Misc - Revision Flashcards
Goodwill in Consolidation = CV or PP - FV
Carrying value more denotes goodwill
CONSOLIDATION - Goodwill impairment impacts _____________
CV of investment in Parent’s books
and
Equity Earnings
Bonds Payable 4000000
Discount on bonds payable 40000
BIC 30000
Gain on Bond redemption(plug) 50k
Cash (retired value) 3880000
COnsolidation, equity method
Investment in Sub (NI) 150
Equity in Earnings(IS) 150
TO dep excess
Equity in earnings 20
Inv in sub 20
To record impairment
Equity in earnings 5
INv in SUb cr. 5
If co. is publicly traded, consider FV of stock to calculate NCI and Goodwill
100 shares @ 8 = 800
Otherwise calc by calc total value of the firm 90% bought for 900
total value = 900/90% = 1000
NCI = 1000*10% = $100
COST METHOD - Inter company dividends only need to be eliminated when Cost method is used coz dividends are Income in cost method and
EQUITY METHOD - No need to eliminate dividend if parent uses equity method as it’s a reduction in investment or CV of inv and dividend is not considered as income in equity method.
Div declared - need to be eliminated in both methods
Div declared but not paid
Equity - just 1 entry to eliminate div declared
DIv payable 15000
Div receivable 15000
COST METHOD - 2 Entries when div is declared
1. eliminating entry
Div Income 15000
RE 15000
- DIv payable 15000
Div receivable 15000
FUnctional classification - statement of activities
Natural - by function in the notes of FS
Eliminate profit from RE - COnsolidation
RE 5600
Inventory 5600
To eliminate Bonds
Bonds Payable 1000
Gain 100
Inv in Bonds 900
ELimination of int expense of 8% on 1000 face value bonds
Accrued int payable 80
Accrued int receivable 80
Assets
COst > Progress billings
EFT collections
on company book side: not on bank side
Cash paid to employees for GENERAL and ADMINISTRATIVE expenses
Operating Activities (this or salaries is an income statement item. Cash transactions reported on the income statement are operating items.)
A NEW SEPARATE CONTRACT IS FORMED WHEN _____
- Additional products in the contract modification are DISTINCT from the products in the original contract
- Consideration for the additional products reflects an appropriate standalone selling price.
Allowance for sales returns and allowances is a CONTRA ASSET to AR and
Contra assets have a natural credit balance
AFS impairment - need 3 numbers to calculate
1. FV
2. PV
3. Amortized cost or book value
If FV> Amortized value =unrealized gain (OCI)
Valuation account (BS)Dr. XX
Unrealized gain (OCI) XX
FV< Amort = Impaired
Impaired = FV - AMort
Calc ECL (PV-AMortized cost )
Calculate PV at market rate
(1)If impaired amount < Expected credit loss (ECL)
Credit loss Dr, (at ECL amount)
Allowance for credit loss (at ECL amount)
If impaired amount > ECL then record:
Credit loss (at ECL amount) Dr.
Allowance for credit loss (at ECL amount)
Unrealized loss on AFS (Impaired - ECL)
Valuation account (Impaired - ECL)
Revenue recognition - Product 1 is relected as a conditional contract asset in JE until the delivery of product 2 occurs. ____________
Once both products 1 and 2 have been delivered, Rhonda has an unconditional right to payment.
NFP - NOT CLASSIFIED AS NET ASSETS (LIABILITY OR REFUNDABLE ADVANCE)
Accounts such as conditional pledge receivable or conditional revenue are never used.
- A donor provides a deposit to a NFP that will ultimatetly fund the construction contigent upon securing operating funding for the program which it is to use.
2/A donor promises to contribute funds to defray construction costs of a new building contingent upon securing operating funding for the program which it is to house.
NFP - Purchase of equity of another organization - INVESTING
OPERATING - (1) CASH RECEIVED with MATCHING conditions attached should be deferred. Deferred items should be classified as cash flow from oeperations.
(2) Interest earned on endowment
Revenue = worked of skilled workers and work of unskilled general laborers as they “enhanced a physical asset”. (15k + 12)
The day care persuades the benefactor to give $200,000 to help the provider persuade the bus line that the benefactor is serious
Cash 200000
Refundable advance 200000
FV more than CV denotes
Bargain purchase option
CARINBIG (Eliminating Common stock-sub, APIC-sub and RE-sub against Investment in subsidiary)
100,000 shs at $10 each =1000000
MV @$17.60 each = 17,60,000
Common stock Dr. 600000
APIC Dr. 100000
RE Dr. 50000
Investment in SubsidiaryCr. 17,60,000 (FMV)
NCI Cr. Zero (100% acquisition)
PP&E(excess of FV over BV) Dr. 950000
Goodwill Dr. 60000
Common stock - sub Dr.
APIC-sub Dr.
RE-sub Dr.
Ivestment in Sub, (FMV mkt vaklue of stockor acquisition price) (Cr.)
NCI (non controlling interest) (Cr.)
Balance sheet adjustment to FV of Sub or Plant and Equipment (e.g. PPEexcess of FMV or BV) Dr.
Identifiable intangible assets to FV Dr.
Goodwill Dr.
Adjustments to Goodwill JE,
Goodwill is not amortized
Impairment expense 2,000
Goodwill 2,000
ELiminate intercompany transactions associated with the income statement
Dividend income from Sub Dr. 10k
Dividends Paid 10k
Right to recover goods
Sale 3k
return 15% =450
AR 2550
Right to recover goods 450
Sales revenue 2550
Refund liability 450
Equioment sold to Sub in Yr 3 for $120,000 cost 100,000 in Yr 1 . P 10 year SL Dep.
Sub 8 year Dep . Eliminating JE
Gain on sale (CV-SP) 40000
AD(CY SUb dep) 15000
Dep expense (diff) 5000
Equipment cost (new-old) 20000
Eliminating entry Profit
Step 1 calculate ending inventory of sub
Step 2 calculate profit % of parent = gross profit/sales
Step 3 = Multiply profit % of parent * ending inventory of Sub
Sales (to sub) 50000
Inventory 8000
COGS 42000 (plug)
Eliminate intercompany transactions with the BS exclusive of investments
Intercompany payable 30k
Intercompany receivable 30k (snippet of example in consolidation tab of july plan)
In consolidated BS, Equipment will be reported at _____
CV (Cost - AD) of Sub
It’s not of concern post consolidation whether the parent carries its investment in the subsidiary______
using the cost or the equity method
An unlimited right of return does not necessarily preclude rvenue being recognized. However, if payment is __________ and NO REVENUE is recognized.
Contingent upon customer reselling the goods, then collection is uncertain
Consolidation or Parent Cost of Sales
Parents COGS + Sub’s COGS - Intercompany sales + Profit in ending inventory
Cost method : Consolidation
Parent will recognize the parent’s share of the subsidiary’s dividends
Equity method - report only parent’s share of Equity and do not include ____
what was paid during acquisition
Purchased 15% (30000 shs)of Stanton industries at 31 per share and paid legal fee of 35,000
Investment in Stanton 930000+35000 legal fee Dr.
Cash Cr. 965000
To record dividend
Cash 2.1530000 = 64500 Dr.
Dividend Income 15% RE 59,250
Investment in Stanton (reduction in excess of RE ownership %) = 5250 plug
year end entry
Investment in Stanton 120000
Unrealized holding gain 120000
Intercompany receivables and payables are not eliminated unless consolidated financial statements are prepared. With parent having only 15% int in Sub, consolidated fin statements would not be prepared.
Thus, on the 12/31 balance sheet, Parent should separately report the total amount of the receivable.
________ will not be eliminated through an eliminating entry
Goodwill
Goodwill is the _______
non-current asset
Although the cost of the investment was equal to Book Values, the cost of the investment was greater than the FV, because the CV of sub’s building was more than its FV.
For consolidated statement purposes, the building would be written down to its lower FV (which means Depreciation expense would be decreased) and the excess of cost over FV would be assigned to recognize goodwill.
Consolidation NI
Income of the sub is also recorded by the parent and adjusted for excess depreciation on assets where acquisition date FMV is greater than cost basis
AFS to trading -
any unrealized holding gain(loss) is removed from AOCI and recognized in earnings
Profit will be added in COGS
True
Trading and AFS are reported at _________
FV
AFS
Component of income from continuing operations
HTM
- Any difference between Face value and CV is amortized interest income
- Unrealized holding gains or losses are not recognized but disclosed in notes to fin statements
**If FV option is elected
(1) report on BS at FV instead of amortized cost
(2) Unrealizzed holding gains and losses report in Income statement or current earnings
No significant influence (use cost method)
Cannot use equity method
OCI includes
WHen sec is reclassified from AFS to HTM - unrealized gain or loss is recognized under OCI and balance is amortized over the remaining life of the security
unrealized gains and losses when reclassified to HTM Security , unrealized gains and losses due to mkt risk (non-credit risk)
NI (FV)
Unrealized holding gains and losses due to market risk if FV is elected.
Income statement , FV is readily determinable or FV option is BEING ELECTED (Equity securities)-less than 20% ownership
Include in IS , when equity method is being used and FV OPTION IS BEING ELECTED
1. Dividends
2. Unrealized holding gains and losses due to market value
3. Realized Gains and losses (permanent)
Investment credit losses are reported in income from continuing operations as a
Credit loss expense (any decline in FV due to credit risk is reported as a credit loss expense in income). The security is reported at FV on the balance sheet using a contra account.
AFS : Non credit (or market) related
AFS: Credit related
AFS: FV method is elected
AFS: Intends to sell the sec due to impairment
- OCI
- Net Income or IS
- Report in IS
- Report in IS
Investment Income = only earnings under equity method
Dividends are not included (they are adjusted for BS purpose only)
Factors to consider regarding investor’s significant influence
- Participation in POLICY MAKING
- EXTENT OF OWNERSHIP IN RELATION TO THE CONCENTRATION OF OTHER SHAREHOLDING
- REPRESENTATION ON BOD
- Material Intra-entity transactions
- Interchange of Managerial personnel
- TECHNOLOGICAL DEPENDENCY
GAAP to non-GAAP is considered as ______
Correction of error, to be reported net of income taxes in the current RE as an adjustment of the opening balance.
Unrealized gain on HTM securities is only disclosed in the ________
NOTES to the financial statements. or a footnote or parenthetical disclosure only.
Gains are only reflected in the FS when they are realized.
Disclosure requirmeent tto risks and uncertainties
- estimates of the effects of changes in significant estimates
- A statement that actual results could differ from the estimates included in FS
- Disclosure of the relative importance of each business when an entity operated multiple businesses
Identified CONCENTRATIONS only need to be disclosed if following all criteria is met:
- The concentration exists at FS date
- Concentration makes the entity vulnerable to the risk of a near term severe impact
- It is at least reasonably possible that the events that could cause the severe impact will occur in the near-term.
Accrued interest is recorded separately as __________
ST marketable debt security would be carried at_____________
receivable.
FV
For HTM impairment, if PV<Amortized cost = Impairment loss = ECL and record
PV to be considered at market rate
Credit loss (PV-Amortized cost) Dr. XX
Allowance for creidt losses XX
Sinking fund =
restricted cash (check on tenure if its current or non-current)
FV Measurement - the requirement for disclosing the amounts and reasons for transfers between level 1 and level 2 was removed as it was not considered cost beneficial to track and disclose.
Not required
FORWARD CONTRACT, FX
Dec 12, company contracted to sell Euro 100,000 at $0.90 per Euro for delivery in 90 days. On Dec 31, the forward rate increased to $0.93 but the original contract is still in force, meaning the company is obligated to sell Euros for less than they are currently worth. THerefore, a loss and liability of $3000 is recognized.
Cash payment to Suppliers
Add: Increase in A/P (credit)
Deduct: Increase in inventory (debit)
____________________
COGS (Accrual basis)
True (expenses : follow opposite signs)
Cloud computing arrangements that include a software license are capitalized as intangible assets. Arrangements without software licenses are expensed as service contracts as benefits are received.
Implementation costs are capitalized and amortized over the life of the software asset.
Enterprise fund - Net position information be provided for an activity which means income determination.
User charges cover the costs of general public services.
Bad debt Method
Income Statement
- Asset valuation rather than income
- Bad debt method
- Aging the AR focused on balance sheet
- Focuses on Income statement
Allowance method of AR will not impact Assets or NI as that’s a separate account
No accrual, loss or disclosure should be made for GENERAL OR UNSPECIFIED BUSINESS RISKS and that they need not be disclosed. GENERAL OR UNSPECIFIED BUSINESS risks do not meet the conditions of loss being probable and the amount of the loss being reasonably estimated
Accrual and disclosure do not apply to reserve for contingencies for general or unspecified business risks.
FV measurement disclosures require both that FV amounts be disclosed for each FV hierarchy level and quantitative FV measurement disclosures must be in ______________
Tabular format
DNC (Dance mnemonic) - Declare dividends only for noncumulative (non voting stock, cannot give investor significant influence)
Cumulative - deduct annual dividend (regardless if declared or paid) , ignore dividends in arrears
Common stock - use equity method for more than 20% ownership and no dividend is recognized as that’s treated as return on capital
ROU asset will include both PV of Purchase option and PV of equipment e.g. (20k + 50k) and it will be depreciated on 70k.
True, at useful life of the asset since purchase option is available.
IRC used the term prepaid
GAAP uses the term unearned
Higher taxable Income
Lower Taxable Income
DTA (pay less in taxes later)-EXPENSES THAT ARE RECOGNIZED IN FINANCIAL INCOME THIS YEAR AND DEDUCTIBLE NEXT YEAR
DTL
(1) NPF - Statement of FInancial Position categories
(2) Statement of Activities
(3) SOCF - operating, financing and investing
(4) Disclosure Functional expenses (per becker) as displayed on the statement of activities analyzed by object classification
(1) Assets, Liabilities and Net Assets (Equity)
(2) Change in Net Assets
(3) required for all NFPs (cash receipts and cash payments)
JE for noninterest bearing notes in exchange for merchandise sold
Notes receivable (face amount) XX
Discount on notes receivable XX
Sales Revenue XX
Year end adjusting entry
____________________________________________________
Discount on notes receivable XX
Interest revenue XX
To increase the marketability of a debt instrument (bonds), the issuing company may provide bondholders the right to buy a certain number of shares of the company at a fixed price for a specific time period. This right is known as a ___________
Stock warrant. If the warrant can be sold separately in a secondary market, it is called a detachable stock warrant.
Market value $45. EPS is 3.60 and annual dividend $1.50
Price-earnings ratio = Market value/EPS
=45/3.60=12.5
Cash flow hedge change in FMV or unrealized gain or loss will go to ___________________
OCI and not to NET INCOME
Cash flow hedge is part of OCI
Deduct Yearly dep from original cost for SL
SL
3 criterias for LT contracts revenue to recognize over time
- Being consumed as they are delivered
- Goods or services being controlled by the customer while they are created
- No alternative use for the goods or services existing for the selling entity.
Cash flow statement = Stock option is recorded at FV , Operating activity
Receipt of Note payable will be an operating activity when merchandise was sold
CV of the bond does not include Accrued Interest
True
If used for tax purposes, this method must also be used for financial reporting purposes
LIFO
Related party transaction disclosures
- Nature of relationship
- Description of all transactions for years presented
- Dollar amounts of transactions
- Receivables to or from parties
Full disclosure Principle
FS should present all information needed by an informed reader to make an economic decision. This principle is sometimes referred to as the adequate disclosure principle.
Costs of start-up activities, including organization costs, should be_________as incurred.
expensed (BOTH) per GAAP
Revenue recognition profit % calc =
Actual cost/ (Actual cost+estimated cost)
An unrecognized tax benefit is reported as a _____________ representing the potential income taxes a company might have to pay in the future due to the UTP.
liability
Layer is calculated on base cost
True
Bonds issued and retired as part of financing ongoing operations.
Retiring is part of continuing operations in Income statement
Loss when they retire at a higher price and issue at a discount
Regardless of method, the same total amount of premium is amortized. At maturity, the total amortization will be the same at the time of _________under both methods. Therefore, Bond carrying amount will not get affected if Effective interest methos is used instead of SL or vice-versa.
Maturity
For a troubled debt restructuring involving only a modification of terms, the sum of the total _________under the new terms for the debtor is compared with the existing debt’s CV to determine a _____________
FUTURE CASH PAYMENTS
Restructuring gain or loss
Steps upon initial recognition of an ARO
Record ACCRETION EXPENSE
CV of ARO liability * Credit adjusted risk-free interest rate
- Allocate ARO cost to expense over the useful life of the related asset
- Measure the asset retirement cost at FV
- Capitalize the ARO cost by increasing the carrying amount of the related asset
An UNCONDITIONAL redemption feature on common stock must be reported as a ________
Mandatorily redeemable financial instruments are classified as liabilities if following 2 criterias are met :
- They require or may require the issuer to settle the obligation by transferring assets
- They are obligations to repurchase the firm’s equity shares or are indexed to such an obligation.
LIABILITY
Bank Reconciliation
When the bank receives a direct deposit or charges bank service fees, the company must record the items on their books. Any company checks that are not mailed at year end are added back to the books.
When a county does not have administrative or direct financial involvement in the construction of the capital assets; grant should not be recorded in county’s ___________
general fund.
General fund
Available and Measurable
Enterprise Fund
Revenue is recognized in the period earned regardless of when cash is available.
For a lease term longer than 1 year, at lease inception, the lessee records a ROU asset and a corresponding lease liability at the PV of lease payments
True
Compensating balance (legally restriced) - report as current asset (besides cash) or LT asset, depending on the length of time of the borrowing agreement. These r restricted deposits that a lender may require of a borrower.
Compensating balance (informally restricted) - report as cash
Impairment loss
We check value of undiscounted cash flow.
TO reduce the risk to investors, bonds can be issued with a requirement for the issuer to establish a sinking fund (i.e. savings account) used to retire the bonds (ie. repay the loan).
On the company’s balance sheet, the entire balance of the sinking fund, including amounts deposited and earnings, is reported as a noncurrent asset.
=Operating profit/Sales
Operating profit margin
Operating profit = Sales - COGS - General and aministrative expenses
Profit margin=NI/Net sales
Return on sales = EBIT/Net sales
Gross profit margin = Gross profit/Net Sales
ROA = NI/Avg total assets
ROE = NI/Avg Total equity
Composite method is used for collection of somewhat dissimilar assets with different lives. The group method usually refers to a collection of similar assets with approximately the same useful lives.
The composite depreciation method does not recognize gain or loss on the retirement of single assets in the group.
Recording property dividends (CV-FV
reported as a reduction in Income from continuing operations
as a gain/loss
$1 par value common stock
CV = $1.50 , FV=4.50
CV-FV = Loss
FV-CV = Gain
increase in FV immediately after date of distribution has no effect on the gain recorded.
Date of declaration
Asset (FV-CV) XX
Gain on asset XX
RE (FV) XX
Dividends Payable (FV) XX
Date of record = no entry
Date of payment
Dividends payable (FV) XX
Asset (FV) XX
A change due to a change in ownership such as a business combination reported under ______________ is NOT a change in reporting entity.
the acquisition method,
change in reporting entity____
retrospectively
Expenses per accrual
Increase in prepaid expenses (Subtract)
Increase in Accrued liabilities (Add)
Finance lease, SL amortization
ROU asset or PV value
____________________________
Shorter of the two (lease or useful life of the asset)
Useful life of the asset when Title transfers to the lessee and when Purchase option is reasonably certain to exercise
When land with an existing building is acquired, none of the purchase price is allocated to the building if the intent is to demolish it.
True
Change in equity method from FV to Equity or cost to Equity method should be accounted for __________
Prospectively
Calculate DRD on net earnings which means (Equity Less Dividends) for the purpose of DTL.
Equity 150k
Div 30k
DRD to be calculated on 120k *65%
Sale without recourse
Factor or buyer will asssume the risk for uncollectible accounts
Allowance for credit losses is decreased by write-offs and ____________by recoveries or reinstatements.
INCREASED
RE XX
Common stock XX
APIC XX
When small stock div is declared (FV to be considered)
To correct a prior-year accounting erros, the cumulative effect of the adjustment must be reflected in the _________.
On the INCOME STATEMENT, all prior periods affected by the error can be restated directly only if comparative F/S are issued. If only some (or none) of the prior periods affected are presented,, an adjustment for any remaining income effects is reflected in the BEGINNING BALANCE of RETAINED EARNINGS or AOCI.
Current CV of assets and liabilities on the balance sheet.
Int expense is recorded on only the portion of debt that was not used for _________
construction
Avoidable interest is calculated by first applying weighted avg accumulated expenditures to construction-spefici debt and then applying any remainder to general debt.
Contract modification
Blended price for the products from the original contract and the modification
Income statement Equity method, 30% significant influence : report only earnings portion in the IS
Dividends are a reduction in the investment account under the equity method (BS?)
Only GAAP to GAAP is considered as change due to _________
Accounting principle (rest all is change due to correction of error)
(Change in accounting principle - retrospectively). All the presented financial statements are restated and the affected BS accounts (ASSETS AND LIABILITIES) are adjusted with an offsetting adj to beginning RE for the earliest period presented.
If there are maintenance service agreements(PV $50000) in a lease contract (PV $1000,000), they are separated from the balance sheet lease components and _____________
expensed as incurred.
Finance lease obligation will only be 1,000,000 in that scenario and will NOT include $50,000 of maintenance and service obligations.
Lease
useful life is used for purchase option or title transfer
Diviends declared on common stock are not reported in IS however, they are recorded as a reduction to the investment .
Dividends declared on noncumulative preferred stock are reported in IS (DD-NCE)
Int expense is the cost of borrowing funds via lending arrangements (i.e. loans) such as notes payable. Typically int is an expense and reported on the IS.
Imputed int on a noninterest bearing note is included in int expense over the term of the note.
Lease payments
*Fixed and/or variable lease payments
*Purchase option
*Residual value guarantee
*Nonrefundable deposit ot upfront fee
Noncumulative : Only declared dividends
Cumulative: Deduct annual dividend (both declared and/or paid); ignore dividends in arrears
Net effect or effect of transactions
Property dividends are recorded at FV of the property on the date of declaration. If the FV differs from the net CV, a gain or loss is recognized. RE are decreased by the FV of the property and eirher increased for any gain or decreased for any loss recognized.
Cash flow hedge is part of ____________
OCI
Form 8-K (filed within 4 days of major event or transaction)
- major corporate events such as corporate asset acquisitions and disclosures.
- Accountant changes
- Corporate Governance and management changes
- Bankruptcy filings and changes in fiscal years
- entering into or terminating a material agreement
- Liquidation, Regorganization
- Acquisition or disposal of assets (PPE, Intangibles, long term investments)
- Change in directors, CEO or Auditors
The registration statement is used when companies issue new _______ (S-1)
securities
Form 10-Q (for first 3 quarters) is unaudited and 10-K annual report is filed in the last quarter
Form 20-F is the annual report filed by _____________ companies who register with the SEC
non U.S., non-Canadian
Form 4 is a statement of changes in ________
beneficial ownership and it related to stock transactions by individuals who are in higher levels of executive management or owners of more than 10% of any class of equity security
Cost method of Treasury stock means no APIC to be recorded during purchase of Tstock
Treasury stock XX
Cash XX
DURING SALE OF T STOCK
Cash XX
Tstock XX
APIC-Tstock XX
Par Value of Treasury stock means record APIC during purchase of Tstock
Treasury stock XX
APIC-C/S XX
Cash XX
APIC - T/S XX
NFP received pledges without donor restrictions for $300,000 payable in 3 years from institutional donors who have made contributions of this character in prior years
Implied time restriction to be reported as Revenue WITH DONOR RESTRICTION.
NFP or foundation received $150,000 specifically payable to various charities named by the donor.
This is agency transactions that would be recorded as an agency liability and not reflected as revenue.
Equity in earnings of unconsolidated affiliate
should be subtracted from NI just like gain to caclulate SOCF operating activities
NPF - Conditional promises to give are not recorded as revenue.
Unconditional pledges are recorded as revenue in the statement of activities or pledge receivable valued at their PVs.
E.g. Doogood promised to contribute $500,000 to the Daberville Day Care, a NPF corp organized to provide services to disadvantaged families and must secure operating funds from the Federal headstart program.
NFP - Goodfaith deposits are recorded as a LIABILITY OR REFUNDABLE ADVANCE and are not recorded as revenue.
Matching contributions are considered as A refundable advance is similar to deferred revenue (i.e. cash received prior to satisfying donor-imposed conditions)
e.g. Darberville requests and receives $50,000 from Doogood as evidence of his goodfaith to fund the construction and to demonstrate community support as part of its Federal grant application.
Lease incentives payable to the lessee will _____________the value of the lease payments payable by the lessee.
decrease
During a period of rising prices, which GAAP inventory method reports the most inventory costs on the income statement and on the balance sheet.
Income statement - LIFO
Balance sheet - FIFO
Realized gain on Sale of AFS security in yr 2 sold on sep yr 2
Cost 67k
Market value 12/31/yr 1 =59k
Market value 9/30/Yr 2=71k
$71000-$67,000=$4,000
Realized gain in case of trading security
=SP - CV
=71000-59000=12000
Cash received or market value less Original Cost
Cash 71000
Unrealized loss OCI 8000
AFS Security 59000
Realized gain 4000
Trading security
Cash 71000
Trading security 59000
Realized gain 12000
Land, Building or equipment basket value-Cost paid to have the assets appraised
Include appraisal cost as well to calculate
July 1, Year 1, Plato Inc sold $500,000, 10% 10 year bonds at 103. On July 5, Yr 1, Socrates Inc. a wholly owned subsidiary purchased half of P’s bonds at 101. What amount of gain(loss) related to this transaction should Plato recognize on its consolidated IS at Dec 31, Yr 1
It will be considered as extinguishment of debt and a gain or loss must be recorded as if the debt has retired.
Bonds payable 250000(par)
Bond premium 7500
Investment in Bonds 252000 (PP)
Gain on extinguishment 5000
The restructuring gain is equal to the ____ and the debt forgiven.
FV
NFP - Underwater endowment funds are reported together with accumulated losses in net assets with donor restrictions (and not separately as with or without donor restrictions)
Operating lease -answer zero depreciation when they ask dep on the leased machine by lessee
Leased machine itself will not be depreciated on the books of the lessee. An ROU asset will be booked, which will be amortized by the lessee.
Even though the loan itself does not state an interest rate, there is an implied int rate embedded in the transaction
PV of loan - Pay back total = Interest amount
If a lessee accounted for a lease as a finance lease, that would mean that lessor would also account lease as a finance lease
Both must report the same. Lease is not an off-balance sheet item.
HTM should be disclosed as a note, however it can be reported as either a current or non-current asset.
To classify an investment as HTM, BOTH the intent and the ability to hold the security until maturity MUST Be there.
NFP - zero to be reported
No int in net assets is recognized in the event when agreement is absent amongst the beneficiary organizations regarding the distribution of the foundation’s resources or stipulations by the donor, None of the entities would include the int in net assets resulting from the gift in their financial statements.
NFP - the amount of assets released from restrictions does not include the investment loss due to change in total value or FMV
True
Income from continuing operations include losses due to employee strike but does not include income from discotinued operations
True
At the end of a 5 year accretion period, the accumulated dep (SL) associated with an ARO on a company’s books is equal to $510,437. Given an accretion rate of 8%, which of the following statements is most accurate?
At the beg of the 5 years, the estimated future liability was $750,000.
An ARO will be booked initially as an asset.
Asset retirement cost XX(PV of est future liab) Dr.
Asset retirement obligation Cr. XX
If the acc dep after 5 years is equal to $510,437 over a 5 yr period at a rate of 8%, is equal to $750,000.
510,4371.081.081.081.08*1.08
Regardless of how junky the bonds were, they cost something. Once the bonds were determined to be worthless, that cost would have been written off as a __________
Loss in income statement
Equity method
Dividends do not factor into income under the equity method. Just take NI *ownership % of the parent
NOL carryforward is allowed only for 80% of taxable income of the nex year
true
Ratio, return on sales=EBIT/Net sales
EBIT = Income before int income, int expense and taxes
Times interest earned ratio = EBIT/Int expense
EBIT = income before int expense and taxes
or Income before tax+ Int expense
GASB - The general fund is the main operating fund of the government and accounts for all transactions that are not accounted for elsewhere. As a result, there is only one general fund. This fund accounts for the majority of general fund accounts for significant activity.
Contracted law enforcement services are current expenditures for law enforcement that would appear in the general fund just as if the city paid for salaries and related operating expenses.
NFP
Gross revenue include scholarships net of refund
Gross revenue + Scholarship - Refund
n(n+1)/2 = Sum of year digits denominator calc
Accelerated method
this one does not take into account AD
Non accelerated method = Units of production method = current year units/total production
multiply by Asset cost - Salvage value which is CV
Services provided by 1 governmental unit to other governmental units on a cost-reimbursement basis are accounted for in an ________
Internal service fund
Overstatement is an error which must be accounted for by ________PY FS
restating
Factoring is a transaction in which an entity sells its AR for cash to a 3rd party (i.e. a factor) at a discount (i.e. factoring fee).
This method allows the entity to collect cash faster than it would be by waiting the full collection period for the receivables to be paid. Factoring can be done with or without recourse.
Non deductible penalties and non deductible Insurance premium should be added back to calc Taxable income
True
On a NFP org statement of activities, all expenses will decrease net assets without donor restrictions. However, an expenditure of restricted resources must first be released from net assets with restrictions to net assets without restrictions before recording an expense.
NFP Characterization of net assets = RESIDUAL INTEREST and (not equity as in for profit )
NFP - Functional presentation and natural presentation
NFP - both grants to other organizations and depreciation are included in total expenses
expenses are always considered in the category without DONOR restrictions in NFP
Once properly classified, recording the expense will decrease net assets without donor restrictions.
Support services
Fundraising and Management and general, membership development
A probable contingent liability must be ____________ in the Financial Statements.
disclosed
Revenue recognition - numerous projects
Short duration projects
Completed contract method is applicable
GAAP requires companies to record an allowance for credit losses when they expect to have uncollectible accounts receivable (A/R)
In addition, credit loss expense is recognized in the same year that the revenue from the A/R is earned.
Higher taxable income =DTA
Higher book income = DTL
When recording int payments, premium amortization _________ int expense.
If there is no premium amortization, int expense is overstated; net income and shareholder’s equity are understated.
REDUCES
NFP-Statement of activities
Depreciation expense should be included as an element of expense.
NPF - Grants paid = Operating activities
Cash collection on contributions receivable OR Cash received from service receipients OR cash paid to suppliers and employees = Operating acctivites,
NFP - An entity need not recognize contributions of works of art, historical treasures and similar assets if the donated items are added to collections that meet all of the following conditions:
- The item is a part of collection, which is held for PUBLIC VIEWING, EXHIBITION, EDUCATION OR RESEARCH (and not for investment or financial gain)
- The collection is cared for, preserved and protected by the org
- The org has a policy that requires any proceeds from the sale of donated items to be reinvested in other collection items or used to support the direct care of existing collections.
NPF should report reclassifciation of netassets in the statement of activities if a donor
withdraws previously imposed restrictions on a gift of cash
When donor restrictions are either satisfied or withdrawn,
Quasi endowments funds means restriction by board or trustees
to be part of NET ASSETS WITHOUT DONOR RESTRICTION always
Supporting services
- management and general
- Fundraising
- Membership development
NFP - permanent endowment in which the NFP is the sole beneficiary is an e.g. of __
regular or pure endowment
Program services NFP
Research
Depreciation in NPF will be recorded same as for business in the __________
statement of activities
Sale with recourse to a factor(buyer)
Factor (buyer) assumes risk for uncollectible accounts, no liability recorded by seller
Sale with recourse
Company liable for uncollectible accounts, records estimated recourse liability
Factoring (i.e. selling) the receivables to a 3rd party for a fee. The company must SURRENDER control of the receivables for the transaction to be a sale. In general, an amount called a factor’s holdback is withheld from the proceeds to protect the buyer from noncredit losses (e.g. sales returns, disputed accounts)
Factor’s holdback accounts for the proceeds retained by the factor to cover estimated sales discounts, sales returns and sales allowances. When all amounts have been collected by the factor. the balance in factor’s margin is returned to the seller. This account is a receivable reported as a CURRENT ASSET on the balance sheet.
Factoring may occur with our without recourse. When receivables are sold with recourse, the company (seller) bears the risk of uncollectible accounts. If sold without recourse, the factor will generally charge a higher fee to compensate for the additional risk it assumes for uncollectible accounts.
WITH RECOURSE - Seller bears the risk
WITHOUT RECOURSE - buyer or factor will bear the risk and will charge a higher fee for additional risk it assumes
An UPO (Unconditional purchase obligation) is a legal commitment to purchase goods at a set price for a specific period). If the mkt price _______ below the contract price at year end, a loss for the difference is accrued on the FS.
falls
Report loss as an estimated liability
Gains from increases in mkt price are not recorded
Maturity value is disclosed as contingent liability in the footnotes of the FS and not receivable thats being discounted or factored and not the amount_________
That was received from the bank at the time of factoring.
Proprietary funds record ________
depreciation and not the govt funds
(modified accrual method of governmental accounting operates on expenditure principle and so it ignores the capitalization of assets and dep expense)
Recoveries of (5000) will also reinstate AR therefore, no impact on AR as +5000 and -5000
No impact on total AR
Recovery JE
AR XX
Bad Debt expense XX
AR or TRADE AR
Sales return Credit
Write off - credit
Assignment entry at NRV - credit
Loan receivable from an officer is not part of Trade Account receivable
Write-off AR JE
Allowance for Doubtful Debts XX
AR XX
Permanent differences are items recorded on the books (e.g. fines) that are not allowed for tax purposes. Perm diff have no effect on ________
deferred taxes because no future tax liability or benefit is involved.
In a specific ASSIGNMENT of receivables, collections on the assigned accounts are generally remitted to the assignor.
True
A transfer of receivables in which the transferee can require the transferor to repurchase the receivables may not be considered a _________
Sale
The difference b/w the amount of receivables sold to a factor in a borrowing transaction and the total of the factor’s holdback plus the proceeds is recorded in a “discount on transferred AR” or int expense account.
This account represents int cost and should be recognized over the term of the receivables. If int expense is debited, an adjusting entry to defer some of the int as discount would be required if some of the discount pertains to a later period.
Accumulated Depreciation is a contra account in BS.
Depreciation - Non cash item to be reported in IS.
No gains or losses are permitted for Treasury stock transactions on IS.
Property dividends will reduce Retained earnings
Form 14A is for proxy voting.
QUASI Endowment means it is restricted by the ________
board and therefore, falls under contri wWITHOUT donor restriction
Discontinued ops after tax
Prepaid insurance Dr.
Insurance Expense
True
Interest expense XX
Accrued interest XX
Include Freight in ______
Include Freight Out ______
in COGS
in Selling Expenses
Cash to Accrued
Add: Increase in AR
Add: Increase in Prepaids
Subtract: Decrease in Payables
Factoring: Sale of ST A/R
Discounting: Sale of LT N/R
fACTORING WITHOUT RECOURSE IS CONSIDERED AS _______
SALE (Credit AR TO TAKE IT OFF THE BOOKS)
Units of production
Total units in life
DIscount amortization is added to the Net Income of SOCF
Premium amort is subtracted
CHanges in mgt structure and relocation of business from one location to another is an example of exit activity
Outsourcing a customer service is not an example of exit activity
Consider ___________ when no reliable amount is provided to record the patent
FV of shares
lease-initial direct costs are not included in Lease liability . they are part of __________
ROU asset
AFS credit losses - recorded in allowance contra account
Mkt losses - Unrealized holding gains and losses in asset valuation account
DTA reduces taxable income in future periods. This is because the company expects to pay less tax in the future when the deductible expense is recognized for tax purposes.
DTA example - If a company has recorded an expense for accounting purposes (e.g. warranty expense or bad debt provision) but that expense will not be deducted for tax purposes until a later date, a DTA is created.
DTL example - (installment sales or reevnue from LT contracts_ but that revenue is taxable in future periods. a DTL is created.
Contingent loss
e.g. pending litigation
Ending inventory vs. COGS
COGS vs. NI
Opposite relation
Opposite relation
CECL applies to a wide range of financial assets, including loans, lease receivables, trade receivables, and held-to-maturity debt securities. It does not apply to available-for-sale securities, which are subject to a different impairment model.
HTM
Dupont model or Return on Equity
Profit MarginAsset TurnoverEquity Multiplier
NI/Sales * Sales/Total Assets * Total Assets/Equity
Change to LIFO
PROSPECTIVELY (PL acronym)
Non-GAAP to GAAP
ERROR CORRECTION
Rate of return on assets
=NI/Avg Assets
Consolidation = profit to be eliminated from ending inventory
QUICK RATIO
CASH+ AR+ MKTABLE SECURITIES
_____________________________________
CL
OR CA-INVENTORY
___________________
CL
Vested rights are those rights which are NOT contingent on an employee’s future service; the employer has an obligation to make payment even if an employee__________employment
terminates
__________rights are rights which have been earned in the past and which carry over into future periods, but which are LOST if an employee terminates employment.
Accumulated
In a specific assignment of receivables, AR assigned are identified by placing them in an AR assigned account.
A FINANCE CHARGE is assessed on assignment transactions that are borrowings.
Co. pledges its AR as security for a loan
and the debtor collects the proceeds
Parenthetical or note disclosure only
Co. sells AR to a factor in a transaction considered a borrowing
Cash XX
Factor’s holdback XX
Int expense (discount) XX
Liability of transferred AR XX
Co. transfers a Note receivable by surrendering control over it. The transfer was on a without recourse basis
Cash XX
Loss on Sale of NR XX
NR XX
Interest revenue XX
ARO 257000
Add:Discounted cash flow estimates 68000
Less:Paid towards settlement -87000
Add:Accrtion expense 26000
Ending balance, ARO 264000
When an entity holds a foreign currency receivable that is fixed in terms of the amount of foreign currency that will be received, the entity will typically incur a ____________
Transaction gain or loss
SHown in IS, NI (non-operating items)
To record the amount spent for actual repairs in contingency (1% sales first year and 4% sales second year) cash sales of 10k in 2001
warranty repairs $60
Warranty expense 400
Estimated warranty liability 400
Estimated warranty liability 60
Cash/parts inventory 60
If the contract can be modified - loss not accrued, just footnote disclosure
If the contract cannot be modified, loss must be accrued. Inventory is recorded at mkt value, and a loss in recognized. Mkt value-contract price
JE to record Current and DTL
JE to record Year 2 reversal of the DTL
Income tax expense - current xx
Income tax expense - deferred xx
DTL xx
Income tax payable xx
DTL 5250
Income tax benefit-deferred 5,250
DTA reversed
Income tax expense-deferred XX
DTA XX
USe enacted rates for deferred taxes
Correct
Change in tax rate in yr 2 from 20% to 21% , Beg DTL balance is provided
Subtract beginning from new DTL at 21%
6300-2000=4300
CARES act (during pandemic) A NOL arising in 2018, 2019 or 2020 tax years can be carried back 5 years (to the oldest yr first) and carried forward indefinitely to offset taxable income.
NOLs carried forward to taxable years beginning in 2021 or later are limted to 80% of taxable income before the NOL deduction.
e.g. JE to record a NOL that can be used to obtain a refund of $30,000 taxes previously paid
Operating losses = DTA =+e.g Gift certificates
- Not subject to a taxable income limitation
-Taxpayers can elect not to carryback and just carryforward
Tax Refund receivable 30,000(BS)
Tax Benefit 30,000 (IS)
DTA Valuation allowance
Not expected to be used (future years NOL coz there will be no future taxable income)
DRD
Ownership 0-19% = 50% exclusion
20-80% =65% exclusion
over 80% = 100% exclusion
Permanent difference
BS disclosures - DTA , DTL
All DTL
All DTA
The valuation allowance for DTA
Other balance sheet disclosures include:
- the net change during the year in the total valuation allowance
- C corp to S corp election
-tax effect of each type of temp difference and carryforward that is significant to the DTL or DTA
Income Statement Disclosures
- Tax expense allocated to shareholders’ equity items
- Adj of deferred taxes from changes in tax laws or rates
- Adj of the BOY deferred tax asset valuation due to changes in expectations
- The tax benefit of NOL carryforward in the same manner as Income statement location
Treasury stock at cost provided at the end after equity, it means examiner is using __________
COST METHOD
PAR METHOD
Treasury stock is deducted at the top from COmmon stock
Return on sales
Net Operating profit/Sales
Credit whatever u want to take off the books or ________
retire. e.g. T stock
When there is FV option is elected -report AFS and HTM unrealized gains or losses in _________
Net Income (component of income from continuing operations)or current earnings
HTM - report on Balance sheet at FV if FV option is elected
Mark up 40% of cost
cost/ sales = 1/1.4 =0.71
or 71%
Gains and losses from forward contracts used for speculation purpose are reported in ____________
Net Income or IS or earnings
DIscontinued ops loss (decided in Yr 1 to discontinue in Yr 2)
Operating Loss from Year1
+
Impairment loss from yr 2
______________
Total loss net of tax = Loss from discontinued operations
Billings in excess of CIP on LT contracts is ________________
current liability
Direct quotation or direct exchange rate, states the domestic price of 1 unit of a foreign currency
$0.11 = 1 JPY (direct quotation for a US entity when buying JPY)
Indirect quotation for US entity = $1 = 0.89 JPY
cost of sales = COGS
Purchases = Cost of goods manufactured
Dividends per share payout ratio (it measures the % of earnings distributed in the form of cash dividends). Growth oriented companies tend to reinvest earnings in the company and have LOWER payout ratios; mature companies typically pay out more to investors.
=Dividends per share/EPS
(this is always per common stock)
or Total Dividends
_________________________*100
NI
*EPS measures NI earned on each share of commons stock. Higher EPS indicates greater value because investors will pay more for a company that earns higher profits relative to its share price.
Consignor or seller (1) reports goods as inventory
(2) has legal ownership of merchandise
(3) Bears the risk of unsold merchandise
(4) reports sales revenue and COGS
Retailer or consignee or dealer only has physical possession of merchandise and reports commission revenue
Examples of Special Purpose Frameworks
- Cash receipts and disbursement basis
- Income tax basis
- Method prescribed by a regulatory or contractual agreement
- other basis with substantial support (e.g. price level basis)
Lending institution is NOT A COMPREHENSIVE BASIS
ACCRUAL BASIS
REPORT REVENUE WHEN EARNED
All transactions involving T stock affect only shareholders’ equity accounts (never income
AFS - portion of change due to CREDIT risk loss or reversal is recorded in ________
NI
Change due to MARKET risk is recorded in OCI
GAAP - Organization cost - Expense immediately
Org cost (legal and filing fees)
Advertising
Supplies
salaries for training
new market, product, supplier research
travel related costs
accounting, tax and training costs
10k, Part II - Annual
Part II-Annual, Item 7 (explain company’s performance, market trends, uncertainties)
7 - MD&A
7A-Quantitative and qualitative disclosures about market risk
8 - Audited FS and supplementary data (BS-2 years, IS-3 years, SOCF and Statement of Comprehensive income)
Part III
Item 11 - Executive compensation
10 Q, Part I
1 - FS (Balance sheet - quarter and prior fiscal year end)
Income STatement - quarter and YTD, current and prior years.
Statement of Cash flows - YTD, current and prior years
2 - MD&A
3-Quantitative and qualitative disclosures about market risk (int rates, exchange rate risk, mkt risk, commodity risk)
Type of Filer Mkt Value of O/S sec
Large $700 mn and up (can file reports quickly)
Accelerated $250-700 mn
NA $75 - $250 mn
*SRC - small regulated companies if <250 mn public float (equity held by nonaffiliated investors) or <700 mn public float or <100 mn annual revenues
Annual revenues 10k (audited) 10Q
N/A 60 days 40 days $100 mn and up 75 days 40 days $100 mn and up 90 days 45 days
Example of contingent shares to be included in DEPS
DEPS get impacted by Stock options or warrants, Preferred stock, convertible preferred stock, and/or Convertible debt.
Simple Capital structure - Company only has common stock and nonconvertible preferred stock
Income from Continuing operations - Always reported on IS
(BEPS and DEPS )
Income from discontinued operations - May be on IS or in Notes
Complex capital structure - Stock options or warrants, Preferred stock, convertible preferred stock, and/or Convertible debt (Do both EPS and DEPS)
Dilutive NI-Preferred shares + Saved Int expense on bonds net of tax (to be adjusted for amortization of discount (+) and amortization of premium (-)
__________________________________________
CS + incremental shares
DEPS treasury method (options and warrants)
NI $550,000 , CS - 100,000 EPS 5.50
20,000 stock options o/s entire year.
Exercise price of the options $30, AVg mkt price $40
when market price > Strike or exercise price (DILUTIVE)
=20000*30 (exercise price)=600000 (cash proceeds)
=600000/40 (mkt price)
=15000
Increase in shares = 20000-15000 =5000 (incremental shares)
CV (beginning) * YTM = Int expense (when bond is not issued at par)
Discount = Int expense > coupon (bad news)
Premium = Int expense < coupon (good news)
NFP - Contribution for the construction of a new building as cash flows from ____________
Financing
Donor-restricted cash contributions for LT purposes within financing activities
CASh flow from operating activities start with TOTAL CHANGES IN NET ASSETS
Consolidation - equity method
The Sub’s NI is not included. Since parent uses the EQUITY method to account for its investment in sub, Parent’s NI will include its share of the net earnings of SUB.
If no equity method, then consider Sub’s NI after acquisition at 12/31 not at the time of consolidation.
NCI interest in sub
FV NCI
+% NCI in NI of Sub
-%NCI in DIvidend Income of Sub
______________________________
NCI in Net Assets
Elmination entries consolidation
Profit % of parent = Gross profit/sales
Ending Inventory of Sub
Intercompany profit elimination
COGS XX
Inventory XX
Intercompany sales elimination
Sales XX
COGS XX
Avg construction expenditure
calculate avg cumulative expenditure
actual int
lesser of the two
P/E ratio
Market price per share
_____________________________
EPS
Annuity due = at the beginning of the term
Ordinary annuity = at the end of the term
Amortization expense against ROU Asset
Lease expense in JE =
Annual lease payment e.g. 100000
CALLABLE for violation - Current Liability
Violation Waived - Non Current or LT Lialibility
Grace period granted - Non current or LT liability
Interest-coverage ratio = EBITDA
_____________________
Int expense
JE noninterest bearing note. On May 1, Co. borrowed 700,000 cash from first bancorp under a 6 month non interest bearing note, with a 12% discount rate.
Annual effective rate of interest % calc
=Int for 6 months 2
_______________________=420002(to make it annual rate) = 12.76%
Net amount borrowed ________________
658000
May 1___________
Cash 658,000
Discount on notes payable 42000 (6 months)
Notes Payable 700,000
___Nov 1___
Int expense 42000
Discount on notes payable 42000
Notes payable 700,000
Cash 700,000
DTA reduces taxable income in future
DTL increases taxable income in future, Credit DTL in JE
JE
Tax Expense XX
Tax payable XX
DTL XX
NOL carryback provides an immediate tax refund
NOL carryforward creates a DTA (no tax is payable in the year an NOL occurs)
Receivable - IT refund 29
DTA 20
Income tax benefit - operating loss 49
DTA, DTL valuation allowance - eg it is more likely than not that some portion (3 million of DTA) or all of a deferred tax asset will not be realized. JE=
Income tax expense 3
Valuation allowance - DTA 3
Direct write-off or tax method recognizes credit loss expense when a specific account is determined to be uncollectible and written off.
Recognizing the credit loss expense and writing off occur in the same entry (Dr. expense and credit A/R).
Because no allowance for credit losses (contra-asset account) is used with the direct write-off method, A/R are reported at GROSS amount in tax method. Hence, A/R is overstated. It also violates the matching and conservatism principles of GAAP.
The expense is not recorded in the period in which the revenue was earned (not matched) and A/R are carried at Face amount which overstates assets (not conservatism)
GAAP does not permit the use of the direct write-off method.
Credit loss model under Financial reporting
Credit loss expense is estimated at the end of each period. Reported AR at NET CV (AR less allowance)
Note payable first payment
Int expense 1585
Note payable 3415
Cash 5000
Bill and hold sale - substantive reason for buyer delaying possession.
Seller identified the inventory as buyer’s and appliances are ready for immediate transfer. Because contract qualifies as a bill and hold arrangement, seller may recognize the revenue associated with the contract.
Required disclosures for FV measurements are:
- The valuation techniques applied (Income, cost and market) including judgements and assumptions
- The level of inputs that were applied in measuring fair value
- The UNCERTAINTY in the FV measurements as of the reporting date
- The disposition of changes in FV (income or comprehensive income)
NOT CONSIDERED:
amount of and reasons for transfers between level 1 and level 2
(not considered to be cost-beneficial to track and disclose)
AFS -if management intends to sell the AFS security, the holding (unrealized 2k) loss and valuation accounts are removed, investment is written down to FV(42k) and loss is recognized is ____
Cost yr 4 jan=50k
Yr 4 , dec FV = 48k
Yr 5 , dec = FV 42k
Net income in Income statement rather than OCI
More likely than not the impairment will require the asset to be sold before cost is recovered or when mgt intends to sell. All DECLINES related to Non credit or market risk.
Credit loss - report in income statement,
Correction of error, failed to report 40k depreciation in PY . tax rate 20%.
(IF an error made in this period is discovered BEFORE the financial statements are complete, it is corrected through adjustment directly to the financial statement accounts for this period)
RE 32,000
Taxes payable 8000
Accumulated DEP 40,000
(PRIOR PERIOD ADJUSTMENT is net of TAX IMPACT in RE as IS has been closed to RE)
Periodic ending inventory will be less and perpetual will be more as per ____________
LIFO (Same in FIFO)
BIC = bond issue costs are the fees associated with the issuance of bonds including accounting and legal fees, commissions, printing, registration and underwriting.
They are AMORTIZED on a SL BASIS OVER THE PERIOD FROM ISSUE DATE UNTIL MATURITY DATE
Accumulated depreciation is a credit or negative balance in trial balance account
___________negative or credit (contra entry same as Credit for allowance)
Cost method, no significant influence - Income statement report (unrealized gain on security + dividends only)
Equity method, Income statement = report only share of earnings
20% of Net income 100000 = $20,000
Lacks Significant influence or does not qualify for equity method and when FMV is readily determinable, the investment will be reported at FMV _________
with increases and decreases recognized in income
No impact on OCI
Non interest bearing note
PV * Imputed rate of int
=62092*10% = Int expense = 6209
BARGAIN PURCHASE OPTION, Lease
use PV using a single sum PV factor
NFP-contribution revenue if
- The recipient org is granted variance power by the resource provider (2) the recipient org and the beneficiary are financially interrelated orgs. In the case at hand, the resource provider granted variance power to the receipient org.
Non-Cash expense like Dep and Amortization will NOT impact Cash flow from operating activities
in case _______
company forgot to record depreciation expense.
Bond is issued at premium when stated rate or coupon rate is more than ________
the market rate or yield rate
Gain or losses from the early extinguishment of debt should be _______
recognized in income before taxes in the period of extinguishment
Infrequent and usual - extraordinary item - Early extinguishment of debt __________
DOES NOT fall into this category
BIC (BOND ISSUE COSTS) are treated as a reduction in bond proceeds and and net Bond liability and______
are amortized over the bond term to interest expense.
DTA, DTL = effective tax rate
= current year taxes/Pretax income
=57000/200000
Income approach
THe income approach of FV determiines FV by converting future amounts, including cash flows or earnings to a single discounted amount. This would require the use of a discount rate.
Cash to accrual basis
Treat prepaid expenses same as AR
When the shipping terms are FOB destination, the seller bears all costs of transporting goods to the buyer such as __________
Buyer does not bear these costs
1) PAckaging for shipment
2) SHipping
3) SPecial Handling charges
Cheques not mailed (not considered a disbursement until mailed) are still under the control of the company and should be included in the current assets and cash overdraft should be _________
subtracted
Selling and admin expenses + Depreciation
= Gross selling and admin expenses
A/R XX
Sales XX
A/R on sales
WHen vendor receives a payment in cash, it is against AR so AR will get reduced and hence will be credited
Cash XX
A/R XX
Bought Raw material on account from a vendor
Inventory XX
AP XX
Cost and Par value method
Cost (Direct buy back entry)
____________________________
Treasury stock at cost XX
Cash XX
PAR
______________________________
Treasury stock at Par XX
APIC -C/S XX
RE XX
Cash XX
Credit balance - APIC-T/S will be credited
Debit balance - RE will be debited
Increase in cash flow hedge is a gain recognized through _______
Purchased derivative at $4.15 per bushel, closing the year at $4.29 per bushel
OCI
1.Preliminary project phase - Expense the cost
- Application Development phase (ready for intended use) - Capitalize Software (implementation cost), software licensing, 3rd parthy software development fees, external materials, coding fees and testing fees.
expense - training, manual data conversion, maintenance costs and support costs
- Post implementation fee - expense - Maintenance, additional training, enhancements and upgrades. -
Lawsuit loss Dr. 2,750,000
Lawsuit Liability Cr. 2,750,000
Contingency
(estimate 6% of net sales of 100000)
actual incurred expense 5k
Warranty expense 6000
Estimated warranty payable 6000
Unusual and Infrequent
Non-operating loss, part of Income from continuing operations before tax
Depreciation exp (deducted from) - Operating portion of NI
When management plans to dispose of an asset, it shall be reported at the lower of —–
CV OR FV less cost to sell
When recoverability of a building’s CV is determined to be impaired, the building’s FV is best measured as the ____
Price that can be received based on observable inputs in the principal market
Interest incurred to finance an asset for a company’s OWN USE is capitalized and reported
On BS (it’s not expensed) as it’s for company’s own use
DTA - A valuation allowance account is established if it is likely that a DTA (not DTL) will not be realized.
Valuation allowance changes are ordinarily included in NET INCOME because those changes will increase or decrease income tax expense.
Expected value method - when there are 2 possible outcomes and the co. Has experience with contracts with SIMILAR characteristics
User to determine the transaction price for a contract that includes variable consideration.
ARO - Consider discounted estimates
For all other topics, consider UNDISCOUNTED
Common occurrence /usual
No separate disclosure required
Govt Uniform Budget Status =
Appropriations = 50k
ENcumbrances =6k
Expenditures = 40k
VOuchers payable (no impact) = 3k
Appropriations 50,000
(-) O/S Encumbrances -6000
(-) Expenditures -40000
_______________________
Appropriations available to use =4000
Redeemed a bond issued at a discount for an amount that was 105% of Face value
Bonds payable (Face value) XX
Loss on Redemption (Plug) Xx
Discount on Bonds payable (unamortized) XX
Cash (10% of FV) XX
AFS securities are carried at FV. Temp unrealized losses resulting from mkt risk are reported in a contra-valuation account; they are not used to directly adjust the cost of the investment. Unrealized gains are recognized as an increase to the investment account using a valuation account.
- If FV is lower than the original cost, the diff is credited to AFS Securities - Unrealized losses (Contra-valuation account)
- If FV is higher than the original cost, the difference is debited to AFS Securities-unrealized gains (valuation account)
- If FV is lower than cost in one period and higher than cost in a subsequent period, the AFS SEC-UNREALIZED LOSSES account is ELIMINATED and the excess FV is recognized in AFS SEC-UNREALIZED GAINS
Interest accrual on Bonds will be from __________
Dated date and not the issue date
Dividends in arrears represent undeclared dividends, they are not a liability and therefore, not accrued.
However, they are disclosed in the notes to financial statements.
Bond Issue cost monthly amortization
= Total bond issue costs
_____________________________________
# of outstanding from issue date (not the dated date)
What basis of accounting should be used when preparing a governmental funds statement of revenues, expenditures and changes in fund balances?
MODIFIED ACCRUAL
FS NOTE DISCLOSURES
- Summary of significant accounting policies
- LT Obligations
- Related party transactions
- Contingencies
- Subsequent events
Repurchase asset at less than original selling price
- Lease
- Sale with a right to return
If repurchase price is equal to or greater than the original selling price,
Financing arrangement (if more than expected market value) or
a sale with a right to return - if the repurchase price is less than or equal to the expected market value of the asset and the customer does not have a significant economic incentive to exercise the right.
Bill-and-hold arrangements are contracts in which the entity bills a customer for a product
that it has not yet delivered to the customer. Revenue cannot be recognized in a bill-and-hold
arrangement until the customer obtains control of the product. Generally, control is transferred
to the customer when the product is shipped to or delivered to the customer (depending on the
terms of the contract).
For a customer to have obtained control of a product in a bill-and-hold
arrangement, all of the following criteria must be met:
There must be a substantive reason for the arrangement (e.g., the customer has requested
the arrangement because it does not have space for the product).
The product has been separately identified as belonging to the customer.
The product is currently ready for transfer to the customer.
The entity cannot use the product or direct it to another customer
Only DIVIDENDS PAID is part of ______________
FINANCING OUTLOW (not dividends declared) . Calculate Div paid if RE balances and div declared has been provided.
Art for sale at an auction and museum will use the funds for its general operating activities
Asset-art for resale XX
COntribution revenue without restrictions XX
6000 Contract Asset product 1 - since payment of product 1 is conditional on the delivery of product 2
1.Machinery XX
A/P XX
- A/P XX
Foreign currency gain XX - Foreign currency loss XX
A/P XX
Purchase machinery
Revalue AP
Purchase of fx
Settle AP by paying Euros to European manufacturer
Investment in Euros 435000
Cash 435000
A/P 435000
Investment in Euros 435000
Div 1000 shs 6% $10 par value cumulative preferred stock have not been declared or paid for 3 years
WHat amount of retained earnings should be appropriated as a result of these items
Ans ZERO
DIVIDENDS IN ARREARS are not accrued or appropriated but are disclosed in the notes to the financial statements.
Cash restricted for the retirement of bonds does not fall under the category Appropriation of RE
Cash restricted for a certain purpose (i.e. debt repayments) is reported separately as an asset on the balance sheet.
