MISC - Review - Deck 1 Flashcards
Numerator in Diluted EPS?
Income available to CS + Interest of Dilutive securities ( (Face * stated rate) + discount amort.) * tax rate
Calculation of number of shares (with stock split) in the use of EPS?
Need for weighted average with stock split. 1. use # of months following the split as divider of before and after stock amount. total before stock and after stock and divided by months following split.
Recognition of Liability with construction contract over time. Calculation:
- calculate estimated profit-
(contract cost - ( actual cost + estimated cost to complete)) - Percentage complete-
(Actual cost / (Actual cost + estimated cost)) - Calculate gross profit earned to date-
( 1. * 2.)
What action should be taken if a change of reporting entity occurs and comparative financial statements are presented?
If a change of reporting entity occurs and comparative financial statements are presented, all previous financial statements included in the comparative set should be restated to reflect the change consistently.
Can net income or retained earnings be increased through treasury stock transactions?
Net income or retained earnings should never be increased through treasury stock transactions. If a company, like Murphy Co., incorrectly recognizes a gain from the issuance of treasury stock, it results in an overstatement of net income for the current period.
What happens to the financial outcome for a U.S. company and a Japanese company when the U.S. dollar appreciates versus the Japanese yen in a transaction settled in yen?
-When the U.S. dollar appreciates versus the Japanese yen, it means that fewer U.S. dollars are needed to purchase one yen.
-For the U.S. company (Jacobs), this results in a gain because they need fewer dollars to convert into yen to pay the Japanese company (Noshima).
-For the Japanese company (Noshima), this results in a loss because they receive fewer yen when converting the payment back into their local currency.
When can services be combined into a single performance obligation, and when should they be split into distinct components?
Services can be combined into a single performance obligation when they are similar in nature and can be provided in a similar manner. They should be split into distinct components when the buyer can benefit from each service independently or with their own resources, and when each service is separately identifiable from the others.
How does income previously recognized impact revenue recognition in the second year of a four-year construction contract?
In the second year of a four-year construction contract, income previously recognized is used to calculate the income recognized. Progress billings to date do not impact the recognized income; only the income previously recognized affects the income in the second year.
How should a change in reporting entity be treated in comparative financial statements?
If comparative financial statements are presented and a change of reporting entity occurs, all previous financial statements must be restated retrospectively. This includes adjusting the financial statements and note disclosures to reflect the change. Merely reporting the change in note disclosures is not sufficient.
Can net income or retained earnings be increased through treasury stock transactions?
No, net income or retained earnings will never be increased through treasury stock transactions. These transactions are accounted for as equity transactions and do not affect the income statement.
What are the valuation techniques used to measure fair value and which one is not used?
The market approach uses market transaction data for identical or comparable assets/liabilities.
The income approach discounts future cash flows or earnings.
The cost approach considers current replacement cost. The company is using the market approach with comparable securities for private placement securities.
The exchange approach is not a recognized valuation technique for measuring fair value.
What information is included in the summary of significant accounting policies note?
The summary of significant accounting policies typically includes measurement bases, accounting principles and methods, criteria, and policies such as basis of consolidation, depreciation methods, and revenue recognition. Specific details like concentration of credit risk, pension plan assets, and plant asset composition are described in their respective notes.
What are Level 3 inputs in fair value measurement?
- Level 3 inputs are unobservable inputs reflecting the entity’s judgment about the assumptions a market participant would use. They are used when there is little to no market activity for the asset or liability.
- Level 2 inputs include observable inputs other than quoted prices, such as values of similar assets.
- Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
What are special purpose frameworks in accounting?
Special purpose frameworks are non-GAAP presentations that include bases of accounting such as the cash basis and modified cash basis.
Examples include the statement of cash receipts and disbursements.
The statement of comprehensive income, statement of operations, and statement of financial position are required under U.S. GAAP and are not considered special purpose frameworks.
What are the 3 inputs to valuations techniques used to measure the fair value of an asset?
Level 1 inputs are quoted prices in active markets for identical assets or liabilities.
Level 2 inputs include observable inputs other than quoted prices, such as values of similar assets
Level 3 inputs are unobservable inputs reflecting the entity’s judgment about the assumptions a market participant would use. They are used when there is little to no market activity for the asset or liability
