General Purpose Financial Statements - Balance Sheet/Income Statement

Question 1

What are 5 measurement attributes and when are they used on the Balance Sheet?

Answer 1

1) Historical Cost - what paid for the item (eg. land, prepaid insurance)
2) Amortized Historical Cost - fixed assets
3) Market Value - eg. marketable securities & derivatives
4) Net Realizable Value - eg. accounts receivable, inventory
5) Present Value - eg. bonds

Question 2

What is Contributed Capital?

Answer 2

An equity account which represents amounts contributed by owners
eg. common stock, preferred stock, APIC

Question 3

What are key highlights and characteristics of Retained Earnings?

Answer 3

Amount retained by entity

Cumulative net income less cumulative dividends paid over life of entity

Question 4

What are characteristics of Contra Accounts on the Balance Sheet?

Answer 4

Are always subtracted from the balance sheet account but could be be a debit or credit account based on whether BS account is an asset or liability

Question 5

What are characteristics of Adjunct Accounts on the Balance Sheet?

Answer 5

Are always added to balance sheet accounts

eg. valuation accounts added marketable securities

Question 6

What are some differences between IASB Balance Sheet and U.S. GAAP Balance Sheet?

Answer 6

Unlike U.S. which lists by most liquid assets & liabilities
International lists by most important assets & liabilities first
eg. often see non-current assets listed first internationally

Question 7

What do Revenues & Expenses do and what type of activities results in Revenues & Expenses?

Answer 7

Revenues & Expenses increase and decrease net assets respectively
And
are the result of PRIMARY business activity
Income = credit balance
Expense = debit balance

Question 8

What do Gains & Losses do and what type of activities results in Gains & Losses?

Answer 8

Gains & Losses increase or decrease net assets respectively
AND
are the result of INCIDENTAL activities ( as they are incidental and not primary, they are separated on the I/S)
eg. sale of land

Question 9

How is a multi step income statement organized? (hint: 7 steps)

Answer 9

1) Sales
2) - COGS
=Balance 1: Gross Profit
3) - Operating Expenses
4) +/- other income/exp.
5) Income from continuing Operations Before Taxes
6) Incomes Taxes
= Balance 2: Income from continuing operations
7) +/- discontinued operations (net of taxes)
8) +/- extraordinary items
=Net Income

Question 10

What are the major characteristics/differences on the Income Statement Under IASB?

Answer 10

Revenue may be referred to as “Turnover”
No requirement on reporting special items
Dividends per share require disclosure
Extraordinary items NOT allowed!