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)
