Financial Reporting Flashcards
What is considered Relevant Financial Information
Predicative Value and confirmatory value
Faithful Representation
Completeness, neutrality and freedom from error
FASB Stakeholders
Accounting firms, Investment analysts, International standard-setting bodies.
Deferred Tax Assets
Deferred tax assets are measured by the total temporary differences multiplied by the tax rates in effect when the tax differences unwind. The loss carryforward is recognized as a deferred tax asset at the total future deductible amount multiplied by the future tax rate that will be available for the later tax deductions. All deferred tax liabilities and deferred tax assets are classified on the balance sheet as noncurrent.
Thus, the deferred tax asset is a tax benefit (lowering of this year’s income tax expense) and will increase net income by the total amount of the expected benefit amount of $54,000 ($180,000 deduction × 0.30 (the future tax rate of 30%)).
The other gain is not recognized until the sale is finalized and agreed to by both parties.
Change in Accounting Method
Reflected in Retained Earnings only (NO IMPACT ON NET INCOME REPORTING)
Current Assets
Long-Term Assets
Current Liabilities
Long-Term Assets
SEC’s Rulemaking Procedures
Step: Rule Adoption
Reporting on operating loss for discontinued operations
Only report loss for the applicable year + estimated loss on disposal (impairment loss)
Only report Operating loss of discontinued segment on income statement
According to the FASB conceptual framework, which of the following correctly pairs a fundamental qualitative characteristic of accounting information with one of its components?
Relevance and predictive value.
Fundamental Qualitative Characteristics
Faithful representation - Neutrality
Relevance - Materiality & Confirmatory Value
Which of the following indicates when the governmental fund balance may be reported as committed?
Constraints are imposed by formal action of the government’s governing body
Committed fund balances reflect amounts that can only be used for specific purposes based on constraints imposed by formal action of the government’s highest level of decision-making authority.
According to the FASB conceptual framework, an entity’s revenue may result from
A decrease in a liability from primary operations.
Reporting Foreign Exchange Loss on Income Statement
All Foreign Exchange Transaction Losses whether realized or unrealized would be recorded in Income Statement. Foreign Exchange Translation (not transaction) Gains and Losses are parked in Other Comprehensive Income.
- Remeasured at current exchange rate - Cash, AR, AP, Mortgage payable
-Remeasured at History Rate - Inventory
- Remeasured at Original Rate - Common Stock
- Remeasured at Average Rate - Sales
Other Comprehensive Income (OCI)
includes revenues, expenses, gains, and losses that are excluded from net income. Instead, they are listed after net income on the income statement. These items have not yet been realized. In other words, the underlying transaction has not been completed or settled yet.
Examples include: foreign currency items; certain pension adjustments; unrealized gains and losses on certain investments; and gains and losses on derivatives. Comprehensive income is $10,000 ($11,000 – 3,000 + 2,000). The cumulative effect of a change in accounting principle would be applied to beginning retained earnings. Increases in common stock are not reflected in income, but rather on the balance sheet.
Has no effect on direct adjustments to equity accounts, such as capital stock transactions and transactions related to retained earnings.
Comprehensive Income
- Income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
- Comprehensive income is divided into net income and other comprehensive income (OCI).
- Reporting - Accumulated other comprehensive income is reported in the stockholders’ equity section of the balance sheet.
Enhancing qualitative characteristics include
Comparability
Verifiability
Timeliness
Understandability.
These characteristics enhance the usefulness of information that is relevant and faithfully represented.
Realization Concept (FASB conceptual framework)
By definition, “realization” means the process of converting a noncash resource or right into cash. The sale of equipment (a noncash resource) for a note (a claim to cash) conforms to the realization concept.
Example - Depreciated equipment was sold in exchange for a note receivable.
