Module 2 Flashcards
Subsequent event evaluation
SEC filers and non- filers
SEC: Evaluate events through the date statements issued
Non: “available to be issued”
Fair value
The most advantageous market price for an asset or liability after considering transaction costs
Uses the “exit” price
Fair value hierarchy
Level 1 input is highest
Level 3 is lowest
Fair value disclosures
- Valuation techniques and inputs including judgements and assumptions
- The uncertainty in the measurement at the reporting date
- How changes in the measurement affect the entity performance and cash flows
3 tests to determine operating reportable segments - only has to meet 1 of the 3
- 10% combined revenues to internal and external parties
- 10% of the greater of reported profit or loss
- 10% of combined assets of all operation segments
Reportable segments
75% reporting sufficiency test
Requires that reportable segments total at least 75% of revenue from external parties
Segment operating profit (loss)
Definition/equation
Segment revenues from sales (to internal and external customers)
Less directly traceable costs
Less reasonably allocated costs
Equals segment operating profit loss
Segment disclosures
- Segment profit loss
- Segment assets
- Other certain items
Disclosures for all public entities
- Products and services
- Geographic areas
- Major customers
SEC reporting requirements are outlined in Regulation
S-X
SEC electronic filing must use
XBRL
eXtensible Business Reporting Language utilizes a taxonomy w tags that identify and define data found in the statements and footnotes
OCBOA - other comprehensive basis if accounting
Cash basis statements
Modified cash basis
Income tax basis
Partnership contribution recording
Fair value
Less the present value of liabilities assumed by the partnership
Admission of new partners
Accounting methods
Exact method- no adjustment to partner accounts
Bonus method - adjust partner accounts for any difference
Goodwill method - adjust partner accounts for any difference and adjust the goodwill assets
Withdraws of partners - accounting methods
Bonus method
Goodwill method
Partnership contributions
Partner contributes assets cost 10K w fair value 20K, which figure to use
Use the fair value for the contribution
20K
Partnership net income
Deduct partner draws to determine partner shares?
No
Ratio
Days in inventory aka Inventory Conversion period
- Cost of good sold/365 days
- Ending inventory/ figure #1
Ratio
Return on assets
- Average total assets - beginning or year and end of year divided by 2
- Net income / average total assets from #1
Partnership contribution
Assets with liens
Fair market value of the asset net of any liabilities is the amount of the new partners capital account
Ratio
Inventory turnover
- Average inventory - add beginning and ending then divide by 2
- Cost of good sold / #1 average inventory
Calculating cost of goods sold
Beginning inventory
Add purchases
Subtract ending inventory
Equals cost of good sold
Common modifications to cash basis stmts (modified cash basis)
- Recording long term liabilities
- Accrual of income taxes
- Capitalization of inventory
Calculating partnership capital account interest
- Net profit - deduct the partnership interest owed
Then any profit or loss remaining gets split to the partner accounts - Plus the interest the accounts were owed
Income tax basis financial statements
Recognize income and expenses when these items are recognized on the entity’s tax return…. So they are adjusted to the reporting period
Partnership accounts are equity accounts
Natural debit balance
Partnership - Exact Method
Exactly how much does a partner need to contribute to become an equal partner - old partner accounts stay the same
Partnership
New partner gets 1/5 interest of partnerships 180,000 net assets
How much does she need to contribute?
- Take 5-1=4
- 180,000/4= 45,000
Partnership - new partner joining for 20%, net assets not given
- Total the current capital account balances
- 20% is 1/5…5-1=4
Divide current capital account balances total by 4
Partnership - Bonus Method
Bonuses can affect either new partner or the old ones. It increase (decreases) the individual partner accounts without changing the net assets.
If the bonus goes to the old partners then it is split according to their profit ratio
Partnership - Goodwill method
The goodwill always goes to the old partners, never the new
The goodwill increases the individual partner accounts and also changes the net assets of the partnership
Partnership distributing profit and loss
- Pay any guarantees
- Pay any interest on ending capital account balances
- Pay any salaries
- Then calculate distribution according to profit and loss ratios
- Then repay draws
Partnership liquidation
Partnership advances can’t be repaid if any of the partners have a negative capital account balance
The partner capital accounts have to absorb the negative capital account balance first before the advances are repaid
Partnerships - calculating additional paid in capital APIC
Assets (D)
Liability-fair value (C)
Common stock (C)
APIC (C). xxx
Assets = Liabilities + Common stock issued + APIC … squeeze for the APIC
Market participants
Independent of one another
Knowledgeable and acting in their best interest
Conversion cash basis to accrual
Revenue
- Add ending accounts receivable
- Subtract beginning a/r
- Subtract ending unearned (or deferred) revenue
- Add beginning unearned (or deferred) revenue
Determining fair value when there’s no principal market
Evaluate the options using the quoted price netted with the transaction cost to determine the right market, but the fair value answer is only the quoted price with out the transaction cost
Principal market
Most advantageous market
Principal market sells the most quantity
Most advantageous offers the best price after transaction costs (but the answer is the price without the transaction costs factored in)
Level 1, 2, and 3 inputs
Level 1 active market, identical asset
Level 2 uses inputs other than quoted prices that are observable or unobservable
Level 3 unobservable inputs
Determining most advantageous market with transportation costs
- Determine the most advantageous market- transport costs not a factor
2 in the final answer subtract the transport cost from the exit price of the most advantageous market price
Fair value measurement methods
1 Market approach - aka most advantageous market, comparing markets
2 Income approach - impaired items
3 Cost (replacement) approach
