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/Loss is 10% or more of total (Absolute Amount)

Segment assets are 10% or more of total

75% Test - All segment revenues must equal 75% of total external revenues

Note: *** Inter-company Transactions are NOT Eliminated for Reporting

So this is BOTH: 1. External and 2. Inter-segment is 10%> of combined revenue of all operating segments.

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 purpose of Segment Reporting, and who has to do it?

Answer 16

Purpose: 1) To better understand the enterprise’s performance 2) Better assess future net cash flows 3) Make more informed judgments about the enterprise as a whole.

Required for All Public Enterprises

Question 17

Segment Profit or Loss Defined

Answer 17

Revenue

= Operating Profit (or Loss)

Items normally excluded from segment profit or loss = General corporate revenues, general corporate expenses, interest expense (except finc institutions), income taxes, equity in earnings and losses of an unconsolidated subsidiary, gain and losses from discontinued ops., extraordinary items, minority interest.

Question 18

Major Customers

Answer 18

An enterprise that gernerates 10% or more of its revenue from sales to a single customer must disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues.