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FAR > Module 1 > Flashcards

Module 1 Flashcards

1
Q

Avoidable interest

A

Interest that would have been avoided had the construction project not existed
Moves interest from expense to CIP

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2
Q

Avoidable interest calculations

A

Were the contractor payments even? Divide by 2
If not even then use weighted average method

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3
Q

Value of asset replacement is not known and asset life is extended, not improved

A

Reduce Accum Depreciation

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4
Q

Asset is improved

A

Capitalize improvement

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5
Q

Land cost is everything prior to excavation

A

Legal and title
Fill dirt and swamp draining
Back property taxes (not current)
Building razing

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6
Q

Goodwill - the direct result of a business combination

A

The implied fair value of the company
Compared to
The fair value of the net assets

Goodwill indicates that you paid more and got less

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7
Q

Calculation to get Net assets

A

Assets - liabilities

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8
Q

How to calculate the Goodwill

A

Price paid for the company divided by percentage of the company acquired equals total value of the company

Take that total value of the company minus the amount of the net assets equals the goodwill

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9
Q

Goodwill Impairment

A

The fair value is less than the carrying value
It is tested on each reporting unit and reported individually for each unit
If one unit has extra carrying value, it doesn’t negate the impairment of other units

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10
Q

Goodwill testing time

A

Tests can occur at any point in the year as long as it is consistently tested at the same time every year

Other assets should be tested and any impairments recorded prior to goodwill testing

2020 FASB standard eliminates the calculation of implied goodwill fair value each year

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11
Q

Goodwill impairment JV

A

D Loss of goodwill impairment (IS)
C Goodwill (BS)

Caution- the impairment amount cant be higher than the original goodwill

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12
Q

Income statement vs
Balance sheet

A

I.S. Is the company making money?
B.S. What is the company worth?

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13
Q

Balance sheet left and right

A

Left - debits - Assets
Right - credits - liabilities and equity
Equity is owners capital
Thus they should balance

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14
Q

Balance sheet equation

A

Assets = Liabilities - Equity

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15
Q

Cash
Revenue

A

Cash - asset account debit balance
Revenue - equity account credit balance

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16
Q

Working capital equation

A

Current Assets minus current liabilities

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17
Q

Deferral expense and revenue

A

Cash now
Income statement later

Cash is collected in advance of being earned

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18
Q

Unexpired costs
Expired costs

A

Assets…. Example prepaid insurance
Expenses …. Example prepaid expense

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19
Q

How much was ACCRUAL basis revenue (IS now, cash later)
Cash collected this year was 25K
Begin A/R was 3K and ending was 8K

A

25+ending 8 - beginning 3 = 30
Remember:
3 was earned last year so subtract it
8 is earned this year so add it

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20
Q

DEFERRED revenue - cash to accrual basis
Cash received 400, unearned revenue last year 10, unearned revenue this year 40

A

400 +10 collected last year and earned this year - 40 collected this year and earned next year

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21
Q

Cash to Accrual - Revenue
Accrual revenue - work done (IS) now, cash later
Example - Receivable

A

Add what is earned now and collected later
Subtract what was earned last year and collected this year

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22
Q

Cash to Accrual - Revenue
Deferred revenue - cash now and IS later
Example unearned rent

A

Add what was collected last year and earned this year
Subtract what was collected this year because it will be earned next year

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23
Q

Cash to Accrual - Expense
IS now, pay later

A

Add incurred this year, pd next year

Subtract incurred last year, paid this year

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24
Q

Form 10K filing - Annual
60 days after fiscal year end
75
90

A

60- large accelerated filers
75- accelerated filers
90- all others
Includes disclosures, summary of financial data, MD&A and audited financials

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25
Q

Filing 10Q Quarterly
40 days after fiscal year end
45 days

A

40 Large accelerated and accelerated
45 all others
Contains unaudited financial stnts, interim period MD&A, certain disclosures

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26
Q

Classifications
Large accelerated
Accelerated
All others

A

Large Acc ..700 million or more
Acc….
All others…less than 75 million

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27
Q

Cash equivalents

A

US treasury bill

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28
Q

Reportable segments

A

10% of revenue include inter segments sales, ignore corporate headquarters

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29
Q

Deferred

A

Cash now, IS later
2 JV’s same year

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30
Q

Accrued

A

IS now, cash later
2 JVs in different years

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31
Q

Net income - retained earnings - stockholders equity all equal relationship

A

If one is impacted the others are impacted the same direction

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32
Q

Pension plan options

A

Defined contribution plan

Defined benefit plan-promises a defined retirement benefit, the employer assumes the risk so most companies don’t offer it

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33
Q

Pension plans
Defined contribution plan

A

Defined contribution plan (ex 401 K)
The employer has no liability and the employees has to direct the investments

34
Q

Pension plans require two financial stnts

A

1 Statement Of net assets available for benefits (like a balance sheet)
Assets, liabilities, net assets

2 Statement of changes in net assets available for benefits (like IS)
Additions, deductions, net increase net assets

35
Q

Research question

A

Codification
Advanced search
Key phrase searches the exact phrase

36
Q

Financial statement primary users

A

Investors
Lenders
Other creditors

37
Q

Objective of financial reporting

A

Provide information to external users useful for economic decision making

38
Q

Fundamental qualitative characteristics

A

Relevance and faithful representation

39
Q

Fundamental qualitative characteristic
Relevance

A

Predictive value
Confirmatory value
Materiality

40
Q

Fundamental qualitative characteristics
Faithful representation

A

Complete
Neutral - free from bias
Free from error

41
Q

Enhancing qualitative characteristics
V Cut
Make the information more “useful”

A

Verifiabikity
Comparability
Understandability
Timeliness
Applied in NO prescribed order SFAC 8

42
Q

SFAC 8

A

Financial reporting objectives Business

43
Q

Assets - liabilities = equity
Equity is…

A

The residual interest in the assets of a company

44
Q

Net realizable value

A

Closing the company-disposing of assets and asset value is less than historical cost

45
Q

Current market value

A

Same as fair value- price to sell (not acquire) the asset

46
Q

Multi step income statement - income from continuing operations

A

Reports revenues and expenses separately from non operating revenues and expenses and other gains and losses

47
Q

Single step Income Statement - income from continuing operations

A

Total expenses ( including income tax expense ) are subtracted from total revenues … thus it’s a “single step”
Multi step better for calculating financial ratios

48
Q

Classified balance sheet

A

Distinguishes current and non-current assets and liabilities

49
Q

5 steps to revenue recognition

A
  1. Identify the contract
  2. Identify the performance obligations
  3. Determine the transaction price
  4. Allocate the price to the obligations
  5. Recognize revenue as each performance obligation is met
50
Q

Rules of contracts (5)

A
  1. Approved by all parties
  2. Contain parties rights
    3 . payment terms
  3. Have commercial substance
  4. Be probable that the entity will collect all that is owed
51
Q

Contract costs
When are they assets or expenses?

A

Assets if the entity expects to recover them and are directly related to a contract
Expenses is they are borne whether or not the contract is obtained

52
Q

Repurchase agreements

A

Contract in which an entity sells and asset and has a promise or option to later repurchase the asset

53
Q

Repurchase agreement types

A

Forward - obligation to repurchase
Call option- right to repurchase at entity’s option
Put - right to repurchase at customer’s option

54
Q

Bill and Hold agreements

A

Revenue recognized prior to customer receiving product
There has to be a substantive reason for holding the product, it must be separately identified and ready for transfer to the customer

55
Q

Right to return - booking revenue

A

If the customer has a right to return
1. Book the sale revenue
2. A refund liability
3. And an asset related to the subsequent product recovery

56
Q

Long term construction
Percentage of completion

A

Recognize revenue over the term of the construction project
4 step process

57
Q

Long term construction
Completed contract

A

Recognize revenue on the completed project
This does not match revenue and expenses over the term

58
Q

Long term construction losses

A

Under both contract types/ losses are recognized immediately

59
Q

Discontinued operations accounting

A
  1. Gain/loss on current operations
  2. Gain/loss on sale
  3. Impairment loss
    Reported after continuing operations
    Shown net of tax in the year incurred
60
Q

Accounting changes - change in estimate
Prospective or Retrospective

A

Prospective - change in the current period and future, no prior period adjustment (this was not an error)
Example: fixed asset life adjustment

61
Q

Change in fixed asset depreciation METHOD
Prospective or Retrospective?

A

Its a change in principle, but it’s treated according to change in estimate rules
So it’s Prospective

62
Q

Change in accounting principle
Prospective or Retrospective

A

Retrospective- a change in principle
Affects retained earnings
Adjust beginning retained earnings, net of tax, in the statement of retained earnings
If adjusting inventory only look at the balance sheet balances for the ending year given

63
Q

Exceptions to change in principle- retrospective entries

A

When it is impractical to estimate the change to retained earnings for restatement then it is treated prospective
Ex: inventory method change TO LIFO to anything else and fixed asset methods

64
Q

Accounting changes - error corrections
Reporting

A

Reported net of tax in the statement of retained earnings

65
Q

Statement of Comprehensive Income
Comprehensive income is:

A

All changes in owners equity other than transactions with owners
Net income (net income already includes the tax rate) plus other comprehensive income equals comprehensive income

66
Q

OTHER comprehensive income definition

A

Revenues, expenses, gains, losses included in comprehensive income but excluded from Net Income under GAAP…. Five sources of it are PUFI

67
Q

Other comprehensive income
PUFI
These are items excluded under net income per GAAP

A

P-pension adjustment
U - unrealized gains/losses on Available for Sale (not trading) securities and hedges
F - foreign currency translation. Items
I - instrument specific credit risk
*apply the tax rate to these items- tax effect must be disclosed in the stmt or the notes

68
Q

Accumulated other comprehensive income is the sum of…

A

The sum of all other comprehensive income components (PUFI)
This is an owners equity item

69
Q

Reporting - statement of comprehensive income

A

GAAP allows for 1 statement
Stmt of Income and Comprehensive Income
Or 2 statement
Stmt of Income immediately followed by Stmt of Comprehensive Income

70
Q

The JV to accrue revenue -

A

Record a receivable

71
Q

JV to accrue expenses
Income statement now, pay later

A

Record accrued liability, accounts payable, or wages payable

72
Q

Adjusting journal entries
When an entry was recorded to a revenue/expense account that should have been an asset/liability account

A
  1. Must be recorded by the end of the fiscal year
  2. Never involve the cash account
  3. Will hit one income stmt acct and one balance sheet acct
73
Q

Costs and Unexpired Costs

A

Costs are expenses in this period
Unexpired costs are costs that expire in future periods- example fixed assets and depreciation method
Module 1.2

74
Q

Unexpired costs are assets
Expired Costs are expenses

A

When unexpired (asset) goes to expired (expense) then it goes balance sheet to income stmt
Example: inventory to cost of good sold
Net book value of fixed asset to depreciation expense

75
Q

Gross concept and net concept
Gross concept definition

A

This is normal operating activity
Revenue and expenses - reported at gross (all transactions)

76
Q

Gross concept and net concept
Net concept definition

A

This is non-operating activity
Gains and losses - reported NET
Ex: the sale of property, you don’t report the sale price, you report the net of the transaction or the gain/loss
This includes sale of non-inventory, write downs, write offs

77
Q

Payment on a contract
Receivable, asset, liability?

A

Receivable if terms met and only waiting on payment (only waiting on passage of time)
Asset arrangement net, but waiting on something other than the passage of time
Liability the customer pays before the task is met

78
Q

Accounting change of estimate examples

A

Change fixed asset life
Adj year end accrual of salaries
Write down obsolete inventory
Nonrecurring IRS adj
Settlement of litigation
Changes of accounting principle that apply here - depreciation- change from LIFO

79
Q

Contract modification

A

A contract modification is a change in price or scope or both

80
Q

Current assets include

A

Cash minus any income in sinking funds
A/R minus any allow for doubtful
Inventory
Investments in trading securities

81
Q

Liabilities include

A

Deposits received from customers
Unearned rents

FAR (17 decks)

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