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Technical Accounting & Reporting Flashcards

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1
Q

What kind of intangibles are patents, copyrights, and franchise?

A

Specifically identifiable

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2
Q

What kinds of intangible is goodwill?

A

Not specifically identifiable

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3
Q

Criteria of having an indefinite life

A

No contractual, legal, economic, or other factors that limit the useful life

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4
Q

What is the carrying amount of an intangible asset with an indefinite life?

A

Cost incurred to acquire - impairment

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5
Q

T/F amortization is included in intangible assets

A

F - intangibles don’t have a useful life to amortize

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6
Q

How is goodwill recognized as a product of a business combination?

A

Asset on BS

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7
Q

How is goodwill that is generated internally capitalized?

A

It is not

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8
Q

Acquisition method goodwill

A

excess of an acquired entity’s FV over the FV of the entity’s net assets

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9
Q

Equity method goodwill

A

excess of the stock price over the FV of net assets acquired

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10
Q

How is goodwill maintained?

A

costs to maintain, develop, or restore goodwill are expensed

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11
Q

How often are intangible assets with indefinite useful lives tested?

A

Annually

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12
Q

impairment

A

fair value less the carrying amount

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13
Q

how is impairment loss recorded?

A

component of income from continuing operations before income taxes

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14
Q

T/F restoration of the previously recognized impairment loss is allowed until the asset is held for disposal

A

F- restoration of previously recognized impairment loss is prohibited, unless asset is held for disposal

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15
Q

What level is goodwill impairment calculated at?

A

reporting unit level

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16
Q

How are R&D costs recorded?

A

Expensed

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17
Q

How are materials, equipment or facilities that have alternative uses recorded?

A

capitalized and depreciated over the useful lives

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18
Q

How are research and development costs undertaken on behalf of others under a contractual agreement treated?

A

cost of sales by the provider

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19
Q

How are in process R&D costs associated with the purchase of one company by another company treated?

A

capitalized

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20
Q

T/F These items are treated as R&D

Routine periodic design changes
marketing research
quality control testing
reformulation of a chemical compound
depreciation on equipment used
consulting fees paid to outsiders

A

Routine periodic design changes - F
marketing research - F
quality control testing -F
reformulation of a chemical compound - F
depreciation on equipment used - T
consulting fees paid to outsiders -T

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21
Q

how are computer software development costs that are incurred until technological feasibility incurred recorded?

A

Expense

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22
Q

How are items not considered research or development recorded?

A

Product cost or selling and admin

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23
Q

how are computer software development costs that are incurred after technological feasibility incurred recorded?

A

Capitalize

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24
Q

technological feasibility

A

completion of a detailed program design or working model

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25
Q

% of revenue

A

total capitalized amount x (Current gross revenue for period/ total projected gross revenue for product)

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26
Q

Straight line

A

total capitalized amount x (1/estimate of economic life)

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27
Q

How is amortization of capitalized software costs recorded?

A

greater of % of revenue vs straight line

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28
Q

inventory costs for software

A

costs incurred to actually produce the product are product costs charged to inventory

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29
Q

when does amortization begin for software costs?

A

once product is released for sale

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30
Q

Expense or capitalize?

Direct cost of materials
training and maintenance
cost of employees directly associated
preliminary project state
interest costs incurred

A

Direct cost of materials - C
training and maintenance - E
cost of employees directly associated - C
preliminary project state - E
interest costs incurred - C

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31
Q

how should capitalized costs be amortized?

A

Straight line basis

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32
Q

recognition for software previously developed for internal use being sold to outsiders?

A

applied first to carrying amount of software and then recognized as revenue once carrying amount reaches 0

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33
Q

Revenue recognition steps

A

identify contract
identify separate performance obligations in the contract
determine transaction price
allocate the transaction price to the separate performance obligations
recognize revenue

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34
Q

Construction contract revenue is recognized over time if either ___________ or ___________ is met

A

entity’s performance creates or enhances value
entity’s performance doesn’t create an asset with alternative use

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35
Q

Annual service contract, subscription services, etc are examples of

A

creation or enhancing value

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36
Q

Input method (over time)

A

% if estimated total income - cost now to total costs

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37
Q

CIP account

A

construction costs and estimated gross profit are accumulated here

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38
Q

Billings

A

costs accumulated

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39
Q

Current asset accounts

A

Receivables
costs and estimated earnings of uncompleted contracts in excess of progress billings (haven’t billed out yet)

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40
Q

Current liability accounts

A

progress billings in excess of cost and estimated earnings on uncompleted contracts (paid in advance)

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41
Q

Journal entry for estimated gross profit earned in each period

A

DR. CIP
CR. Gross profit

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42
Q

Step 1: Calculate Gross profit of completed contract

A

Contract price - Estimated total cost

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43
Q

Step 2: % of completion

A

Total cost to date/ Total estimated cost of contract

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44
Q

Step 3: Compute gross profit earned (PTD)

A

Step 1 X Step 2

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45
Q

Step 4: Compute gross profit earned for current year

A

Profit to Date (PTD) at current Year End -PTD at beginning of period

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46
Q

how are losses recorded?

A

recorded immediately

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47
Q

how are losses recorded when there were previously profits?

A

reverse previously recorded revenue to record total current period loss

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48
Q

LT construction contracts recognized at a point in time

A

revenue and gross profit are recognized when the contract is complete

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49
Q

journal entry to record costs incurred

A

Dr. CIP
Cr. materials, cash

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50
Q

journal entry to record payments received

A

Dr. Cash
Cr. AR

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51
Q

journal entry to record estimated GP during construction (recognizing over time)

A

Dr. Cost of LT construction contract
Dr. CIP
Cr. Revenue from LT construction contract

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52
Q

journal entry to record estimated GP during construction (recognizing at a point in time)

A

N/A

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53
Q

CIP > Progress Billings

A

Current asset; cost of uncompleted contracts in excess of progress billings

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54
Q

Progress Billings > CIP

A

Current liability; progress billings on uncompleted contracts in excess of costs

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55
Q

What makes up CIP

A

cost incurred + estimated gross profit earned to date*

*only cost incurred for revenue recorded at a point in time

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56
Q

journal entry to close construction accounts (over time)

A

Dr. Progress billings
Cr. CIP

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57
Q

journal entry to close construction accounts (at a point in time)

A

Dr. Progress billings
Cr. Revenue

Dr. Cost of LT construction contract
Cr. CIP

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58
Q

obligation to repurchase an asset

A

forward

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59
Q

right to repurchase an asset

A

call

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60
Q

obligation to repurchase the asset at the customers request

A

put

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61
Q

Forward/Call Option contract:
repurchase price < original selling price

A

lease

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62
Q

Forward/Call Option contract:
repurchase price > original selling price

A

financing arrangement

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63
Q

journal entry to record a financing arrangement

A

Dr. Cash
Cr. Financial liability

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64
Q

journal entry to record the interest on a financing arrangement

A

Dr. Interest
Cr. Financial liability

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65
Q

journal entry to record an option lapse

A

Dr. Financial liability
Cr. revenue

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66
Q

Put option contract:
significant economic incentive

A

lease

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67
Q

Put option contract
No significant economic incentive

A

sale with right of return

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68
Q

Put option contract:
repurchase price > expected market value

A

financing arrangement

69
Q

Put option contract:
repurchase price < expected market value

A

sale with right of return

70
Q

stock option

A

right to purchase shares of a corporation’s capital stock under fixed conditions

71
Q

compensatory

A

in lieu of a salary; accrue for compensation expense;

72
Q

noncompensatory

A

along with a salary; no expense; journal entry until employee buys the stock

73
Q

compensatory expense

A

allocating compensation expense over service/vesting period; use FV of options

74
Q

journal entry to allocate compensation expense

A

Dr. Compensation expense
Cr. APIC - stock option

75
Q

Compensation expense

A

total FV/ # years

76
Q

journal entry to record the exercise of the option

A

Dr. Cash (shares x strike price)
Dr. APIC - stock options (amount recorded)
Cr. stock (at par)
Cr. APIC excess of par (plug)

77
Q

journal entry to record expiration of options

A

Dr. APIC - stock options
Cr. APIC - expired stock options

78
Q

How is NCI reported on the BS?

A

at FV in the equity section separate from parent

79
Q

Who is the primary beneficiary of the VIE

A

entity that has power to direct the activities of a variable interest entity

80
Q

T/F primary beneficiary absorbs VIE losses and received expected VIE residual returns

A

T

81
Q

journal entry to record the acquisition for cash

A

Dr. Investment in subsidiary
Cr. Cash

82
Q

Journal entry to record the acquisition for parent common stock

A

Dr. Investment in subsidiary
Cr. Common stock (par)
Cr. APIC (FV)

83
Q

what is eliminated in the acquisition method?

A

Subsidiary equity

84
Q

What is the parent’s basis

A

FV = Acquisition Price = Investment in sub

85
Q

What is the consolidated workpaper eliminating JE

A

Dr. CS - subsidiary
Dr. APIC - subsidiary
Dr. Retained earnings - subsidiary
Cr. Investment in sub
Cr. NCI
Dr. BS adjustments to FV
Dr. Identifiable intangible assets
Dr. Goodwill

86
Q

How do you back into the retained earnings at purchase date amount?

A

Beg RE
+ Income
-Dividends
Ending RE

87
Q

How are direct out of pocket expenses and stock registration/issuance costs related to business combination expenses treated?

A

Direct out of pocket - Dr. Expense
Issuance costs - Dr. APIC

88
Q

Monetary items

A

assets and liabilities that are fixed or denominated in dollars regardless of changes in specific prices

89
Q

Nonmonetary items

A

assets and liabilities that fluctuate in value with inflation

90
Q

AR is a (monetary/nonmonetary ) item?

A

Monetary

91
Q

Buildings are (monetary/nonmonetary) items?

A

Nonmonetary

92
Q

Marketable CS is (monetary/nonmonetary) items?

A

Nonmonetary

93
Q

Nonconvertible bonds are (monetary/nonmonetary) items?

A

Monetary

94
Q

PS/CS are (monetary/nonmonetary) items?

A

Nonmonetary

95
Q

Remeasurement

A

financial statements of the foreign subsidiary are not in the subsidiary’s functional currency

96
Q

How are monetary and nonmonetary BS items recorded for remeasurement?

A

Monetary - current/year end rate
Nonmonetary - historical rate

97
Q

How are BS related Income statement items/ and Non BS related income statement items recorded for remeasurement?

A

Non BS - Weighted average
BS - historical rate

98
Q

how are currency gain/losses accounted for remeasurement?

A

plugged in to get net income to the required amount needed to adjust RE

99
Q

Translation Method

A

financial statements of the foreign subsidiary are in the subsidiary functional currency

100
Q

How are IS items recorded using translation?

A

Weighted average rate
net income transfered into RE

101
Q

How are BS items recorded using translation

A

Assets/Liabilities - current/year end rate
Commonstock/APIC - historical rate
RE - roll forward

102
Q

Translated RE

A

beginning translated RE + translated net income for the current period - translated dividends declared

103
Q

How is translation adjustment recorded?

A

Plugged to OCI; equal to the difference between debits and credits

104
Q

where do gain/losses get recorded in translation?

A

OCI

105
Q

where to gain/losses get recorded in remeasurement?

A

Net income

106
Q

functional currency

A

currency of the primary economic enviroment in which the entity operates

107
Q

reporting currency

A

currency ultimately reporting financial results

108
Q

capital accounts are translated at which rate?

A

historical exchange rate

109
Q

what are capital accounts?

A

CS and APIC

110
Q

Match the Nonmonetary and Monetary BS items
AR
Inventory
Fixed Assets
LT debt
CS

A

AR - M
Inventory - NM
Fixed assets - NM
LT debt - M
CS - NM

111
Q

underlying

A

specified price, rate or other variable such as interest rate, security or commodity price, foreign exchange rate, or index of prices that include a scheduled event that may or may not occur

112
Q

Notional amount

A

specified unit of measure

113
Q

value or settlement amount of a derivative

A

notional amount x underlying

114
Q

payment provision

A

determinable settlement that is to be made if the underlying behaves in a certain way

115
Q

heding

A

use of a derivative to offset anticipated losses or reduce earnings volatility

116
Q

call option

A

gives the option holder a right to buy from the option writer at a specified price during a specified period

117
Q

put option

A

gives the holder the right to sell to the option writer at a specified price during a specified period of time

118
Q

option contracts

A

gives one party the right to buy or sell something to another party at a specified price and the option buyer or holder must pay a premium to the seller to enter

119
Q

futures contract

A

an agreement to exchange a commodity, currency, or other asset a specified price on a specified future date

120
Q

long position

A

party that agrees to buy the item

121
Q

short position

A

party that agrees to sell the item

122
Q

what is the difference between option and futures contracts>

A

both parties are obligated to perform to the terms of the futures contract (often made through a clearing house) whereas options are used at the discretion of the option buyer

123
Q

Forward contract

A

privately negotiated futures contracts with no standardized notional amounts or settlement dates

124
Q

Swap contract

A

private agreement generally assisted by an intermediary to exchange future cash payments

125
Q

Market Risk

A

risk that the entity will incur a loss on the derivative contract

126
Q

Credit Risk

A

risk that the other party will not perform

127
Q

How are derivatives measured on the BS?

A

FV as an asset or liability

128
Q

Gains or losses on a derivative instrument not designated as a hedging instrument are recognized in ______

A

earnings on the income statement

129
Q

What are the two types of finance leases

A

Sales type and direct financing lease

130
Q

What are the criteria for a lease to be classified as a sales-type lease

A

-Ownership
-Written option
-Net PV of lease payments or guaranteed residual value = or exceeds substantially all of the underlying asset’s FV
-lease represents a significant economic life

131
Q

What are the criteria for a lease to be classified as a direct financing lease?

A

NONE of the OWNES criteria met and both
-PV of the sum of the lease payment exceeds the underlying assets FV
-collection of lease payments is probable

132
Q

Sales type lease

A

lessee gains control of the underlying asset and derecognizes the asset and recognizes a net investment in the lease as well as a profit or loss

133
Q

how are lease payments treated in a sales type lease if collection is not probable

A

deposit liabilities

134
Q

Journal entry to record sales type lease

A

Dr. lease receivable
Cr. fixed asset
Cr. gain or dr loss

135
Q

Journal entry to record sales type lease payments

A

Dr. cash
Cr. interest income
Cr. lease receivable

136
Q

How do you set up the amortization schedule for lease receivable?

A

Lease Payment (constant)
Interest receivable (payment x %)
Lease receivable change
Lease receivable carrying value

137
Q

direct financing lease

A

lessee doesn’t gain control of the underlying asset and derecognizes the asset and recognize a net investment in the lease

138
Q

what does the net investment for a direct financing lease comprise?

A

lease receivable and a residual asset

139
Q

how are initial indirect costs, gains and losses treated in direct financing lease arrangements?

A

indirect costs and gains are deferred and amortized and losses are recognized immediately

140
Q

how is interest income recorded in a direct financing lease?

A

interest income is equal to the discount rate applied

141
Q

Operating lease

A

Any lease that doesn’t qualify as a sales type or direct financing lease; keep asset on BS which includes depreciation and impairment changes

142
Q

journal entry to record operating lease

A

Dr. Cash
Cr. Rental Income

Dr. Depreciation
Cr. Accum. Depr

143
Q

Sales leaseback

A

when one party that has control of an asset transfers it to another party, with a subsequent lease of the same asset where the seller becomes the lessee and the buyer becomes the lessor

144
Q

T/F Segment reporting applies to public and private companies

A

F - public only

145
Q

Operating segment characteristics

A

-engages in business activities from which it may earn revenue and incur expenses
-operating results are regularly reviewed
-discrete financial info is available

146
Q

10% size test

A

segment revenue, including both sales to external customers and intersegment sales or transfers is 10% or more of the combined revenue

absolute amount of the segment’s reported profit or loss is 10% or more of the greater of combined reported profit and combined reported loss

segment identifiable assets are 10% or more of the combined assets of all operating segments

147
Q

75% test

A

if total external revenue reported by operating segments constitues less than 75% of external revenue, additional operating segments are reportable even if they don’t meet the 10% size test

148
Q

how should operating segments that were deemed to be reportable in the immediately preceding period but not in the current period be reported?

A

continue to be reported separately based on management judgment

149
Q

how should operating segments that were not deemed reportable in prior periods but now meets criteria for reportability be presented?

A

prior periods should be restated to reflect newly reportable segment as a separate segment

150
Q

Segment profit or loss calculation

A

Revenue
-directly traceable cost
-reasonably allocated costs
operating profit (loss)

151
Q

items that are excluded from segment profit

A

general corporate revenue/expenses
interest
income tax
equity in earnings
gains or loss from discontinued operations
minority interest

152
Q

Regulation S-X

A

content requirements for interim and annual financial statements to be filed with SEC

153
Q

BS Requirements of regulation S-X

A

Balance sheet as of the most recent fiscal quarter and as of the end of the preceding fiscal year

154
Q

IS requirements of regulation S-X

A

Income statements for the most recent fiscal quarter, for period between the end of preceding fiscal year and most recent fiscal quarter, and corresponding periods

155
Q

Statement of cash flows requirements for regulation S-X

A

For the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter or cumulative 12 month period

156
Q

Regulation S-K

A

Outlines how registrants should disclose significant qualitative descriptions of their business in statements, reports, and filings

157
Q

What are the statements for defined benefit pension plans?

A

Statement of net assets available for benefits (Assets - BS)
Statement of changes in net assets available for benefits (IS)
Statement of Accumulated Plan Benefits (Liability - BS)
Statement of changes in Accumulated plan benefits (Change in liabs)

158
Q

T/F SOCF is required for defined benefits pension plans

A

F

159
Q

Defined Benefit Plan

A

provide benefits as a certain % of the employee’s salary
risk on the employer - must have sufficient plan assets to service the defined benefit when it comes due

160
Q

What are liabilities in a defined benefit plan called?

A

Accumulated Plan Benefits

161
Q

Defined Contribution Plan

A

Employee has to contribute money

162
Q

Net Assets available for Plan Benefits

A

Plan Benefits - Plan Liabilities

163
Q

What are included in plan liabilities

A

Admin costs, pension fund management cost

164
Q

What are accumulated plan benefits comprised of?

A

retired employees
employee beneficiaries
current employees
employees who vested in the plan but are no longer with the company

165
Q

what are the statements for defined contribution plan?

A
166
Q

Plan assets > Plan liability

A

Overfunded - low risk of distress

167
Q

Plan assets < Plan liability

A

Underfunded - high risk of distress

168
Q
A

BAR (4 decks)

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