General Purpose Financial Reporting For Profit

Question 1

Different types of Expense Recognition

Answer 1

1. Cause & Effect (Current Asset)
   * Direct Matching to revenue
   *. The cost directly produces revenue
   * Example: Inventory & COGS

2 Systematic and rational allocation (Non-Current Assets)
* Produces revenue over long periods of time
* Example: PP&E. (Depreciation), Intangibles (Amortization), Natural Resource (Depletion)

3. Immediate Recognition
   * Expenses that cannot be directly related to specific benefits
   * Example: Period costs, SG&A expenses, R&D, interest expense

Question 2

Current Assets

Answer 2

Cash, temporary trading securities, accounts receivable, notes receivable, inventory, prepaid expenses

Question 3

Current Liabilities

Answer 3

Accounts Payable, accrued expenses, dividends payable, income taxes payable, current portion of long-term debt, unearned revenue, short-term notes payable

Question 4

Non-Current Liabilities

Answer 4

Notes and bonds payable, deferred tax liability, short-term notes payable refinanced to L/T notes payable, non current portion of finance lease

Question 5

Equity

Answer 5

• Preferred Stock
• Common Stock
  (Both has Par Value or Stated Value. The Issue price is usually greater than Par or Stated. The excess between Par/Stated Value and Issue Price goes into APIC).
• Additional Paid-In Capital (APIC)
• Retained Earnings
  (this is accumulated earnings since inception that has not been paid out to shareholders (dividends)).
• Dividends declared = an increase to liabilities (dividends payable) and decrease to equity.
• Accumulated Other Comprehensive Income (AOCI)

Treasury Stock = shares of the company’s stock repurchased by the company but not retired.
* the company cannot report its own stock as an investment
* it is a contra asset and presented as a reduction to stockholder’s equity.