Set 1 Flashcards
F2 M6 - Fair Value Measurements
What are the 4 Levels of Fair Level Measurements
“Level 1 measurement are quoted prices in active markets for identical assets or liabilities only
Level 2 measurement are quotes prices in active markets for similar assets or liabilities.
Level 3 measurement is based on management assumptions (internal data) and only acceptable when there is no level I or II or required
Level 4 measurement is in fair value hierarchy is determined by the level of lowest level significant input”
How to treat Fair Value of stock with no principal market?
Use best price after considering cost transactions i.e the best net amount
What is Fair Value
a market based measure where a price is received to sell an asset or paid to transfer a liability in the market at measurement date
What are Level 2 and Level 3 Fair Value valuation techniques?
“Level 3 input valuation techniques used to measure fair value of an asset are unobservable inputs, reflecting management’s judgement about assumptions that the market would use
Level 2 valuation techniques uses inputs other than quoted market prices that are observable or unobservable “
What is the Advantageous market price?
is best price after considering cost and once identified than fair value measurement is the market selling price. When there are multiple selling prices estimate, identify fair value of asset by identifying “most advantageous” i,e, highest and best use.
Is a change in accounting estimate a change in valuation technique used to measure fair value?
Yes
How to use Fair Value Principal Market
Used to identify Fair Value by using the greatest volume of activity for asset
What are Market participants?
buyers and sellers in their economic best interest who are independent and knowledgable about asset/liability, and willing/able to transact
If approach of fair value to use price received to sell in principal market, is not available what is not approach?
advantageous approach
Total debt ratio
Total Liab/ Total Assets
debt to equity ratio
Total liab/ Total equity
Quick ratio
[Cash + Cash eq + Marketable sec + AR]/ Current Liab
* AR check if allowance for uncollectible accounts need to be subtracted from AR
Current Ratio
Total Current Assets / Total Current Liab
Days in Inventory
Ending Inventory / (COGS / 365)
Inventory Turnover
COGS / average inventory
Accounts Receivable Turnover
Net Credit Sales/ Average AR
DuPont Return on Assets
Net profit margin * Total Asset Turnover = (Net Income / Net Sales ) * (Net Sales / Average Total Assets)
ROE
Net Income - Preferred dividends / Average Common Equity
* Check if any preferred stock or dividends are mentioned, if not than its 0
Days in AR
Ending AR net / (Sales net/365)
Times interest earned
Income before interest and taxes / interest expense
COGS
Beg Inv + Purchases - End Inv
What are types of Adj Entries?
a) accrued Rev: rev earned but not record cash nor cash received. DR AR and CR Rev
b) Accrued expenses: expenses incurred but not paid/recorded. DR Expense and CR Accrued laib
c) Deferred Revenue/ Unearned Revenue. When cash received for unearned DR Cash and CR unearned-> When unearned becomes earned rev DR unearned REV and CR Rev.
d) Prepaid expenses: payments made for future goods/services received. When paid in advance DR prepaid expense (asset) and CR cash. Reverse prepaid to incurred expense DR expense and CR prepaid expense.
Wha are rules for recording adjustment entries?
1) record by end of fiscal year
b) never involve cash account in adjustment
c) adjustments hits 1 I/S account and 1 B/S account
What is escrow liability?
Escrow Liability i.e end balance = Beg balance + deposits - payments
What are the Par Value Method events and JE?
1) Issuance: DR Cash and CR Common Stock C/S
2) Buyback: DR Treasury Stock, APIC C/S, and RE; CR Cash
3) Re-sell:
a) DR Cash and CR Treasury Stock and APIC C/S
b) DR Cash and CR Treasury Stock and APIC C/S
How to calculate Discontinued Operations?
Decided to sell asset in Y1 and actually sold in Y2
Add the following:
a) Impairment Gain/Loss: Y1= BV - FV. BV is Total assets - Total Liab, FV is best estimate. Y2 will be 0 bc sold
b) Operating Gain/Loss: Y1 and Y2 stated in I/S as income before taxes.
c) Gain/Loss on Disposal: Y1 0 bc not sold yet, Y2 = Sales price - Fee - BV. BV is the FV of Y1
d) Income Tax Benefit/ Expense: add a, b, and c for total and multiply income tax
What is reported in discontinued operations?
a) Impairment loss,
b) gain/loss from actual operations,
c) gain/loss on disposal
What is included in Compressive Income?
all changes in equity assets except investments by owners and distribution to owners which is NI + Other Compressive Income. For example sales revenue is comprehensive income but not deferred revenue b/c its a liability. Additionally CI can be shown in single statement that show both NI and CI
What is Other Comprehensive Income?
Comprehensive items like revenue, expenses, gains, and losses but excluded from NI. Examples are Pension adjustments like amortization of actual pension, not actual return on pension plan assets. Other examples are unrealized gains, losses in debt securities and hedges, foreign currency items, investment-specific credit risk. When calculating balance a loss of amortization actual pension is added to balance (DO NOT SUBTRACT)!
How is Available-for-sale debt v equity securities categorized?
Available for sale debt is categorized as other comprehensive income rather available for sale security is categorized as NI
Which F/S is accumulated other comprehensive income shown in?
As an item of equity following retained earnings in balance sheet
When purchase goods on credit for exchange rate, the entries are?
1) purchase: DR Purchase and CR AP;
2) End of year: DR AP and CR Foreign exchange transaction;
3) Payment for purchase: DR AP and foreign exchange transaction, CR cash
After quarter end, what is the 10Q filing deadline?
Any type of accelerators is 40 days and all other is 45 days.
What is the difference between basic EPS and Complex EPS?
Basic EPS is INCOME available i.e. NI divided by weighted average # of common shares OUTSTANDING. While Complex EPS is INCOME available + interest on dilutive divided by weighted average assuming dilutive converted to common stock. If dilutive is a potential security it is ignored. Examples of dilutive securities are a) convertible b) warrants c) contracts settled in cash/stock d) contingent shares… Contingent shares is included in Basic.
How are complex EPS examples treated?
a) convertible bonds # shares: issued * each bond convertible into # shares of common stock *(months left in year / 12)
b) dilutive effect of options formula: # of shares exercisable- [(# of shares exercisable * exercise price)/Average market price]
Dividends are treated in EPS as?
subtract from NI. Dividends is calculated by # * $ per share declated
