Financial Statement

Question 1

Which Personal Financial Statements are required?

Answer 1

Statement of Financial Condition & Statement of Changes in Net Worth

Question 2

How are assets and liabilities valued in a Personal Financial Statement?

Answer 2

Estimated current value

Question 3

What is the general presentation on a statement of financial condition?

Answer 3

Assets
- Liabilities
- Estimated taxes on assets sold
= Net Worth

Question 4

How is life insurance presented on a Personal Financial Statement?

Answer 4

Only shown if there is cash surrender value

It is shown net of loans against the policy

Question 5

How are business interests shown on a Personal Financial Statement?

Answer 5

Business Interests that constitute a large percentage of total assets should be separated from other investments

Question 6

What is the discreet view in an Interim Financial Statement?

Answer 6

Interim period is a separate accounting period - not GAAP

Same accounting principles used for annual reporting should be used.

Question 7

What is the integral view in an Interim Financial Statement?

Answer 7

Interim period is a part of the annual period - GAAP

Gross profit method may be used to estimate COGS and inventory

Temporary declines in inventory aren’t recognized

Question 8

How are discontinued operations & extraordinary items reported in Interim Financial Statements?

Answer 8

Aren’t prorated

Fully recognized in Interim Period as incurred

If it occurs in Q3 - it’s recognized in Q3

Question 9

How are cumulative gains and losses reported in Interim Financials?

Answer 9

Reported as if they occurred in the first quarter

Question 10

How is inventory valuation handled in Interim Financials?

Answer 10

If inventory experiences a decline in value during an interim period - the loss is recognized in the interim period

If the loss is expected to be only temporary - no loss is recognized

Question 11

What is one of the primary problems with interim reporting?

Answer 11

The matching principle gets messed up - Expenses incurred in one period may benefit future periods

Question 12

For whom is Segment Reporting required?

Answer 12

Publicly traded companies

Question 13

What factors cause a segment to be significant and therefore to be reported separately?

Answer 13

Revenue of segment is 10% or more of total

Profit is 10% or more of total

Segment assets are 10% or more of total

75% Test - All segment revenues must equal 75% of total external revenues (add together enough segments to make 75% of all reportable revenue)

Question 14

What is the disclosure requirement regarding sales of 10% or more for one customer?

Answer 14

If 10% or more of enterprise revenue comes from one customer - the segment making the sales must be disclosed

Question 15

How are estimated taxes that would be paid if all assets were converted into cash and all liabilities paid presented on a Personal Financial Statement?

Answer 15

Presented on Statement of Financial Condition between Liabilities and Net Worth

Question 16

Define an operating segment

Answer 16

Distinct revenue-producing components of the enterprise about which separate financial information is produced internally, and whose operating results are regularly reviewed by the enterprise. Determined by using a “management approach”.

Question 17

Name 2 quantitative thresholds used in identifying reportable operating segments?

Answer 17

• 10% “size” test

* 75% “reporting sufficiency” test

Question 18

What items are normally excluded from segment profit or loss calculations?

Answer 18

• General corporate revenues and income taxes
• General corporate expenses and extraordinary items
• Interest expense (except for financial institutions)
• Minority interest and gains or losses from disc. ops
• Equity in earnings & losses of an unconsolidated subsidiary

Question 19

What are the guidelines for interim reporting?

Answer 19

• Use same accounting principles that were used in the most recent annual report.
• Allocate expenses to the interim period benefited
• Revenues are recognized in the prior in which they are earned and realized
• A total for comprehensive income in condensed financial statements of interim periods

Question 20

What income tax rate is used in interim reporting?

Answer 20

Use the Effective Tax rate expected to be applicable for the full year as estimated at the end of the most recent quarter just ended.