Test 2 Flashcards
PROBLEM II: List the Five-Step Process for Revenue Recognition (ISTAR)
- IDENTIFY the contract with customers
- Identify the SEPARATE performance obligations in the contract
- Determine the TRANSACTION price
- ALLOCATE the transaction price to the separate performance obligations
- RECOGNIZE revenue when each performance obligation is satisfied
What method is used for both Debt and Equity (Convertible Preferred Stock)
Book Value Method
(they use the same method)
COMPUTATIONAL: $100,000 Compensation Expense had funding for 2 years. What is the compensation expense per year
$50,0000 per year
($100,000 / 2 years)
M/C COMPUTATIONAL:
What is the formula for Basic EPS?
Net Income - Preferred Dividends / Weighted-Average Number of Shares Outstanding
What is the formula for Diluted EPS?
(Net Income - Preferred Dividends / Weighted-Average Number of Shares Outstanding) - Impact of Convertibles - Impact of Options, Warrants, and Other Dilutive Securities
When are additional shares outstanding for Stock Dividends or Stock Splits?
At the beginning of the year
What is “Held-to-Maturity” and what are they recorded at?
debt securities
recorded at net amortized cost (discount or premium) usually under effective-interest method (or straight-line)
What is “Trading Securities” and what are they recorded at?
can be sold anytime, held less than one year (common stock)
sell within 0-12 months
Recorded at FV
What type of account is Fair Value Adjustment Account?
contra asset account
How are changes in FV (at end of each year) recorded for net income?
FV < CV = Loss
FV > CV = Gain
What method is an investment valued at if the ownership percentage is <20%?
Fair Value Method
no significant influence exists (like ordinary people buying stocks)
What method is an investment valued at if the ownership percentage is 20% - 50%?
Equity Method
significant influence usually exists
If the ownership percentage is <20%, what should happen for recording dividend income, and what must happen at year-end?
FAIR VALUE
-Records ONLY DIVIDEND INCOME when investee declares a dividend
-Adjust to FV (AFS) at year-end, unrealized gain/loss goes to NET INCOME (not SE)
If the ownership percentage is 20%, - 50% what should happen regarding investee’s income and dividends declared?
Record % of investee’s income as an INCREASE to Investment Account
Record % of dividends declared as a REDUCTION to Investment Account
Under the new FASB/IASB Standard, which approach has been adopted?
asset-liability approach
-recognizes and measures revenue based on changes in assets and liabilites
What is the new FASB/IASB Standard centered around?
a Contract
-creates enforceable rights and obligations
-written, oral, implied
When is revenue recognized under this new Revenue Recognition Principle?
when performance obligation is satisfied
If there is more than one performance obligation, but they are interdependent, how many are recorded?
One
When are revenues and gross profits recognized in the Percentage of Completion Contract?
recognize revenues and gross profits EACH PERIOD based upon the progress of construction
What is the formula to find “Percent Complete?”
(Percentage of Completion Contract 1)
Costs incurred to date / most recent estimate of total costs
What is the formula to find “Revenue (or gross profit) to be Recognized to Date?”
(Percentage of Completion Contract 2)
Percent complete x Estimated total revenue (or gross profit)
What is the formula to find “Current-period Revenue (or gross profit)
(Percentage of Completion Contract 3)
Revenue (or gross profit) to be recognized to date - Revenue (or gross profit) recognized in prior periods
If CIP (asset) > Progress Billings (contra asset), how is this presented?
CIP = construction in process
Has NET DEBIT Balance
Shown as a Current Asset
If CIP (asset) < Progress Billings (contra asset), how is this presented?
CIP = construction in process
Has NET CREDIT Balance
Shown as a Current Liability
