CPA FAR Becker Wk 1

Question 1

Balance sheet

Answer 1

A = L + E
evals ST and LT financial risk
evals capacity to produce
current and noncurrent assets and liabilities
tangible and intangibles
ratios: current ratio, quick ratio, DFL

Question 2

first claim on assets

Answer 2

liabilities

Question 3

net assets

Answer 3

A - L = Equity
equity = residual interest or net assets

Question 4

probable future economic benefits

Answer 4

assets

Question 5

current asset

Answer 5

cash and assets expected to convert to cash within one year
Ex cash, AR, inventory, prepaids, ST investments

Question 6

intangibles

Answer 6

no physical substance, long lived, used in operations
trademark, copyright, patent, franchise

Question 7

PP&E

Answer 7

property, plant and equipment
long lived assets
used in operations and tangible

Question 8

noncurrent and not directly used in operations

Answer 8

investments and funds
Ex stocks and bonds in other companies, usually long term investments

Question 9

have a maturity date

Answer 9

liabilities, first claim on assets
current liabilities = mostly operating liabilities, short term
noncurrent liabilities = mostly financial liabilities, long term

Question 10

second claim on assets

Answer 10

preferred stock

Question 11

last claim on assets

Answer 11

common stock

Question 12

additional paid in capital

Answer 12

contributed equity
amount paid for share of capital in excess of par
“share premium” or “contributed capital in excess of par”

Question 13

par value

Answer 13

nominal value or face value

Question 14

treasury stock

Answer 14

stock buy back
contra equity
reduces SE

Question 15

earned capital

Answer 15

retained earnings and AOCI

Question 16

profit and loss, P&L

Answer 16

income statement = performance for a period of time
helps determine operating risk
REGL= revenue, expenses, gains and losses

Question 17

Revenue and expenses: operating

Answer 17

core business= mostly part of normal operating activities
separate section of I/S
presented gross on I/S

Question 18

Revenue and expenses: nonoperating

Answer 18

not directly related to the core biz = ancillary, incidental or peripheral
other revenue and other expenses
Ex
interest expense
loss on sale of assets
gain/loss from currency translation
restructuring costs
legal expenses not occurring in normal course of biz
inventory write offs
payments to settle lawsuits

Question 19

REGL: gains and losses

Answer 19

nonoperating items
reported Net (net gains or net losses of the transactions)

Question 20

Unexpired cost=> Expired cost

Answer 20

inventory=>COGS
unexpired cost Ins (Prepaid exp)=> Insurance expense
NBV fixed assets=>depreciation expense
unexpired cost of patents=> patent expense/amortization

B/S=>I/S
assets=>expenses

Question 21

income from continuing operations

Answer 21

income from cont ops =
operating income (core biz= revenue and expenses) + nonoperating income (gains and losses)

different from disc ops

Question 22

income from disc ops

Answer 22

presents net of tax
below continued ops/income tax expense
reported separately on I/S

selling off product line, separate division, or segment of company’s operations (material, represents a strategic shift)

Question 23

multistep income statement

Answer 23

sales
- COGS
=gross profit
-operating expenses (SG&A, amort, deprec, R&D)
=operating income (performance from core biz)
- nonoperating income
income from cont ops before tax
income tax expense
net income (income from cont ops after tax)
+/- disc ops, net of tax = if applicable
net income

Question 24

Income statement: accrual vs cash basis

Answer 24

accrual= not booking cash when received or if services have not yet been performed; matches rev and exp to period earned and incurred
accrual = better assessment of performance; subjective (sues judgement and estimation= cld be modifed)
cash= book cash in and cash out as it occurs; objective and poor indicator of performance

Question 25

discontinued ops

Answer 25

reported on income statement (bottom), and net of tax
disposal of a component is reported in discontinued ops and represents a strategic shift that has/will have a major effect on entity’s ops and financials
Ex
disposal of major geographic area
disposal of major equity method investment (signif influence over another biz)
disposal of a major line of biz (or major product line; signif impact entity’s ops and financials)

Question 26

report in the period disposed of or held for sale

Answer 26

discontinued operations = report in the period disposed of or held for sale
mark to market
stop depreciation
probably overvalued = impairment loss
calculate: impairment loss, results of ops, gain/loss on sale
if cross F/Y:
1. Yr 1 impairment and ops results
2. Yr 2 operational results + gain/loss on sales

Question 27

Discontinued operations

Answer 27

separate component of income at the bottom I/S
reported net of tax

Question 28

foreign currency transactions

Answer 28

require recording gains or losses incurred

company buys from or sells to a foreign company that in which it has no ownership interest

company agrees to pay or accept payment in foreign currency

transactions between a parent and subsidiary of a permanent financing nature are not considered foreign currency transactions

Question 29

exchange rate

Answer 29

price of one unit of a currency expressed in units of another currency

the rate at which two currencies will be exchange at equal value

Question 30

exchange rate: direct method

Answer 30

domestic price of one unit of another currency

numerator is local currency: domestic/foreign currency

$1.47 USD/1 euro

Question 31

exchange rate: indirect method

Answer 31

foreign price of one unit of domestic currency

numerator is foreign currency: foreign/domestic

1 euro/$1.47 USD or 0.68 euro/1 USD

Question 32

Statement of comprehensive income

Answer 32

CI = Net income + OCI

PUFI:
pension adjustment
unrealized gains/losses AFS securities, hedges
foreign currency items
Instrument specific credit risk

Question 33

Statement of comprehensive income
CI = NI + OCI

Answer 33

change in equity (net assets) of a business during a period from transactions, other events and circumstances from non-owner sources

includes all changes in equity for the period except those resulting from investments by owners and distributions to owners

Question 34

OCI =

Answer 34

PUFI
revenues, expenses, gains, losses that are included in CI but not in the income statement/net income per GAAP

PUFI:
pension adjustment
unrealized gains/losses AFS securities, hedges
foreign currency items
Instrument specific credit risk

Question 35

AOCI

Answer 35

OCI/PUFI:
+/- PUFI gains and losses
+/- reclassification adjustments
= ending AOCI
part of stockholder’s equity

Question 36

statement of comprehensive income: single statement or two statement

Answer 36

single statement:
Revenue=> net income
+/- OCI
= CI

two statement:
income statement + statement of CI
Revenue=> net income
+/- OCI
= CI

Question 37

10-K

Answer 37

annual audited filing for public companies required by SEC

includes audit opinion

user benefits:
details of business and relevant risks
financial and operating results for the year
perspective of leadership

large accelerated = file in 60 days
accelerated = file in 75 days
nonaccelerated = file in 90 days

Question 38

types of filers: SEC

Answer 38

large accelerated = file in 60 days 10K; 40 days 10Q
accelerated = file in 75 days 10K; 40 days 10Q
nonaccelerated = file in 90 days 10K; 45 days 10Q

Question 39

types of filers: SEC

Answer 39

large accelerated = $700M market value
file in 60 days 10K; 40 days 10Q

accelerated = $75-700M market value
file in 75 days 10K; 40 days 10Q

nonaccelerated = $100M or less annual revenue
file in 90 days 10K; 45 days 10Q

Question 40

10-Q

Answer 40

quarterly SEC filing for public companies (first three quarters; final quarter = 10K annual filing)

not audited

large accelerated = file in 40 days 10Q
accelerated = file in 40 days 10Q
nonaccelerated = file in 45 days 10Q

Question 41

8-K

Answer 41

material event disclosure “current events”

Ex bankruptcy
acquisition or disposal of assets
chg public accounting firm used for audit
change in securities and trading markets
changes in/election of directors and officers
amendments to bylaws or articles of incorporation

Question 42

Basic EPS

Answer 42

Note date range: Year? Quarter?

simple capital structure:

income avail to common shareholders/
weighted average # common shares outstanding

Question 43

income available to common shareholders

Answer 43

net income less preferred shareholders

Question 44

WACSO

Answer 44

weighted average # common shares outstanding

shares outstanding beg of period
+ shares sold during period (time weighted)
- shares reacquired during period (time weighted)
+ stock dividends and stock splits (retroactively adjusted)
-reverse stock splits (retroactively adjusted)
= WACSO

Question 45

preferred dividends: cumulative vs noncumulative

Answer 45

preferred dividends:

cumulative: # preferred shares * par value/share * rate

noncumulative: declared

Question 46

preferred shareholders’ dividends

Answer 46

if loss from cont ops/net loss, amount of loss should be increased by:
preferred shareholders’ dividends reduces profits/share or increases loss/share
claims to determine income available to common shareholders