weak area

Question 1

Error-restatement

Answer 1

a change in the invcome tax basis of accounting (non-gaap) to accrual basis (gaap) is an error
correction, require perior period adjustment(restatement) of py f/s

Question 2

prosepctivly-estimate

Answer 2

change in warrenty,write down of obsolete invenotry, insuranc epolicy that papsed

Question 3

cumulative effect of a change (AP)

Answer 3

The cumulative effect of a change in Accounting Principle
now reported as ajustmet to beg RE

Question 4

Change AP to Life-layers

Answer 4

to lifo (layers) prospectively

Question 5

Retrospectively.

Answer 5

Retrospectively-from lifo to Weighted Average, no impracticability the cumulaive effec tis computed and change is hancle retro

Question 6

Foot note

Answer 6

If a material change is being made

Question 7

Cumulative effect

Answer 7

Cumulative effect of a change in accounting principal
retro, net of tax, adjusting to beginning RE

Question 8

Change in estimate effecting future peirod

Answer 8

make a disclousure

Question 9

Adusitng Je

Answer 9

must be recoreded by the end of the enity’s fiscalyear, beofre the proepartion of fs
Never involve the cash account
all adjusting entries will hit one i/s and one b/s account

Question 10

deferred rev/unearned rev

Answer 10

cash received/ no service performed

Question 11

accrued rev (receivable) sale on credit

Answer 11

sale on credit

Question 12

accrued expenses(accrued liabilties)

Answer 12

A/p, cash is paid after the exp had been incurred.

Question 13

deferred/prepaid

Answer 13

cash paid in advances

Question 14

effect of inventory

Answer 14

lets look at inventory balnce
purchase of raw/FG increase inventory
recognizng the cogs decrease inventory

Question 15

What inc or dec prepaid exp on b/s

Answer 15

prepaid exp would inc when the company pays a vendor in advance
prepaid exp would decrease when the company utilizes the benefit and recognizes the exp in the income sttemntm
(aka) Amortization of prepaid exp

Question 16

prepaid exp is

Answer 16

asset recorded on b/s
consumed in the future
exp will recognize as comnay consumes the bennifit (service) under accrual basis

Question 17

impact on accrued payroll
incure wages exp, defer cash payment

Decrease when wages are paid.

Answer 17

what inc/dec accrued payroll on b/s
accrued payroll would inc for compensation that has been earned
but is unpaid
Accrued payroll would then decrease when the compensation is paid in cash/check to emploee

Question 18

bad debt allowance

Answer 18

Bad debt allowance would be increase when a company records incremental bad debt exp
Dec when a company decides to wite off uncollectible accoutn that were previouly reserded for

Question 19

defferen rev

Answer 19

Deferred revenue (liability) will be increased when the company collects cash from
customers related to revenue that cannot be recognized (i.e., unearned as performance
obligations have not been satisfied). Deferred revenue will be decreased when the company
recognizes revenues that was previously categorized as unearned

Question 20

Notes from MCQs

Answer 20

Notes from MCQs
Sold a fixed asset: use net concept, showing the total gain as part of continuing operations, not net of income taxes
1 year or operating cycle, whichever is longer
Cash to be paid into a bond sinking fund should be classified as a non-current asset
No separate disclosure is required in income statement if the event is a common occurrence
Remember to include interest expense even if it’s not explicitly stated in calculating net income
DIscount (premium) on bonds payable decreases (increases) amount of considered liability
Prior period adjustments (i.e., corrections of amortization expense) have no impact on net income
Unrealized gains on AFS securities are reported in other comprehensive income, have no impact on net income

Question 21

notes from mcq

Answer 21

Public companies must follow GAAP for (external) financial reporting purposes. GAAP need not be followed for (internal) managerial accounting purposes.
Interim financial reporting should be viewed as reporting for an integral part of an annual period.
Accruals are concerned w/ expected future cash receipts and payments (cash later), while deferrals are concerned with past cash receipts and payments (cash now).
Replacement cost is defined as the amount of cash or its equivalent that would be paid to acquire or replace an asset currently. Replacement cost is an acquisition cost.
Predictive value is the primary reason why discontinued operations are reported separately from continuing operations in the income statement.

Question 22

time value of money=transaction price.. sold for 4K, interest free, due in 3 years. discount rate 8%

Answer 22

sale price 1/(1+i)^n
4000(1/1+1.08)^3)=3175

Question 23

notes

Answer 23

If all services are performed, it’s OK to recognize revenue
Remember to split up revenue and unearned revenue based on stand-alone prices if available
If there is a repurchase agreement call option, no revenue can be recognized until that option expires

Question 24

Finance vs lease

Answer 24

If repurchase < original selling price
Lease
If repurchase is = or > original selling price
Financing arrangement

Question 25

notes

Answer 25

Under % of completion, annual gross profit = [total cost incurred/total expected cost] x [total expected gross profit] less total gross profit already recognized. In the final year of the contract, actual rather than expected amounts are used.
Formula to calculate % of completion is [Total cost to date/total estimated cost of contract]

Question 26

cash from customer ops (direct method)
rev+unearned rev inc+AR DEC

cash paid to supplier
cogs+inventory inc+ap dec

Wages exp from I/s +wages payable inc
other operating +prepaid exp dec

Answer 26

Cumulative effects
Adjust beginning RE, net of tax, [adjustment x (1 - tax rate)]
In non-comparative FS
Change beginning RE in period of change
In comparative FS
Change beginning RE in 1st period presented; “restated” (retrospectively)

Question 27

“Advances” affect cash flow but do not affect accrual basis expense

Answer 27

Accrual basis - in accordance w/ GAAP
Unearned (deferred) revenues
Cash is received before revenue is earned
Prepaid (deferred) expenses
Cash is paid before expense is incurred
Accrued revenues (receivables)
Cash is received after revenue is earned
Accrued expenses (accrued liabilities)
Cash is paid after expense is incurred

Question 28

Rules for Recording AJEs

Answer 28

Rules for Recording AJEs
Must be recorded by end of entity’s fiscal year & before preparation of FS
Never involve the cash account
All AJEs will hit one IS account & one BS account

Question 29

Level 2 Inputs
Directly or indirectly observable
Quoted prices from similar asset/liability in active markets
Quoted prices for identical/similar asset/liability in markets that are nonactive

Answer 29

Level 3 Inputs lowest priority
Discounted cash flows - unobservable
Reflect the reporting entity’s assumptions (FCV & discount rate) and should be based on the best available info
Use ONLY when no observable level 1 or 2 inputs are available

Question 30

If one segment is > 90%, NO segment reporting needed
10% “Size” test
Combined revenues (whether intersegment or affiliated customers)
Operating profit (of all segments not having an operating loss)
Identifiable assets

Answer 30

75% “Reporting Sufficiency” Test
75% of sales to unaffiliated (external) customers
For this test, if the external sales of initial reportable segments do not reach 75% of external sales, must include more segments (highest to lowest external sales) until that 75% threshold is met

Question 31

Form 10-K
ANNUAL report
Contains:
Financial disclosures
Summary of financial data
MD&A
Audited FS

Answer 31

iling deadlines:
Large accelerated companies: 60 days (outstanding common equity held by nonaffiliates of $700m +)
Accelerated companies: 75 days (outstanding common equity held by nonaffiliates of $75m - $699m)
All others: 90 days (annual revenue < $100m)

Question 32

Form 10-Q
Quarterly report
Contains:
Unaudited FS prepared using US GAAP
Interim period MD&A
Certain disclosures

Answer 32

Filing deadlines:
Large accelerated: 40 days
Accelerated: 40 days
All others: 45 days

Question 33

8k

Answer 33

Report on major events
Corporate asset acquisitions/disposals
Changes in securities and trading markets
Changes to accountants or FS
Changes in corporate governance or management