FAR Chapter 1

Using Universal CPA. Covers Modules 1-5

OCI Components

• pension adjustments

• unrealized gains/losses on available-for-sale securities

• foreign currency translation gains/losses

• instrument-specific credit risk

• effective portion of cash flow hedges

discontinued operation: held-for-sale requirements

• available to be used immediately upon receipt by buyer

• actual plan to sell the component

• active plan to locate a buyer

• actively marketing its plan to sell

• sale of component is considered “probable” or “likely” to occur

steps to determine income/loss from discontinued operations

1. check for impairment

2. calculate gain/loss on disposed component

3. determine total impact for each year

4. calculate net of tax

discontinued operation: check for impairment

if fair value (less costs to sell) minus book value is negative, component is impaired

discontinued operation: calculate gain/loss on disposed component (only in year sold)

proceeds from sale minus net book value (adjusted for impairment → original book value minus impairment to date)

discontinued operation: determine total impact from each year

combine gain/loss on disposal, operating profit/loss, and impairment loss (if any)

how are deferred tax assets/liabilities classified on the balance sheet?

as a noncurrent asset/liability

statement of cash flows: direct method

• applies to operating section only

• cash collected from customers minus cash paid for expenses

• excludes depreciation/amortization

statement of cash flows: indirect method

• applies to operating section only

• start with net income

• add back depreciation/amortization, losses

• subtract gains

• add/subtract changes in current assets/liabilities

effect of changes in current assets/liabilities on cash flow

• increase in current asset = decrease in cash

• decrease in current asset = increase in cash

• increase in current liability = increase in cash

• decrease in current liability = decrease in cash

statement of cash flows: operating section

• operating activity reported using either direct or indirect method

• dividends received

• interest received or interest paid

• purchase or sale of trading securities

statement of cash flows: investing section

• purchase or sale of fixed assets (cost or proceeds only, gain/loss reported in operating)

• loans made to other entities

• purchase or sale of AFS securities or HTM securities

• acquisition of a subsidiary or business unit under the equity or acquisition method

statement of cash flows: financing section

• issuing common/preferred stock (inflow)

• purchasing treasury stock (outflow)

• dividend payments (outflow)

• issuing bonds (inflow)

• issuing notes (inflow)

• payment of principal on debt (outflow)

cash to accrual (or accrual to cash) using accounts receivable and revenue

beginning accounts receivable + revenue from credit sales - cash collected = ending accounts receivable

cash to accrual (or accrual to cash) using inventory and COGS

beginning inventory + purchases = cost of goods available for sale - COGS = ending inventory

cash to accrual (or accrual to cash) using accounts payable and expenses

beginning accounts payable + invoices received - invoices paid = ending accounts payable

cash to accrual (or accrual to cash) using prepaid expenses and expenses

beginning prepaid expense balance + prepayments in cash - expense recognized = ending prepaid expense balance

cash to accrual (or accrual to cash) using accrued payroll and compensation

beginning accrued payroll + compensation earned but not yet paid - compensation paid = ending accrued payroll