FAR1-far 4 Flashcards
According to FASB conceptual Framework - To be relevance -ingredient
The information should be predictive/and or conforming, must be material
Faithful representation–ingredient
natural, completeness, free form errors.
VCUT-enhancing qualitative characteristics of (It doesn’t not follow a specific order)
Comparability, verifiability, understandability, timeliness.
Cost-measure
exp now (period cost) or capitalize it.
SGA
Salary of officers and insurance, depreacition, accounting and legal fee.
Selling exp
advertising, commission, fright out, salary for sales people
contract modification
change in price or scope(both).. approved by both parities. Treat as new contract if scope increases. Price is stand alone.
Discount based on proportionally
example contract price is $240000
A for 200K=200/300= 40000 discount for A
b for 100k=100/300=20000 discount for B
discount is 60K
Output method
milestone achieved.
input method
cost incurred, hours expanded, resource consumption,
Call option
The entity’s right to purchase the asset.
put option
the entity’s obligation to repurchase at the customer’s request
forward option
The entity’s obligation to purchase.
Bill and hold
substance reason (per customer’s request)
Product is separately identified
product is ready to transfer
selling entity can not use the product for another customer.
FINANCE AGREEMENT
repurchase price is equal to or greater than the original price and expected market value.
individual stand alone
(10000/50000=20% for the warranty based on the stand alone price. 40000/50000=80%f or the refrigerator.
use proportion to allocate the price
refrigerate 45000 *20%=9000 allotted to warranty based on the sale price of bundle.
warrant 10000
refrigerator 40000
Under % completion Method. Total cost incurred to date (income recognized in x year)
total cost to date/ total estimated cost of the contract (from beginning to the end)
Under % completion mehtod-The income recognized in the py will be used for income recoginized in the next year.
Loss are recognized right away. Previous profit is reversed.
Completed contract under GAP VS % completed contract
Rev is recognized when job is completed under completed method.
% completeness method- revenue recognized Cost incurred to Date vs total estimated cost
Prospecitve,
Events change in estimate of life
Change in accounting principal that are inseparable from estimations.
revision of estimation regarding discontinue.
change in life of Fixed assed( 10 yrs to 5 yrs)
write down to obsolete inventory.
IRS adjustment material
settlement of litigation
Cahnge in estimate prospective
to lifo , change dep method
cahnge in dep..
change in accounting principal
retrospective (no income smoothing)
Adjust beginning RE for cumulative effect (net of tax)
Change in the accounting estimates
it only effect current period and going forward. (estimate are easier than AP)
For comparative fs
The accumulative effect of change in the accounting principal(AP) is shown as net of tax, adjustment to beginning RE.
Changing AP from fifo to Weighted Average.
the cumulative effect of a cahnge in ap is now shown on the RE statement as an ajustment to the beginning balnce of RE.
If EI is understated then
COGS will overstated,
they’re fore RE will be understated.
Detachable Stock Purchase Warrants
Equity securities, that are considered derivatives, entitling the holder to acquire shares of stock at a fixed price for a specified period of time and that are issued along with bonds.
Effective, Yield, or Market Interest Rate
The rate an investor expects to earn.
Convertable bond
A bond that can be converted into common stock at the bondholder’s option.
Stated, Face, Coupon, or Nominal Rate
The rate printed on the bond representing the basis for calculating the amount of cash the investor will receive at every payment.
Debenture Bond
Unsecured bonds that are not supported by any collateral.
Bond Sinking Funds
Funds set up to accumulate financial assets for retirement of bonds.
Term Bond
A bond that will pay the entire principal upon maturity at the end of the term.
Callable Bond
A bond which the issuer has the right to redeem for a predetermined amount prior to its maturity date.
Present Value of Amount (Lump Sum)
The value today of a single cash flow that will occur at a future date.
Present Value of Ordinary Annuity (Annuity in Arrears)
The value today of periodic cash flows that will occur on a systematic basis with amounts being paid at the end of each period.
Future Value
The amount that will be accumulated at the end of a certain term as a result of a single amount that will be paid at the beginning of that term, or periodic amounts being paid at the beginning or end of each period within that term.
Discount
The excess of the face value of a bond over the proceeds from its issuance, excluding accrued interest.
Bond
A borrowing agreement in which the issuer promises to repay a certain amount of money, the par value, to the purchaser after a certain period of time and periodic interest is calculated at a prescribed interest rate, the stated rate, applied to the face value of the bond.
preium
The excess of the proceeds from issuance of a bond, excluding accrued interest, over its face value.
Serial Bond
A bond in which the principal matures in installments.
change in Accounting Principle (Retrospective Adjustment)
A change from one acceptable principle being applied to one or more financial statement items to another acceptable method that represents a more appropriate measure of the entity’s performance and financial position, recognized retrospectively by adjusting prior period financial statements, applying the new principle.
Correction of an Error/Prior Period Adjustment (Retroactive Adjustment)
The restatement of prior period financial statements to eliminate the effects of an error made in their preparation or presentation, including the application of accounting principles that are not in conformity with GAAP.
Change in Reporting Entity (Retrospective Adjustment)
A change from preparing combined or consolidated financial statements to individual statements or in the entities included in combined or consolidated financial statements that is not accompanied by a change in ownership or control.
Change in Accounting Estimate (Prospective Adjustment)
A change in an estimated amount that affects the carrying amount of an existing asset or liability or affects the future accounting for an existing or future asset or liability, recognized prospectively by adjusting affected items in the period of change and applying the revised estimate to subsequent periods.
Market Risk
The risk that a receivable will diminish in value due to:
A rise in market interest rates, making the lower rate less desirable, or
Other investments becoming available that offer a greater return.
Trading Securities (HFT)
Investments in debt securities held for a brief period of time to be sold in the short term (within one operating cycle) that are reported at fair value with unrealized gains and losses reported in income.
Adjusted Cost Method
Method of accounting for investment in equity securities lacking readily determinable fair value. Involves recognizing the investment at cost, income as dividends are declared, and impairments as they occur. Requires election and is applied when the investor has no significant influence over the investee, typically when ownership is under 20%.
Credit Risk
The risk that the debtor will not perform, which could mean that some or all payments will be missed or late.
Consolidation
Preparation of financial statements for two or more entities as if they were a single entity; applied when one entity has a controlling financial interest in another, typically when ownership exceeds 50%, but also required when an entity obtains a controlling financial interest as the beneficiary of a variable interest entity (VIE).
Equity Method
Method of accounting for investment in equity securities that involves recognizing a proportionate share of the investee’s earnings in the period earned and impairments, which are nontemporary declines in value, when they occur; applied when the investor can exercise significant influence over the investee but does not have control, typically when ownership is between 20% and 50%.
Applied Prospectively
Applied in the current and future periods, requiring no adjustment to prior periods (eg, change in estimate).
Available-For-Sale Securities (AFS)
Investments in debt securities, which may be held and/or sold in either the short or long term, that are neither trading securities nor held-to-maturity securities that are reported at fair value with unrealized gains and losses reported in other comprehensive income (OCI).
Held-to-Maturity Securities (HTM)
Investments in debt securities (usually bonds) that the entity has the ability and intent to hold for the long term until the security matures and the principal is fully repaid. HTM securities are reported at amortized cost, applying the interest method.
Market Risk
The risk that a receivable will diminish in value due to:
A rise in market interest rates, making the lower rate less desirable, or
Other investments becoming available that offer a greater return.
Without Recourse
The transferee of a receivable bears the risk of uncollectibility and has no claim against the transferor when a receivable becomes uncollectible.
Servicing Asset
The excess of the present value of the fees expected to be earned for servicing a financial instrument over the present value of costs expected to be incurred.
Factoring of Receivables
The outright sale of accounts receivable, which may be with or without recourse.
Servicing of Financial Instruments
The administration of a receivable, which includes sending statements, collecting payments, allocating collected amounts between principal and interest, and sending tax information forms to the debtor, generally in exchange for a fee.
Servicing liability
The excess of the present value of costs expected to be incurred servicing a financial instrument over the present value of the fees expected to be earned for doing so.
Net Realizable Value (NRV)
Gross amount of A/R less the amount an entity estimates will not be collected (ie, credit losses.)
Recourse Obligation (Probable Uncollectible Accounts)
The amount a transferor of receivables expects to be obligated for due to the uncollectibility of receivables that were transferred with recourse.
Rule
all gain are recorded in the period(qtr) incurred.
Cumulative effect
Retained Earning not income statement
2 steps to calculate FMV when There no principal market
Who has the bigger net($81-$1 (trans cost)
FV is reported at Gross amount. ext $81
most advantagoeous market
Principal market
Great volume of activity
cash basis
statement of cash and eqity
statemnt of receipts and distribesment
modified cash basis
a statement of assets and liabilities
rev collected and exp paid
DEC IN AR
net decrease in AR means cash collected exceeds rev recognized on the accrual basis.
higher cash basis income
DEC in AR INC in CASH
Higher income under CASH BASIS.. B/C REV WHEN CASH RECEIVED
A NET DECREASE IN ACRUED EXP MEANS
MORE CASH OUT/ SO cash basis income is lower then accused basis
Cash to AB
ADD INCREASE in current asset
subtract DECREASE in current asset
add DECREASE in current liabilities
subtract INCREASE in the current liability
ops exp
cash paid for operting exp
+ ending accrued liabilities
- beginning accrued liailties (Perior peirod exp)
- ending prepaid exp (future bennifit)
+ beginibg prepaid exp(benefit the current peirod)
COGS
cash paid for purchases
+ ending ap
- beg ap
- ending inventory
+ beg inventory
CASh basis revnue to accrual basis revenue
Add ending ar
subract beginning ar
subract unearend or deferred rev
add beginning unearned or deferred rev
Percentage of AR method
Amount calculated is the ending balance that should be in the Allowance for Doubtful Accounts
Step 1: Calculate the necessary ending balance in Allowance for Doubtful Accounts
Step 2: Back into current year Bad Debt Expense
Aging of Receivables method
Emphasized asset valuation “NRV”
Balance in each category x Estimated % uncollectible = Estimated uncollectible amount
Allowance method (GAAP - matching principle)
Contra-asset account
Debit allowance account to write off receivable
Allowance account has a normal credit balance
bad debt exp
Amount charged to earnings for the bad debt expense of the period includes:
Provision made each period throughout the year
Adjustment made at year-end to increase/decrease the balance in the allowance for uncollectible accounts
Write-off specific AR
Allowance method
DR: Allowance for Uncollectible Accounts XXX
CR: AR XXX
Direct write off method (for tax purposes)
DR: Bad debt expense XXX
CR: AR XXX
Subsequent collection of AR written off
Allowance method
DR: AR XXX
CR: Allowance for Uncollectible Accounts XXX
DR: Cash XXX
CR: AR XXX
Subsequent collection of AR written off
Direct write off method (for tax purposes)
DR: Cash XXX
CR: Uncollectible Account Recovered XXX
Discounting notes receivable (i.e., get cash now)
Original note: Principle x Rate x Time = Interest
Principle + Interest = Maturity value
Maturity value x Bank rate % x Time remaining on note = Bank charge
Maturity value - Bank charge = Cash received by entity
Direct cash method
ignore depreciation
cash form customer
cash paid to supplier
salary paid to employees
sea
opening activity
(interstate’s and ice taxes paid) for indirect method
scheduled reconciling NI to cash flow from ops if direct method
cash equivalent
restriction on cash and cash equiv
cash flow form normal business-interest payment, cogs, trading
investing activity cash flow from investing in your self. and others
chad paid on common stock
collection off principal loan make by entity
acquisition and disposal of long term asset (ppe, AFS, HTM)
proceed form life insurance of cops employee
major repairs to plant and equipment.
Financing activity -cash flow form issuing and repaying debt or equity.
issue cs/p/s, t/s, div, borrowing and repayments principal, bond and equity
cash paid for interest
cogs+being interstate’s-ending interest=cash paid this year.
non cash activity financing and investing
converting debt to equtiy
converting ps to cs
acquiring right of use asset in exchange for lease liablity
exchange a long term asset for another long term asset
non cash portion of an investing or financing.
non cash exp and non operating item that decrease net income
ADD+
dep
amortization exp (bond discount, patents)
losses form sales of assets
non cash rev and nonopeating item that inc net income
Subtrac-
equity in earring form investee
amortization of bond premium
gain form sales of asset
change in current asset and current liabltiy
dec in ca +
inc in cl +
change in current asset and current liabltiy
inc in ca -
inc in cl -
statement of cash flows
cash flow from OA
cash flow form IA
cash from form FA(issue of cs/ps/ts, div pa, borrowing and repaying debt(principal amount)
net inc or dec in cash
beg cash balance
ending cash balance
THE COST OF LAND
CASH FOR LAND
title seaech fees
contry assessment
removal of building
Cost of land
The cost of land includes all cost necessary to put the and in place and condition for construciton of the plant. Any
proceeds from the sale of any existing building (or standing timber, or soil) or scrap are deducted form the cost of the land
land cost
The cost of appraised vulue of the assest + lump sum price
provison+bde
mcq177
$42,000.00
$46,000.00 $40,000.00 $36,000.00
$16,000.00 $52,000.00 provision+adj=bde $56,000.00
mcq
mcq 114
beg inveotry understated $26,000.00 undstatement o of cogs
ending inveotrny overstaed $52,000.00 cogs undersated
cost of good sold in yr 3 $78,000.00 total undstatment
moving avg
moving avg
Anew weighted average cost is computed after each purchase and issues anre priced at the latest wighted avg cost
units cunits cost total cost
balance 1/1 $1,000.00 $1.00 $1,000.00
purachse 1/7 $600.00 $3.00 $1,800.00
balance 1/7 $1,600.00 $1.75 $2,800.00
sold 1/20 -$900.00 $1.75 -$1,575.00
balance 1/20 $700.00 $1.75 $1,225.00
purchased 1/25 $400.00 $5.00 $2,000.00
balance 1/31 $1,100.00 $2.93 $3,225.00
fifo periodic fifo perpetual
in same dollars in same dollares in Ending invetorny.
fifo periodic fifo perpetual
in same dollars in same dollares in Ending invetorny.
if the carrying vlue of the old asset is know, remove it andreqgzine any gain or loss
Capitizlize the cost othe imporvement/replacemnt to the asset account
if CV of old asset is unknown and the asset’s life is extended,
dr Accumpulated dep crdit cash or ap
The total price of asset is 200,000
which included the appraisal cost
land 120,000
builing 80000
equipment 40000
then take the proportion.
