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

Name the five elements of present value measurement per SFAC No. 7 “EVTUO”

Answer 16

Estimate of future cash flow

Expectations about timing Variations of future cash flows

Time value of money (the risk free rate of interest)

The price for bearing Uncertainty

Other factors

Question 17

What is the presentation order of the major components of an income and retained earnings statement?

“IDEA”

Answer 17

I - Income from continuing operations (I/S)

D - Income from discontinued operations (I/S net of tax)

E - Extraordinary items (I/S net of tax)

A - Accounting principle change (R/E net of tax)