Financial Statement Preparation Flashcards
what are the component of statement of comprehensive income. and the components of OCI
Net Income and Other Comprehensive Income (OCI). OCI includes
- unrealized gains & losses on AFS securities
- Unrecognized gains & losses from pension costs
- Foreign currency translation adj
- Unrealized gains & losses from cash flow derivative transactions
The statement of changes in equity provides begin bal. changes during the year and ending for what items
Stock - common and preferred APIC or Capital surplus Retained Earning or reinvested earnings Treasury stock Accumulated Other Comprehensive income (AOCI)
what disclosures are required for the statement of cash flows.
If the indirect method is used to prepare the statement of cf, supplemental disclosures are required to report the amt. of interest paid and the amount of income taxes paid during the period.
What is the formula to compute insurance expense for a life insurance policy
Insurance expense = cash paid - (ending cash surrender value - begin cash surrender value) - cash dividend received.
If cash surrender value increases, part of the cash paid is recorded as an increase in the CSV. The increase in CSV decreases insurance expense.
what is classified as cash and cash equivalent; Also current asset or liability
cash and cash equivalent are assets of 3 months or less;
current assets or liabilities are less than 1 year or an operating cycle, whichever is more.
how is note receivable or payable recorded in the financial statement
if a note receivable or payable has a life longer than 1 yr. it should be recorded at its present value.
what are the 8 items not included in cash
COD, legally restricted compensating balances, restricted cash funds, postdated checks received, checks written but not sent, advances to employees, postage stamps
what is the accounting equation and how to convert from cash to accrual and accrual to cash
Accounting equation A = L+E
Accrual NI to cash: change in cash = change in L + Change in E - Change in assets other than cash
cash to NI to accrual NI: change in equity = change in Assets - change in Liabilities
what is the formula to calculate the fill. liquidity ratios
- Times interest earned
- Times preferred dividend
- Defensive interval
- Times Int earned = (NI + int exp + income tax)/Int exp
- Times preferred dividend = NI/Annual Preferred dividend obligation
- Defensive interval ratio = quick asset/daily operating expenditures or daily cash expenses
What is the formula to calculate the foll profitability ratios
- Basic EPS
- Price earning ratio
- Return on asset
- Return on equity
- profit margin on sale
- Diluted EPS
- . Basis EPS = NI - preferred dividend (current period)/Weighted average c/s outstanding
- Price earning = CS price per share/EPS
- Return on assets = NI + int exp (net of tax effect or after tax)/Avg. net assets
- Return on equity = NI /Avg owner’s equity
- Profit margin on sales = NI/Net sales
- Diluted EPS = NI - Preferred dividend (current period) + adj. to income for assumed conversion of potential CS/WA CS outsanding + shares fro assumed conversion of potential CS
what is the formula for the foll common activity ratios
- AR turnover
- No. Of days in AR
- Operating cycle
- turnover = sales / Avg AR
To determine # of days - 365/AR turnover
- Operating cycle in days = 365/AR turnover + 365/inventory turnover
What is the formula for the foll. financial ratios
- Common stock yield
- Owners equity ratio
- Dividend payout ratio
- Book value per share
- common stock yield = dividend per cs/mkt price per cs
- owners equity = shareholder’s equity/total assets
- Dividend payout ratio = cs dividend/NI; to determine c/s dividend if not given use NI less change in RE
- Book value per share = owner’s equity - preferred stock claims/ ending # of cs outstanding
Note: CS outstanding excludes treasury stock
what does exit cost or disposal activities include
Those costs include, but are not limited to, the following:
Involuntary employee termination benefits pursuant to a one-time benefit arrangement that, in substance, is not an ongoing benefit arrangement or an individual deferred compensation contract Costs to terminate a contract that is not a capital lease Other associated costs, including costs to consolidate or close facilities and relocate employees.
how does IFRS treat financial instruments with characteristics of both debt and equity such as convertible bonds
they treated as compound instruments and must be separated into its respective components. The liability is valued at the fair value at the date of issuance and the residual value is assigned to the equity component.
what is considered an investment property under IFRS
Investment property is defined as property held to earn rents, to earn capital appreciation, or both. this includes an operating lease.
who are the users of prospective financial statements
Prospective financial information can be used by general users with whom the responsible party is not negotiating directly, the responsible party, and third parties with whom the responsible party is negotiating directly.
what is the recourse liability account use
The seller uses a due from factor (factor’s holdback) account to account for probable sales discounts, sales returns, and sales allowances. The recourse liability account is recorded to indicate probable uncollectible accounts.
What is an operating segment
Reportable segments are operating segments that
- Revenues (internal or external) are 10% or more of the combined revenue of all operating segments, or
- Profit or loss is 10% or more of the greater of (a) the combined profit of profit-making operating segments, and (b) the combined loss of loss-making operating segments, or
- Assets are 10% or more of combined asset of all operating segments.
Describe the statement of cash flows using the direct method
The direct method reports the components of cash flow from operating activities as individual items from revenue activities and expenses incurred.
How is operating activities of a cash flow adjusted under the direct method?
Each item I the income statement is adjusted from an accrual basis to a cash basis.
A separate schedule is prepared which reconciles cash flow with net income
Describe the indirect method of presenting cash flows from operating activities
It begins with net income on an accrual basis and adjusted for items that entered into computing net income, but did not affect cash by the same amount.
What are investing activities on the statement of cash flows
They are identified with changes in a corporations long term assets.
Translation vs re measurement of foreign currency financial statement.
Which method is used depends on the functional currency of the foreign subsidiary. If the local currency is the functional currency,the statements are translated. If the US dollar is the functional currency, the statements are re Measured.
What is installment sales
The installment method of recognizing revenue is appropriate only when “collection of the sale price is not reasonably assured.” Under the installment method, gross profit is deferred to future periods and recognized proportionately to collection of the receivables.
What is the purpose of Comprehensive income?
is to report a measure of overall enterprise performance by displaying all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity with owners.
What is the management approach
It is the method used to determine what information to report for business segments
