MARCH CHAPTER 1 SFCPA DECK Flashcards
How to calc the equity for the balance sheet?
We need to know the common stock and the retained earnings balance. They will need adjustments require to adjust the common stock and retained earnings
For common stock stocks can go up or dependent on we buy more or sell
Retained earnings we need to remember that dividends reduce the RE and NI will increase it
What accounts are affected when depreciation is overstated?
When depreciation expense is overstated we need to make adjustments to “Accumulated Depreciation” by decreasing it
Adjustments need to Retained Earnings as well when depreciation expense is overstated it reduces Net income on the income statements we need to increase the RE as well to balance the income statement
When making adjustments in the balance sheet are there adjustments needed for Retained Earnings?
Yes when we make adjustment on the balance for items like depreciation expense,
What are the key item you need to calc to get to Net income for multiple step income statement?
Step 1 - Gross Sales - Sales Return = NET SALES
Step 2 - Net Sales- COGS = GROSS PROFIT
Step 3 - Gross Profit - Admins Expense = INCOME FROM CONTINUED OPERATIONS
STEP 4 - Income from continuing operation + Gain on Sales of Marketable Securities = OPERATING INCOME
Step 5 - Operating Income x income tax rate = INCOME TAX
STEP 6 - Operating income - Income tax = INCOME FROM DISCONTNUIED OPERATIONS
Step 7 - Gain on sale of discontinued operations * 25% = discontinued on sale
Step 8 - Income from discontinued operations - net gain on discontinued = NET INCOME
When calc the Operating Income what would be the formula?
Revenue - expense
Gross profit - all expense = operating income
For the multi step income statement do we alway add the discontinued operations or subtract?
It can be either or before careful on what is given on the problem such as “Loss on disposal of discontinued operation will be a loss so subtract from “income from discontinued operation”
When we are given a gain we need to ADD to the “Income from discontinued operations”
Is operating income subject to the application of intraperiod income tax allocations?
No it’s not however
Income from continuing operations
discontiued operations
OCI are included
What is general and adminstrative expense?
basically items that are any business day to day expense few examples are
accounting fees
insurance
officers salaries
rent can be used here as well
What is selling expenses?
Items that are used to sell products and services
such as adversing, sales salaries commissions, and freight out, and finally rent
What happens to dividends toward balance sheet?
it’s increased the balance sheet
Formula to calc the comprehensive income?
Comprehensive Income =
Net Income + unrealized gain on securities - loss from foreign currency translation
What is the main idea from comprehensive income?
changes that are included in the equity from non owner sources like unrealized gains and losses
What causes a decrease in Comprehensive income?
unrealized loss due to unfavorable market changes affects bonds held as AFS
Does Foreign currency transaction gains included in Net income or AOCI?
It’s included in Net Income not AOCI since foreign currency is apart of regular earnings
Where are unrealized gain reported?
They are reported “as an increase in accumulated OCI”
According to GAAP issued FASB an entity presents a full set of financial statements?
Must report comprehensive income if it has items of other comprehensive income (OCI)
Formula to calc RE?
First we need to calc the Net income then we
Start off with begin RE
ADD Net Income
LESS: DIvidends declared
= RE ending is 310,000
What causes an increase equity and Liabilities?
Are increased by credit
Decreased by debit
What causes an increase in Assets?
Debt increases an assets
Credit decreases an decreases
What is Unappropriated RE?
Unappropriated RE is can be used for various purposes such as paying dividends, reinvesting in a business, or just maintaining a reserve fund
We start off with Unappropriated RE
+ Net Income
+ apprioate RE
- Appropriate funds future legal settlement
- subtract dividends
= proper adjustment for unappropriated RE
Common errors that occurs for Retained Earnings?
Dividends might not be deducted from RE to get the correct totals
How to calc the total equity?
Begin RE 70,000
+ Net Income 30,000
Dividends 5,000
Ending RE 95,000
Step 2
Common Stock 150,000
- APIC. 50,000
RE 95,000
+ AOCI 20,000
Total Equity 315,000
If treasury stock is bought back should be included in investment?
No it should be a treasury stock under equity
Treatment of increases and decreases in AR when converting from cash to accrual?
When AR increases AR goes UP
When AR decreases AR goes DOWN
