weak area Flashcards
Error-restatement
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
prosepctivly-estimate
change in warrenty,write down of obsolete invenotry, insuranc epolicy that papsed
cumulative effect of a change (AP)
The cumulative effect of a change in Accounting Principle
now reported as ajustmet to beg RE
Change AP to Life-layers
to lifo (layers) prospectively
Retrospectively.
Retrospectively-from lifo to Weighted Average, no impracticability the cumulaive effec tis computed and change is hancle retro
Foot note
If a material change is being made
Cumulative effect
Cumulative effect of a change in accounting principal
retro, net of tax, adjusting to beginning RE
Change in estimate effecting future peirod
make a disclousure
Adusitng Je
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
deferred rev/unearned rev
cash received/ no service performed
accrued rev (receivable) sale on credit
sale on credit
accrued expenses(accrued liabilties)
A/p, cash is paid after the exp had been incurred.
deferred/prepaid
cash paid in advances
effect of inventory
lets look at inventory balnce
purchase of raw/FG increase inventory
recognizng the cogs decrease inventory
What inc or dec prepaid exp on b/s
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
prepaid exp is
asset recorded on b/s
consumed in the future
exp will recognize as comnay consumes the bennifit (service) under accrual basis
impact on accrued payroll
incure wages exp, defer cash payment
Decrease when wages are paid.
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
bad debt allowance
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
defferen rev
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
Notes from MCQs
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
notes from mcq
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.
time value of money=transaction price.. sold for 4K, interest free, due in 3 years. discount rate 8%
sale price 1/(1+i)^n
4000(1/1+1.08)^3)=3175
notes
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
Finance vs lease
If repurchase < original selling price
Lease
If repurchase is = or > original selling price
Financing arrangement
notes
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]
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
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)
“Advances” affect cash flow but do not affect accrual basis expense
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
Rules for Recording AJEs
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
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
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
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
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
Form 10-K
ANNUAL report
Contains:
Financial disclosures
Summary of financial data
MD&A
Audited FS
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)
Form 10-Q
Quarterly report
Contains:
Unaudited FS prepared using US GAAP
Interim period MD&A
Certain disclosures
Filing deadlines:
Large accelerated: 40 days
Accelerated: 40 days
All others: 45 days
8k
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
