Farr ultimate review Flashcards
Module 6 re-review
Amounts paid for interest in cashflow statement using indirect method with a non for profit is reported how
As a supplemental disclosure for the cash flow information.
Cash received for construction of building is classified as how for non for profit cash flows?
financing activities
Government Wide financial statements are reported using what basis
Accural basis for government and business type actiivties
The journal entry to record assets held in a charitable trust
DR. Assets held in a charitable remainder trust
CR. Liability under trust agreements. 84,250
CR.Contribution rev with donor restrictions.
Remember acquiring equipment with funds has to do with statement of
equity within net assets not revenues
TBS Hints for releasing funds
All expenses are expenses without donor restrictions
To calculate a matching requirement
Take the amount they will give. Divide it by the percentage that their match should not exceed then take the percentage of that to get the match requirement,
Any time you see the word contingent
know that has to be not classified as net assets
Anytime you see unconditional over the next amount of years
Its donor restriction because it would be subject to the passage of time.
Interest paid and increase in capital lease payable are what activities on the statement of cash flows
They are both supplemental diclosures not in specific categories
Operating activities and whether they are outflows or inflows
increase in accrued interest payable is an increase.
decrease in accounts payable is a decrease
increase in deferred tax liabilities is an increase
An investing activites
purchase of a bonds paayble cash outflow from investing
Finaancing inflow and outflow
Proceeds from issuance of lomg term debt is an inflow and an outflow is payments on long term debt
When forming a partnership
assets contributed are recorded at fair value.When a new partner is admitted by bonus the amount credit is not equal to the asset contributed,it is calculated so the new partner received the proper percentage. Even if the partnership has a loss if 50k is allocated for salary each year to each partner in profit and loss it should still show that allocation
If you have a deffered tax aasset in your current year
then in that current year financial income is less than taxable income
When trying to get back to net income when given items from operations
subtract out depreciation and impairment. Do the opposite of what you do for operations subtracting what you add back.
When a company owns less than 20% of the voting stock of another company
Then you use the fair value through net income method earnings of the investee are not recorded and dividends are recorded as income not investment the investment would be recorded at the fair value
When the indirect method is used what disclosure is not required
you dont have to record a disclosure for reconciliation of net income to net cash provided by operating activities
marketable securities both short and long term are recorded at
carrying amount not fair value
When calculating cost of sales in a consolidation between two companys
pay attention to any intercompany sales and remove them
To calculate what a new partner needs to contribute
first calculate the fair value the assets less any accounts payable/. Then multiply their percentage times that plus their name contribution
For instance assets 700-120 ap =580 fair value
if partner wants to be 20%
set up as follows
.2(580,000+partner contribution)
=116+.2X Partner contribution=Partner contribution
=1partner contribution -0.2 partner contribution =0.8 partner contributionthen 116,000/0.8=145,000 partner should contribute
Financing cash inflows and outflows
outflows dividends paid
inflows issuance of common stock
inflows borrowing under a line of credit
inflow proceeds from issuance of convertible bonds
Cash flows from investing
proceeds from sale of building
revenue with stock in investment in another company
record the net income for your share in corporation if greater than 20 then add the dividends received.Stock splits are retroactively so adjust as such then multiply by the total stock by your ownership to get your share of net income
For a wholly owned subsidiary to determine current assets with regard to them
take the amount of merchandise purchased from them that is the denominator take the amount of inventory still on hand that is the numerator this gives you a percentage multiply this by the gross profit of wholly owned subsidiary to get amount of current assets you need to eliminate or subtract out.
Undervalued asset amortization and cash dividends from investee affect the what?
Undervalued asset amortization affects the investment revenue account an income statement account while cash dividends only affect the investment account a balance sheet account but not revenue account.
Undervalued asset amortization and cash dividends journal entry
For underrvalued asset amortixation
Debit investment revenue income statement account credit investment account balance sheet
for cash dividends
debit cash dividends balance sheet
credit investment account balance sheet
Obtaining caash resources from owners and providing them with an ROI is what type of activity
Financing
Cash effects of making and collecting loans is what type of activity
It is a investing activity
If you investment in subsidiary is less than 20%
fair value is used and therefore you would never credit investment in sub to reduce that would only be used when equity account is being used
Under fair vakue method and equity methof how is rceipt of dividend handles
Fair value method recorded as revenue equity method recorded as a decrease in investment
Journal entry for issuance of bonds at a discount then sold at a premium
Debit Investment in bond for issue price credit cash
Then debit cash when sell for amount of bond plus premium
then credit investment of bond adding back the amortized discount to the purchase price and credit gain for difference between the two
The full amount of a wholly owned subsidiary sale of merchandise must be eliminated for what amount
For the full amount it was sold to sub for.
How is goodwill calculated
Excess of purchase price over fair value of assets purchased.
To calculate goodwill
Take the shareholders equity then take the dividends that were paid and divide by your percentage share. Add this to equity then subtract your net income from this
Then add the amount that exceeded fair value to this number multiply by your percentage share of assets then take what the purchase price and subtract the two this is your amount of goodwill
To calculate what amount should be added to additional contributed capital
Take fair market value of assets contributed less fair market value of liabilities assumed then take amount of common stock and subtract from that to get the value.
When calculating realized gains and losses on sale of stock
Remember that brokers commissions and fees reduce the amount of stock purchased therefore reducing your value. 1-write down stock to fair value then calculate your value of what you purchased stock for less commissions deduct this final amount from fair value and that is your loss.
In consolidating statments for the plant assets to calculate what amount to report
You take the book value of the parent companies assets and add to it the fair value of the subsidiary assets
When calculating income tax expense for the year and you have current year taxable income and financial income and the difference between the two
ITE will be a plug first calculate the income tax payable which is cy taxable income times current year tax rate then calculate deferred tax asset or liability by multiplying enacted rate times the difference between taxable and financial then that is your DTA or DTL and then the difference between that and your payable is the ITE
What kinds of diclosures are required disclosures of credit risk or market risk
disclosures of credit risk are required disclosures of market risk are encouraged but not required.
For current year income statement of investor in invetsee
Equity in earnings should be included dividends received should be excluded prior period adjustments should be added back as they are a change of beginning reatined earnings not current earnings.
For estimated tax provision calculation when tax payments are made
First you are going to calculate the taxable income amount and multiply by the tax rate then you will reduce that amount by estimated taxes already paid,
When you are calculting income earned on investment
Tke your percentage owned in them times the net income then take part of year owned and that is your income attributable to them if only given net income and dividends paid
Whenever income is recognized in the financial statements before being recognized as taxable income a what should be recorded
Deferred tax liability
interest paid on a capital lease payable is an
operating activity
Cash payments for a capital lease paayable principle are
outflows for financing acticities
To calculate the percentage acquired when given the amount of goodwill
Take the goodwill less the cash you paid then take this amount to use in the numerator and the denominator will be the FMV of the asset acquired that will give you your percentage
When a company purchases bonds from their subsidiary at a premium and decides to hold to maturity how are the bonds treated by difference in carrying amounts in statements
The difference between each company’s carrying amount is shown as a reduction to retained earnings
To calculate investment in other company when given net income and excess over with depreciation years as well as dividend and purchase price
First take purchaase price
then add net income times percent you own
then deduct dividends received
take the excess over fair value and multiply by the [percentage owned then divide by years it says to depreciate over this answer will be deducted. That is your investment
Dividends in excess of investors earnings in investee is technically a liquidating dividend
As such you it will decrease the investment in equity and fair value methods earnings
When you have an investment less than 10% and you acquire more stock and go to greater than 20%
Then you add the carrying values of each of those stock together and account for it using the equity method going. forward. The two carrying values added together will be your investment at that time
When you have a bond that has a premium on it but you issue it to sell to subsidiary in consolidation the journal entry is
Debit premium to get rid of
Debit bonds payable
Credit investment in bonds for the new persons purchase price
and credit retained earnings-consolidated
To solve for net income and retained earnings use BASE
Beginning Retained earnings
Add-NI
Subtract-Dividends
Ending
for expected credit losses and calculatig income statement amount versus oci
first you write down the asset for the difference between fair value and amortized cost
Then the difference between present value and amortized cost if present value is lower than the cost that is the expected credit loss. The expected credit loss has to be the lower of the difference between the fair value write down and the remaining amount the remaining amount goes to oci as an unrealized loss.
On eliminating entries for consolidations pay attention to who sells to who
You want to eliminate the sales that result from the company being consolidated with. Remeber for eliminations to think about debits and credits credit cogs and debit sales credit inventory
On consolidations take inventory acquired from outside from each entity then add them together to consolidate then
Take intercompany inventory and put that on the combined statement. If shipments to another calculate the unrealized gross profit by taking the company that bought or received shipment from other less the company that shipped then over the company that shipped and multiply that by the inventory acquired from them to get unrealized gross profit.
remember prepaid insurance taxed in year received
increase in rent receivable
not paid or recognized as revenue until year received.
increase is warranty obligation not deducted as an expense until actually paid in subsequent years.
recognizing periodic tax expense is based on
recognition of assets and liabilities
Amounts reported in supplementary cash flow information
are noncash transactions such as issuing stock the amount of stock issues times the fair value of that stock.
Accrued interest receivable is sepaarate from the bond the journal entry as follow
DR, Accrued interest receivable
DR. Investment in bond
CR. Cash paid
To calculate the bond subtract out the accrued interest ion bond that is the carrying value of the bond. Then take the interest rate the bond is supposed to yield times carrying amount and portion of year held. Then take the bond amount times coupon rate and portion held subtract out the two and then add together to the bond if dsocunt or subtract if premium
Looking at deferred tax assets and liabilities you need to look at when it will reverse and use the rate then
If you have a deferred tax liability look at the year it is supposed to reverse then use that tax rate when calculating the current years deferred tax expense.
When given a deferred tax asset and you need to calculate the amount the tax expense will reverse and given valuation allowance do as follows
Take deferred tax asset and valuation allowance and then divide by the tax rate in that year to get temporary amount. Then once you have this amount use enacted rate for the year of reversal then subtract out the total allowance for both years this is the new DTA subtract this amount from initial DTA given to get the amount you would increase if less that year or decrease if more that year.
Task bas simulation hint for acquiring investment of 15% in company stanton sim
Take the number of shares purchased times the purchase price and add legal costs
You will debit investment in company and credit cash
For dividends first debit cash for amount you hold and cash dividend received
then credit dividend income for your percentage of share in retained earnings the difference between this and what you received in cash will be credited to investment account because it is a reduction of the investment
A year end journal entry if a gain will be credited to unrealized holding gain for increase in stock price and debited to investment in company. Any increase in company stock will go to the income statement
The balance of investment will be calculated as follows
Initial acquisition cost less the credit to investment for excess dividends + increase in fair value from the unrea;ized gain.
Task based sims make sure all debits and credits match
When selling equipment get it off the book by crediting it for the difference
selling inventory intercomoany Task based sim hint
The amount of inventory still on hand at the end of year is the difference of percentage not sold you multiply this by the price each one was sold for 30.4 and 50.4 subtract the difference to get the investor you need to eliminate for intercompany sales then the intercompany sales prices are subtracted from one another and multiplied by the amount of investory percentage sold to get the cogs to be eliminayted
Task based sims moving caategories explanations
Row 2: Fair value, current asset | Unrealized gain/loss goes into net income
According to the Year 2 strategy proposal, security A is moving from a held-to-maturity security to a trading security. Held-to-maturity securities are recorded at amortized cost. Trading securities are valued at fair value on the balance sheet in the current section as the intent is to sell them in the near term to generate profits on short-term differences in price. Logan will record the unrealized gain/loss between the original cost of the security and the fair value at the time of reclassification in earnings immediately.
Row 3: Fair value, non-current asset | Unrealized gain/loss goes into OCI
According to the Year 2 strategy proposal, security B is moving from a held-to-maturity security to an available-for-sale security. Held-to-maturity securities are recorded at amortized cost. Available-for-sale debt securities are valued at fair value on the balance sheet, with classification dependent upon management’s intent. The reclassification strategy says that Logan will keep the security for the next several years, therefore non-current classification is appropriate. Logan will record the unrealized gain/loss between the original cost of the security and the fair value at the time of reclassification in other comprehensive income (OCI) as this type of security is often used as part of a risk management strategy and inclusion in earnings could result in misleading information in the financial statements.
Row 4: Amortized cost, non-current asset | No gain/loss recorded in comprehensive income
Security C was originally classified as a held-to-maturity security and no reclassification takes place in Year 2. Held-to-maturity securities are recorded at amortized cost. Classification on the balance sheet is dependent upon the maturity date. As the bond is a ten year bond and was recently purchased, it is classified as non-current. As gains/losses only result from marking investments to fair value, no gain/loss hits comprehensive income. The income statement will only include the effect of interest revenue related to the bond.
Row 5: Amortized cost, non-current asset | Amortize gain/loss previously recorded in OCI to income statement over time through recording of interest revenue
Security D was originally classified as an available-for-sale security and as such was fair valued at the end of Year 1 with the unrealized loss recorded in other comprehensive income (OCI). The reclassification to a held-to-maturity security takes place in Year 2. Held-to-maturity securities are recorded at amortized cost. Classification on the balance sheet is dependent upon the maturity date. As the bond is a five year bond and was recently purchased, it is classified as non-current. Held-to-maturity securities are not fair valued on the balance sheet, however since the unrealized loss was recorded in Year 1, removal of the loss from OCI is necessary. The unrealized loss will be amortized over the remaining life of the security as an adjustment of yield similar to the amortization of a premium/discount when interest revenue is recorded.
Row 6: Security no longer on balance sheet | Unrealized gain/loss goes into net income
Security E is an equity security that increased in value during Year 1, resulting in an unrealized gain for Year 1. According to the Year 2 strategy proposal, the additional information says that security E was sold during Year 2. The security will no longer be reported on the balance sheet. Since the security was marked to fair value prior to the sale, the current year’s unrealized gain will be reflected in net income for Year 2.
Row 7: Fair value, non-current asset | Unrealized gain/loss goes into net income
Security F is an equity security and is therefore valued at fair value on the balance sheet with unrealized gains/losses recorded in net income. No changes are planned for Security F in the proposed strategy. Since the company plans to hold the investment indefinitely, the security is reported as a non-current asset on the balance sheet.
Row 8: Fair value, current asset | Unrealized gain/loss goes into net income
Security G is an equity security and is therefore valued at fair value on the balance sheet with unrealized gains/losses recorded in net income. No changes are planned for Security G in the proposed strategy. Since the company plans to sell security G in Year 3, the security is reported as a current asset on the balance sheet.
When you have average capital balances and you are looking for the increase or decrease in partnership balance calculate as follows when given one partner contributes 160K other partner 100K each gets 10% interest on their balance and they share in profit and loss equally profit is 4000
If each one received 16000+10000 for the profit when you deduct from 4000 you will have 22000 loss divided equally each one will take the loss but first they add the interest received
176000 and 110000
less 11000 each
=165000 and 99000
for partner 1 it is a 5000 increase partner 2 gets a 1000 decrease
If you dont exercise significant influence but meet the equity threshold requirements in percentage owneership
You do not record using the equity method
Good will charges to new partners when admitting a new partner if they contribute more than their percentage of share
You will take the new partners contribution multiply that times their share so 30% share and 100 or 1/3 split is 100*3 =300000 then subtract the other partners contribution from this and that will be amound of good will for instance 90+60+100 contributed by new partner=250
300-250=50k
Capital expenditures and increase or decrease affect what type of cash flows
investing
Payment to retire bonds payment of dividend and proceeds from sale of treasury stock are all what activities
financing
Conversion of preferred stock into common stock is. a
noncash financing dislcosure
Mortgage repayment is cash outflow from
financing
Avaailable for sale securities purchased is outflow from
investing
The amount of accrued interest receivable that the company that is issuing the mortgage should charge is the amount of the loan times the interest rate on the loan and the months held
Interest earned is calculated as the proceeds times the present value write and the difference between interest earned is amortized and deferred
To calculate the cash received on bonds
Take the cash price paid times number of bonds issues then deduct accrued interest payable by the face value of the bond times the coupon rate times portion of the year held then deduct any bond issues costs and this is the amount of cash received.
