Financial Reporting Basics

Question 1

What is the difference between 10k and 10Q

Answer 1

10k is annual and audited
10Q is Quarterly and reviewed

Question 2

What are the primary and secondary constraints of financial reporting

Answer 2

Primary: Cost vs. Benefit, Materiality
Secondary: Consistency and Comparability

Question 3

What is the fair value hierarchy

Answer 3

Level 1 (top): FMV determined by price quotes or market prices
Level 2: Use market interest rate
Level 3: Unobservable inputs

Level 3 has disclosure requirements for public and private companies

Question 4

What is the fair value hierarchy

Answer 4

Level 1 (top): FMV determined by price quotes or market prices
Level 2 Interest rates and prime rate
Level 3: (bottom): Unobservable inputs and assumptions/forecasts

Level 3 generally has public disclosure requirements for change and significant inputs

Question 5

What are the acceptable valuation techniques

Answer 5

Market approach: Price in current market
Income approach: DCF of Future Cash Flows | Present Value
Cost approach: Replacement cost values the asset

Question 6

What is excluded from Revenue ASC 606 (revenue from contracts with customers)

Answer 6

Insurance contracts
Leases
Financial instruments
Contracts with non-customers

Question 7

What are the revenue recognition steps (COPAS)

Answer 7

Contract
Separate Performance Obligation
Determine transaction Price
Allocate transaction price to Obligations
Recognize revenue wihen entity Satisfies obligation

Question 8

Calculate revenue from cash to accrual basis (SPEAR-BAR)

Answer 8

Sales (Customer Payments)
+ Ending AR
- Beginning AR
= Sales Revenue on Accrual

Question 9

Calculate COGS from cash to accrual

Answer 9

Cash paid
+ Increase in AR
- Increase in Inventory
= COGS on Accrual

Question 10

When can you list a segment as Discontinued Operations

Answer 10

It must represent a strategic shift with a major effect on financials/operations

Disposal Assets must be held for sale, sold, or disposed of in another way

Question 11

How do you report discontinued operations

Answer 11

Income statement Net of Tax

Question 12

What is constant dollar accounting

Answer 12

Uses CPI to reflect change in purchasing power from inflation

Question 13

What is included in General and Administrative expense

Answer 13

Office staff salaries, rent, and supplies

Question 14

What is included in Selling Expense

Answer 14

Sales staff salaries and portions of the building assigned to Sales should be allocated to Selling Expense

Question 15

How are costs related to Business Start-ups treated

Answer 15

All start-up costs are expensed as they are incurred (up to 50k)

Hiring an accountant, temporary board of directors, legal to create the business etc.

Question 16

When must you report a operating segment

Answer 16

10% or more of revenue, assets, or profits/losses
Must report to the CEO

Question 17

A transaction that is unusual in nature or infrequent in occurrence should be reported as a(an)

Answer 17

Component of income from continuing operations, but not net of applicable income taxes

Question 18

Company participates in two markets equally with differing valuations of Product A. Which fair value do you use

Answer 18

The fair value of a financial asset is determined by using the fair value in the principal market of such assets. The principal market is the market in which the asset trades at a higher volume. In the absence of a principal market, the price in the most advantageous market is determined to be the fair value.

Pick the selling cost of the market with highest profit

Question 19

How should you fix errors in financial statements

Answer 19

By reissuing the financial statements in which the mistake occured