WGU D105 - Intermediate Accounting III - Units 5-9

depreciation expense

addition to operating activities

amortization of intangibles and deffered charges

addition to operating activities

amoritization of discount on bonds payable

addition to operating activities

increase in deferred income tax liability

addition to operating activities

loss on investment in common stock using equity method

addition to operating activities

loss on sale of plant assets

addition to operating activities

loss on impairment of assets

addition to operating activities

decrease in receivables

addition to operating activities

decrease in inventory

addition to operating activities

decrease in prepaid expense

addition to operating activities

increase in accounts payable

addition to operating activities

increase in accrued liabilities

addition to operating activities

amoritization of premium on bonds payable

deduction to operating activities

decrease in deferred income tax liability

deduction to operating activities

income on investment in common stock using equity method

deduction to operating activities

gain on sale of plant assets

deduction to operating activities

increase in receivables

deduction to operating activities

increase in inventory

deduction to operating activities

increase in prepaid expense

deduction to operating activities

decrease in accounts payable

deduction to operating activities

decrease in accrued liabilities

deduction to operating activities

repurchase of common stock

deduction to financing activities

sale of fixed assets

addition to investing activities

purchase of capital expenditures

deduction in investing activities

issuance of common stock

addition to financing activities

acquisition of a business

deduction in investing activities

proceeds from the sale of a division

addition to investing activities

reduction of equity account

deduction to financing activities

payment of cash for equipment

investing activity

noncurrent asset account

investing activity

long term liabilities

financing activity

making a loan

investing activity

paying dividends

financing activity

purchase of debt (bonds)

investing activity

purchase of equity (stock) securities

investing activity

sale of treasury stock

addition to financing activities

issuance of notes or bonds payable

addition to financing activities

payment of notes or bonds payable

deduction to financing activities

increase in current asset account

deduction to operating activities

increase in current liability account

addition to operating activities

decrease in equipment

addition to operating activities

How does the change in prepaid expenses affect the statement of cash flows?

A decrease in prepaid expenses increases cash flows from operating activities.

How does the change in accounts receivable affect the statement of cash flows?

An increase in accounts receivable decreases cash flows from operating activities.

How does the change in accounts payable affect the statement of cash flows?

A decrease in accounts payable decreases cash flows from operating activities.

An increase in a current asset account

decreases cash flows from operating activities.

a decrease in a current asset account

increases cash flows from operating activities.

An increase in a current liability account

increases cash flows from operating activities.

How does the change in equipment affect the statement of cash flows?

A decrease in equipment increases cash flows from investing activities.

An increase in a noncurrent asset account

ecreases cash flows from investing activities

How does the change in common stock affect the statement of cash flows?

An increase in common stock increases cash flows from financing activities.

An increase in an equity account

increases cash flows from financing activities

Which sources provide the information for preparing statements of cash flows?

Comparative accrual-based balance sheets

Disclosure for change in accounting principle from LIFO to FIFO?

A discussion of the nature of and reason for the change, including an explanation for the reason that FIFO is preferable to LIFO

Change in accounting principle is reported ...

retrospectively

Financial statements from annual report are

adjusted for the new accounting priciple and carrying values of assets and liabilities as of the beginning of the first year presented is adjusted

Accounting principle change disclosure in the notes includes

The nature of and reason for the change in accounting principle and an explanation of why the newly adopted accounting principle is preferable. The effect of the accounting change on the carrying amounts of assets and liabilities as of the beginning of the first year's financial statements presented. The cumulative effect on retained earnings. The cumulative effect of the accounting change is reported on the beginning (opening) balance of retained earnings for the earliest period financial statement presented.

Exception to the retrospective approach

Although a change to the equity method is a change in accounting principle, it is accounted for prospectively and not retrospectively. It is impracticable to estimate the impact of the accounting change because of a lack of information. This is referred to as the impracticability exception.

What is not an accounting change?

Deferring marketing costs that were previously expensed but are now material. Adopting the percentage-of-completion method of recognizing the revenue of newly acquired contracts.

Changing from FIFO to LIFO is accounted for

Prospectively. This change would require subjective assumptions about the LIFO layers.

The cumulative effect of an accounting change is reported in

Retained earnings statement at the beginning balance of the earliest year presented

When an accounting change is reported under the retrospective approach, prior years' financial statements are

Revised to reflect the use of the changed principle

Which disclosure is required for a change from LIFO to FIFO?

The cumulative effect on prior years (net of tax) in the current retained earnings statement; the justification for the change; and restated prior year income

Correction of an error is handled as

A prior period adjustment, thus the cumulative effect at the beginning of the period of change is entered directly as an adjustment to the opening balance of retained earnings.

Indirect impact to a change in accounting principle the expense is

Recorded in the current period, not retrospective.

Direct effects of a change in accounting principle is

Presented retrospectively

Change from FIFO to LIFO is accounted for by

Recognize a direct effect and record a retrospective adjustment

Change from LIFO to FIFO is accounted for by

Recognize a direct effect and record a retrospective adjustment

How does a direct effect of a change to a financial statement compare to an indirect effect?

Indirect effects do not change prior period amounts; direct effects change prior period amounts

Which of the following is considered an indirect effect of a change in accounting principle?

An employee profit-sharing plan based on net income when a company uses the percentage-of-completion method

A change in accounting estimates is reported in

(1) the period of change if the change affects that period only, or (2) the period of change and future periods if the change affects both.

Examples of changes in estimates include:

Uncollectible receivables, Inventory obsolescence, Useful lives and salvage values of assets, Liabilities for warranty costs and income taxes, Change in depreciation methods.

Changes in accounting estimates made as part of normal operations

do not need to be disclosed unless the change is material.

A change in estimate that affects several periods companies should disclose the effect

on income from continuing operations and replated per share amounts of the current period.

Which type of accounting change should always be accounted for in current and future periods?

Change in accounting estimate

How should a change in reporting entity be reported in financial statements?

Retrospectively to all prior periods presented, including note disclosures. It should also report the effect of the change on income from continuing operations, net income, and earnings per share for all periods presented.

How should a company correct an accounting error related to a prior period?

It must correct the error ASAP as an adjustment to the beginning balance of retained earnings in the current period.

Retained earnings has a debit or credit balance?

Credit