Financial Statements

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

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 3

Presented on Statement of Financial Condition between Liabilities and Net Worth

Question 4

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

Answer 4

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

Question 5

How is life insurance presented on a Personal Financial Statement?

Answer 5

Only shown if there is cash surrender value

It is shown net of loans against the policy

Question 6

How are business interests shown on a Personal Financial Statement?

Answer 6

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

Question 7

What is the discreet view in an Interim Financial Statement?

Answer 7

Interim period is a separate accounting period - not GAAP

Same accounting principles used for annual reporting should be used.

Question 8

What is the integral view in an Interim Financial Statement?

Answer 8

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 9

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

Answer 9

Aren’t prorated

Fully recognized in Interim Period as incurred

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

Question 10

How are cumulative gains and losses reported in Interim Financials?

Answer 10

Reported as if they occurred in the first quarter

Question 11

How is inventory valuation handled in Interim Financials?

Answer 11

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 12

What is one of the primary problems with interim reporting?

Answer 12

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

Question 13

For whom is Segment Reporting required?

Answer 13

Publicly traded companies

Question 14

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

Answer 14

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

Question 15

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

Answer 15

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

Question 16

What is the primary use of Financial Statements?

Answer 16

The primary method of communicating to external parties information about the entity’s results of operations, financial position, and cash flows.

Question 17

What are the main elements to building a financial statement according to GAAP?

Answer 17

1) Statement of Financial Position (Balance Sheet)
- Assets
- Liabilities
- Equity
- Investments to the owners
- Distributions to the owners

2) Statement of Earnings (Income Statement)
- Revenues
- Gains
- Expenses
- Losses

3) Statement of Comprehensive Income
4) Statement of Investments by and Distributions to Owners

Question 18

What are the main elements to building a financial statement according to IFRS?

Answer 18

1) Assets
2) Liabilities
3) Equity
4) Income (includes revenues and gains
5) Expenses (including losses

Question 19

What changes to the Assets and Liabilities that DO NOT change Equity?

Answer 19

1) Asset exchanges
2) Liability exchanges
3) Receipt of goods or services w/ incurrence of payables
4) Settlement of payables with assets

Question 20

What changes to the Assets and Liabilities that DO change Equity?

Answer 20

1) Comprehensive Income
- Revenues
- Expenses
- Gains
- Losses

2) Transfers between Entity and Owners
- Investments by owners
- Distributions to owners

Question 21

What changes to Equity that DO NOT change Assets and Liabilities ?

Answer 21

1) Declaration and distribution of stock dividends

2) Conversion of preferred stock

Question 22

Define Balance Sheet

Answer 22

The statement of financial position reports the assets, liabilities, equity, and their relationships at a MOMENT in TIME.

IT helps users to assess liquidity, financial flexibility, profitability, and risk.

Question 23

Define Current Assets

Answer 23

Cash and other assets or resources commonly identified as reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the buiness

Question 24

Define Current Liabilities

Answer 24

Obligations whose liquidation is reasonably expected to require the use of existing resources properly as current assets, or the creation of other current liabilities.

Question 25

What items are classified as current assets?

Answer 25

1) Cash and Cash Equivalents
2) Certain individual Trading, Available of sale, and held-to-maturity securities
3) Receivables
4) Inventories
5) Prepaid Expenses

Question 26

What items are classified as Noncurrent assets?

Answer 26

1) Certain investments and funds
- securities held LONGER than 1 Year
- Funds restricted
- Cash surrender value of life insurance policy
- Capital assets NOT in current use

2) Plant, Property, & Equipment
3) Intangible assets
4) Other noncurrent assets

Question 27

What items are classified as current Liabilities?

Answer 27

1) Trade payables
2) Other Payables
3) Unearned Revenue
4) Other obligations expected to be liquidated

Question 28

What items are NOT classified as current Liabilities?

Answer 28

1) Current obligations if an entity (a) intends to refinance them on a NONCURRENT basis and (b) demonstrates an ability to do so

2) Dividends not yet declared
3) Debts to be paid from funds accumulated in noncurrent assets account

Question 29

The ability to refinance a debt may be demonstrated by?

Answer 29

1) Enter into a financing agreement meeting all conditions BEFORE the balance sheet is issued
2) Issuing a noncurrent obligation or equity securities AFTER the end of the reporting period BUT before issuance of the balance sheet

Question 30

How does IFRS classify a liability that is due to be settled within 12 months?

Answer 30

Financial liabilities due to be settled within 12 months should CONTINUE to be classified as CURRENT.

This applies even if

(1) the original term exceeded 12mths and
(2) an agreement to refinance or reschedule payments on a noncurrent basis is completed AFTER the reporting period and BEFORE the financial statements are authorized for issue.

Question 31

What items are classified as Noncurrent Liabilities?

Answer 31

1) Noncurrent Notes and Bonds
2) Liabilities under Capital Leases
3) Most postretirement benefit obligations
4) Deferred tax liabilities arising from interperiod tax allocation
5) Obligations under product or service warranty agreements
6) Advances for noncurrent commitments to provide goods or services
7) Advances for affiliated entities
8) Deferred Revenue

Question 32

Define Equity

Answer 32

The residual after total liabilities are subtracted from total assets.

(Any recognized transaction that does NOT have equal and offsetting effects on total assets and total liabilities changes equity)

Question 33

What items are classified under the equity section?

Answer 33

1) Captial contributed by owners (par value of c/s & p/s issued and APIC)
2) Retained Earnings (income reivested)
3) Accumulated other comprehensive income
4) The noncontrolling interest in a consolidated entity

Less
5) Treasury Stock

Question 34

Define the purpose of an Income Statment

Answer 34

The results of operations are reported in the income statement on the accrual basis using an approach oriented to historical transactions.

Revenues - Expenses + Gains - Losses = Net Income (loss)

Question 35

What are the 3 formats of the income statement and their purpose?

Answer 35

1) Single Step - provides one grouping for revenues/gains and one grouping for expenses/losses
2) Multiple-step - matches operating revenues and expenses in a section separate from nonoperating items.
3) Condensed - Common method b/c it includes only the section totals of the multiple-step format.

Question 36

How is the COGS calculated?

Answer 36

Beginning FG inventory
\+ Purchases or COGM
= Goods Available for Sale
-Ending FG Inventory
= COGS

Question 37

What are the 2 ways to calculate COGM?

Answer 37

Beginning WIP
+ Sum of periodic manufacturing costs
- Ending WIP
= COGM

                                              or
Ending FG Inventory
\+ COGS
- Beginning FG inventory
= COGM

Question 38

What is comprehensive income?

Answer 38

Includes all changes in equity of a business during a period EXCEPT those from invests by and distributions to owners.

Net Income + OCI = Comprehensive income

Question 39

What are some items classified as Other Comprehensive income?

Answer 39

1) Unrealized gains/losses on AFS (except those that are hedged items in a F.V hedge)
2) Gains/Losses on derivatives
3) Certain amounts w/ recognition of funded status of postretirement defined benefits plans
4) Certain foreign currency items

Question 40

What are some transactions that effect retained earnings and result in adjustments?

Answer 40

1) Net income/loss for the period
2) Any prior-period adjustments, net of tax
3) Dividends declared
4) Certain other rare items

Question 41

Define Cash Basis of reporting

Answer 41

Revenues and expenses are recognized when CASH is received or paid, regardless of when goods are delivered or received or when services are rendered,

Question 42

Modified Cash Basis

Answer 42

Uses the cash basis for typical operating activities with modifications having substantial support

Examples: reporting inventory, accruing income taxes, and capitalizing and depreciating fixed assets

Question 43

What are some examples of other bases of Accounting

Answer 43

1) Cash Basis
2) A basis used to comply w/ requirements of a regulator
3) Basis used for tax purposes