Financial Reporting

Question 1

To measure income

Answer 1

Financial Reporting

Question 2

The FASB Codification

All pronouncements fall under the Codification umbrella

Answer 2

Financial Reporting

Question 3

Authoritative and Non-Authoritative

Answer 3

Financial Reporting

Question 4

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

Answer 4

Financial Reporting

Question 5

Form 10K - Annual and Audited

Form 10Q - Quarterly and Reviewed

Answer 5

Financial Reporting

Question 6

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

Answer 6

Financial Reporting

Question 7

Cost vs. Benefit

Materiality

Answer 7

Financial Reporting

Question 8

Consistency - Year vs. Year

Comparability - Company vs. Company

Answer 8

Financial Reporting

Question 9

Relevance & Faithful Representation

Relevance - Makes a difference to the user
Includes:
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions

Faithful Representation
Includes:
Completeness - Nothing omitted that would impact the decision-making of a user
Neutrality - Information is presented is without bias
Free from Error - No material errors or omissions

Answer 9

Financial Reporting

Question 10

Comparability Verifiability Timeliness and Understandability

Comparability - Allows users to compare different items among various periods
Verifiability - Different people would reach a similar conclusion on the information presented
Timeliness - Information is made available early enough to impact the decision making of users
Understandability - Information is easy to understand

Answer 10

Financial Reporting

Question 11

When an estimate is necessary due to uncertainty conservatism chooses the best option that won’t overstate the financial position of the company

Answer 11

Financial Reporting

Question 12

Earned (Revenue) or Incurred (Expense) but no Cash Receipt/Outlay yet

Answer 12

Financial Reporting

Question 13

Cash Receipt/Outlay but not Earned (Revenue) or Incurred (Expense)

Answer 13

Financial Reporting

Question 14

When an item is recorded and included in the financial statements

Answer 14

Financial Reporting

Question 15

The price you would receive if you sold the asset

Assumes asset is at its highest and best value

Assumes asset is sold at its most advantageous market to get the best price possible

Answer 15

Financial Reporting

Question 16

Buyer and Seller are not Related

Buyer and Seller are Knowledgeable

Buyer and Seller are able to transact - i.e. This isn’t a hypothetical transaction for Fair Value measurement purposes. The buyer actually does have the $10M to purchase the asset you’re trying to value at $10M

Buyer and Seller are both motivated to buy/sell

Answer 16

Financial Reporting

Question 17

Price quotes or market prices

For example NYSE or NASDAQ

Answer 17

Financial Reporting

Question 18

Interest rates

Prime rate

Answer 18

Financial Reporting

Question 19

Unobservable inputs such as assumptions or forecasts

Lowest priority for valuation

Answer 19

Financial Reporting

Question 20

Market approach - uses market transactions and prices to value the asset

Income approach - uses present value discounts earnings

Cost approach - uses replacement cost to value the asset

Answer 20

Financial Reporting

Question 21

Cash

Inventory or Assets expected to be converted or consumed during a business’ operating cycle

Deferred Gross Profit on Installment Sales (Contra Asset)

Receivables expected to be collected in 12 months or less

Answer 21

Financial Reporting

Question 22

Liabilities that will use current assets during the present operating cycle

Answer 22

Financial Reporting

Question 23

Expense that has been incurred but not paid

Example: rents payable

Answer 23

Financial Reporting

Question 24

A type of current liability

Payments that have been received but cannot be recorded as revenue yet

Example: Tenant pre-pays rent - Landlord still must perform to earn it and is a liability until this happens

Answer 24

Financial Reporting

Question 25

When they have been earned; i.e. company has performed

Answer 25

Financial Reporting

Question 26

Increase in equity from an activity or event that is not central to the main activities of the business Can be operating or non-operating

Answer 26

Financial Reporting

Question 27

Decrease in equity from an activity or event that is not central to the main activities of the business Can be operating or non-operating

Answer 27

Financial Reporting

Question 28

Average time it takes to turn materials or services into Cash

Answer 28

Financial Reporting

Question 29

Valuation method - the current value of a future amount of money using a specific interest rate

Answer 29

Financial Reporting

Question 30

How much an asset cost - (net of depreciation and amortization)

Answer 30

Financial Reporting

Question 31

How much it would cost to reacquire an asset today (Entrance Cost)

Answer 31

Financial Reporting

Question 32

The sale price of an asset (Exit Cost)

Answer 32

Financial Reporting

Question 33

Sale Price of an Asset - Selling/Disposal Fee

Answer 33

Financial Reporting

Question 34

Recognized when earned If the royalty % is applied against net sales then subtract the estimated return amount from the gross sales first and then apply the royalty rate

Answer 34

Financial Reporting

Question 35

Revenue recognized upon receipt of cash Only used when cash collection is uncertain

Answer 35

Financial Reporting

Question 36

Gross Profit that can't be recognized until cash is received D.GP : Gross Profit % x Accounts Receivable Pay attention to the year if GP% varies

Answer 36

Financial Reporting

Question 37

No revenue recognized until all costs are recovered from purchase of the asset Most conservative method of revenue recognition when collection of sale price is uncertain

Answer 37

Financial Reporting

Question 38

Payment has been received but performance is not complete. As company performs revenue is recognized. Recorded as a Deferred Revenue (Liability) on Balance Sheet

Answer 38

Financial Reporting

Question 39

Franchiser - Startup franchise fee revenue deferred until substantial performance Franchisee - Costs are deferred until corresponding revenue is recognized

Answer 39

Financial Reporting

Question 40

Mnemonic: SPEAR-BAR Sales (i.e. Customer Payments) + Ending Accounts Receivable - Beginning Accounts Receivable : Sales Revenue on an Accrual Basis

Answer 40

Financial Reporting

Question 41

Mnemonic: CRAP-I Cash Remitted (i.e. paid) +Increase in Accounts Payable -Increase in Inventory :COGS on an Accrual Basis

Answer 41

Financial Reporting

Question 42

Reported Net of Tax after Continuing Operations but before Extraordinary Items Company decides to cease operating a segment of its business Includes Income (or loss) from the period plus the gain (or loss) from disposal

Answer 42

Financial Reporting

Question 43

Both unusual AND infrequent Reported Net of Tax after Discontinued Operations Note: Usual *or* Infrequent Items are reported as part of Continuing Operations

Answer 43

Financial Reporting

Question 44

Adjusts assets to reflect a consistent level of purchasing power due to inflation Uses the Consumer Price Index (CPI)

Answer 44

Financial Reporting

Question 45

When they are incurred. Accrue if not yet paid.

Answer 45

Financial Reporting

Question 46

Those incurred but not paid. Product costs - Expenses should be matched with associated revenues as they are recognized (sales commission on a used car sale) Period costs - Expenses amortized and recognized with the passage of time

Answer 46

Financial Reporting

Question 47

Immediately.

Answer 47

Financial Reporting

Question 48

Office staff salaries Office/building rent Office supplies Note: Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense not G&A

Answer 48

Financial Reporting

Question 49

One-time costs for opening a new business Expensed as they are incurred

Answer 49

Financial Reporting

Question 50

Interest on projects (software) for internal use is not expensed but is instead capitalized

Answer 50

Financial Reporting

Question 51

Net Income + Other Comprehensive Income (OCI): Revenues/Expenses Gains/Losses Cumulative accounting adjustments Reclassifications adjustments Non-owner changes in equity

Answer 51

Financial Reporting

Question 52

Foreign Currency Translation Adjustments Unrealized gains on AFS Securities Minimum Pension Liability adjustment for defined benefit plans

Answer 52

Financial Reporting

Question 53

Avoids double counting items that were included in both Net Income and OCI Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement

Answer 53

Financial Reporting

Question 54

Reported in a Single or Combined Income Statement

Answer 54

Financial Reporting

Question 55

Accounting Principles used Basis of Consolidation Inventory Pricing Methods Depreciation Method Amortization of Intangibles

Answer 55

Financial Reporting

Question 56

Nature of Operations Use of Estimates and listing of Significant Estimates Concentration vulnerability

Answer 56

Financial Reporting