Ninja Notes: Financial Reporting, Bonds, & Debt Restructure Flashcards
What are two differences b/t Financial and Managerial accounting?
Managerial accounting has a “timeliness” focus
And does not follow GAAP.
What are secondary constraints of Financial reporting?
> Consistency - Yr. vs. Yr.
> Comparability - Company vs. Company
What is Conservatism?
When an estimate is necessary due to uncertainty, choose the best option that won’t overstate the financial position of the company.
What are three acceptable valuation techniques?
> Market approach
> Income approach
> Cost approeach
What is the Market approach as a valuation tech?
Use market transactions/prices to value asset.
What is the Income approach as a valuation tech?
Use present value to discount earnings.
What is the Cost approach as a valuation tech?
Use replacement cost to value asset.
If royalty % is applied against Net Sales, use?
(Gross sales - Est. Return) x %
Franchise costs for the Franchisee?
Are deferred until corresponding revenue is recognized.
Discontinued operations include?
> Income/loss from the period, plus
> Gain/loss from disposal
Discontinued operations are reported?
Net of Tax after Continuing ops., but before Extraordinary items.
Constant dollar accounting?
Uses Consumer Price Index to adjust assets to reflect a consistent level of purchasing power due to inflation.
Business start-up costs are?
One time costs for opening a new business. And are expensed as incurred.
What are some Cumulative accounting adjustments?
> Foreign currency translation adjustments
> Unrealized gains of AFS securities.
> Min. Pension liab. adjustments for Defined benefit plans.
Investments by owners in Comprehensive income are?
Not included.
Some accounting policies that must be disclosed?
> Accounting principles used > Basis of consolidation > Inventory Pricing Methods > Depr. Method > Amort. of intangibles
Some risk and uncertainties that must be disclosed?
> Nature of operations
Use of estimates & listing of significant estimates
Concentration vulnerability
Sinking fund bonds…?
> Cash held for bond repayment.
> 5 years of disclosures.
What is the bonds proceeds formula (market value)?
It is the Present value of the principal pmt. at maturity
+
Present value of int. pmts. made
How are Bond issuance costs handled?
They are debited to a Deferred charge account and amortized over the life of the bond using S/L.
How to calculate Net bond proceeds?
Take Bond proceeds minus bond issuance costs.
When does time of amortization begin?
When (bond is) issued.
How should Bonds classified as Trading securities be handled?
Reported at FMV with unrealized gains and losses being included in earnings.
What is the stated rate?
The rate of the face of the bond.
What is the market rate?
The rate that bonds are currently selling for.
Interest Paid depends on?
The amount/rate on the bond; has nothing to do with premiums or discounts.
Interest expense depends on?
The carrying amount [(Bond amount +/- premium or discount), minus amortization)] x Effective (Market) interest rate.
With a discount, bond interest expense is?
Greater.
With a premium, bond interest expense is?
Less.
Gain/loss on retirement of bonds is?
Ordinary; unless both unusual and infrequent.
For loan impairment, how is the Effective rate calculated?
Calculated using Original rate, not modified rate.
