Statement of Changes in Equity / Notes to F/S

Question 1

General

Answer 1

Provides the beginning balances, changes during the year, and ending balances for:

• Stock - Common/preferred
• APIC
• RE
• Treasury Stock
• AOCI

SARTA

Question 2

Presentation

Answer 2

Can be presented in the footnotes, supplemental schedules, or as a separate statement

**Most in a separate statement

Question 3

Summary of Significant Accounting Policies (typically the 1st footnote)

Answer 3

principles/methods chosen where GAAP allows a choice

The chosen depreciation method;
The chosen method of valuing inventory;
The securities classified as cash and cash equivalents;
The basis for consolidation:
       Amortization policies;
       Revenue recognition policies.

Question 4

Related Party Transactions (Notes)

Answer 4

Nature of the relationship, description of transactions, dollar amounts, any receivables or payables to or from related parties

Question 5

Non-Current Liability Disclosures (Notes)

Answer 5

1. Combined aggregate amount of maturities on borrowings for each of the five years following the balance sheet;
2. Sinking fund requirements;
3. The aggregate amount of payments for unconditional obligations to purchase fixed or minimum amounts of goods or services;
4. The fair value of each financial debt instrument in the financial statements or in the notes;
5. The nature of the firm’s liabilities, interest rates, maturity dates, conversion options, assets pledged as collateral, and restrictions.

Question 6

Capital Structure Disclosures (Notes)

Answer 6

1. Rights and Privileges of outstanding securities;
2. The number of shares issued during the annual fiscal period and any subsequent interim period presented;
3. Liquidation preference of preferred stock;
4. Other Preferred Stock Disclosures
5. Redeemable Preferred Stock

Question 7

Errors and Irregularities (Notes)

Answer 7

1. Errors are unintentional.
2. Irregularities are intentional.

Both require footnote disclosure. If prior year income is affected, a prior period adjustment is recorded which corrects the beginning balance of retained earnings and any other account affected in the year of discovery.

Question 8

Illegal Acts (Notes)

Answer 8

The nature and impact of illegal acts on the financial statements should be disclosed fully in the notes.

Question 9

Management’s Discussion and Analysis (MD&A)

Answer 9

This is a narrative written by management and, although not considered part of the footnotes, is nonetheless an important disclosure supplementing the financial statements.

In annual report for public firms

Question 10

Inflation

Answer 10

The increase in general prices for a period of time; deflation is the decrease in general prices. When inflation is 4%, there has been a 4% increase in the general price level index.

Question 11

Nominal Dollars

Answer 11

Measurements in the price level in effect at a transaction date. These measurements are not adjusted for inflation.

Question 12

Constant Dollars

Answer 12

Measurements in the general price level as of a specific date. Constant dollar measurements reflect an adjustment for inflation and allow comparisons using dollars with the same purchasing power.

Question 13

Purchasing Power

Answer 13

of an asset is the amount of goods and services that can be obtained by transferring the asset to another party.

Question 14

Monetary Items

Answer 14

The specific price of monetary items cannot change. A $50 bill is always “worth” $50. An account receivable recorded at $3,000 is a monetary item because the claim the creditor has on the debtor is fixed at $3,000.

Examples of monetary items
Cash, most receivables, accounts payable, all liabilities payable in fixed dollar amounts, and certain investments in debt securities.

Question 15

Nonmonetary Items

Answer 15

The specific price of nonmonetary items can change. The value of an item of inventory purchased for $300 can change before it is sold. The item of inventory does not command a fixed value.

Examples of nonmonetary items
Inventory, plant assets, investments in equity securities, unearned rent, and other liabilities payable in goods and services.

Question 16

Purchasing Power Gain

Answer 16

results from holding monetary assets during deflationary times or having monetary liabilities during inflationary times.

Question 17

Purchasing Power Loss

Answer 17

results from holding monetary assets during inflationary times or having monetary liabilities during deflationary times.