amount. (Goes a bit against intuition).
GAAP rules for a lease to be classified as a finance lease is explained by an acronym. What’s the acronym and what does each letter stand for? How many of these criteria need to be met?
OWNES
O - Ownership will transfer from lessor to lessee by the end of the lease term
W - Written Option to purchase the asset and its “reasonably certain” this will be exercised
N - Net Present Value of all the lease payments & any guaranteed residual value make up 90% or more of the FV of the asset
E - Economic life is substantially made of the term of the lease (75% or more)
S - Specialized Asset such that it will not have an expected alternative use for the lessor
Only one of these criteria need to be met
What the difference between an “Annuity Due” vs an “Ordinary Annuity”?
Annuity Due - Payment’s made at the beginning of each period
Ordinary Annuity - Payment is made at the end of the period
What’s the High-level difference between what is reported for an Operating Lease vs a Finance lease?
Operating - The ROU Asset and Lease Liability are calculated using the PV of the lease payments at the appropriate discount rate
Finance - Lease liability is the PV of the lease payments owed & the ROU has a bunch of stuff included in it (Commissions, legal, consulting, and any payments at or before the lease commencement date)
Give an example of a loss contingency?
Pending or threatened litigation
Lawsuit Gains talk to me about it
Gains you take the approach of conservatism so “Anticipate all losses but not gains” so until the award is finalized and all the appeals have concluded you shouldn’t recognize legal gains
How should leasehold improvements be amortized?
Shorter of either the life of the improvements or the remaining life of the lease. Renewal of the lease doesn’t become a factor (and get added) until its reasonably certain they’ll exercise it
Whats the definition of a lease and the associated rights?
Contractual agreement between Lessor (who has the rights to use an asset) and Lessee (who pays consideration to the lessor for this right). This can result in sublease.
For each of these “Unexpired Costs” (Asset) give me the corresponding expired cost
1) Inventory
2) Unexpired (prepaid) cost of insurance
3) Net book value of fixed assets
4) Unexpired cost of patents
1) Cost of Goods Sold (COGS)
2) Insurance Expense
3) Depreciation Expense
4) Patents expense (amortization)
What’s the formula for Basic EPS Formula. When is this going to be used?
Income available to common shareholders / Weighted average number of common shares outstanding. You’d use this if the company has a basic capital structure with just common stock
When doing the weighted average calculation on the shares outstanding what has to be retroactively adjusted
Stock Dividends and stock splits
Reverse stock splits
What’s the formula for the Diluted EPS Formula. When is this going to be used?
Income available to the common stock shareholder + Interest on dilutive securities / Weighted average number of common shares (assuming all dilutive securities are converted to common stock)
Explain when an Option or similar instrument is dilutive. Why this makes sense?
Dilutive when the average market price for the common stock exceeds the exercise price. This makes sense because if the exercise price is more expensive than what the stock is worth its highly unlikely someone would exercise their options for a loss.
On a change in accounting principle how is that reflected in the financials?
You adjust the corresponding asset balance and hit Retained Earnings
On a construction job what is used for recognition of revenue over time?
Income previously recognized (this is taken away from the amount cumulatively earned already) which is GP (Sales Contract less estimated costs) * the percentage of completion.
When you see the term “Sold evenly through the year” how should you do calculation?
Make sure you do 1/2 or treat everything as if it had happened on July 1st
When do you not need to record interest payable on a Note?
When its a Non-Interest bearing note that has the interest built into the face amount
Change in Reporting entity, how is this handled in the financials?
You need to restate all prior financials (Retrospectively)
When valuing financial instruments using the fair value measurement what criteria must be used?
Instrument-by-instrument basis
When are financial statements considered issued? (2 conditions)
1) Financial statements are in form and format that comply with GAAP
2) Financial statements have been widely distributed to financial statement users
A change from cost approach to the market approach would be considered what type of accounting change?
Change in accounting estimate
When are financial statements considered “available to be issued”?
- The financial statements are in a form and format that comply with GAAP
- All approvals necessary for the issuance of the financial statements have been received
Guiding principle for when you need to adjust financial statements vs create a disclosure for a subsequent event?
If the event took place during the period covered by the financials and the event is before the financials are issued then you’ll do an account adjustment
OTHERWISE
You’d just do a disclosure for something material for an event outside the time covered by the financials but before the financials are issued
Define a market participant
Buyers or sellers acting in their economic best interests who are independent (not related parties). Plus, knowledgeable of the assets/liabilities purchased, and willing/able to transact.
Fair Value includes ________ costs, but not _______ costs?
transportation; transaction
Subsequent events for a filer vs non filer what day do you need to evaluate through?
Filer (SEC) Public company - You do it through the date that financials have been widely distributed
vs
Non-filer Non-public company - You do it through the date that the financials are approved for issuance
Level 1, Level 2, and level 3 fair value measurements broad explanation?
Level 1 - Quoted prices of identical assets on an open market
Level 2 - Quoted prices of similar assets on an open market
Level 3 - Unobservable input used in generating a valuation
What’s considered a large stock dividend? When this happens what’s the JE made (which accounts get hit) and how do you calculate it?
Any stock dividend that is more than 20-25% of the previously outstanding shares
When this happens, you debit RE for the par value of the additional shares issued and credit “Common stock to be distributed”.
Cash Basis to Accrual. (AR & AP) what is the key first line of understanding?
You will add ending AR (Because its revenue that currently wasn’t recognized under the cash basis) then you build out the rest. Subtract beginning AR, [mirror] subtract ending AP, then add beginning AP
How do you calculate COGS (Formula)
Beginning Inventory + Purchases - Ending Inventory
What is the Inventory turnover ratio?
COGS / Average Inventory
What is the formula for Net profit Margin?
Net Income [Not Gross Profit] / Net sales
What is the formula for Return on Assets?
Net Income / Average total assets
What is the Dupont return formula (hint its two different formulas multiplied by each other) what are the formulas for the those two pieces?
Net profit margin x Total asset turnover.
Return on Equity formula is?
Net Income - Dividends / Average total equity
Accounts Receivable turnover ratios is?
Net Sales / Average net AR less an allowance for uncollectible accounts in each year.
What is the Days in inventory formula?
Ending Inventory / (Cost of goods sold/365days)
What is the total debt ratio formula?
Total liabilities / Total assets
What is the times interest earned formula?
Income before interest expense & taxes / Interest expense
For a NPO what are the three main financial statements prepared?
1) Statement of financial position
2) Statement of activities
3) Statement of Cash Flows
NFP organization what’s the required classification for expenses?
Functional classification in statement of activities, natural classification analyzed by function in notes
What’s the rule on Donor-imposed restrictions? (In terms of timing and classification). (Restrictions met same time as funds received?)
If the restriction is met in the same period that funds are received, then you can record this as contributed revenue without donor restrictions. Organization has to disclose this, and it has to be consistently applied.
For a hospital not-for-profit, where would donated medication fall under?
Other Operating Revenue
Not-for-profit Condition vs Restriction. What are they about (broadly speaking?)
Condition - When revenue can be recognized. Restriction how that is classified on the statement of financial position.
Define a Contribution (One key word)
Are not-for-profit transactions that are unconditional, nonreciprocal, voluntary, and not of an ownership investment. Key word is Unconditional
Donated Services 2 requirements to get counted as revenue. What’s the JE?
1) Got to improve a nonfinancial asset 2)Require specialized training
Key is the Debit to expense and credit to contributions JE
Condition vs a Restriction for NPO revenue recognition
A condition affects the timing of revenue recognition for a NPO. Restrictions affect the use of the received funds and are include as either “Contributions with restrictions” OR “Contributions without restrictions”
Let’s say a donated agreement has the following verbiage, ““right of return and right of release from obligation clauses BUT does NOT impose measurable barriers” then does this impose measurable barriers?
No, and it should be fully recognized.
What’s the definition of financially interrelated organizations?
Both has ability to influence the operating and financial decisions AND has an ongoing economic interest in the net assets of the other
Primary authoritative body for accounting standards for a governmental fund?
-> GASB (Governmental Accounting Standards Board)
What are the three primary user groups of the financials for a state government?
-> Citizens, legislative groups, and investors/creditors.
Which characteristic of service efforts and accomplishments is the most difficult for a government entity to report?
-> Relevance (logical reason for its purpose and why its important)
Why are separate financial statements prepared for governmental vs proprietary funds?
-> Report additional/detail info about the primary government
What accounting basis do you use for governmental funds (GRSPP) vs proprietary and fiduciary funds (SE CIPPOE)?
-> Modified accrual vs accrual
What does the mnemonic GRSPP stand for? What basis do they use?
-> General, Special REVENUE, Debt SERVICE, Capital PROJECTS, Permanent. They use the Modified accrual basis
Double Declining Balance Dep Calculations - 1) Walk me through the first two steps. 2) What is unique about the double declining dep calc on the BV number used?
1) Take 100% and divide it by the number of years the asset is expected to be useful THEN double it
2) You use the raw BV number, DONT take out the salvage value amount
On a Sum of year digits you ran into a problem on your calc. What was it and what do you need to remember?
I did 1 - 5 correct and found the dep % used correct, but I thought year 1 meant use the 1/15 figure. Its actually the opposite. Use the largest numerator as the year 1 dep taken!
Assets held for sale, tell me 2 big things about them
1) You do not depreciate these assets
2) You value them at the lower of Book Value or Net realizable Value (FMV - costs to sell)
How do you determine Net realizable value?
Find FMV and subtract Costs to sell
(FMV - costs to sell)
Impairment! What’s the first test and what would spark us to look at at?
1) Recoverability Test
2) Events or Changes in circumstances that may make us think we cannot recover the amount we have as the carrying value
Recoverability test. How do we do it? What are the two possible conclusions?
1) Look at the carrying value and compare that to the undiscounted future cash flows
Option 1: if the future undiscounted cash flows exceed our carrying amount we’re good. Don’t impair anything
Option 2: If the Carrying amount exceeds the future undiscounted cash flows then we need to put an impairment loss on the books
How do you calculate the impairment loss?
Its the Carrying value above future undiscounted cash flows - the FMV of the asset. This will bring the carrying value down to what the market shows it should be
You almost never can increase the value of something that was previously impaired, but there’s one exception. What is it?
If the asset is HELD FOR SALE
For Intangible Costs with Patents whats the rule on capitalizing legal costs in defending a patent?
If successful then capitalize the costs. If not then expense immediately
Whats costs related to a patent can be capitalized? Which ones cannot?
Successful legal defending and registration fee’s can be
Research and Development costs CANNOT be
Intangible Assets should be amortized over the lessor the useful _________ life or the __________ life
Economic ; Legal
What’s the life on a Crypto asset and how is it measured?
Indefinite (if certain criteria are met). Measured at FV
Treasury Stock - Legal Method how do you handle repurchases of treasury stock (Equity accounts hit?)
On a repurchase of treasury stock you reduce APIC first. If it doesn’t have enough to handle all the loss then you hit RE
Calculation of comprehensive income. What’s the key with OCI items?
You make sure you add them back in NET OF TAX
Weighted Average Shares calculations. What are the three columns you’ll use (Key words). How do you do the final calculation?
What will you apply retroactively to all presented periods?
Balance (Running), Months, Multiple. Multiple all the columns across for totals, sum up totals, and then divide by 12.
Stock Splits and Stock Dividends
How do you do the shares outstanding for dilutive EPS?
You get the basic ones, then you do a conversion of the vehicles that convert, proportionally for the period of time (grant date), and add them to the calculated basic shares you previously found
Define “Change in Reporting Entity?”, how should this be reported in financials?
Two or more previously separate entities are combined into one entity, Retrospectively including disclosures, and application to all prior period financial statements presented
Return on Equity formula is?
(NI - Preferred Dividends) / Average common Equity
Days in Inventory Ratio?
Ending Inventory / (COGS/365)
WHEN do we use the equity method?
Usually this is indicated by 20-50% of voting common stock being owned, but the key is Significant Influence
Even if less than 20% is owned, but the individual exercises significant influence then you need to use the equity method
When you suspend the equity method because the company has losses when do you resume using it?
Once profitable its when their share of NI equals its shares
of losses that were NOT recognized during the suspension period
What does “10% cumulative preferred stock” mean?
they pay a 10% dividend
Equity Method - What are two things that will be considered a return of capital?
Cash dividend & Liquidating dividend
Three main JE’s made account for equity method investment what are they and when are they used?
1) Record investment at cost D-Investment and C - Cash
2) record increase in investment by an investors share of earnings D- Investment and C - Equity in earnings/investee income (this is reported as income on the income statement)
3) record decrease in investment as a result of a dividend D- Cash and C - Investment
Partnerships: You can calculate Goodwill Or the bonus to the current partners. What’s the distinction / how is this done best?
Goodwill - Take the new persons profit share percentage and the capital they contributed and determine proportionately what 100% would look like. Then subtract out all the actual capital balances currently. Whatever the difference is -> that’s your goodwill
For the bonus add up all the capital (Including new persons) and get a total. Then take the profit % of the new person and see what their capital balance should be. Anything above that is a bonus that gets split proportionately, anything below is hit against the current partners capital balances.
Partnerships what are the two methods for accounting?
One of the methods changes the total of Net Assets, which is it?
Because of the fact above, which method would you use for a withdrawal, dissolution, or admission?
1- Bonus Method & Goodwill Method
2- Goodwill Method
3- You would use the Bonus Method on a withdrawal, dissolution, or admission
Operating Lease - In doing the table calculation what is the very first step? How do you calculate it?
Find the carrying value
Payments * PV Factor
Operating Lease - In building a table for needed calculations there are 4 columns of information you’ll need. What are the titles (What do you do for the calc)?
Payment (Lease Expense)
Interest Expense (Interest Rate * Carrying Value)
Difference (How much you’ll amortize and adjust the carrying value)
Carrying Value
Bond - What is the selling price of a bond? What’s the key thing to remember about the % rate you’ll use in looking up PV factors on a table?
PV of the future principal payment + PV of future periodic interest payments
YOU’LL ALWAYS USE THE MARKET RATE for getting your factors
