Financial Reporting & Disclosures Flashcards
Summarize the par value method of accounting for treasury stock
In this method, the stock is recorded at par value, with the excess of par value being recorded to additional paid-in capital - treasury stock.
What is the format for a multi-step income statement?
Sales
- COGS
= Gross Profit
- Selling Expneses
- G&A Expenses
= Operating Income
+ Other income (e.g. gain on sale)
= Income from Continuing Operations
- Income Tax Expense
= Income before Discontinued Operations
+ / - Gain / (Loss) from Discontinued Operations (after tax)
= Net Income
+ / - OCI (PUFI)
= Comprehensive Income
How do you account for losses from Discontinued Operations in Year 1?
For Year 1, ALL losses should be included in losses from Discontinued Operations (I.e. losses incurred BEFORE and after the decision to discontinue)
How do you account for gains that are unusual in nature and infrequent in occurrence?
Gains / Losses that are either unusual in nature OR infrequent in occurrence should be reported as a gain / loss within Continuing Operations
How are FX Gains / Losses on transactions accounted for?
Spot FX rate is used at the date of the transaction, and A/R is recorded using this rate
On Financial Statement date, Spot FX rate is used to record the gain / loss since transaction date
On payment date - Spot FX rate is used to record gain / loss since statement date
What is the formula for Diluted EPS?
Net income for the year + income derived from convertible securities / WACSO (assuming that all convertible securities have been converted to Common Stock)
What are the 3 different SEC Filing Classifications?
Smaller Reporting Company - Equity float of < $75M
Accelerated Filer - Equity float of $75M or more, but < $700M
Large Accelerated Filer - equity float of $700M or more
What are the conditions to be satisfied to declare a segment as ‘Held for Sale’ to report it as part of ‘Discontinued Operations’?
- Management has committed to the plan for sale of the segment
- Segment is immediately saleable in its current condition
- Management has a program in place seeking a buyer
- Management is actively marketing the sale
- The sale is probable and likely to be completed within the next year
- Management has no plans to withdraw from the sale or significantly alter the plan for the sale
What are the types of SEC filings to be done in a year?
Form 10-K - Annual filing that includes full set of audited financial statements, MD&A
Form 10-Q - Quarterly filing that includes a set of unaudited financial statements, and some MD&A
Form 8-K - required filings for major corporate events, such as acquisitions
Form S-1 - initial registration to be filed with the SEC when a public company wants to issue new securities
How and when is a property dividend recorded by a company?
- A property dividend is recorded at the current market value of the property at the date of declaration
The Book Value at date of declaration is used to determine the gain / loss - That gain / loss is reported in Net Income for the period
What is a Retained Earnings Appropriation?
A RE Appropriation is used to restrict earnings available for dividends
The appropriation reduces (debits) the ‘Unappropriated Retained Earnings’ and credits (sets up / increases ‘Appropriated Retained Earnings’
What happens to Appropriated Retained Earnings once the reason for the appropriation is completed?
Once the reason for the appropriation (e.g. construction of a new plant) is complete, the amount is RETURNED back to Unappropriated Retained Earnings
What accounts are impacted when a stock dividend is given?
- Retained Earnings decreases by the amount of the dividend declared (amount is determined by % of dividend declared x total shs x current MV of each share)
- Capital Stock - increases by Par value x # of shs issued
- Additional Paid-in Capital - increases by (difference between Par and MV) x # of shs issued
What is the method used to determine how much of a dividend is to be paid to a common stock vs. Participating stock holder?
- Step 1 - calculate how much of the dividend is to be paid initially based on the original dividend payout %
- Step 2 - for the remaining amount, use the par amount x number of shs outstanding of each type to determine the ‘Relative Capitalization’
- Step 3 - spread out the dividend based on the weighted average of the relative capitalization
How to apply a discount for a contract that has multiple contract obligations?
The best way to do this is to apply it proportionally to all obligations
What happens to Retained Earnings when rights are issued, and exercised?
- NO impact to Retained Earnings when rights are ISSUED
- If the Exercise price is > Par value, but < Market Value - no impact, because the Common Stock account is credited at par, and Additional Paid in Capital is credited for the amount over par
- If the Exercise price is > Par value, and Market Value, Common Stock is still credited at par,
What is a performance obligation?
A contractual commitment by a company to provide customer with a distinct good or service
What is the 5 step approach for revenue recognition?
- Step 1: Identify the contract with the customer
- Step 2: Identify the separate performance obligations within the contract
- Step 3: Determine the transaction price
- Step 4: Allocate the price to each of the separate performance obligations
- Step 5: Recognize the revenue as or when each performance obligation is satisfied
How do you record issuing of shares for property?
The issuance of shares for property is recorded at the fair market value of the property, as follows:
- Common Stock outstanding increases by # shs x par value
- Additional Paid-in Capital increases by difference between par and FMV of the shares at the transaction date
How to you record buy back of Treasury Stock, using the Cost Method?
It is bought back at the prevailing market value of the securities at the time of the purchase.
- Reduce the shares balance by # of shares bought back
- Reduce the Treasury stock account by the MV per shares x # of shares bought back
What happens to Retained Earnings when you declare a property dividend?
You debit Retained Earnings (decrease) at the FMV of the property that is the dividend
When a property dividend is declared and the market value of the property exceeds its book value, what happens to the excess?
The excess is treated as a gain and recognized, which in turn increases net income for the period.
The dividend itself is declared at the fair market value of the property, by debiting Retained Earnings
How does a small stock dividend (20% to 25%) differ from a large stock dividend (>= 30%)?
When it is a small stock dividend, retained earnings is debited by:
Market Value x shares x stock % (so if 1,000 shares outstanding and 30% stock dividend, would be 300 shs x market value)
Entry:
Dr. Retained Earnings (at MV)
Cr. Common Stock (Par)
Cr. Additional Paid-in Capital (difference between Par and MV)
When it is a large stock dividend, retained earnings is debited as follows:
Dr Retained earnings for the stock div % x shs outstanding x par value
Cr. Common stock for the same number
What is a Scrip Dividend, and how is it accounted for?
A Scrip Dividend is one where the company is short of cash at the time it is declared, and so uses a note payable to commit to paying for the dividend at a later date.
In such a case, 2 things to look out for:
Dr. Retained Earnings
Cr. Notes Payable
Second, sometimes scrip dividends bear interest between the declaration date and payment date, so that interest expense, and payable need to be accounted for separately as well
