Miscellaneous Financial Statements Flashcards
What are the attributes of interim F/S?
Revenues are recognized when the earnings process is substantially complete
extraordinary items are recognized when incurred and not spread over an entire year
expenses are recorded to match the revenues that have been generated
income taxes must be anticipated and recognized each quarter using the estimated effective tax rate for the year
What are interim F/S?
statements that cover less than one year. could be weekly, monthly or quarterly stmts
On 1/1 year 1, and entity pays $2,000 as its property taxes for year 1. The entity is now producing interim F/S for the first quarter of year 1. What amount of expense should be recognized in the 1st quarter?
this cost covers the entire year. as such the expense should be pro rated. $2,000 x .25 = $500 property tax exp recognized 1st quarter year 1
In the 1st Q of year 1, the reporting entity has inventory with a cost of $200,000 but a FV of $190,000. What should be reported on interim F/S for the 1st Q year 1?
drops in inventory for interim F/S should only be reported if the entity feels the drop in value is permanent.
In the 1st Q of year 1, the reporting entity has inventory with a cost of $200,000 but a FV of $190,000. The entity felt that this drop was permanent; however, the value actually went back up to $198,000 in the 3rd Q year 1. What should be reported on interim F/S ?
$10,000 loss in the 1st Q because the entity felt the value change was permanent.
$8,000 cost recovery should be recognized in the 3rd Q.
In the 1st Q of year 1, the reporting entity has inventory with a cost of $200,000 but a FV of $190,000. The entity felt that this drop was permanent; however, the value actually went back up to $208,000 in the 3rd Q year 1. What should be reported on interim F/S ?
$10,000 loss in the 1st Q because the entity felt the value change was permanent.
$10,000 cost recovery should be recognized in the 3rd Q.
An entity anticipates making $100,000 profit in each of the quarters of the year. The tax rate on the first $100,000 is 20%, but it is 24% on income after that. Based on those estimations the entity expects to pay $92,000 in income taxes for the year.
On interim stmts. for the first quarter of the year, what amount of income tax exp should be recognized?
the entity expects to pay $92,000 which is an effective rate of 23% (92/400).
for interim purposes the effective rate is applied to each quarter.
1st Q profit $100,000 x effective rate of 23% = $23,000 income tax exp recognized.
An entity earns $100,00 in the 1st Q and anticipates an effective annual tax rate of 23%. In the 2nd Q, the entity earns another $100,000 but now anticipates an effective annual tax rate of 25%. How much income tax expense is recognized in the 1st Q and in the 2nd Q?
1st Q = $100,000 x 23% = $23,000
2nd Q = $200,000 x 25% = $50,000
$50,000 - $23,000 = $27,000
Personal F/S are produced for individuals. What are the 2 personal F/S?
statement of financial condition
statement of changes in net worth
What are the 3 sections found on a statement of financial condition?
assets
liabilities
net worth
How are assets reported on a statement of financial condition?
all assets and liabilities are reported at Fair Value (FV)
A statement of financial condition is the basic personal F/S and shall report assets at their estimated current value. Assume a couple has a piece of land that costs $100,000, but is worth $150,000. The tax rate for this couple is 30%. How is this information reported on personal F/S?
land reported at FV = $150,000
hypothetical gain on sale = $50,000 * tax rate .30
potential tax liability on FV = $15,000
What is a development stage enterprise?
a development stage enterprise is working to establish itself as a business but has not yet generated any significant revenues.
How does the accounting for a development stage enterprise differ from traditional GAAP?
no significant differences.
However both on the I/S and CF stmt there should be 2 columns one for the current period and one to accumulate all amounts since inception
