FAR

What are the six continuing vs discontinued operations criteria?

Management commits to a plan to sell the component.

The component is available for immediate sale in its present condition.

An active program to locate a buyer has been initiated.

The sale of the component is probable and the sale is expected to be completed within one year.

The sale of the component is being actively marketed.

It is unlikely that significant change to the plan to sell will be made or that the plan will be withdrawn.

What does single step income statement include?

Total revenues of all sales, goods and services, but not purchase discounts or recovery of accounts written off

If a transaction is expected to result in the realization of cash in the future, what do you classify it is?

A non current asset

Under U.S GAAP, a gain that is both unusual and infrequent should be reported as what?

Reported separately after continuing operations as a non-operating item

• only the gain or loss is reported instead of the gross amount

• not net of income taxes

What is the difference between foreign transaction and foreign translation gains and losses?

Foreign transaction gains and losses are reported on the income statement, while foreign translation gains and losses are reported in OCI

What does Other comprehensive income include?

OCI includes all changes in equity except from investments by owners or distributions. This includes PUFI, or Pension adjustments, Unrealizes gain and losses from available for sale debt securities and cash flow hedges at fair value, Foreign currency translation adjustments and gains and losses on transactions, and instrument specific credit risk.

What is comprehensive income?

Comprehensive income is income tax expenses, revenues, operating expenses , and is the sum of Net income + OCI

Where is comprehensive income shown?

Either in a combined net income + statement of comprehensive income or seperate in a statement of comprehensive income

What is part of earned capital?

Retained earnings, which is generating income from the core of the business

Where is interest revenue or interest expense reported on the income statement?

Under nonoperating items unless youre a bank

What is included in discontinued operations, what does it need to be classified as, and what happens with amortization or depreciation?

• This includes sale of noninventory, investments, and PP&E.

• has been sold or disposed of, or is classified as held for sale.

• The conditions that must be met include if it will have a major shift in financial results of a company.

• If the board decides to discontinue operations, it is no longer amortized or depreciated

• Includes loss from operations and impairment losses net of tax

What is the net realizable formula?

Fair value(estimated selling price) - book value

What is the current exchange rate known as?

The spot rate

What is the formula for accumulated OCI and where is it?

• beginning of the year balance

• plus or minus PUFI adjustments and reclassification adjustments if any

• on the balance sheet

Where are required disclosures of OCI?

In the notes or face of the statement

What are selling expenses?

Costs incurred to generate revenue for the business such as sales wages, freight out, advertising, rent, and promotional activities

What is the direct vs indirect method of foreign currency from the standpoint of a EURO standpoint

Direct method example is how much 1 euro can get of US dollars, while indirect method is how much euro is in $1 US dollar.

When the spot rate decreases, what happens

Domestic currency increases, as it takes more of the foreign currency to buy $1 us dollar.

Whats the journal entry for a unrealized loss and then selling it in the future?

Current year

Debit Unrealized holding loss to OCI account

Credit fair value adjustment

Selling

Debit cash

Debit realized loss on investments

Credit Unrealized holding loss to OCI account

What does equity include?

Capital stock, additional paid-in capital, retained earnings, aoci, treasury stock adjustments

Whats an example of conservatism in accounting?

Equipment that is sold within the next year is not classified from non-current to current, as it does not mean it is reclassified

What are general and administrative expenses?

general and administrative expenses are the costs associated with the general operation of a business that are not directly tied to a specific function, such as manufacturing, production, or sales. They are necessary for the administrative and management of the company. Exampes include wages for the staff, rent and utilities for office space, depreciation of office equipment, office supplies, anything related to administrative purposes

What is part of non operating income?

Not related to the primary operations, such as interest revenue, interest expense, gains and losses on sales of investments or equipment, and dividend revenue. These are income that do not service from the core operations of the business.

Will a dilutive security generate a eps above or below basic EPS?

A dilutive security generates a EPS below basic EPS

What are the filing due dates for the form 10-K?

Filing dates

• 60 days due after fiscal year for large accelerated filers to file (700 mill or more of common equity)

• 75 days for accelerated filers to file(75-700 mill common equity)

• 90 days for everyone else (below 100 mill in revenue and less than 75m in equity)

What is included in form 10-K?

Part 1: Financial Statements

Part 2 Item 7: MD&A- assessment of financial position

Part 2 Item 7A: Quantitative and Qualitative Disclosures about Market Risk- risks due to changes in interest, rates

Part 2 Item 8: Financial statements and supplementary data

• contains audited financial statements and notes

• balance sheets for last 2 fiscal years, and last 3 fiscal years for rest of financial statements

What are form 10-Q filing dates?

Filing dates

• 40 days for large accelerated and accelerated filers

• 45 days for everyone else

What is on form 10-Q?

Form for first 3 quarters of fiscal year

Part 1- Financial statements unaudited

• can include balance sheet at end of quarter + end of year due to seasonal fluctuations for comparison, or 12 month IS

  Part 1 Item 2- MD & A

What is form 8-K?

Form 8-K Discloses an event that is material in nature, and filers have 4 days to file this

Where is basic and diluted eps reported for discontinued operations and continued?

In the face of the statement for both, but discontinued can show in notes as well

How are stock dividends and splits treated in the calculation of EPS and DEPS?

Retroactively applied, meaning you treat them as if they were present at the beginning of the year. Also, if they are issued after fiscal year ended but before the financial statements are released, you include in calculation. You also adjust prior year stocks for stock splits and dividends

What is the treasury stock method and how does the average price relate to the strike price (greater or smaller)

Used for options and warrants and equivalents, if the average price is greater than the strike(exercise price), they are dilutive and buy back common shares

• Anti-dilutive means the average price is less than the exercise price

• Also assume that the money obtained from securities are used to purchase common stock

• Assume to be issued at beginning of period

In the diluted EPS formula, what is the numerator?

Income available to common shareholders + interest on dilutive securities

For interim reporting purposes, how are costs costs that benefit multiple periods allocated?

For interim reporting purposes, costs that benefit multiple periods should be allocated equally to those periods.

If preferred stock is convertible but the problem mentions how during the year, dividends were paid, how does this affect calculation?

Don’t include the dividends as paid, as - Preferred dividends are not subtracted when computing the adjusted net income because we are making the assumption that the preferred shares were converted to common shares at the beginning of the period and, thus, that no preferred dividends were paid.

How are cumulative and non-cumulative dividends treated in the subtraction calculation for BEPS?

- if cumulative, then subtract regardless of declaration or not

- If not cumulative, then subtract only if declared. They need to tell you if its declared or not.

Is it a gain or loss when exchange rate goes up or down?

It all depends on who the party is booking the entry. Usually, if a company is

If the euro stays the same, and a foreign currency increases, who appreciates?

The euro appreciated vs the foreign currency, as it takes less euro to buy that currency.

What is anti dillutive?

When the average price is less than the strike price (exercise price), meaning DEPS = EPS

How are the preferred dividends decided on cumulative and non cumulative and declared and non declared in calculation of net income-preferred dividends?

• deducting dividends declared in the period on non-cumulative preferred stock (regardless of whether they have been paid)

• and dividends accumulated in the period on cumulative preferred stock (regardless of whether they have been declared).

What is appreciates vs depreciates?

a currency appreciates when you need more of another currency to buy a single unit of a currency, and a currency depreciates when you need less of another currency to buy a single unit of a currency.

What are some required disclosures for AOCI and OCI?

• report changes in accumulated balances

• adjustments and the effect on net income and OCI are reported in face of statement

• total AOCI reported as an item of equity

• tax impact of each component required

When are dividends reported as a liability and disclosed?

Dividends are reported as a liability when they are disclosed. Until then, they are disclosed in the financial statements.

What is dividends in arrears?

All parts of the dividend not paid in the current year that accumulates. Must be disclosed in the notes or on the balance sheet

What is retained earnings formula? (BNDPP)

• Beginning retained earnings

• Net income/loss

• Less dividends declared

• prior period adjustments

• Plus/minus Accounting changes

Retained earnings

Where are gains and losses from treasury stock reported?

A direct adjustment to stockholders equity, and are not included in the determination of net income. Is NOT on the income statement. Losses may affect retained earnings if the APIC balance is not enough

Under the cost method, how are gains and losses presented in a journal entry?

Gain-additional paid in capital from treasury stock is credited

Loss- additional paid in capital from treasury stock is debited

In a journal entry for par value method, how are issues and purchases accounted for?

-reissue is to common stock account

- repurchase is to treasury stock account

If a problem states that bonds are not converted, how do you treat them in the calculation of DEPS?

You make the assumption that they were, and you include it in the formula.

What is the formula for book value per share?

Total stockholders equity - any preferred stock - dividends in arrear/Common shares outstanding

• this measures the amount that CS holders would receive if CS sold at BV and all creditors were paid

How are foreign exchange losses and gains booked?

Foreign exchange losses are debited, while gains are credited

In large stock dividends being issued, do you use the market price or par value to record a journal entry? And what is a journal entry?

Par value

Debit retained earnings

Credit common Stock

What is the formula for option and similar instruments to determine additional shares outstanding?

Number of shares - ((number of shares * exercise price)/average market price)

Are their gains or losses reported from treasury stock on the income statement?

No, no such things as gains or losses from treasury stock on the income statement, but rather a direct adjustment to equity

Can you appropriate retained earnings?

No, but you can set aside money to be appropriated for certain use.

If the promise to deliver a good or service is not distinct from other goods or services, is it a single or separate performance obligation?

Combined into single

How do you recognize revenue that is paid in advance for a service?

Evenly over the contract year as services are performed

What is revenue recognized over time?

performance obligation is satisfied as the entity performs, creates or enhances an asset that the customer controls. Customer receives the benefits as its done, and cannot be re-directed to another customer

• Measured using either input or output method

What is the difference between the input vs output method?

Input method includes efforts like labor hours or costs incurred, while output is measurable through like milestones, or units produced

How do you recognize revenue at a point in time?

When the customer obtains control of the asset

When there are multiple obligations and a discount is present, how do you allocate it?

Proportionally, for example a $60,000 discount and $200,000 and $100,000 obligations. $40000 goes to the 200k and $20000 goes to the 100k.

What are the steps in a construction contract?

1. Estimated profit (Contract price - total costs)

2. Find percentage of completion (costs incurred to date/total costs)

   1. Multiply the estimated profit * % to find gross profit

What is the formula for recognizing revenue at a point in time?

Gross profit: Contract price - total costs

Whats the difference between a lease and financing agreement?

A lease agreement is when the contract is less than the original selling price, while a financing agreement is when the contract is greater than or equal to the original selling price.

What are the 3 main forms of repurchase agreements?

1. A forward (entities obligation to purchase )

2. Right to purchase an asset (call option)

3. Put option (entities obligation to repurchase via customer request)

What is a bill and hold arrangement?

Entity bills a customer even if the customer has not received the product. This is because of certain circumstances, but the customer has control over the asset.

What happens in a change in accounting principle?

• Retrospectively affected

• prior period financial statements restated

• only affects beginning inventory (example) and not ending

• adjustment to retained earnings

• one GAAP method to another GAAP

• LIFO to FIFO but not due to “wanting to increase stockholder returns”

What happens in a correction of error?

• Restate prior periods

• Effects beginning retained earnings

• Does not effect income statement

• Change from non gaap method to GAAP (cash to accrual)

What happens in a change in reporting entity?

• retrospective

• full note disclosures

  • restate all previous financial statements

What happens in a change in estimate?

• prospective

• affects current earnings and future but not prior

• doesn’t effect beginning retained earnings

• disclosed in notes if it effects the future

• This is depreciation useful life changes

What are 2 special rules in regarding for changing to LIFO in accounting principle and determination of principle vs estimate? What about change in depreciation method?

LIFO is applied prospectively (special rule), and if it is not possible to tell if the change is due to accounting principle or estimate, you go with the estimate.

Depreciation method is regarded as a change in principle inseparable from a change in estimate due to how the estimate is changing but its also a change in principle. This also goes for amortization and depletion.

How do you account for having vs not having comparative financial statements in corrections?

If you do have access to year 1, year 2, 3 financial statements like net income, you adjust the change in that year, so for example, fix the errors in year 1, then year 2. If you do not have access to these, then you adjust to the current retained earnings in the current year as a prior period adjustment

What is form S-X?

Regulation S-X sets forth the form and content of and requirements for interim and annual financial statements to be filed with the SEC.

When stock rights are exercised, whats the affect to APIC/rule?

That portion of proceeds in excess of stocks' par value is credited to "additional paid-in-capital" at the time the rights are exercised.

• Debit to cash

• Credit CS and APIC

What is the liquidating dividend formula and what is it?

Total cash dividend declared-retained earnings

• this decreases APIC and retained earnings as it is a return of capital

• Dividends exceed RE

What is the effect of amortization on interest expense and stockholders equity?

Amortization decreases interest expense

What are the 5 financial statements under GAAP?

1. Statement of financial position (BS)

2. Statement of earnings (IS)

3. Statement of comprehensive income

4. Statement of cash flows

5. Statement of owners equity

What is an item that is classifies as held for sale valued at?

(Lower of its carrying amount) or (fair value less costs to sell)

How is discontinued operations presented and disclosed?

Presented and disclosed

• Presented as a separate component of income, net of tax, below income from continuing operations

• Disclosed in the face or notes of FS

If a company purchases goods in a foreign currency, and the exchange rate is in $US dollars, how do gains and losses work?

• a gain is from a decrease in the exchange rate

• a loss is from an increase in exchange rate

What is instrument specific credit risk in OCI?

For liabilities in which the fair value is elected, changes in fair value attributable for changes in credit risk, such as interest rates

At the end of each accounting period, where is net income and OCI closed to?

Net income is closed to retained earnings, and OCI is closed to AOCI. These are both on the balance sheet

How is a single statement of comprehensive income presented?

Displays comprehensive income components below net income net of tax

• Income before taxes

• Income tax

• net income

• OCI income

• Unrealized holding gains, foreign currency items, etc

How is the two statement approach of comprehensive income statement presented?

Net income

OCI components

• unrealizes holding gains

• foreign currency items

What are the disclosures of OCI?

1. tax effects of each OCI item in notes or face

2. changes in balances of each component in notes or face

3. reclassification adjustments

4. may be presented net of tax or before tax as long as disclosed in notes or face

What is part of Management Discussion and analysis?

Business results in managements own words, and includes

• information on financial condition, operations, risks and uncertainties

• liquidity and capital resources

• critical accounting estimates and assumptions

• material changes

What is part of Quantitative Discussion and Analysis?

Market risk for potential loss due to changes in rates, and is disclosed at end of year either by

• tabular presentation

• sensitivity analysis

• value at risk

What is part of Financial Statements and supplementary data?

The audited financial statements, auditors report, and certifications of accuracy. The time periods covered are

• balance sheets for last 2 fiscal years

• the rest of the forms included comprehensive income are last 3 fiscal years

How is the treasury stock method applied in terms of market price and exercise price, when its assumed, and what shares are bought back?

• Average market price > exercise price

• assume exercised at beginning of year unless told

• Assume buys back common shares

What is participating preferred stock?

When shareholders with preferred dividends can receive more than their preferred dividends. Essentially, they can get more when the dividends are disbursed to common stock owners.

What happens during the cost method for accounting for treasury stock?

• treasury shares recorded at repurchase price with NO APIC or RE

• gain or loss determined when reissued or retired.

• behind retained earnings on BS

• Debit-Treasury stock 2000

  • Credit Cash 2000

What happens during the par value or legal method for accounting for treasury stock?

• recorded by reducing either APIC or retained earnings at time of purchase

• If it’s at the top, behind common stock, its the par value method.

• Debit (treasury stock (price * par)

• APIC - (price-par * shares)

• RE

• Credit-- Cash

How do you retire treasury stock under the par(legal) method?

Debit- Common stock (price * par)

• Credit- Treasury Stock (price * par)

How do you retire treasury stock under the cost method?

Debit- Common stock (price * par)

Debit- APIC (original price-par * shares)

Debit- retained earnings-difference

Credit- Treasury Stock (shares * new price that isn’t par)

How are stock rights treated?

• requires memorandum entry only

What is stock valued at for outside services?

• fair value (trading price is usually the best indicator)

What is date of declaration, record, and payment for dividends?

Declaration- liability created

Record- date to receive dividend is announced

Payment- actual distribution date

What are property (in kind dividends)?

• distribute non cash assets

• assets recorded at fair value