ME1 Flashcards
Held to maturity securities are valued at
Amortized cost; adjustments to fair value and the resulting unrealized G/L are not recorded
Unrealized gains/losses on equity securities are recorded
In net income
Unrealized gains/losses from marking trading debt securities to fair value at the Balance Sheet date are recorded
Directly in Net Income which excludes other comprehensive income items
Credit loss on AFS security is reported
As a component of income from continuing ops. Not reported net of tax
Credit loss on AFS debt security must be recorded on IS when
FV is < amort cost but > PV future cash flows
Investor, bondholder, lender— buying stock, or bond. Lending cash
Assets
Borrower, issuer, seller, making payments
Liabilities
Change in credit risk / debtor default
Notes/bonds change in FMV go to OCI, derivative liability(loser in fwd, future, option, or swap) go to Net Income
No voting rights 1 of 3 ways you can account for this, creditor relationship
- Account for as TS 2. AFS 3. HTM
If its redeemable perferred stock - no voting rights & has maturity so you get principlw back
Trading securities
Current asset/cash flow from operations
FV- all G/L on IS
AFS securities
CFI
FV = realized G/L on IS & UNREALIZED G/L - E “OCI”
Current Ratio
CA/CL
Quick ratio
(CA- inv)/CL
Debt to equity
Total liabilities/SHE
Good on consignment-
Should be includer in companys inventory at their cost
Money collected in advance for a product
Liability as deferred revenue
Gift cards/ certificates
Treated as deferred revenue until used or expired- then become revenue
Revenues & Expenses
On IS from direcr business activity
Gains and losses
On IS from non-business activities such as selling old equipment
Multi step income statement
Sales
- COGS
=gross income
- SG&A (selling, general,& admin)
- depreciation
= opereting income
+- misc. revenue/gains/loses/expenses/loses (int income, misc. expenses)
= income before tax
- income tax expense
= income from continuing operations
+/- income from discontinued ops
= net income
Multi step vs. single step
SS lumps revenues and gains together and then expenses and losses, netting the two leaving net income.
What is a forward? Contracts
Entity’s obligation to repurchase the asset
What is a call?
Entity’s right to repurchase the asset
What is a put option?
Entity’s obligation to repurchase at customers request
What are incremental costs?
Costs that would not have been incurred if the contract had not been obtained
Relevance
Passing confirms money ; predictive value, confirming value, materiality
Faithful representation
Completely neutral is free from error
Enhancing qualitative chatacteristics
Comparability, timeliness, verifiability, understandability
Freight in goes with
Inventory cost
Freight out goes with
Selling expense
Non operating expense examples
Auxiliary services, interest expense, incidental
Working capital
Current Assets - Current Liabilities
Revenue Recognition occurs when
An entity satisfies a performance obligation by transferring a good or a service to a customer
Revenue Recognition 5 Step Approach
- Identify the contract with the customer
- Identify separate performance obligations
- Determine the transaction price
- Allocate the transaction price to the separate performance obligation - separate if more than 1
- Recognize revenge when or as the entity satisfies each performance obligation - RR occurs when an entity satisfies a performance obligation by transferring a good or a service to a customer
When can performance obligations be satisfied?
Over time (ex. Spotify subscription) or at a point in time (ex. Purchase at a department store)
Contract fulfillment costs to be recognized as an asset must:
- Be related directly to a contract
- Generate/enhance the resources of an entity
- Be expected to be recovered
Repurchase agreements
A contract by which an entity sells an asset and also either promises to it has the option to repurchase the asset (forward, call, put)
Bill & Hold agreements
Revenue is allowed to be recognized prior to the customer receiving the product. All must be met ;
1. Substantive reason for holding product
2. Product has been separately identified as belonging to customer
3. Product is ready for transfer
4. Entity can it use product or redirect to other customer
Consignment
When an entity provides a product to a dealer to be held until it is ultimately sold to a 3rd party customer. Revenue is recognized either upon ultimate sale to a customer or after the expiration of a define period of time.
Warranties may be treated as a separate performance obligation if:
- Warranty is not required by law
- Coverage period is lengthy
- No specific tasks required regarding compliance assurance
Right if return
Entity should book :
Revenue - amount of consideration expected to receive
Refund liability - amount not expected to receive
Asset - related to subsequent product recovery
Percentage of Completion Method
Revenue over time; US GAAP & IFRS; appropriate when you can reasonably estimate profitability & provide a reliable measure of progress toward completion
Construction costs & estimated GP earned are accumulated in the CIP account (inventory) :
Dr. CIP Cr. Cash
Billings accumulated in progress Billings :
Dr. AR Cr. Progress Billings
CALCULATE: percentage of completion
- Contract price - estimated total cost = GP
- Total cost to date / total estimated cost of contract = % cost
Work fine / total expected work = % of job earned - Compute GP earned:
% x GP - Compute GP earned for current year
Completed contract method
US GAAP ONLY
difficult to estimate
Many contracts
Short duration
Wait until job is done
Loss is recognized IMMEDIATELY
No GP recognized
Bonus Method
A + B + C + Ds contribution = total equity
Total equity x capital interest = capital account credited for
Inventory turnover calculation
COGS/Avg. inventory
AR Turnover Calc
Sales (net)/ Avg AR (net)
Days in AR Or days in Inventory calc
Ending AR (net)/ [sales(net)/365]
Inventory =
ending Inventory / [COGS/365]
AP Turnover Calc
COGS/Avg. AP
Smaller reporting company has less than What amount in public equity float?
$75Million
Entities with less than $100 M in annual revenues are excluded from large accelerated and accelerated.
Large Filers public equity float
$700 M +
Accelerated Filer worldwide market value of what?
$75 M or more, but less than $700 M
Small, accelerated, large
Market approach
Used prices and other relevant information from market transactions involving identical and comparable assets/liabilities to measure fair value
Cost approach
Uses current replacement cost to measure the fair value of assets
The exchange approach
Not a valuation technique to determine fair value of assets and liabilities
The income approach
Converts future amounts, including cash flows or earnings, to a single discounted amount to measure fair value.
Reportable Segment
Significant and disclosure if revenues, reported profit (loss), or assets total 10% or more of all combined segments revenues, reported profit (loss), or assets.
Operating segment
Companies may have segments related to a product line, service line, or geographic location
Subsidiary
A separate company in which 50 perfect if the voting stick is owned by another company
Assets contributed by partners to a partnership
Are valued at FMV of the assets, NET LIABILITIES
Exact method (partnerships)
Incoming partners capital account is their actual contribution (calculate)
No adjustment to the existing partners capital accounts is required
Bonus method
Balance in total capital accounts controls the computation
Incoming partners capital account is their percentage of the partnership total NBV
ADJUST the existing partners capital accounts to balance
Goodwill method
Going in investment (dollars) controls the computation
Incoming partners capital account is their actual contribution
Goodwill (implied) is determined based upon the incoming partners contribution and shared by the existing partners
Increase in Capital
Cr. Increases Capital account
Dr. Decreases capital account
