Financial Statements

Question 1

Which Personal Financial Statements are required?

Answer 1

Statement of Financial Condition & Statement of Changes in Net Worth

Statement of Changes in Net Worth is an option as well

Question 2

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

Answer 2

Estimated current value (not historical cost)

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 (personal F/S)?

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

What are 10-Q’s and what are 10-Ks?

When are they due?

Answer 13

10-Qs are quarterly financial statements that are reviewed by public accountants. Three are filed every year.

10-Ks are the financial statement results for the 4th quarter.

10-Qs are due 40 days after the end of the quarter

Question 14

For whom is segment reporting required?

Answer 14

Publicly Traded Companies

Question 15

When is a segment considered to be reportable?

Answer 15

If the segment contributes to at least 10% of one or more of Revenues, Assets, or Profits

Question 16

What is the 75% Test regarding Segment Reporting?

Answer 16

There must be enough segments separately reported so that at least 75% of unafilliated revenues is shown by reportable segment.

If 75% is not satisfied, then additional segment must be designated as reportable even if they don’t meet the 3 10% tests.

Question 17

What tax rate is used when calculating the income tax expense on an interim financial statement?

Answer 17

The expected annual tax rate

Question 18

What components are presented net of tax on the income statement?

Answer 18

Discontinued operations
Extraordinary items
The cumulative effect of a change in accounting principle are all presented on net-of-tax basis.