F1 M1 Becker

Full Set of Financial Statements

Balance Sheet

Income Statement

Statement of Comprehensive Income

Cash Flow Statement

Statement of Shareholders' Equity

What is included on a classified balance sheet?

Current and non-current assets and liabilities

How are items calculated on the balance sheet?

Book value

Operating Revenue and Expenses

Are mostly part of normal operating activities

Are put separately on the income statement

Presented at gross amount

Nonoperating Revenue and Expenses

Are part of exceptional/nonoperating activities (interest revenue/expenses; if not a bank)

Includes other revenue and expenses

Gains and Losses

Nonoperating items

Reported at net amount

Period Cost

Recurring cost that is expensed immediately

Unexpired Cost

Capitalized as an asset for the future

Presented on the balance sheet

Inventory gets expensed as:

Cost of Goods Sold

Unexpired Prepaid Insurance gets expensed as:

Insurance Expense

NBV of fixed assets gets expensed as:

Depreciation expense

Unexpired cost of patents gets expensed as:

Patents expense (amortization)

What are write downs?

A reduction in the book value of an asset.

Types of Period Costs

SG&A, research costs

What are write offs?

The removal of an asset or liability from the balance sheet.

What is the sale of PP&E?

The sale of property, plant, and equipment.

What does the sale of something other than inventory refer to?

The sale of assets that are not part of a company's regular inventory.

What is the sale of an investment in another company?

The transaction of selling shares or stakes in another business.

What is an unusual operating expense?

An expense that is not typical for the normal operations of a business.

Income from Continuing Operations equation:

Operating Income + NonOperating Income

Net Gain or Loss equation:

Selling Price/NRV - Book/Carrying Value

How is income from discontinued operations reported?

Net of Tax

Comes after income from continuing operations on the I/S

Separately on the I/S

Benefits of Single Step Income Statement

Gets to Net Income in 1 step

Does not make one item appear more or less important than any other item

Drawbacks of Single Step Income Statement

Does not differentiate between core business and incidental business

What is the equation for Gross Profit in a Multi-Step Income Statement?

Sales - COGS = Gross Profit

What is the equation for Operating Profit in a Multi-Step Income Statement?

Gross Profit - Operating Expenses = Operating Profit

What is the equation for Pretax Income in a Multi-Step Income Statement?

Operating Profit - Nonoperating gains and losses = Pretax Income

What is the equation for Net Income in a Multi-Step Income Statement?

Pretax Income - Income Tax Expense = Net Income

How do you adjust Net Income for discontinued operations in a Multi-Step Income Statement?

Net Income ± Discontinued Operations (net of tax) = Net Income

When is a component reported in discontinued operations?

When it has been disposed of in that year or is classified as held for sale in that year?

How is NRV calculated?

Fair Value - Cost to Sell

How is the segment classified as held for sale reported on the balance sheet?

At lower of its NRV or its book value

Direct Method (foreign currency)

The domestic price of 1 unit of a foreign currency (1 euro costs $1.47)

Indirect Method (foreign currency)

The foreign price of 1 unit of a domestic currency (0.68 euro buys $1)

How is a gain or loss realized on accounts receivable, denominated in a foreign currency, if the foreign currency increases?

Assets increase, so there is a gain

How is a gain or loss realized on accounts receivable, denominated in a foreign currency, if the foreign currency decreases?

Assets decrease, so there is a loss

How is a gain or loss realized on accounts payable, denominated in a foreign currency, if the foreign currency increases?

Liabilities increase, so there is a loss

How is a gain or loss realized on accounts payable, denominated in a foreign currency, if the foreign currency decreases?

Liabilities decrease, so there is a gain

What are unrealized gains and losses?

The difference between the exchange rate used in recording the the transaction in dollars and the spot rate

What is comprehensive income?

A change in equity of a business enterprise during a period of transactions, other events, and circumstances from non-owner sources.

What does comprehensive income include?

All changes in equity during a period, except those resulting from investments by owners and distributions to owners.

Comprehensive Income equation:

Net Income + Other Comprehensive Income

Other Comprehensive Income is:

Items that are revenues, expenses, gains and losses that are included in comprehensive income, but excluded from net income

PUFI items are:

Pension Adjustments

Unrealized Gains and Losses

Foreign Currency items

Instrument-Specific Credit Risk

Pension Adjustments are:

certain gains and losses from a defined benefit pension plan that must be recognized in OCI the year the changes occur

Pension Adjustments are recognized

As pension expense and are amortized on the I/S over the average service lives of the employees

What are unrealized gains and losses?

They refer to the increase or decrease in the value of investments that have not yet been sold.

What type of securities are associated with unrealized holding gains and losses?

AFS (Available-for-Sale) debt securities.

What happens to unrealized holding gains and losses when a debt security is transferred from held to maturity to AFS?

They are recognized as unrealized holding gains and losses.

What occurs with AFS debt securities that have been previously written down as impaired?

Subsequent decreases or increases in fair value are recognized.

What are gains or losses on derivative instruments designated as?

Cash flow hedges.

Foreign Currency Translation Adjustments

Financials for a foreign subsidiary are prepared in a foreign currency but are consolidated with a parent

Instrument-Specific Credit Risk

Changes in fair value that are attributable to instrument-specific credit risk

Reclassification Adjustments

Move other comprehensive income items from accumulated other comprehensive income to the I/S

What is Accumulated Other Comprehensive Income?

A component of equity that includes the other comprehensive income for the current period and previous periods.

What does Accumulated Other Comprehensive Income represent?

Retained earnings that have accumulated over time.

Statement of Comprehensive Income

Other Comprehensive Income and PUFI Items +- PUFI gains and losses in the current year +- reclassification adjustments = Ending AOCI (part of S/E)

PUFI items are reported either:

Net of tax

Before related tax effects

Disclosure of income tax expense or benefit allocated to each component of OCI is done either:

On the face of the financial statements

In the notes

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