INCOME STATEMENTS ITEMS Flashcards
when would we not be required to calc the diluted earnings for per?
when AVG market price is “LESS” than the exercise price that means it’s antidiluted there so no need to calc the diluted
Calc the BEPS net income or loss available to common shareholders?
Part 1 - First we need to find the numberator which would be the “Net Income”
In this problem don’t have Net income however, we can use the Income from continuing operations - the discontinuing operation
Income from continuing operation 1,000,000 discontinued operation 1,200,000
Net Income 200,000
Preferred stock 60,000 x .10 = 6000
Total Net Income is 206,000
Part 2 we need to calc the WAAC outstanding
shares outstanding beginning of the period 300,000 + 12,000 shares * 1 /3 = 4000 = 304,000
60,000 common shares x 2 / 3 = 40,000
206,000 / 344,000 = (0.60)
calc the basic earnings per share?
Net Income 330,000 - preferred divis 60,000
300,000 shares common stock
= 0.90
what will cause an increase in basic earnings per share?
treasury stock reduce the number of outstanding shares and increasing the earnings per share ratio
What effect would companies convertible debt securities and potential common stock and diluted in determining earnings per share?
BEPS would have no effect
DEPS would decrease
How to calc the DEPS with using the BEPS?
Step 1: With using BEPS we have the following things available Net Income for the numerator and WAAC for the demonator
Net Income 350,000
WAAC 100,000
With calc the DEPS we need to make some adjustments for the numerator and demonator
Step 2. Adjustment the numerator of the calculation to the DEPS standard so here we have a starting Net income of 350,000 - 10,000 preferred stock x 3 = 30,000 so 350,000 - 30,000 = 320,000
Next for Step 2 is to add the convertible preferred stock with the numerator so here we will need to add the preferred dividend 10,000 x 3 = 30,000 and also add the 1,000,000 x 9% x using the tax rate (1 - 30%) = 63,000
So for the Numerator we are using the NI 320,000 + 30,000 preferred Dividend + 63,000 convertible bond
Step 3 now we need to adjust the demonator we we already have WAAC which is 100,000 now we need to the add the 20,000 shares of common stock which added with preferred dividend. Also, add the bonds convertible into 30,000 shares
320,000 + 30,000 + 20,000
100,000 + 20,000 + 30,000
= 2.75
How to calc the BEPS?
Net Income - 330,000 - Preferred dividends 60,000
Divide it by the 300,000 shares of common stock
330,000 - 60,000 / 300,000 shares = 0.90 BEPS
When there are stock split, reverse split or 2 for 1 do companies need to take BEPS or DEPS into consideration the stock dividend?
yes for both BEPS and DEPS are required to be presented before the balance sheet date
Are cumulative preferred dividends
Senario 1 When preferred stock is cumulative the dividends whether it’s earned or not it’s deducted from net income
**Ex- Net income is 100,000 - preferred stock cumulative 10,000 = 90,000 Net Income **
Senario 2 when prefered stock are noncumulative an adjustment are made for dividends.
**Ex - Net income 100,000 - Prefered stock noncumulative 20,000 = 80,000 **
Senario 3 If the dividend is cumulative then only if it’s earned no adjustments are needed
When does the If-converted method of computing diluted per share (DEPS) amounts assumes conversion of convertible securities?
at the beginning of the earliest period reported or time of issurance
What does Antidiluted mean?
basically that the EPS has increased from the original BEPS
Ex Old EBPS was 6.00
New EBPS is 6.29
Calc the BEPS with the preferred stock being cumulative?
When the Preferred Stock is Cumulative that means we need to detucted the preferred stock from the net income
So we have net income 5,300,000
Preferred stock is 50,000 shares x 10% cumulative preferred stock 100 par = 500,000
= 4,800,000 Net Income
Next we need to get the Weighted AVG Cost
1,060,000 x 5 /12 = 441,667
1,120,000 x 7 / 12 = 653,333
= 4,800,000 Net Income / 1,095,000 weighted avg cost = 4.38 BEPS
When entity make an agreement and they only receive parts of the payment and not remaining balance is that considered a liability?
Yes, that’s considered a liability bc revenue is not recognized
Calc the interest expense and the contract liability for Dec 31st year 2?
Step 1 We need to cal the interest expense for year 1
So the entity received payment of 20,000 x 1.06 = 1,200 interest expense
Now we need to add the interest expense and the payment received so here how it would look
20,000 + 1,200 = 21,200 x 1.06 = 1,272 interest expense for Year 2
Contract liability which is 21,200 + 1,272 = 22,472
When would the revenue recognition contracts have a contract modification?
when both parties agree and approve change of the price of contact.
The contract modification is also accounted for separate contract
Also, if the contact result in additional promised goods or services that are distinct
What are examples of performance obligations?
1 - Software license
2 - installation service
3 - technical support service
When should transaction prices be able to adjusted for the effect of the time value of money?
the selling price of the product considerate are different significantly
How to calc the total transaction price?
First we start off with the rooms and how much it was per night
Here it was 10 nights, 10 rooms which was 200 per night
so here we calc this by 10 x 10 x 200 = 20,000 next we need to subtract the credit for the 50 nights of (3,000)
20,000
(3,000)
17,000 total transaction price
Notes - things like coupons, credits, and vouchers reduce the transaction price
Calc the revenue and interest income from the contract recognized?
Year 1 Revenue and interest income are the following
Cash selling price 250,000 x 10% = 25,000 interest income for year 1 simple calc and 250,000 would the revenue since we sold the machine for that price
Year 2 the calc is a little different because we made the initalment payments for year 1 at year end so that would need to be calc for year 2
So for year 2 we need to first calc the selling price of the machine which was 250,000 and we subtract the annual payments of 144,049 = 105,951. Next we need to add the inteest expense and we get a total of 105,951 + 25,000 = 130,951 next we use the implicit rate to calc the interest income for year 2 which was 13,095
When is revenue recognized in revenue recognition?
when the goods or service is delieved to the customer and the customer has control which would be when the product is delieved
How to calc the gross profit from a contract?
Here we have 150 machines and we ducted 20 machines because will be returned so 130 machines available
and now $75 and the machine cost is 45 = 30
130 machine available
x 30 price
= 3,900 gross profit
Calc the gross profit of a construction contract for the 3 years?
For year 1 first we need to calc the expected gross profit and the actual costs
2,500,000 payment for project
2,000,000 expected total cost
= 500,000 gross profits
For year 1 we need to also find the actual cost for the projects completed projects were the following 500,000, 900,000
500,000 / 2,000,000 = 0.25
Gross profit 500,000 * 0.25 = 125,000
For year 2 payment for project 2,000,000 expected total cost
500,000 + 900,000 = 1,400,000 / 2,000,000 = 0.70
Gross profit 500,000 * 0.70 = 350,000
For year 3 payment for the projects 2,000,000
500,000 + 900,000 + 600,000 = 2,000,000 / 2,000,000 = 1.00
Gross profit 500,000 x 1 = 500,000 -350,000 from year 1 = 150,000 gross profits
according to the guidance for revenue recognition from contracts which amoritized initial capitalization?
incremental costs of obtaining a contract and cost incurred to fulfil a contract are both considered
The effects of transaction that is infrequent in occurrence and unusual in nature should be presented separately as a components of income continuing operations?
both gains and losses
Calc, the gross profit that should be reported for the project?
Step 1 cal the gross profit of the contract
to start off with the contract price 4,200,000
cost incurred in year 1,750,000
estimated costs to 1,750,000
add the cost and estimated 3,500,000
contract price 4,200,000
tot esti cost 3,500,000
= estimated gross profit 700,000
Step 2 - we need to calc the one half of the estimated costs of this construction projects
add the cost incurred and estimated costs which will give you a estimate cost 3,500,000
1,7500,000 + 1,750,000
estimated total cost 3,500,000 / estimated cost 1,750,000 = 2
= 700,000 / 2 = 350,000
calc the contract completed of project?
Step 1 calc the percentage for each project
In order to calc the percentage we need to first calc the cost incurred and the estimated costs to complete which gives us the completed estimated cost so cost incurred for P1 is 240,000 + estimated costs completed 120,000 = tot estimated cost completed 360,000
next we need to cost incured / tot estimated cost 240,000 / 360,000 = **0.67777% for project 1 **
Project 2 calc the percentage we need to first calc the cost incurred and the estimated costs to complete which gives us the completed estimated cost so cost incurred for P1 is 280,000 + estimated costs completed 40,000 = tot estimated cost completed 320,000
next we need to cost incured / tot estimated cost 280,000 / 360,000 = **0.875% for project 2 **
Step 2 calc the gross profit for project 1 and 2
Contract price - total estimated cost
Project 1
contract price 420,000 and the incurred cost 240,000 + estimated cost 120,000 = 360,000
420,000 - 360,000 = 60,000 x 0.677 = 40,000
Project 2
contract price 280,000 and the incurred cost 280,000 + estimated cost 40,000 = 360,000
300,000 - 320,000 = -20,000
40,000 + (20,000) = 20,000
How to calc the gross profit contract recognized in the income statement?
Important to note that in this contract revenue is recognized over the time and based on the progress towards completion
Also important to note that the input method based on costs is used to calc this problem
First step we need to start off with calc the gross profit for year 3
Start off with the contract 2,500,000
700,000 + 500,000 + 800,000 = 2,000,0000 incured cost and estimated costs
contract 2,500,000 - 2,000,000 = 500,000 gross profit
year 2
Start off with the contract 2,500,000
700,000 + 500,000 + 675,000 = 1,875,0000 incurred cost and estimated costs
contract 2,500,000 - 1,875,000 = 500,000 gross profit
= 675,000
Final step we need to divide the numbers
700,000 + 500,000 cost incurred = 1,200,000
700,000 + 500,000 + 675,000 = 1,875,000
1,200,000 / 1,875,000 = 0.64
How to calc the revenue on the contract recognized on the income statement?
Important to note that in this contract revenue is recognized over the time and based on the progress towards completion
Also important to note that the input method based on costs is used to calc this problem
basically we need to subtract the completion from year 2 - 3
Year 3 the completion would be 100% 2,500,000 as the contract is completed next we would need to calc the completion for year 2
Year 2
Start off with the contract 2,500,000
700,000 + 500,000 + 675,000 = 1,875,0000 incurred cost and estimated costs
contract 2,500,000 - 1,875,000 = 500,000 gross profit
= 675,000
Final step we need to divide the numbers
700,000 + 500,000 cost incurred = 1,200,000
700,000 + 500,000 + 675,000 = 1,875,000
1,200,000 / 1,875,000 = 0.64
100% - 64% = 0.36%
2,500,000 x 0.36% = 900,000
can you recognize revenue when the cost incurred is expected to recover?
yes, as long as the cost is recoverable and the performance obgligation is satisfied
are adjusted market assessment and minimum amount in the range of possible amounts acceptable for estimating the amounts of variable consideration in contracts with customers?
NO they’re not
Are estimated of the price in the sellers market and residual approach are good alternative for estimating standalone selling price?
yes both
How to calc the DEPS incremental effects?
So here we need to first start off with Net income 170,000 and the WAAC 100,000 plus the preferred shares and the convertible 20,000 of common shares so the denominator looks like this
100,000 + 20,000 + 30,000
Net income 170,000 - 30,000 + 63,000
1,000,000 x 9% x (1-30%) = 63,000
So first we need to calc the BEPS
Net income 170,000 - 30,000
Common Stock 100,000
= 1.40 BEPS
30,000 / 20,000 = 1.50 DEPS
63,000 / 30,000 = 2.10 DEPS
So here the lowest incremental effects is the BEPS which can be used 1.40
calc the revenue recognized by the entity on the sale of product X?
Start off the problem by adding the standalone selling price of 40,000, and 120,000, and standalone selling price of product Z of 160,000 = 320,000 the sum of the all the standalone products
Step 2, is to divide the product X by 40,000 / 320,000 = 0.13 x 250,000 = 31,250
calc the refund liabiltiy to be reported on the balance sheet?
to calc the refund liability we need to subtract machine 20 total machine - 10 machines = 10 machines x 75 is the price that was purchased in the beginning of the problem
calc the revenue from the machine contract?
we start off with the 150 machines - 20 machines returned = 130 machine next we next multiply the price per $75 which equals = 9.750
Calc, the gross profit recognized?
Here, we are using the input method
Part 1 we need to calc the gross profit for the business
Contract 1,000
actual. 300
Gross profit. 700
Part 2 for year 1 gross profit
Contract 1,000
actual (300)
construction cost (100)
estimated total profit 600
600 * 100 / 400 = 150 recognized
Gross Profit 700 - 150 profit recognized = 550 for gross profit
What happens to foreign exchange when the exchange rate increases between the date a receivable is recorded and the date the cash receipt?
Gain between both date received and date recorded
Calc, foreign currency transaction loss?
Step 1 see the loss per transaction that has occurred
Jan 20 year 4 90,000
March 20 year 4 96,000
-6,000
july 1 year 4 500,000
dec 31 year 4 520,000
-20,000
Step 2 we need to calc the interest accured
500,000 x 10% = 50,000 * 6/12 = 25,000.00
26,000 - 25,000 = 1,000
Final Step is to
6000 + 20,000 + 1000 = 27,000 transaction loss
Calc the commission expense?
Sales 15,000,000 x 3% = 450,000
calc the gross profit recognized by big in year 2 income statement?
Step 1 calc the year 2
gross profit
Contract price 2,500,000
700,000
incured 500,000
expected 675,000
1,875,000
2,500,000 - 1,875,000 = 625,000 gross profit for year 2
Step 3 calc the completion for year 2
700,000
500,000
1,200,000
700,000
500,000
675,000
1,875,000
1,200,000 / 1,875,000 0.640
completed process
Step 3 calc the year 1
Contract price 2,500,000
inccured 700,000
expected 1,300,000
2,000,000
gross profit year 1 2,500,000 - 2,000,000 = 500,000
Step 3 calc the completion for year 1
700,000
2,000,000
0.35%
step 4 final
Year 2 gross profit was 625,000 * 0.64 = 400,000
Year 1 gross profit was 500,000 * 0.35 = 175,000
400,000 - 175,000 = 225,000
How to calc the costs of goods sold?
cogm 520,000
begin in 120,000
end in. (110,000)
= 530,000 COGS
Calc, expense that should be included in the quarterly statement for 3 months ended June 30 year 4?
Property taxes 180,000 / 4 = 45,000
unanticipated repairs 300,000 / 3 quarters = 100,000
How are gains and losses reported for Interim financial reporting?
in full when the gain or loss has occurred
What are the examples that are in prior interim period adjustments
Lawsuits
Income tax
Renegotiation proceedings
What is the primary objective of interm financial reporting?
Timeliness
A transaction that is unusual in nature or infrequent in occurrence
component of income from continuing operations but not net of application income taxes
must be reported in separate component of income from continuing operation
What are the adjustments made when the application is retrospective?
you need to go back to the prior period and make the changes towards those periods as well
How is a change in accounting estimates accounted?
by prospectively applying the changes to current and future periods
if it’s reporting entity remember what?
retrospective
when there is a change in accounting principal which method is used?
retrospective
When should a company report a prior period adjustment?
restatement of the prior period statements presented
errors include the following:
-mathematical mistakes,
-mistakes in applying accounting principals -and oversight 9
How to calc the interest expense for the loan?
Year 4
10,000 x 12% x 10 / 12 = 1,000
30,000 x 12% x 6 / 12 = 1,800
16,000 x 12% x 8 / 12 = 1,280
= 4080 - 3000 = 1080
best evidence of standalone price of a promised good or service to a customer is?
observable price
How to calc the discontinued operations should report gain or loss?
For year 4 we subract the gains and losses
So here first we will start with the gain on disposal 400,000 - losses before income tax 225,000 = 175,000 x (1 - 0.30) = 122,500 gain for year 4
For year 3
we already have a losses on the income taxes of 125,000 x (1- 0.30) = - 87,500 losses for year 4
according to GAAP issued by FASB an entity that presents a full set of financial statements?
must report Comprehensive income if it has items of other comprehensive income (OCI)
if there are foreign currency transaction gains where should they reported?
component of income from continuing operations
True or False
Whenever it’s impossible to determine whether a change in accounting estimates or change in accounting principle has occured the change should be considered in estimate?
True
calc the BEPS Weighted Average numbers?
Shares outstanding at 1/1 100,000
Stock Dividends at 3/31
24,000
Stock issurance at 6/30
5000
So when stock dividends is issused it’s included with shares outstanding
100,000 + 24,000 = 124,000 x 6 /12 = 62,000
124,000 + 5000 = 129,000 x 6 / 12 = 64,500
Calc the accumulated depreciation machine balance?
Step 1 is where purchase price for machine 528,000 / 8 years = 66,000 this is for the first three years and the next four years it’s different
Step 2 is where we need to calc the accumulated depreciation so 66,000 x 3 years = 198,000 accumulated depreciation
Step 3 is where we need to calc the the remaining of the depreciation. So first we need to Cost of the machine 528,000 - accum depreciation 198,000 = 330,000 carrying amount
Step 4 we need to use the carrying value of 330,000 - 48,000 salvage value = 282,000 / 3 ears remaing = 94,000
Final step we need to first add the accumulated depreciation 198,000 + 98,000 = 292,000
When there is a change in principle inseparable from a change in estimates is it accounted prospective or retrospective?
prospectively
A change in new information what kind of change is that? prospective or retrospective?
prospective
Calc the Retained Earnings issues single period statements only?
usually a $0
How to calc the cumulative effect accounting change on prior periods should be reported in the year end?
Since the change is from LIFO to FIFO inventory measurement is change in accounting principal it the changes must be done retrospectively to the financial statements
500,000 x (1 - 30% tax rate)
Calc the prior period adjustment using the tax rate?
**Part 1 calc the after tax understandment of NI **
210,000 machine purchased
0.700 (1-30%) tax rate
147,000 aftertax under understandment of net income
**Part 2 calc the straight line method **
210,000 Machine purchased
salvage value 10,000
200,000
10 year useful life 20,000 annual depreciation
**Part 3 calc the after tax
calc the after tax
20,000 salvage value 1-3 resulted in an after tax
3 years
60000
0.7 anual tax rate (1-30%)
42000
aftertax under understandment of net income 147,000
after tax overstatement 42,000
prior period adjustment 105,000
When there are reporting treatment for change in accounting estimates?
by the period of change in the future periods bc changes in estimates are changes that are made prospectively
Where are material transaction that are unusal in nature or infrequent in occurance reported?
component of income from continuing operations
How are changes in accounting estimated occurred?
New information or a reassessment of the future benefits and obligations
How are the changes in accounting estimates accounted?
future periods and or a period that affects that situation
Ex - would be estimated useful life of a depreciable asset
calc the AFS debt securities and how much would it increase?
For AFS debt securities securties
we need to measure it at FV in the financial statement
Dec 31st year 4 160,000
Dec 31st Year 3 130,000
= 30,000 unrealized holding gains
if there is a loss in the quarterly financial statement when would the loss be recorded?
the quarterly the loss has occurred
When there is a change in the reporting entity how should the change be reported?
retrospectively including note disclosures and application to all prior period financial statements presented
What are the two types of subsequent events?
Event or where the transactions provides evidence about condition at (the date of balance sheet), including the estimates inherents in the statements preparation
Events or transaction Event or where the transactions provides evidence about condition at
When there is a fire or other casualty and it occurs a few days after the balance sheet date. Should this be reported in the financial statements?
it should be disclosed not reported on the financial statements bc it prevents the financial statements from being misleading
T or F are there disclosure made to the financial statement when a change of budgeting and other managarial decisions are made?
False no disclosure are made when board or managerial makes decisions
When should an entity report an adjustment on the financial statements for year end?
When there is additional evidence about the condition that existed on the balance sheet date
Calc, the total income tax exp in it’s interim income statement for the second quarter?
To calc the interest exp for the interim income statement
Q1 before income tax exp 10,000
Q2 before income tax exp
20,000
= 30,000 total year to date income
x 25% = 7500 total income tax
- income tax exp Q1
= 6,000 income tax exp for Q2
How to calc the BEPS?
To calc the BEPS
Net Income - 5,300,000 - (50,000 shares x 100 par x 10%) preferred dividends
5,300,000 - 500,000
= New NI 4,800,000
Step 2 - calc the correct common shares
Jan 1 - May 31 1,060,000 x 5/12 = 441,667
Jun 1 - Dec 31 1,060,000 + 60,000 = 1,120,000 x 7 /12 = 653,333
441,6667 + 653,333 = 1,095,000 Common stock shares
calc the revenue for the contract recognized on the income statement?
So when we calc the revenue for a contract remember we are recognizing the revenue over time based on completion
So first step is to calc the completion of the contract then we can calc the contract revenue
incured cost year 2 500,000
incured cost year 1 700,000
1,200,000
incured cost year 2 500,000
incured cost year 1 700,000
costs expected 675,000
1,875,000
= 1,200,000 / 1,875,000 = 0.64 (100% - 64%) = 36%
2,500,000 contract price
36% = 900,000 revenue recognized
Are any of the estimating the mounts of variable consideration in contracts with customers?
No neither, adjustment market assesment or min amount in the range of possible amounts
What are the items that are needed to be fulfiled to be recognized as a contract?
1 - both parties need to agreed and approved
2 - the contract has commercial substance
3 - payment term must be indentfied
4 - each parties rights regarding goods or services to be transferred
5 - probable that the entity will collect the consideration entitled according to the contract
The if converted method computing diluted earning per share (DEPS) amounts assumes conversion of convertible securities
beginning of the earliest period reported or at time of issuance if later
How do you calc adjusted beginning Retained Earnings?
To start off we start with RE which is 400,000
Next the premium insurance which was expensed over the 3 years. So we need to 60,000 / 3 = 20,000
60,000 - 20,000 = 40,000
Next step is we need to multiple the 40,000 x the tax rate (1-30%) 0.7 = 40,000 x 0.70 = 28,000
400,000 retained earnings
28,000
428,000
When there is depreciation expense issue
any prior period adjustment are not recovered to be adjusted so the adjustment is 0
When there is a contract modification what would be the condition for the contract to be present in order for the contract modification to be accounted for a separate contract?
1 - scope of the contract increases because of the additional of promised goods or service
2 - price of the contract increases by an amount of consideration that reflects an entity standalone selling prices of the additional promised Goods & Services
Calc the profit recognized for year 2?
To calc the profits for year 2 we need to first calc the profits for year 1
Calc the profits for year 1
Contract 1000
incurred. 100
estimated 300
400
600
Next calc the percentage of completion
Incurred 100 estimated 400. 100 / 400 = 0.25 600 x 0.25 = 150
Year 2
Contract 1000
300
700
Profits recognized 700 - 150 = 550 profits recognized for year 2
When reporting translation accounts balances from another currency US dollars for year end financial statements should use the currency exchange for the balance sheet for which account?
Accounts Receivable bc foreign subsidiaries are required to be reported in the consolidated financial statement. This method is used to convert foreign currency to assets and liabilities so that’s why it’s reported on current assets
Calc the expense relating to the total amount of expense relating to the two items that should be reported?
total depreciation exp 60,000
bonus to employee 120,000
= 180,000 / 12 months x 6 months = 90,000
item that isn’t subject to application of intraperiod tax allocation?
Operating income
A transaction that is unusual in nature or infrequent operations in occurrence should be reported
Component of income from continuing operations is separate net of application income taxes
When there is a change in the estimates useful life of a depreciable asset should be reported
prospectively
Item not subject to intraperiod income tax allocation?
Operating income
How to calc the contract costs incurred during year 2?
To calc the contract cost you need to remember that estimated total costs at completion and cumulative costs
So Year 1 we multiply the % completion 20% x 7,500,000 = 1,500,000
So Year 2 we multiply the % completion 60% x 8,000,000 = 4,800,000
= 4,800,000 - 1,500,000 = 3,300,000 costs incurred during year 2
what on the annual report for 10-K on the MD&A?
Covers three financial aspects of a firms business, liquidity, and capital resources and results of operations
Foreign exchange rate decreases between
So remember that the foreign transaction gain or loss commonly known as foreign exchange gain or loss are reported in earnings
When the functional currency exchangeable this cause exchange rate to increase and it’s recorded date of cash receipt
How to calc the revenue on a contract recognized in the income statement?
To calc the revenue on a contract we need to first calc the completion
So first we add the “Cost incurred each year” + “Costs expected in the following years”
700,000 + 1,300,000 = 2,000,000
700,000 / 200,000 = 35%
2,500,000 x 35% = 875,000 Revenue contract is recognized
Calc the gross profit using the the input method?
Remember for the input method we use the following things
- costs incurred during year 1
- estimated costs to complete
Step 1 calc the percentage of the projects
240,000 (240,000 + 120,000) = 66%
Step 2 calc the profits
240,000 + 120,000 = 360,000
Contract price 420,000 - 360,000 = 60,000 x 66% = 40,000
60,000 profits - 40,000 = 20,000 gross profits
When there are prior period adjustments for depreciation do we make any adjustment for the current period?
No the current period doesn’t need adjustments
Calc the prior period adjustment reported?
Part 1 calc the YR1 adjustment
machine price 210,000 * (1-30%) = 63,000
210,000 - 63,000 - 147,000 expense for one year
Part 2 calc the annual depreciation exp
210,000 - Salvage value 10,000 = 200,000 / 10 years = 20,000
Part 3
20,000 X 3 YEARS = 60,000 * (1-30%) = 42,000
Part 4
147,000 - 42,000 105,000 prior period adjustment
On the multiple step income statement calc the COGSM?
COGS - 60,000
Begin - 100,000
Ending - 90,000
= 60,000 - 100,000 + 90,000 = 50,000
When there is a change based on new information is that considered to be change in estimate or retroperspective?
it’s change in estimate
The financial statement disclosure of accounting policies
Disclosure of accounting policies is an integral part of financial statement
The contract price is 1000 cal the profit recognized?
contract 1000
incurred 100
complete 300
400
1000 - 400 = 600
100 / 400 = 0.25
600 x 0.25 = 150
1000 contract price
300 completed
700
700 - 150 = 550
Are temportary losses recognized on interim financial statements?
Losses are NOT recognized which means it the same for gains as well
Are adjusted market assessment and min amount in the range of possible amounts are variable consideration in contract with customers?
NO for adjusted market assessment and min amount in the range of possible amounts
When there is a error on prior period adjustments for statements. How to adjust them?
when there is a error that needs to be restated you need to remember that any errors related to prior period must be reported as an error correction by restating financial statement
A material loss is NOT a component of current period income from continuing operations when it is
a cumulative effect change in accounting principals
When there is foreign exchange gain or loss where is it recorded and how
recorded in earnings
when there is transaction fixed increases and a transaction gain or loss is recognized on a receivable or payable
calc, how to calc the contract that needs to be recognized in year 1?
Contract is 2,500,000
Incurred 700,000 cost expected in years 1,300,000
700,000 / (700,000 / 1,300,000) = 35%
2,500,000 x 35% = 875,000
When there is an event where the market price for a common stock subsequently declined by 50% would accountants need to report that on the financial statements?
No because it’s not a financial event that really effects the financial statements
Also wanted to add stocks prices are changing on daily basis
The purpose of FMV of an asset or liability a transaction is assumed to occur in the
principal market since it has the greatest volume or level of activity
Company that has revenue between 800 milion how would they report the form?
Form 10K for 60 days after the end of the reporting period
Interim financial reporting should be viewed primarily in which of the following ways?
As reported for an integral part of an annual period
What fair value hierarchy level 1 used for?
Most reliable and also the unadjusted quoted prices with active assets and liability
When quoted prices for similar assets as the basis for determining FV of it’s investments, what level hierarchy is that?
Level 2 remember the quoted prices for similar assets
The transaction price generally should be adjusted for the effect of the time value of money when
1- selling price of the product
2 - consideration promised contract indicate that the financing component is significant
Are revenue recognition from contracts with customers standards provides model that
From single principal based and it eliminates the most current industry specific guidance
Calc the net profit or loss from the transaction by viewing the related to the sales of cosignment inventory?
Cost of merchandise 72,000
Freight out. 7,500
Total 79,000*2/3
= 53,000
Step 2 - is to subtract the consignee and the total of 53,000
80,000
53,000
=27000
4500 + 8000 = 12,500
27,000 - 12000 = 14,500
In determining earnings per share interest expense net of application income taxes on Diluted convertible debt should be
added back to net income for diluted earnings per share
Calc, the basis earnings per share?
1/1 - 3/31
700,000*3/12 175,000
3/31 - 6/30
700,000
20,000
680,000 x 3/12 170,000
6/30 - 12/1
680,000
40,000
720,000 x 5/12 300,000
12/1
720,000
36,000
684,000 x 1 /12 57,000
702,000
Calc, the net income for the company?
Revenues 80,000
Oper Exp. 50,000
Income 10,000
= Net Income 20,000
CALC, THE GROSS PROFIT TO BE RECOGNIZED USING THE INPUT METHOD
PART 1 CONTRACT PRICE 3,000,000
ESTIMATED CONTRACT 2,000,000
COST INCURRED 700,000
PART 2 COST TO COST BASIS
700,000 / 2,000,000 0.35
PART 3 CONTRACT PRICE 3,000,000
ESTIMATED CONTRACT 2,000,000
DIFFERENCE 1,000,000
PART 4
DIFFERENCE 1,000,0000
RATE 0.35
GROSS PROFIT RECOGNIZED 350,000
The per-share amount must be reported on the face of a public company’s income statement for which of the following items?
Income from continuing operations since all companies must share amounts for income
When the effect of a material transaction that is infrequent in occurrence and unsual in nature should be presented separately as a component of income from continuing operations when the transaction results
both yes gain or loss
Calc, the interest expense and the contract liability?
To calc the contract liability we need to use the entity receives a payment which is 20,000 x 1.06 = 21,200 contract liability at the beginning of the year
21,200 x 1.06 = 22,472 contract liability at the end
Next we need to calc, the interest expense. To calc the we need to use 21,200 x 6% = 1,272 interest expense for Y2
When an entity uses the revenue recognition method from long term contract over time and the the performance of the contract cannot be reasonably measure the outcome but the expects the costs incurred revenue should be recognized based on
a zero profit margin since the contract cannot reasonably measure the outcome
A promised asset is transferred in full satisfaction of a performance obligation in a contract when the customer
obtains control of the asset
Amount should be added as an adjustment to the numerator earnings to common shareholders?
Annual preferred dividend
Adjustment of the transaction price to reflect the time value of money results in
interest income or expense that is presented in the income statement separately from revenues
Calc, the DEPS for the year ended December 31st?
Shares Outstanding
Jan 1 - June 30 300,000
July 1 - Dec 31 350,000
Weighted AVG shares outstanding
300,000 x 6/12 + 350,000 x 6/12 = 325,000 shares
Shares attributed to unexpected stock options
40,000 shares x 15 per share = 600,000 proceeds
600,000 / 20 per share = 30,000
Number of incremental shares
40,000 - 30,000 = 10,000
Number of shares used in computing DEPS
325,000 shares + 10,000 = 335,000
Calc, the basic earnings per share?
18,000 shares x 3/12 = 4500
18,000 + 3,000 additional shares
= 21,000 x 8 /12 = 14,000
21,000 - 1,200 treasury stock sold = 19,800 x 1/12 = 1650
4,500 + 14,000 + 1,650 = 20,150
Calc, the BEPS net income or loss available shareholders for Q1?
Step 1 - Calc the net income bc sometimes net income isn’t mentioned
So we start off with income from continuing operations 1,000,000
Next we have discontinued operation 1,200,000
= 1,000,000 - 1,200,000 = 200,000
Preferred Stock - 60,000 x 0.10 = -206,000
Step 2 - calc the weighted AVG number of shares used in the BEPS
300,000 + 12,000 shares issued on March x 1 / 3 = 344,000
= -206,000 / 344,000
= =0.60 BEPS
Calc, the revenue contract recognize income statement?
To calc the revenue for the contract recognized we need to first use the input method
Step 1
Add the costs incurred and the costs expected in the following years
700,000 + 1,300,000 = 2,000,000
700,000 / 2,000,000 = 0.35
Step 2
2,500,000 x 35% = 875,000 revenue recognized for year 1
Calc, basic earnings per share?
Net income - 500,000 - 10,000 = 490,000
AVG WEIGHTED 200,000
490,000 / 200,000 = 2.45
Determine the transaction price of a contract with a significant component with “undiscounted cash flows” & “Variable Consideration”?
For variable consideration it’s “YES” because variable consideration also determines the transaction price
Undiscounted Cash Flows is consideration “No”
A promised asset is transferred in full satisfaction of performance obligation in a contract when the customer
obtains control of the asset
In computing the loss per share of common stock, cumulative preferred dividends not earned should be
added to the loss for the year
when there is a functional currency to units of the foreign currency is there a gain or loss and what happens to AP or AR?
a gain is occurred and the exchange causes an increase on the date of receivable is recorded on the date of cash receipts
