Miscellaneous

Question 1

Why would options to purchase common stock be excluded from the computation of diluted EPS?

Answer 1

Their exercise price is greater than the average market price.

This creates a dilutive effect.

Question 2

What are the ways an investor has the ability to exercise significant influence over the operating and financial policies of an investee?

Answer 2

• representation on the investee’s board of directors
• participation in the investee’s policy-making processes
• material intercompany transactions with the investee
• interchange of managerial personnel
• technological dependency of the investee on the investor

Question 3

What does an increase in a/r mean?

Answer 3

Sales revenue has been included in net income but not yet received

Question 4

What does a decrease in a/p mean?

Answer 4

Cash has been paid for expenses but the cash payments have been deducted in arriving at net income

Question 5

What are the primary operations of the financial statements?

Answer 5

Revenues & Expenses

Question 6

What are the incidental transactions of the financial statements?

Answer 6

Gains & Losses

Question 7

What could an entity’s revenue result from?

Answer 7

A decrease in liability from primary operations

Example: Decrease in unearned revenue, Increases revenue

Question 8

What are suitable estimation methods for an entity if standalone selling price is not directly observable?

Answer 8

• adjusted market assessment approach
• expected cost plus a margin approach
• residual approach

Question 9

What is the standalone selling price?

Answer 9

Price at which an entity would sell a promised good or service separately to a customer

Question 10

What is the transaction price?

Answer 10

The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Question 11

What should an entity do if selling price is not directly observable?

Answer 11

Estimate and consider all reasonably available information like current market conditions, entity-specific factors, and information about the customer

Question 12

What is form 10-Q and its requirements?

Answer 12

SEC quarterly report

Must include a quarterly and PY FYE balance sheet

If subject to seasonal fluctuations, balance sheet from corresponding PY quarterly required

Question 13

How are stock options accounted for and reported on?

Answer 13

They are required to be accounted and reported under the fair value at the grant date.

The expense is amortized and recognized over the vesting period.

Question 14

When should one time termination benefits be recognized and measured?

Answer 14

On the communication date

Question 15

What came from the 1933 Securities Act?

Answer 15

The accounting and disclosure requirements for the initial offering of stocks or bonds

Question 16

What came from the 1934 Securities Act?

Answer 16

Created the SEC as well as provided requirements for secondary market offerings

Question 17

How are gain contingencies accounted for and reported on?

Answer 17

They are only disclosed if receipt is probable

Question 18

How are loss contingencies accounted for and reported on?

Answer 18

Ranges - probable, reasonably possible, and remote

If probable, accrue and disclose. If amount cannot be estimated, disclose only

Reasonably possible - disclose the nature of contingency and estimate loss or range of loss

Remote - none

Question 19

What should the transaction price include?

What should the transaction price not include?

Answer 19

• include amounts the entity has rights to under contract

- exclude estimates of consideration from the futrue exercise of options

Question 20

What is the intrinsic value definition?

Answer 20

The excess of the market price over the exercise price

Question 21

How is the cost to file a patent and defending a patent recorded?

Answer 21

The legal cost to apply for a patent and to defend the rights in court is capitalized. (any legal costs are)

Development costs are expensed as incurred.

Question 22

What does SFAC 8 state that could include as an additional disclosure for an asset?

Answer 22

• the nature, quality, and location of an asset
• future cash flows
• relation to other line items
• significant contractual, statutory, regulatory, or judicial restrictions

Question 23

What does SFAC 8 state that could include as an additional disclosure for an assets and liabilities from financial instruments or other contracts?

Answer 23

• contractual or legal terms
• degree of credit or nonperformance risk
• potential effect related to inability to pay or perform
• method used to determine the cash flows

Question 24

What does SFAC 8 state that could include as an additional disclosure as other disclosures?

Answer 24

could include

• equity instrument terms or conditions
• potential effects of changing accounting methods
• breakdown of aggregated line items
• alternative measurements
• the line item’s relation to other line items

Question 25

What is interperiod equity?

Answer 25

Financial reporting should provide information to determine whether current year revenues were sufficient to pay for current year services

Question 26

What is intraperiod tax allocation?

Answer 26

The distribution of the tax expense for the period to the various categories of income as presented in the income state or occasionally, adjustments to retained earnings.

Examples:
discontinued operations
prior-period adjustments
direct adjustment to capital accounts

Question 27

What represents a strategic shift for the sale of a portion of an entity to qualify for discontinued operations?

Answer 27

The product line sold represents 15%or more of the entity’s total revenues