Review FAR 1-4 Flashcards
Components of OCI are (PUFIER)
Pension adjustments
Unrealized gains and losses on AFS Securities
Foreign Currency Translation
Instument specific credit risk
Effective portion of cash flow hedge
Revaluation gain recognized for intangible assets and fixed assets under IFRS
5 steps of revenue recognition: I STAR
Identify contract with the customer
Separate performance obligations identified
Transaction prices identified
Allocate transaction price to separate performance obligations
Recognize revenue when or as the obligations are satisfied
Multi Step income Statement Steps:
Net Sales - COGS =Gross Margin Less: Expenses from continuing operations \+Other Revenues and Gains -Other losses and expenses =Income from continuing operations -Income Tax Expense \+/- Discontinued Operations (Net of tax) = Net Income
General and Administrative expenses include the
officer salaries, Accounting and legal expenses, and insurance
There are two types of subsequent events, they are recognized and non-recognized events, what are recognized events and non recognized events and how are they recorded?
Recognized events: they existed at the balance sheet date but we didn’t really know the outcome. The only things which can be recognized events, litigation settlement and loss on uncollectible receivable. These issues are accrued/recorded.
Non-Recognized events are basically everything else, they require only disclosure note.
If you have an External customers who makes up 10% or more of total enterprise revenue, do you need to do anything?
Yes, They must be disclosed
What is the 10% test for reportable segments, there are 3 of them
10% size test for reportable segments:
- Segment reports at least 10% of revenue of all operating segments,
- 10% of the greater of the combined profit of all operating segments which did not report a loss or combined reported loss of all operating segments that did report a loss,
- the segment identifies over 10% of assets of all operating segments
After the 10% test you do the 75% test, can you explain the 75% test?
Reportable segment test (75% test):
- Anything that passes one of the 3 10% tests is considered a reportable segment. These segments are then clumped together to see if they can all be added up to be 75% or more of total revenues. If the 75% is not met, you start to include the segments which failed the tests to see what would help hit the 75% threshold.
Formula to find a segments profit or loss:
Revenue
-Direct Traceable costs
-Reasonably allocated costs
= Operating Profit/Loss
Under regulation S-X, GAAP requires how many of each financial statement? What about IFRS?
GAAP requires 2 BS’s and 3 IS’s and CF’s but for IFRS, it is 2 of everything.
What is the trick to converting cash to accrual basis of accounting: opposite of the trick for cash flows
Increase Current Assets: +
Decrease Current Assets: -
Increase Current Liabilities: -
Decrease Current Liabilities: +
Going Concern for GAAP vs. IFRS:
- GAPP requires liquidation basis of accounting, IFRS does not.
- GAAP requires disclosures about going concern (even if alleviated), IFRS only requires a disclosure when management is aware of the material uncertainties regarding their going concern.
- GAAP makes you reassess one year after the issue date of FS, while IFRS makes you reassess after one year after the BS Date of the following year
In acquisition accounting state the consolidating workpaper elimination entry
CARINBIG
Dr: Common stock - sub Dr: APIC - sub Dr: RE - sub Cr: Investment in sub Cr: Noncontrolling interest Dr: Balance sheet adjustment to FV Dr: Identifiable intangible assets to fair value Dr: Goodwill
How do you calculate year-end investment in investee reported on the BS under the equity method
Beginning investment in invest
ADD: Investors share of investee earnings
LESS investors share of investee dividends
LESS amortization of FV differences
=Ending investment in investee
How are nonliquidating and liquidating dividends distributed by equity securities by the person receiving them
nonliquidating dividends are recorded as dividend income
Liquidating dividends received are recorded as a return of capital
How is noncontrolling interest as of the acquisition date calculated under GAAP (Balance Sheet) and on the income statement
BS: Non-controlling intrerest = FV of subsidiary x NCI %
IS: Subsidiary net income x Noncontrolling interest % = NCI in net income
What is the elimination entry for intercompany inventory transactions
Dr: RE Dr: Intercompany Sales Cr: Intercompany COGS Cr: COGS Cr: Ending inventory
What is the elimination entry for intercompany bond transactions
Dr: Bonds PAyable
Dr: Premium (or credit discount)
Cr: Investment in affiliates bonds
Cr: gain on extinguishment of bonds
How is noncontrolling interest as of the acquisition date calculated under IFRS (Balance Sheet): Full goodwill and Partial Goodwill Method
there are two methods: full goodwill or partial goodwill
Full Goodwill: FV of subsidiary x NCI %
Partial Goodwill: FV of subs net identifiable assets x NCI % or Acquistion cost - FV of net assets required
how is ending NCI determined after the acquisition date?
Beginning NCI
+NCI share of NI
-NCI share of dividends
=ending NCI
When using the equity method, and the investee reports income and dividends paid out in cash, what is the impact on the amount of your investment
if you receive cash dividends, it reduces the amount of your investment
if you are recognizing investee’s portion of net income, it increases the amount of your investment
During a reconciliation from Bank to GL what is added/subtracted
DIB SON E
+ Deposits in transit
+ Interest income
+ Bank Collections
- Service Charges
- Outstanding Checks
- NSF funds
+/-: Errors
Using the Allowance Method give two journal entries to provide for and then to write off an uncollectable account
Provide For/initial entry:
D: Bad DEbt Expense
C: Allowance for doubtful accounts
Write off:
D: Allowance for uncollectable accounts
C: AR
Notes can be discounted with or without recourse what is the difference
Discounting with recourse means the holder remains contingently liable
Discounting without recourse means the holder assumes no further liability after discounting
What are the 4 steps to discounting a note
- compute maturity value by doing (Face value + Interest on note to maturity which is interest rate times the days/360 where the days are days to maturity)
- compute the ‘discount’ by doing (Maturity value x new disocunt rate x time period AT maturity)
- get proceeds by subtracting discount from the maturity value (1 minus 2)
- compute interest income as the difference between proceeds (answer from 3) and face of the note
How is NRV calculated in the lower of cost and NRV method
NRV = Net Selling Price MINUS completion and disposal costs
How do you compute the sum of the years digits method of depreciation
(Cost - Salvage) x (Years remaining) / (Sum of Years)
Where sum of years is = (N(N+1)) / 2
N=estimated useful life in years
How do you compute the Double Declining Balance method of depreciation
Cost x (2/ useful life) x [(number of months in service / 12)] [if placed in service mid year]
State the rules for computing depletion on natural resources
“Remember its REAL property”
Residual Value (subtract)
Extraction/development cost
Anticipatied restoration cost
Land purchase price
Depletion = ((Cost of Land + Extraction cost + Anticipated restoration cost-Residual value) / Estimated Recoverable units ) x Units extracted
Under what methods of inventory valuation do we use Lower of Cost and NRV
IFRS, and FIFO and Weighted Average
Under what methods of inventory valuation do we use Lower Cost or Market
GAAP only, LIFO or Retail
How do you know what number to use for the Lower of Cost or Market number, as in what number do you use for the market?
Think of the ceiling and floor of the house.
Market price is the middle value of the following:
Ceiling: NRV = Selling price - Cost to complete
Floor: NRV - Profit
Replacement Cost.
Under the periodic inventory system, what is the very important formula used to find COGS
Beg Inv \+ Purchases =COGS available for sale - Ending Inv =COGS
Under what inventory method is the Ending Inventory and COGS the same for perpetual and periodic method
FIFO
When is the Gross Profit method of inventory evaluation used? How do you use it?
it is used during quarterly or interim reporting. You take the Gross Profit % and do 1-% to find COGS and then use the Inventory Equation to find the Ending inventory
IFRS has 2 methods of valuing intangibles: The cost model and revaluation model, what are the equations
Cost Model: Cost - Amortization
Revaluation Model: FV on revaluation date - subsequent amort. - subsequent impairment
What costs do you capitalize for an asset
all necessary costs to put an asset in place, that improve quality, efficiency, or capacity
if something is exchanged lacking commercial substance what is step 1 and step 2, and step 3 to seeing if a gain is recognized relating to boot received and boot paid
step 1: FV old > BV Old = Gain (go to step two)
FV Old < BV Old = Loss (Recognize whole loss)
Step 2: Is there commercial substance
Yes?: recognize whole gain
No?:go to step 3
Step 3:
No cash (boot) is received = No Gain
Cash (boot) is paid = no gain
Cash (boot) is received = Recognize proportional gain if less than 25% of (Boot / boot+Fv of new stuff)
Cash (boot) is received and over 25% = gains and losses are accounted for in full
if an exchange lacks commercial substance do you record at FV or BV
Book Value
If you are a franchisor, how do you treat initial franchise fees and then continuing franchise fees
initial fees are capitalized
Continuing fees are expensed
How do you handle legal fees when you win? What about when you lose?
You capitalize them when you win and expense them when you lose.
for intangible assets with an infinite life, how do you perform the two step method impairment test?
if it has a FINITE life what do you do
1: determine the impairment, if the net carrying value > undicsounted future cash flows, there is impairment, so go to…
2: the amount of impairment loss is the difference between FV and the caryying value
If its FINITE, only do step 2
what is the IFRS method of finding impairment of goodwill
the amount of impairment loss is the difference between recoverable amount and the carrying value
the recoverable amount is the greater of the FV less costs to sell or the PV of future cash flows
How do you do impairment for PPE
Step 1: impairment is f the net carrying value > undicsounted future cash flows, there is impairment, so go to…
Step 2: FV or PV net cash flows LESS the net carrying amount
What are is the criteria for consolidating subsidiaries on the FS
you own 50% or more
What is the elimination entry for intercompany depreciable assets transactions
DR: intercompany gain on sale
Cr: Machine
Cr: Acc depr
then do elimination of depreciation
DR: Acc depr
CR: Depreciation expense
How do you record an unrealized gain or loss of AFS Security or Trading Security
Dr: Unrealized loss on trading security
Cr: Valuation Account (fair value adjustment)
only difference is AFS goes to OCI and Trading goes to NI
How do you record a liquidating dividend, meaning the dividends are greater than retained earnings
Dr: Cash
Cr: Dividend Income
Cr: Investment in Corp
When doing the CAR part of the consolidated elimination entry, what are the CAR formulas?
Assets - Liabilities = CAR
or just net assets = car
when you consolidate with your sub for the financial statements, how much of their assets and liabilities are reported? What about their equity
100% of their assets and liabilities are reported, but their equity is ELIMINATED
