Financial Reporting - For Profit Flashcards
What is a bond sinking fund?
Restricted cash set aside by an entity to retire bond debt.
How do legal fees and registration fees effect effect the proceeds from a stock inssuance?
Legal fees and registration fees decrease the proceeds of the issuance of stock.
What are examples of current assets?
Cash, cash equivalents, accounts receivable, inventory, and prepaid expenses. PP&E and customer deposits are not current assets. PP&E is a noncurrent assets and customer deposits are liabilities.
How are deferred tax assets and deferred tax liabilities classifed
Deferred tax assets and deferred tax liabilities are noncurrent assets and liabilities respectively.
What is meant by the term “Articulation?”
Elements of financial statements are fundamentally interrelated. For example: beginning balance + changes = ending balance and assets = liabilities + equity.
Are offsetting receivables and paybles permitted?
Offsetting receivables and payables are permitted if a right of set-off exists. The criteria required for right of set-off include:
- the two parities owe determinable amounts
- the reporting entity has the right to off-set
- the reporting party intent to off-set
- right of off-set is enforceable by law
What is the structure of an income statement?
Operating
Non-operating (other gains and losses including extraordinary items)
Tax
Discontinued operations (net of tax)
Other comprehensive income (net of tax)
What is a strategice shift?
Management decision to discontinue a division or product line that represents 15% of a company’s total revenues.
When (date) does a company classify a divison or product line as discontinued?
As soon as the divsion or product line is held for sale.
During the reporting period in which a discontinued segment is sold, are gains and losses from both the sale and operating results combined?
Yes, gains and losses from the sale and the results of operations are net of tax and netted together.
When are costs of one-time employment termination recorded?
The date employees are notified.
How is an expense increased or decreased calculated relative to a base year?
(Current year expense / base year expense) - 100%
What is comprehensive income?
Changes in equity (net assets) from non-owner sources that are not included in net income.
What are the sources of other comprehensive income?
- Gains and losses on foreign currency translation
- Gains and losses from the effective portion of a cash flow hedge
- Unrealized gains/losses from available-for-sale debt instruments
- Pension and post retirement gains and losses
Statement of Cash Flows - What financial statement is used to compute cash provided/used from operating activites?
Income statement.
In preparing consolidated financial statements, what are the most common balance sheet eliminations?
- A/P and A/R
- Bond payables and receivables
- Dividend payables and receivables
- Accrued interest payables and receivables
In preparing consolidated financial statements, what are the most common income statement eliminations?
- Bond transactions
- Non-depreciable fixed asset transactions
- Depreciable fixed asset transactions
- Inventory transactions
What is goodwill?
The excess of the purchase price and the FV of a company’s net assets on acquisition date.
What portion of a subs equity is reported on consolidated financial statements?
A subs equity if fully eliminated when preparing consolidated financial statements. On acquisition date, the acquiring company purchases the FV of net assets (Assets - Liabilities = Net Assets or Equity). Not eliminating a subs equity would be double counting equity.
How is goodwill calculated?
Acquisition Price
- Net Assets
- Book value to FV adjustments
- Intangibles
———————————————-
= Goodwill
What are the steps to eliminate intercompany depreciable fixed asset transactions?
- Restore the asset
- Restore accumulated depreciation
- Eliminate the gain
- Adjust depreciation expense and accumulated depreciation as if still deprecating the orginal asset
What are the steps to eliminate intermany non-depreciable fixed asset transactions?
- Restore the asset (asset is now inflated by the gain)
- Eliminate the gain
What are the steps to eliminate intercompany bond transactions?
- Eliminate the bond payable
- Eliminate the investment in bonds
- Eliminate the bond premium or discount
- Recognize the gain or loss from retirement of bonds
What are the steps to eliminate intercompany merchandise/inventory transactions?
- Eliminate the sale of merchandise/inventory
- Eliminate the parent’s COGS
- Eliminate the sub’s COGS attributable to the parent COGS (Sub COGS x Parent GP%)
- Eliminate the remaining sub’s inventory related to parent’s sale (Sub Ending Inventory x Parent GP%)
What is the purpose of SFAC 8 (Statements of Financial Accounting Topics 8)?
SFAC 8 provides guidance for relevant supplemental information (notes) to items appearing on the face of the financial statements.
What are the SFAC 8 required disclosures for assets?
- Nature of the asset
- Quality of the asset
- Location of the asset
- Future cash flows of the asset
- Significant contractual, statutory, regulatory and judicial restrictions
What are the four limitations of the notes to the financial statements?
- Information must be relevant
- Cost constraints
- Potential adverse consequences
- Future-oriented information that could have adverse consequences on an entity
FASB does not require entities to disclose predictions or outcomes because these outcomes could have adverse consequences. However, what forward looking disclosures may be useful?
- Estimates and assumptions
- Management plans and strategies
What are the SFAC 8 disclosures for assets and liabilities from financial instruments and contracts?
- Contractual legal terms
- Degree of credit or non-performing risk
- Inability to pay or perform
- Method used to determine cash flows
Identify the significant accounting policies that must be disclosed?
- Depreciation methods
- Conolidation basis
- Interperiod tax allocation
- Inventory pricing
- Revenue recognition methods
