Ninja Notes: Financial Reporting, Bonds, & Debt Restructure

Question 1

What are two differences b/t Financial and Managerial accounting?

Answer 1

Managerial accounting has a “timeliness” focus

And does not follow GAAP.

Question 2

What are secondary constraints of Financial reporting?

Answer 2

> Consistency - Yr. vs. Yr.

> Comparability - Company vs. Company

Question 3

What is Conservatism?

Answer 3

When an estimate is necessary due to uncertainty, choose the best option that won’t overstate the financial position of the company.

Question 4

What are three acceptable valuation techniques?

Answer 4

> Market approach

> Income approach

> Cost approeach

Question 5

What is the Market approach as a valuation tech?

Answer 5

Use market transactions/prices to value asset.

Question 6

What is the Income approach as a valuation tech?

Answer 6

Use present value to discount earnings.

Question 7

What is the Cost approach as a valuation tech?

Answer 7

Use replacement cost to value asset.

Question 8

If royalty % is applied against Net Sales, use?

Answer 8

(Gross sales - Est. Return) x %

Question 9

Franchise costs for the Franchisee?

Answer 9

Are deferred until corresponding revenue is recognized.

Question 10

Discontinued operations include?

Answer 10

> Income/loss from the period, plus

> Gain/loss from disposal

Question 11

Discontinued operations are reported?

Answer 11

Net of Tax after Continuing ops., but before Extraordinary items.

Question 12

Constant dollar accounting?

Answer 12

Uses Consumer Price Index to adjust assets to reflect a consistent level of purchasing power due to inflation.

Question 13

Business start-up costs are?

Answer 13

One time costs for opening a new business. And are expensed as incurred.

Question 14

What are some Cumulative accounting adjustments?

Answer 14

> Foreign currency translation adjustments

> Unrealized gains of AFS securities.

> Min. Pension liab. adjustments for Defined benefit plans.

Question 15

Investments by owners in Comprehensive income are?

Answer 15

Not included.

Question 16

Some accounting policies that must be disclosed?

Answer 16

> Accounting principles used
> Basis of consolidation
> Inventory Pricing Methods
> Depr. Method
> Amort. of intangibles

Question 17

Some risk and uncertainties that must be disclosed?

Answer 17

> Nature of operations
Use of estimates & listing of significant estimates
Concentration vulnerability

Question 18

Sinking fund bonds…?

Answer 18

> Cash held for bond repayment.

> 5 years of disclosures.

Question 19

What is the bonds proceeds formula (market value)?

Answer 19

It is the Present value of the principal pmt. at maturity
+
Present value of int. pmts. made

Question 20

How are Bond issuance costs handled?

Answer 20

They are debited to a Deferred charge account and amortized over the life of the bond using S/L.

Question 21

How to calculate Net bond proceeds?

Answer 21

Take Bond proceeds minus bond issuance costs.

Question 22

When does time of amortization begin?

Answer 22

When (bond is) issued.

Question 23

How should Bonds classified as Trading securities be handled?

Answer 23

Reported at FMV with unrealized gains and losses being included in earnings.

Question 24

What is the stated rate?

Answer 24

The rate of the face of the bond.

Question 25

What is the market rate?

Answer 25

The rate that bonds are currently selling for.

Question 26

Interest Paid depends on?

Answer 26

The amount/rate on the bond; has nothing to do with premiums or discounts.

Question 27

Interest expense depends on?

Answer 27

The carrying amount [(Bond amount +/- premium or discount), minus amortization)] x Effective (Market) interest rate.

Question 28

With a discount, bond interest expense is?

Answer 28

Greater.

Question 29

With a premium, bond interest expense is?

Answer 29

Less.

Question 30

Gain/loss on retirement of bonds is?

Answer 30

Ordinary; unless both unusual and infrequent.

Question 31

For loan impairment, how is the Effective rate calculated?

Answer 31

Calculated using Original rate, not modified rate.