Financial Statements Flashcards
Another name for the BALANCE SHEET
Statement of Financial Position
What is measurement attribute
The value something is recorded at. (I.E. Historical cost, fair market value, etc)
How should a prior year adjustment to amortization expense be treated? (I.E. Included in Net income or not?)
NOT included. It should be applied retroactively through retained earnings.
A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance.
In a Statement of Cash Flows for the purchasing company, what amount is included in financing activities for the above transaction?
ZERO
The cash paid would be an INVESTING outflow
Mortgage Note is NOT cash, will be disclosed in the non-cash activity section
Deed Co. owns 2% of Beck Cosmetic Retailers. A property dividend by Beck consisted of merchandise with a fair value lower than the listed retail price. Deed, in turn, gave the merchandise to its employees as a holiday bonus.
How should Deed report the receipt and distribution of the merchandise in its Statement of Cash Flows?
As a non-cash activity since no cash was involved.
Polk Co. acquires a forklift from Quest Co. for $30,000. The terms require Polk to pay $3,000 down and finance the remaining $27,000. On March 1, year 1, Polk pays the $3,000 down and accepted delivery of the forklift. Polk signed a note that requires Polk to pay principal payments of $1,000 per month for 27 months beginning July 1, year 1. What amount should Polk report as an investing activity in the statement of cash flows for the year ended December 31, year 1?
$3000, since only cash inflows/outflows are presented on the statement of cash flows.
Cash outflows regarding the note payment = financing activity
Mend Co. purchased a three-month U.S. Treasury bill. Mend’s policy is to treat all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents . How should this purchase be reported in Mend’s Statement of Cash Flows?
NOT REPORTED:
The reporting basis of the Statement of Cash Flows is cash and cash equivalents. The purchase of a cash equivalent has no effect on the total of cash and cash equivalents. Such purchases increase cash equivalents and decrease cash by the same amount. Thus, the total of cash and cash equivalents is unaffected. This Treasury bill meets the definition of a cash equivalent. The Statement of Cash Flows reports changes in the fund defined as cash and cash equivalents. Thus, the purchase of this Treasury bill is not reported in the Statement of Cash Flows.
New England Co. had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000.
New England’s cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000, and proceeds of $40,000 were received from the sale.
What was New England’s cash balance at the end of the year?
$208,000
Beg bal $27k + 351k operating - 420k investing + 250k financing = $208,000
Accounting Policy Footnotes disclose what?
The method of accounting used by the firm, and other information useful for understanding the basis under which the financial statements were prepared. (Methods of measurement or recognition)
Neely Co. disclosed in the notes to its financial statements that a significant number of its unsecured trade account receivables are with companies that operate in the same industry. This disclosure is required to inform financial statement users of the existence of
Concentration of credit risk
Brad Corp. has unconditional purchase obligations associated with product financing arrangements. These obligations are reported as liabilities on Brad’s balance sheet, with the related assets also recognized.
In the notes to Brad’s financial statements, the aggregate amount of payments for these obligations should be disclosed for each of how many years following the date of the latest balance sheet?
5 years
Which type of material related-party transactions require disclosure?
ALL unless they are ordinary business transactions such as payment of employees and other routine transactions
List criteria for transfer of A/R and N/R to be a sale
The assets are isolated form the transferor
The transferee is free to exchange the assets or is free to pledge the assets
There is no agreement in which the transferor will be required to repurchase the assets
What does it mean to FACTOR receivables outstanding
Factoring is a sale of recievables
After being held for 40 days, a 120-day, 12% interest-bearing note receivable was discounted at a bank at 15%. The proceeds received from the bank equal
The bank charges its discount (its fee) on the maturity value, which is the face value of the note plus 12% interest for 120 days. The bank charges 15% on this amount for the 80 remaining days in the note term. Thus, the proceeds equal the maturity value less its fee.
