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FAR Additional Study > Notes from Surgent > Flashcards

Notes from Surgent Flashcards

1
Q

The statement of cash flows shows:

A

The differences between accrual net income and cash net income (NI)

Information about an entity’s ability to:

Generate future cash flows

Meet its obligations and pay dividends

The entity’s cash and noncash investing and financing transactions

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2
Q

What are Foreign Currency Transactions?

A
  1. Transactions denominated in a foreign currency must be translated into the currency the reporting entity uses. Examples include
  • Purchases or sales of goods or services (imports or exports)
  • Loans payable or receivable
  • Purchase or sale of foreign currency forward exchange contracts
  • Purchase or sale of foreign currency units
  1. At each B/S (balance sheet) date, account balances must be adjusted to reflect changes in exchange rates during the period since the last B/S date
  2. Adjustment restates the foreign currency account to their U.S. dollar equivalent value 3. The adjustment is a foreign currency transaction gain or loss, reported on I/S (income statement)
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3
Q

What are Translation Methods? Two methods?

A

Before foreign currency financial statements can be translated into U.S. dollars, the functional currency must be determined. There are two methods for translation.

  1. Current rate method: used when the subsidiary functions in the local (foreign) currency
  2. Remeasurement method: used when the subsidiary functions in U.S. dollars
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4
Q

Foreign currency translation when Sub Functions in U.S. Dollars.

A
  1. Operations integrated with parent’s operations
  2. Buying and selling activities primarily in U.S. and/or U.S. dollars
  3. Cash flows immediately available for remittance to parent
  4. Use Remeasurement method
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5
Q

Foreign currency translation when Sub Functions in Local Currency.

A
  1. Operations not integrated with parent’s operations
  2. Buying and selling activities primarily in local currency
  3. Cash flows not immediately available for remittance to parent
  4. Use Current Rate method (think local is current)
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6
Q

Current Rate Method ( A/L, R/E, RE,C/S&APIC,DIV., G/L)

A
  1. Assets/Liabilities: Convert at current exchange rate
  2. Revenues/Expenses: Convert at weighted-average rate for the period
  3. Retained Earnings: not actually converted, back into
  4. C/S (common stock) and APIC (additional paid-in capital): Convert at historical rate
  5. Dividends: Convert Using rate on DOD (date on distribution)
  6. Translation Gains/Losses NOT on the income statement; go to OCI (other comprehensive income)
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7
Q

Remeasurement Method( Mon., NonMon, R/E, RE,C/S&APIC,DIV., G/L)

A
  1. Monetary Items: convert at current rate
  2. Nonmonetary: convert at historical rate
  3. Revenues/Expenses: convert at weighted-average rate for the period
  4. Retained Earnings: not actually converted, back into
  5. C/S and APIC: convert at historical rate
  6. Dividends: convert using rate on DOD
  7. Depreciation use historical rate (treat as nonmonetary)
  8. Remeasurement Gains/Loss do go to the income statement
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8
Q

IFRS Foreign Currency Translation

A

IFRS (International Financial Reporting Standards) defines currencies as

—Functional: currency of the primary economic environment in which the entity operates

  • Foreign: currency other than functional
  • Presentation: currency in which the financial statements are presented
  1. If functional currency = presentation currency, gains/losses on translation are recognized as profit or loss in the period
  2. If functional currency ≠ presentation currency, translation gains/losses are recorded in OCI
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9
Q

Impairments of Fixed Assets-Held For Use

A

Held For Use

  • Impaired if Carrying Value (CV) > Expected Future Cash Flows
  • Write down to fair value (FV)
    • Loss-Ordinary Exp. XXX
    • Asset. XXX
  • Depreciate new basis over remaining life
  • Write-up in value not permitted under GAAP
  • Recovery of loss not permitted under GAAP
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10
Q

Impairments of Fixed Assets-Held For Sale

A

Held For Sale

  • Sale probable within one year
  • Impaired if CV > Selling price – costs to sell
  • Write down to fair value (FV)
    • Loss-ordinary exp. XXX
    • Asset. XXX
  • Classified as Other Asset
  • Depreciation stops: no longer used in production
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11
Q

Impairments of Fixed Assets-Held for Disposal:Other than by Sale

A

Held For Disposal—Other Than By Sale

  • Entity does not intend to sell the asset
  • Entity intends to: abandon the asset; distribute the asset to the owners; or exchange the asset
  • Treat as held for use until disposed
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12
Q

U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in:

A

SEC Regulation S-X prescribes the form, content, and presentation of and disclosure requirements for financial statements.

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13
Q

An unconditional redemption feature on stock must be reported as….

A

An unconditional redemption feature on stock must be reported as a liability. Cumulative or convertible preferred stock does not create a liability. Neither does common stock issued at a discount.

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14
Q

In preparing consolidated financial statements of a U.S. parent company with a foreign subsidiary, the foreign subsidiary’s functional currency is the currency:

A

of the environment in which the subsidiary primarily generates and expends cash.

FASB ASC 830-10-45-2 states that the functional currency is the currency of the primary economic environment in which the entity operates or the currency in which most of the subsidiary’s transactions are denominated.

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15
Q

Formula for Accounts Receivable Turnover:

A

360 days/(Net Credit Sales/Average AR)

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16
Q

A foreign subsidiary of a U.S. parent company should measure its assets, liabilities and operations using the:

A

subsidiary’s functional currency.

The FASB requires that an asset, liability, revenue, expense, gain, or loss arising from a transaction should be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect on the transaction date. Functional currency is determined by the primary economic environment in which the entity operates and is often determined by the parent company.

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17
Q

What is Comprehensive Income?

A

Items that bypass the income statement are included under the concept of comprehensive income

Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners

Two ways to report:

One-statement (combined) approach

Two-statement approach

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18
Q

Comprehensive Income

Includes:

A
  1. Translation gains and losses on foreign currency
  2. Pension over/under Funded Calculation
  3. Gains and losses on cash flow hedging derivative instruments
  4. Unrealized holding gains/losses on available-for-sale debt securities
  5. For financial liabilities measured using the FVO in ASC 825, the change in fair value caused by a change in instrument-specific credit risk (i.e., the entity’s own credit risk)
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19
Q

IFRS Statement of Comprehensive Income

A
  • Two Options: a separate or a combined statement
  • Under IFRS (International Financial Reporting Standards), revaluation of property, plant, and equipment, and intangible assets is permitted and is reported as OCI (other comprehensive income)
  • This results in more transactions affecting equity but not net income
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20
Q

Why do we have a Statement of Cash Flows?

A
  • The Statement of Cash Flows describes the cash flows into (sources) and out of (uses) the business
  • Investors use the statement of cash flows to identify trends in business performance that are not apparent in the other financial statements
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21
Q

What does the Statement of Cash Flows show?

A

The statement of cash flows shows:

  • The differences between accrual net income and cash net income (NI)

Information about an entity’s ability to:

  • Generate future cash flows
  • Meet its obligations and pay dividends

The entity’s cash and noncash investing and financing transactions

22
Q

Term: Faithful Representation

A

Financial information must faithfully represent the phenomena that it purports to represent. To be a perfectly faithful representation, a depiction would have three characteristics:

Complete

Neutral

Free from error

Of course, perfection is seldom, if ever, achievable. The FASB’s objective is to maximize those qualities to the extent possible.

SFAC 8.3, QC12, BC3.19

Note: This term replaces “reliable” in FASB Concepts Statement (SFAC) 8.3.

23
Q

Term: Statement of Activities

A

The nongovernmental not-for-profit organization does not earn a profit in the sense that a for-profit entity would. Instead, the not-for-profit organization records the difference between revenues and expenses as a change in net assets for the accounting period. Each revenue, expense, gain, or loss must be classified according to the net asset class affected and reported based on restrictions or functional subclassification.

24
Q

Accumulated other comprehensive income is reported in what financial statement?

A

The statement of financial position.

Other comprehensive is transferred to accumulated other comprehensive income each period.

Accumulated other comprehensive income is reported as part of equity on the balance sheet/statement of financial position.

25
Q

Income tax-basis financial statements differ from those prepared under GAAP in that income tax-basis financial statements:

A

recognize certain revenues and expenses in different reporting periods.

26
Q

U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in:

A

SEC Regulation S-X prescribes the form, content, and presentation of and disclosure requirements for financial statements.

SEC Regulation S-K contains the instructions for filing nonfinancial statement forms required under the Securities Act of 1933, Securities Exchange Act of 1934, and Energy Policy and Conservation Act of 1975. Regulation S-T governs the electronic submission of required forms. Due to the fact that the SEC requires electronic filing now, the instructions set forth in Regulation S-T may supersede those in Regulation S-K. Regulation S-B outlines the disclosure requirements that small business issuers must follow under the Securities Act of 1933 and Securities Exchange Act of 1934.

27
Q

A company is an accelerated filer that is required to file Form 10-K with the U.S. Securities and Exchange Commission (SEC). What is the maximum number of days after the company’s fiscal year-end that the company has to file Form 10-K with the SEC?

A

Annual 10-K reports are due within 75 days for fiscal years for accelerated filers as defined in 17 CFR 240.12b-2. The requirement is 90 days for other filers. The deadline for filing quarterly reports (10-Q) is 40 days for accelerated filers.

28
Q

At the end of the accounting period, the components of other comprehensive income are transferred to which of the following stockholders’ equity accounts?

A

The total of other comprehensive income for a period is transferred to a component of equity that is presented in the statement of financial position separately from retained earnings and additional paid-in capital. This element of stockholders’ equity should carry an appropriate title, such as accumulated other comprehensive income. The accumulated balances of each separate classification of that component of stockholders’ equity is required, either in the statement of financial position or in notes to the financial statements. The classifications of other comprehensive income must be consistent throughout the financial statements.

29
Q

In accounting for a long-term construction contract, assuming revenue is recognized over time, the progress billings on contracts account is a:

A

contra current asset account.

The current asset account maintaining an inventory value for the costs and profits recognized so far on the contract has a contra account of progress billings, lowering its carrying value. If the billings exceed the construction in process, then a current liability can exist instead.

30
Q

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of:

A

“The purpose of consolidated statements is to present…the results of operations and the financial position of a parent and all its subsidiaries essentially as if the consolidated group were a single economic entity.”

31
Q

In the government-wide financial statements, what is the correct revenue classification of fines and forfeitures?

A

Charges for services

The GASB has prescribed that fines and forfeitures are included in charges for services. They result from direct charges to those who are directly affected by a program or service, even though they receive no benefit.

32
Q

Discrete presentation:

A

Discrete presentation is for affiliated entities whose resources are entirely for the benefit of the primary government. The school system does not operate for the sole benefit of the town.

33
Q

How should cash flows per share should be reported in a statement of cash flows?

A

FASB ASC 230-10-45-3 states that “Financial statements shall not report an amount of cash flow per share.”

34
Q

Where are prior period adjustments made?

A

Prior-period adjustments are made to beginning retained earnings, not net income.

35
Q

Who sets the standards for Not-For-Profits?

A

The FASB establishes most of the standards for Not-for-Profit (i.e., nonbusiness) organizations other than governments

  1. NFP (not-for-profit)standards differ significantly from GAAP (generally accepted accounting principles) for business organizations
  2. NFP standards differ significantly among the types of NFPs
  3. Need to use extra care with hospitals and educational institutions, which can be nongovernment (nonprofit) or government (profit) based
36
Q

Statement of Activities

A

The statemen to of activities for a NFP is the FS that is issues in lieu of the Income Statement.

  1. The primary focus of an NFP’s statement of activities is how the NFP’s activities related to mission fulfillment
  2. So, instead of reporting net income, NFPs report the change in net assets during a period of time
37
Q

When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of the accounting concept of:

A

economic entity.

38
Q

What is the purpose of SFAC 4 as stated in that concepts statement?

A

To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities

39
Q

Topic 275 of the FASB’s Accounting Standards Codification is entitled “Risks and Uncertainties.” The primary subject discussed in this topic is:

A

disclosure.

40
Q

In accordance with the FASB’s ASU No. 2016-01, Financial Instruments–Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities:

A

entities would measure equity securities with readily determinable fair values at their fair value, with changes in that value recorded as part of net income.

41
Q

What is the appropriate characterization of the net assets of a nongovernmental not-for-profit organization?

A

Residual interest

42
Q

According to the FASB’s conceptual framework, asset valuation accounts are:

A

neither assets nor liabilities.

43
Q

What types of rules are generally issued by the SEC?

A

The SEC issues Financial Reporting Releases that usually agree with U.S. GAAP.

44
Q

According to the FASB’s conceptual framework, the objectives of financial reporting for business enterprises are based on:

A

the needs of the users of the information.

45
Q

Which of the following characteristics of accounting information primarily allows users of financial statements to generate predictions about an organization?

A

Relevance

46
Q

Under U.S. GAAP, an exception is allowed for the “impracticality” of calculating the impact of changes in accounting principles. For which category does IFRS allow an exception of “impracticality”?

A

Changes in accounting principles and correction of errors

47
Q

What financial statements are included in a local government’s government-wide financial statements?

A

Statement of net position and statement of activities

48
Q

The combining fund statements are:

A

part of the comprehensive financial report but not part of the basic financial statements.

49
Q

Formula for BV per common share

A

Total Equity - Liquidation value to preferred
Book value/sh = ——————————————————-
No. shares common stock outstanding

50
Q

The government-wide statement of activities explains changes in:

A

total net position.

51
Q

An organization is normally considered a governmental organization if:

A

a controlling majority of the members of its governing board are appointed by state government officials.

52
Q

When valuing certain financial instruments, a company that has elected the fair value measurement option must apply the accounting measurement based on which of the following criteria?

A

An entity may choose to elect the fair value option on an instrument-by-instrument basis for an eligible item only on the date that one of the following occurs:

The entity first recognizes the eligible item.

The entity enters into an eligible firm commitment.

Financial assets that have been reported at fair value with unrealized gains and losses included in earnings because of specialized accounting principles cease to qualify for that specialized accounting.

The accounting treatment for an investment in another entity changes because the investment becomes subject to the equity method of accounting.

An event occurs that requires an eligible item to be measured at fair value at the time of the event but does not require fair value measurement at each reporting date after that, excluding the recognition of impairment under lower-of-cost-or-market accounting or other-than-temporary impairment of equity securities.

FAR Additional Study (3 decks)

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