FINANCIAL STATEMENTS Flashcards
What are the four critria that needs to be determined for it to be a long term liability?
1 - agreement doesn’t expire within the longer of 1 year or operating cycle
2 - noncancelable by the lender
3 - no violation agreement exist at the balance sheet date
4 - lender is financially capable of honoring agreement
What are the items that are included in Current Asset?
-Cash and Cash equivalent
-Certain individuals trading
-available for sale
-held to maturity debt securities
- Accounts receivable
- Inventory
- prepaid expense
- individual investments in equity securities
Remember for current asset items these that can be converted into cash within one year time frame
Are gain & losses reported together or separate on the component of income from continuing operations?
separately
Calc the Income statement in the single step income statement?
Total revenue 213,900
Discontinued Oper 12,000
Reported revenue 201,900
When Discontinued operation is in the income statement it would be deducted after the revenue has been calculated
How should gain or loss be reported that are unusual in nature, infrequent in occurrence?
recorded separately in the continuing operations and discontinued operations
What Other Comprehensive income include?
Under the existing accounting standard
1 - unrealized gains or losses on investments in debt securities classified as available for sale securities
2 - gains and losses on derivatives designated and qualifying as cash flow hedges
3- certain foreign currency items
Foreign currency items included in OCI
1 - a gain or loss on a hedging derivative in certain cash flow hedges
2 - the gain or loss on a hedging derivatives or nonderivatives in a hedge of a net investment in a foreign operations treated as a translations adjustments
How to calc operating expenses under the accrual basis of accounting?
In order to calc the operating expenses we need to first know the operating expense once we know the operating expense we next need to find the beginning (prepaid expense of the year and ending of the year and see the difference. Once that is figured out next we need to calc the accrued liabilities beginning of the year and ending of the year. Finally we will use the difference between operating expenses and accrued liabilities and get a difference of accrual basis operating expenses
Ex - Operating expense - 150,000
Prepaid expenses - (5,000)
Accrued expenses - 20,000
Accrual basis operating expenses 165,000
Under the cash basis of accounting how is income/ loss operates?
Remember during the cash basis of accounting revenue and expenses are recognzed when cash is paid or received.
Even when goods or services are completed, delievers, received
Ex - Sales of Cash 1,200,000
Expense paid 1,300,000
Loss of 100,000
Under the accrual basis method of accounting calc pretax income?
Remember during accrual when Current Asset goes up then cash goes down and vice versa
AR goes up 16,000
Cash goes down
AP goes down 6,000
Cash goes down to does the same
Lower by 16,000
How to calc Retained earnings for Dec 31, 2023?
Step 1 - we need to Subtract the Revenues - Expenses because we need Net Income
Revenue - 3,600,000 - Expenses - 2,600,000 = 1,000,000 Net Income
Step 2 - We need to calc the income tax expense so we use Net Income of 1,000,000 x 30% = 300,000 Income tax expense
Step 3 - Add Beginning Retained Earnings 630,000
Step 4 - We calc all the missing pieces we need to calc Retaining Earnings
We included the following
Net Income 1,000,000 Income Tax Expense (300,000) Retained Earnings 630,000
Retained Earnings of 1,330,000
Item that are included for Current Liabilities?
AP - 19,000
Bonds Payable 34,000
Discount on bonds payable(2,000)
dividends payable 5,000
income tax payable. 9,000
Current liabilities 65,000
*Remember current liabilities are item or things you may owe the landlord, vendors, employees, accruals and payables
What can a Balance sheet be useful in providing?
- Computing rates of return
- Evaluating capital structure
- Assessing liquidity and financial flexibility
What are some account that are in the equity account?
Revenues
Expense
Dividends
Common Stock
All Assets and Expenses and dividends accounts usually does what on the T account?
Debit side it always increases
Remember professor farhat
DEA (DEBIT) Increases
liabilities, stockholder equity accounts, revenue
credit side
How to calculate Cost of Goods sold?
In this problem since we have the COGM - 520,000 which can used to calc COGS
COGM - 520,000
BEGIN IN - 120,000
ENDING IN - (110,000)
COGS - 530,000
How to calc the revenue section of the Income Statement?
Total Revenue which was 213,900
Gain on disposal 18,000
Income tax (6,000)
after tax results from discontinued operations 201,900
How to calc the Cost of Manufactured?
Cost of sales - 60,000
Begin Inventory 100,000
Ending Inventory 90,000
60,000 - 100,000 + 90,000
COGM - 50,000
What is included in the general and adminstrative expense?
accounting, legal, other fees professional services offices salaries
insurance
wages of office staff miscellaneous supplies
Which financial statement provides a summary of a firms operations for a period of time?
Income Statement
transaction that is unusual in nature infrequent in occurrence report?
continued of income from continuing operations
A gain or loss from a transaction that is unusual in nature or infrequent in occurrence should be reported separately of income?
before results of discontinued operations
How to calc gross profit?
Net Sales - 500,000
COGS - 100,000
Gross Profit - 400,000
How to calc Comprehensive income?
Comprehensive income calc you need to remember that comprehensive income includes net income and other comprehensive income.
Net Income - Sales revenue 800,000
COGS 600,000
Operating Exp (90,000)
Net Income 110,000
Unrealized holding G&L 30,000
What changes do you need to have for comprehensive income ?
all changes are included in equity
Net Income includes changes from continued operations and discontinued operations
How to calc Net Income?
To calc Net Income we need to know Revenue - Expenses
Revenues 80,000 Operating Expense 50,000 Income tax expense (10,000)
Net Income - 20,000
How to calc Comprehensive income?
Comprehesive Income
Net Income 86,500
Unrealized loss on AFS 8,100
Unrealized gain foreign currency translation 3,400
3,290
83,210
Remember when calculting Comprehesive income
you need Net Income subtracted by unrealized loss AFS
& Unrealized gain foreign currency transaction
OCI items
How to calc Other Comprehensive Income?
Other comprehensive income includes all items of comprehensive income not including Net Income
Unrealized holding loss on AFS is 17,000
How to calc the reported total revenues? using the single step income statement method
In the single step income statement method are included in income from continuing operations as either revenues or expenses.
Total revenue - 213,000
12,000
after tax results from discontinued operations
total revenue 201,900
How to calc Retained Earnings when there is tax rate ?
Step 1 - we need to subtract the Revenues - Expenses which is given the problem. The reason we are doing this is because we need to figure out the earnings before taxes which used later in the step to calc Net Income
Revenue - 6,680,000
Expenses - 5,180,000
Earnings before taxes 1,500,000
Step 2 - next use the tax rate to calc the income tax expense
Earnings before taxes 1,500,000
Tax rate 30%
Income tax expense 450,000
Step 3 - we need to calc the net income so we are going to first subtract the earnings before taxes and then income tax expense
Earnings before taxes 1,500,000
Income tax expense 450,000
Net Income - 1,050,000
Step 4 - final step we now add the Net income along with the retained earnings Appropriated
retained earnings Unappropriated
Net Income - 1,050,000 RE Appropriated 160,000 RE Unappropriated 900,000
Retained Earnings 2,110,000
What are the comprehensive basis of accounting?
- a basis that the reporting entity uses to comply with the requirements or financial reporting provisions of a regulatory agency
- basis of used for tax purposes
- the cash basis, and modifications of the cash basis having substantial support, such as recording depreciation on fixed assets or accruing income taxes
- a definite set of criteria having substantial support that is applied to all material items
under the cash basis of accounting what amount is the net revenue that should be reported for the current year?
Cash Sales
Gross 80,000
Return and allowance 4,000
Total 76,000
Credit Sales
Gross 120,000
Discounts 6,000
Total 114,000
Cash Collection
Customers owned 40,000
Customers owed Eagles 30,000
Net Credit Sales 10,000
76,000 + 114,000 + 10,000 = 200,000
How to calc the current year change stockholders equity?
Total Assets
70,000
75,000
= (5,000)
Current liabilities 42,000 non current liabilities 10,000 = 32,000 =32,000 + 5,000 = 37,000
How to calc other comprehensive income?
Remember for OCI included all items of comprehensive income not net income. Net Income is excluded
So Deferred gain on highly effective cash flow hedge 8000
Foreign currency trans gain. 2,000
Unrealized holding loss AFS debt securities 5000
8000 + 2000 - 5000 = 5000
If a material event that is unusual in the nature or infrequent in occurrence should be reported on both the income statement and component of income?
must be reported as seperate component of income from continuing operations. It can’t be reported on the face of the income statement net of income tax
Calc the year 2 single step income statement, reported as total revenue?
For the single income statement it puts Revenue and gains and expenses and losses
Revenues includes things such as sales of goods, services and rentals, purchase discounts
So for the problem we only include Sales which was 250,000
Calc balance sheet total assets reported?
Here we doing the A = L+E
Liability is 94,000
Equity - Common Stock - 500,000
Net Income - 25,000
Cash Dividends - (2,000)
Equity - 523,000
A 617,000 = L = 94,000 E = 523,000 =
Calc comprehensive income?
remember we need to first
Net Income - 400,000
Forei currency tran gain 100,000
Unrealized holding gains on AFS debt securities 20,000
400,000 + 100,000 + 20,000 = 520,000 Comprehensive income
Under the accural accounting method when is revenue
revenue is recognized when revenue is earned so even if service was completed but you didn’t receive the payment
under the cash basis of accounting when is revenue recognized?
cash is received or paid respectively
How to calc the cash basis income for the first year of operations?
Remember when calc cash basis of accounting you need to know the diff between revenue and expenses. Be sure to look for items received or paid
Step 1 - First we need to know the revenue in the problem that involves cash is (received or paid)
Sales on account 1,000,000
AR 100,000
Revenue 900,000
Step 2 - calc the expense portion where inventory purchase 400,000 and accounts payable 50,000 = 350,000
Step 3 - is subtract the revenue of 900,000 and expenses of 350,000 along with other expenses of 200,000 which gaves us a total of 350,000
Company is under the cash basis net income, calc the accrual basis net income?
when reconciliation of accrual basis of net income to the cash basis net income
everything would be the opposite
if there is increase you would (subtract) instead. If it’s increase it’s (Decrease)
For an examples
Net Income 75,000
AR JAN 15,000
DEC 20,000
Difference (5,000)
Prepaid Expense 7000 - 4000 = 3000
Accrued liabilies 2500 - 2000 = 500
Net Income 75,000
AR 5,000. Opposite
Prepaid exp (3,000) Opposite
Accrual liabilities 500
Accrual basis net income 77,500
Comprehensive income is best defined as
change in net asset for the period excluding owners transactions
How to calc the current liabilities?
AP 55,000
Unsecured notes 400,000
Senior Bonds 1,000,000
Accured Exp. 35,000
Current liabilities 1,490,000
What are the steps of creating a Financial statement such as Balance Sheet?
Step 1 - To create a trail balance where where we need to set up items into accounts.
Step 2 - Identify the accounts
Assets such as cash, AR, Inventory, prepaid expense
Liabilities what the company owes
Equity - owners stake in the company
Step 3 - Identify the account
Assets identify the current assets which would be items that are within one year
Non-current asset would be assets that can’t convert into to cash within one year
Liability identify all liabilities obligation due within one year time frame
Long term liability - debts and obligation due after one year
Equity - items like Common Stock, APIC, Retained Earnings
Next step is to create the BALANCE SHEET
Create Assets list all the assets so that woukld be
Current Assets non-current assets and that should given a total for Assets
Next do the same for current liabilities
List Current liabilities
long term liabilities
Total for liabilities
Finally for equity have all the common stock and RE
Assets equal L+E with the accounting equation
A = L + E
What are the steps of creating a Financial statement such as Income Statement?
What are the common mistakes made when completing balance sheet?
1 - Not subtracting accumulated depreciation from equipment or buildings
2 - misclassifying short term and long term items current asset be classified as non-current asset
3 - not updating retained earnings
4 - Overlooking outstanding accounts payable and accounts receivable. Incorrectly not including accounts payable when the company owes money and accounts receivable when the company owed money
5 - Incorrect cash balance reporting where the reconcilion cash balance doesn’t match the balance sheet balance so it needs to be updated
How do you report gain discontinued operations?
you will be using the net concept where the gain of the fixed asset would go to the continuing operations of net income additional not Net of Income tax
How to calc Net Income using the mutiple step income statement?
Calc Net Income
Step 1
Net Sales
Gross sales 3,600,000
sales return 34,000
3,566,000
COGS -1,200,000
GROSS PROFIT 2,366,000
Selling and admistrative (500,000)
Operating income 1,866,000
other income (gain) 8000
Income from continuing operations 1,874,000
Income tax expense 562,200 =1,874,000 x 30%
Income before discontinued operations 1,311,800
Gain from discontinued segment (After tax) 2,800
= 4000 * (1-30%)
Net Income 1,314,600
