9D Basic Theory And Financial Reporting Flashcards
(272 cards)
0
Q
Equation for net sales
A
Gross sales
- sales discounts
- sales returns and allowances
= net sales
1
Q
Multiple step income statement:
Totman Company
Statement of Earnings and Comprehensive Income
For the Year Ended December 31, Year 2
include all line items
A
Sales
COGS
Gross margin on sales
Operating expenses:
Selling expenses
Administrative expenses
Operating income
Other revenues and gains:
Interest revenue
Equity in investee earnings
Gain on sale of AFS securities
Other expenses and losses:
Interest expense
Loss from permanent impairment of facilities
Income from continuing operations before provision for income taxes
Provision for income taxes
Current
Deferred
Income from continuing operations
Discontinued operations:
Loss from operations of discontinued division Z
Income tax benefit
Income (loss) before extraordinary item:
Extraordinary item: loss due to earthquake
Net earnings (loss)
Other comprehensive income:
Foreign currency translation adjustments
Unrealized gains on securities:
Unrealized holding gains arising during period
Less: reclassification adjustment for gain included in net income
Other comprehensive income
Comprehensive income
2
Q
COGS AKA COS is a…
A
Product cost
3
Q
Equation for gross margin AKA gross profit
A
Net sales
- COGS/COS
= gross margin/or gross profit
4
Q
Equation for cost of goods sold under the periodic system of inventory
A
Beginning inventory \+ COG Purchased \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ cost of goods available for sale - ending inventory \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ COGS
5
Q
COGAS
A
Cost of goods available for sale
6
Q
Periodic inventory system of inventory calculation for Cost of goods purchased
A
Gross purchases - purchase discounts - purchase returns and allowances \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Net purchases \+ freight in/or transportation in \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ COG Purchased
7
Q
Operating expenses include 6 expenses
A
1 selling 2 R&D 3 general + administrative 4 organizational costs 5 impairment loss (for SEC registered) 6 Bad debt expense
8
Q
Organizational costs
A
Start up/ pre opening costs for businesses
9
Q
G + A
A
General and administrative expense
10
Q
2 common examples of General and administrative expenses
A
1 pay auditors
2 internal controls
11
Q
How do you calculate operating income/operating profit?
A
Gross margin/GP
- Operating expenses
________________
Operating income/operating profit
12
Q
How do you calculate income from continuing operation (before taxes)?
A
Operating Income/operating profit \+ other revenues and gains - other expenses and losses \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Inc. from continuing. Operations (before taxes)
13
Q
How do you calculate income from continuing operations Net of Tax?
A
Income from continuing operations before taxes
- income taxes (current and deferred)
_______________________________
Income from operations (net of tax)
14
Q
NOT
A
Net of tax
15
Q
How do you calculate net income, starting from income from operations NOT?
A
Income from operations NOT \+/- discontinued operations NOT \+/- extraordinary gain/loss NOT \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Net income
16
Q
How do you calculate comprehensive income?
A
Net income
+ other comprehensive income NOT
_____________________
Comprehensive income
17
Q
Freight out
A
Cost to ship to customer
18
Q
Freight in
A
Cost to get inventory sent to your business
19
Q
In the multiple step format of the income statement, the SEC requires that public companies place impairment losses in…
A
Operating income. (Instead of “other expenses and losses”
20
Q
Single step income statement format, 5 items under revenue, 6 items under expenses
A
Revenues:
Sales.
Interest
Gain on sale of available for sale securities
Equity in investee earnings
Total revenues
Expenses:
COGS
Selling exp.
Administrative exp.
Interest exp.
Loss from permanent impairment of value to facilities
Total expenses
Income from continuing operations before provision for income taxes
21
Q
Unusual or infrequent items definition
A
Unusual or infrequent event considered to be material
that does not qualify as extraordinary
22
Q
Unusual or infrequent item, placement on income statement or statement of retained earnings
A
Placed as part of income from continuing operations after normal
Recurring revenues and expenses
23
Q
Discontinued operations, definition
A
Results from disposal of business component
24
Discontinued operations, placement on income statement or statement of retained earnings
Placed as separate category after income from continuing
| operations
25
Extraordinary items, definition
An unusual and infrequent no recurring event, which has material
Effects
26
Extraordinary items, placement on income statement or statement of retained earnings
Placed in separate category after discontinued operations
27
Items that are never extraordinary 3
1 foreign currency devaluation
2 labor strike effects
3 write downs of assets (inventory, PPE, Intangibles, receivables)
28
An extraordinary gain can result from...
Really good insurance
29
Infrequent and unusual items: Restructuring
Program that is planned and controlled by management and
Materially changes scope of business undertaken by company
Or manner which the business is conducted
30
5 common examples of restructuring
1 sale or termination of line of business
2 closure of business activities in particular location
3 relocation of business activities from one location to another
4 changes in management structure
5 fundamental reorganizations that affect nature and focus of
Operations
31
Another unusual or infrequent item is accounting for the costs of...
Exit and disposal activities (includes restructuring)
32
A liability for a cost associated with an exit or disposal activity should be recognized and measured...
Initially at fair value in period where liability is incurred
33
How is fair value usually determined for a liability for a cost associated with an exit or disposal activity?
Determined as present value of estimated future payments
| Discounted at credit adjusted, risk free rate of interest
34
In the unusual circumstance when fair value can't be reasonably estimated, the liability shall be initially recognized in period where fair value can be reasonably estimated. 3 examples of these liabilities include...
1 onetime termination benefits provided to current employees
That are involuntarily terminated
2 costs to terminate contract that is not a capital lease
3 costs to consolidate facilities or relocate employees
35
Recognition of the liability and expense for onetime termination benefits depends on whether...
The employees are required to provide services beyond minimum
Retention period
36
If The employees are required to provide services beyond minimum
Retention period, the expense is recognized...
Over the period the services are provided
37
Costs associated with an exit or disposal activity that does not involve discontinued operations shall be included in...
2) the footnotes to the financial statements should provided...
Income from continuing operations before income taxes
2) extensive disclosure of the activities
38
Discontinued operations: to qualify for treatment as discontinued operations, assets must comprise a component of the entity with...
Operations and cashflows that are clearly distinguished,
operationally and for financial reporting purposes, from the
Rest of the entity
39
4 things a component may be?
1 reportable or operating segment
2 reporting unit
3 subsidiary
4 asset group
40
To be reported as discontinued operations 2 requirements must be met
1 the operations and cash flows of the component have been
(Or will be) eliminated from ongoing operations due to disposal
2 entity won't have significant involvement in operations of
Component after disposal
41
Many assets disposed of as discontinued operations are...
Long lived assets
42
The component is classified as discontinued operations in the first period it meets the criteria as...
Being held for sale
43
6 requirements to classify disposed assets in discontinued operations
1 management commits to a plan of disposal
2 assets are available for sale
3 active program to locate buyer has been initiated
4 sale is probable
5 asset is being actively marketed for sale at fair price
6 it is unlikely that disposal plan will significantly change
44
Long lived assets classified as held for sale are reported at the...
Lower of their carrying amounts or fair values less costs to sell
45
The gain or loss on disposal of discontinued operations is the actual gain or loss if the disposal occurs in...
The same period that the component meets the criteria being
| Classified as held for sale
46
When discontinued operations are disclosed in a comparative income statement, the income statement presented for each previous year must be...
Adjusted retroactively to enhance comparability with current
| Year's income statement
47
Accordingly the revenues, cost of goods sold and operating expenses (including income taxes) for the discontinued component are removed from the revenues, costs of goods sold and operating expenses of continuing operations and are meted into one figure that is...
Income (loss) from discontinued operations
48
Organization of discontinued operation on the income statement
Discontinued operations:
Loss from operations of discontinued division z
Income tax benefit
49
```
Acronym
I
D
E
NI
```
Income from continuing operations NOT
Discontinued income from operation NOT
Extraordinary Gain/loss NOT
NI net income
50
2 choices for presenting other comprehensive income
1 at bottom of income statement, continue from net income to
Arrive at a comprehensive income
2 in separate statement, start from net income and directly follows
Statement of income
51
When presenting other comprehensive income at the bottom of the income statement, an entity should present the following 3 items...
1 total amount of net income and its components
2 total amount for other comprehensive income and its components
3 total comprehensive income
52
When presenting other comprehensive income in a separate statement, the entity should present the 2 following items...
1 net income and its components in the statement of net income
2 comprehensive and its components along with
total comprehensive income
53
The accumulated (total) comprehensive income shall be presented...
Separately from retained earnings and additional paid in capital
In the statement of financial position
54
Accumulated comprehensive income:
The changes in the accumulated balances are to be presented in...
The notes of financial statements or on face of financial
| Statements
55
Each component of other comprehensive income and reclassifications shall be presented...
Separately
56
Current assets
Cash and other assets/resources commonly identified as those
Reasonably expected to be realized in cash
Or sold or consumed during normal operating cycle of business
57
Current liabilities
Used principally to designate obligations whose liquidation is
Reasonably expected to require the use of existing resources
(Classified as current assets)
Or creation of other current liabilities
58
SHE
Shareholders equity
59
Comprehensive income
Total of net income and other comprehensive income
60
2 approaches for reporting comprehensive income
1 present a combined statement of income with OCI at bottom
2 present a second statement that directly follows income statement
61
Present combined statement of income and comprehensive income with OCI at bottom:
Layout with 7 line items
```
Sales revenue
COGS
Gross profit
Operating Exp.
Net income
Other comprehensive income
Unrealized holding gain NOT
Comprehensive income
```
62
What would be the layout of a comprehensive income statement that follows the income statement, in 3 line items?
Net income
Other comprehensive income:
Unrealized holding gain NOT
Comprehensive income
63
How does accumulated other comprehensive income look in the Statement of Stockholder's equity (4 items across and 4 down)
Total. R/E. Acc. Other Common
Comp. Inc. stock
```
Beg. Balance
Net income
Other comp. Inc:
Unrealized holding gain NOT
End balance
```
64
Regardless of which approach you choose, you must show the ending balance of accumulated other comprehensive income on...
The balance sheet after retained earnings
65
Examples of other comprehensive income items: 5
1 reclassification adjustments
2 unrealized holding gain/loss AFS securities
3 pension or other post retirement benefit adjustments
4 unrealized G/L on derivatives held as cash flow hedges, foreign
Currency hedges held as cash flow hedges
5 cumulative foreign currency translation adjustment
66
What method is used for cumulative foreign currency translation adjustments?
Current rate method
67
Historical cost/constant $
Increases in prices due to inflation
68
Monetary assets and liabilities, what are they?7
```
1 cash
2 A/R
3 N/R
4 A/P
5 N/P
6 B/P
7 HTM investments in bonds
```
69
What do you do with monetary assets and liabilities, when there is an increase in price due to inflation?
Treatment in supplementary info
Net them and calculate a purchasing power gain or loss
70
Purchasing power gain or loss calculation for mon. Asset or mon liability
Treatment in supplementary info
Purchasing power G/L =
Mon asset. [(EOY CPI - BOY CPI)/BOY CPI]
or Mon liability x
71
Treatment in supplementary info: increases in price due to inflation
Nonmonetary assets what are they?
Everything else (so not cash, receivables, payables or bonds)
72
Treatment in supplementary info
What do you do to nonmonetary assets when there is an increase in prices due to inflation?
Convert them
73
Treatment in supplementary info:
Increase in prices due to inflation, what is the conversion factor equation and 2nd step for converting nonmonetary items?
1 Conversion factor =
(Current period CPI/Base Year CPI)
2 conversion factor x nonmonetary item
74
Treatment in supplementary info:
Current cost define
Increases in prices due to demand/market appreciation
75
Treatment in supplementary info:
Current cost, increases in price due to demand/market appreciation, what do you do with monetary assets and liabilities?
Do nothing
76
Treatment in supplementary info:
Current cost, increases in price due to demand/market appreciation, what do you do with nonmonetary items?
Restate current costs and calculate a holding gain/loss
77
Nonmonetary items:
Holding gains/losses for PPE and inventory
Use current cost
Or use recoverable amount if lower than current cost
78
Nonmonetary items:
Holding gains/losses for depreciation exp. And COGS
Use average current cost = (BOY + EOY)/2
79
If $2,450 NOT is being deducted from other comprehensive income as a reclassification adjustment, $2,450 must be the amount of...
Unrealized gains NOT that have been recognized in other
| Comprehensive income
80
If a reclassification entry is significant, you must do...
Parenthetical disclosures or footnote disclosures
81
sinking fund
For bond retirement
Accumulates cash to pay B/P
82
Bond issue cost is...
Deferred charge for registering bonds with SEC
83
Classified balance sheet:
Current assets: the layout of cash and bank deposits section
2 line items below
Cash and bank deposits:
Restricted to current bond maturity
Unrestricted
84
Classified balance sheet:
Current assets: inventories (carried at lower cost or market by FIFO) 3 line item layout
Inventories
Finished goods
Work in process
Raw materials
85
Rent revenue collected in advance is classified as...
A current liability
86
Contra account to A/R
Allowance for doubtful accounts
87
Advances to employees are classified as...
A current asset
88
Short term portion of accrued warranty is classified as...
A current liability
89
Classified balance sheet:
Noncurrent liabilities, Notes payable due after 3 years, what is the layout of this on the balance sheet. (1 item below it)
Notes payable due after 3 years. Xxx
| Plus unamortized note premium. Xxx. Xxx
90
Classified balance sheet:
Cash surrender value of officers life insurance policies is classified as?
Long term investment
91
Classified balance sheet:
Sinking fund for bond retirement is classified as...
Long term investment
92
Classified balance sheet:
Plant expansion fund is classified as...
Long term investment
93
Classified balance sheet:
What is the layout for leased assets in PPE? (One item below it)
Leased assets. Xxx
Less: acc. Depreciation and amortization (xxx)
94
Classified balance sheet:
3 common examples of line items in the other assets section
1 installment notes due after year 3
2 unamortized bond issue costs
3 equipment to be disposed of
95
Classified balance sheet:
Accrued pension costs would be classified as a...
Noncurrent liability
96
Classified balance sheet:
Convertible preferred stock would be classified in...
Capital stock
97
Classified balance sheet:
6 items included in additional paid in capital
```
1 from 12% cumulative preferred
2 from common stock
3 from treasury stock transactions
4 from stock dividends
5 from expiration of stock options
6 warrants outstanding
```
98
Classified balance sheet:
Layout of retained earnings (2 items below retained earnings)
Retained earnings:
Appropriated for bond indebtedness
Free and unappropriated
99
Additional disclosures required for specific situations were specified at...
End of most pronouncements
100
Accounting policies must be set forth as...
The initial footnote to the statements
101
Accounting policies: disclosures are required of... 3 things
1 accounting principles used when alternatives exist
2 principles peculiar to particular industry
3 unusual or innovative applications of accounting principles
102
Subsequent events are those occurring...
After the balance sheet date but before the financial statements
Are issued or available to be issued
103
Financial statements are issued when they are...
Distributed to shareholders and other users
104
Financial statements are available to be issued when they are in a form and format hat is complete and complies with GAAP and all...
Necessary approvals for issuance have been obtained
105
An entity that is an SEC filer or is a conduit bond Obligor for conduit debt securities traded in public market must evaluate subsequent events through date...
2) all other entities must evaluate subsequent events through the date...
Financial statements are issued
2) the financial statements are available to be issued
106
2 types of subsequent events
1 recognized subsequent events
2 nonrecognized subsequent events
107
Recognized subsequent event is one in which...
The condition existed at the balance sheet date
And is recognized on financial statements
108
Examples of recognized subsequent events 3
1 estimate for warranty liability
2 estimate of contingent liability due to lawsuit
3 estimate of allowance for uncollectible accounts
109
If recognized subsequent event is settled after the balance sheet date but before the financial statements are issued or available to be issued, then the settlement amounts should be...
Used as the liability in the balance sheet
110
Nonrecognized subsequent event is one in which the condition...
Did not exist at the balance sheet date,
but arose after the balance sheet date
111
Nonrecognized subsequent events are...
2) however, if the event is such that the financial statements would be misleading, then...
Not recognized in financial statements
2) footnote disclosure should be made indicating nature of event
And estimate of financial statement effects
112
An entity that is an SEC filer is not required to disclose the date through which...
Subsequent events are evaluated
113
Non SEC filers must also disclose the date through which subsequent events were...
Evaluated and whether that date is the date the financial
| statements are issued/available to be issued
114
Related party disclosures:
Affiliate
Party is controlled by another enterprise that controls, or is under
Common control with another enterprise
Directly or indirectly
115
Related party disclosures:
Control
Power to direct or cause direction of management through
| ownerships contract or other means
116
Related party disclosures:
Immediate family
Family members whom principal owners or management might
Control/influence
Or be controlled or influenced by
117
Related party disclosures:
Managment
Persons responsible for enterprise objectives who have policy-making and decision making authority
118
4 examples of people included in management
1 board of directors
2 CEO and COO
3 Vice Presidents
4 persons without formal titles
119
Related party disclosures:
Principal owners
Owners of more than 10% of firm's voting interests
Includes known beneficial owners
120
Equity method investees
Use equity method of accounting
121
Related party disclosures:
Related parties 6
```
1 affiliates
2 equity method investees
3 employee benefit trusts
4 principal owners
5 management
6 any party that can significantly influence transaction
```
122
Related party disclosures:
Financial statements shall include disclosures (footnotes) of material transactions between related parties except: 2
1 compensation agreements, expense allowances and other similar
Items
2 transactions eliminated in preparation of consolidated FS
123
FS
Financial statements
124
Related party disclosures:
Disclosures of material transactions shall include 4
1 nature of relationships
2 description of transaction
3 dollar amounts of transactions
4 amounts due to/from related parties
125
Related party disclosures:
Description of transactions including those assigned...
Zero or nominal amounts
126
Related party disclosures:
Dollar amounts of transactions for each income statement period and effect of...
Any change in method of establishing terms
127
Related party disclosures:
Amounts due to/from related parties, including...
Terms and manner of settlement
128
Related party disclosures:
Representations concerning related party transactions shall not imply that terms were equivalent to those resulting in...
Arms length bargaining unless statement can be substantiated
129
Related party disclosures:
When control relationship exists, disclose...
Such relationship even though no transactions have occurred
130
Writing down inventory is never...
Extraordinary
131
In related party transactions don't disclose officers salaries/expenses unless...
2) Also don't disclose...
They are excessive
2) intercompany sales
132
In related party transactions, loans to officers...
Must be disclosed
133
Disclosure of accounting policies should identify and describe the accounting principles followed by the reporting entity and...
Methods of applying those principles
134
The criteria for determining which investments are treated as cash equivalents is an example of how the entity...
Entity applies accounting principles
135
If fair value option is chose you must use it for...
All similar securities
136
CPI
Consumer price index
137
EOY
BOY
End of year
Beginning of year
138
For valuation approaches level 1 is better than...
Level 2 and level 2 is better than level 3
139
Fair value is the price that would be received to...
Sell an asset or paid to transfer a liability in an orderly transaction
Between market participants
at the measurement date (an exit price)
140
Applying the fair value approach involves:
Identify the asset or...
Liability to be measured
141
Applying the fair value approach involves:
Determine the principal or...
Most advantageous market (highest and best use)
142
Applying the fair value approach involves:
Determine the valuation...
Premise (in use or in exchange)
143
Applying the fair value approach involves:
Determine the appropriate...
Valuation technique (market, income or cost approach)
144
Applying the fair value approach involves:
Obtain inputs for...
Valuation (level 1, level 2, level 3)
145
Fair value approach:
Level 1
Market approach
146
Applying the fair value approach involves:
Calculate the...
Fair value of the asset
147
Fair value approach:
Level 2
Cost approach
148
Fair value approach:
Level 3
Income approach
149
Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:
Principal market has...
Greatest volume and level of activity
150
Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:
Most advantageous market...
Maximizes the price received for the asset or minimizes amount
Paid to transfer the liability
151
Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:
Market participants have the 4 following characteristics
1 independent of reporting entity (not related parties)
2 knowledgeable
3 able to transact
4 willing to transact (motivated, but not compelled to transact)
152
Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:
Do not adjust...
Prices for costs to sell
153
Assume the asset or liability is sold or transferred in either the principal market or most advantageous market:
If location is attribute of asset or liability, price is adjusted for...
Costs necessary to transport asset or liability to market
154
Fair value approach assumes...
Highest and best use of the asset
155
Highest and best use...
Maximizes the value of asset or group of assets
156
Fair value measurement:
Highest and best use must be...3
1 physically possible
2 legally permissible
3 financial feasible at measurement date
157
Fair value measurement:
Highest and best use determines...
The valuation premise used
158
Valuation premise:
In use 2
1 asset provides maximum value by using it with other assets as
A group
2 valuation based on price to sell asset assuming it is used
With other assets
159
In exchange
By itself
160
Valuation premise:
In exchange 2
1 asset provides maximum value on standalone basis
2 valuation based on price to sell the asset standalone
161
Valuation techniques:
Market approach (level 1)
Uses prices and relevant info from market transactions for identical
Or comparable assets or liabilities
162
Valuation techniques:
Income approach (level 3)
Uses present value techniques to discount cash flows or earnings
To present value amounts
163
Valuation techniques:
Cost approach (level 2)
Relies on current replacement cost to replace the asset with
Comparable asset, adjusted for obsolescence
164
Levels of input for valuation:
Use fair value hierarchy to...
Prioritize inputs to valuation techniques
165
Levels of input for valuation:
Fair value hierarchy is...
Level 1, level 2, level 3
166
Levels of input for valuation:
Inputs should be based on...
Lowest level of input (highest priority is lowest level)
167
Levels of input for valuation:
Level 1 inputs (lowest level, highest priority) 2
1 uses quoted prices (unadjusted prices from active markets)
2 examples are quotes from NYSE, quotations from dealer markets
168
Levels of input for valuation:
Level 2 inputs
1 inputs that are directly or indirectly observable other than quoted
Prices of level 1
169
8 Examples of level 2 inputs
```
1 quoted prices for similar assets or liabilities
2 observable inputs such as yield curves
3 bank prime rates
4 interest rates
5 volatilities
6 loss severities
7 credit risks
8 default rates
```
170
Levels of input for valuation:
Level 3 inputs, 4 characteristics
1 unobservable inputs
2 may only be used if observable inputs aren't available
3 may reflect reporting entity's own assumption about market
4 based on best information available
171
Change in valuation premise or technique, how should it be treated A?
Treat as change in estimate on prospective basis
172
The fair value option for financial assets and financial liabilities:
Scope applies to:
Financial assets and...
```
Financial liabilities (includes AFS, held to maturity, equity
investments and liabilities)
```
173
The fair value option for financial assets and financial liabilities:
Scope applies to:
Firm commitments that...
Involve financial instruments
174
The fair value option for financial assets and financial liabilities:
Scope applies to:
Written loan...
Commitments
175
The fair value option for financial assets and financial liabilities:
Scope applies to:
Nonfinancial insurance contracts that...
Can be settled by paying third party
176
The fair value option for financial assets and financial liabilities:
Scope applies to:
Warranties that can...
Be settled by paying third party
177
The fair value option for financial assets and financial liabilities:
Scope applies to:
Host financial instruments resulting from separation of embedded...
Nonfinancial derivative instrument from a nonfinancial hybrid
Instrument
178
The fair value option for financial assets and liabilities does not apply to...8
```
1 consolidations
2 pensions
3 share based payments
4 stock options
5 other post employment benefits (OPEB)
6 exit or disposal activity
7 leases
8 financial instruments that are component of equity
```
179
Fair value, definition
Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
At the measurement date
180
Financial asset, definition
Cash, evidence of an ownership interest in an entity or a contract
That conveys a right to receive cash Or another financial instrument
or to exchange other financial instruments on potentially
Favorable items
181
Financial liability, definition
Contract that imposes an obligation to deliver cash or another
Financial instrument
To exchange other financial instruments on potentially unfavorable
Terms
182
Firm commitment, definition
Agreement, usually legally enforceable, that specifies all significant
Terms including quantity, fixed price and timing of transaction
The agreement includes disincentive for nonperformance that
Makes performance probable
183
Fair value option (FVO) 2
1 can elect to measure financial asset or financial liability at
Fair value
2 must elect to use fair value method on specific item
184
Fair value option can be elected on...
Instrument by instrument basis if certain criteria are met
185
Condition to elect fair value option on an instrument by instrument basis:
If multiple advances to one borrower for single contract, fair value options is applied to...
Larger balance and not each individual balance
186
Condition to elect fair value option on an instrument by instrument basis:
If fair value applied to investment that can use equity method, it must be applied to...
All interests in same entity (debt and equity)
187
Condition to elect fair value option on an instrument by instrument basis:
If applied to insurance contracts, must be applied to...
All claims and obligation for that contract
188
Must elect to use fair value method on specific items if...3 situations
1 can be elected on instrument by instrument basis
2 is irrevocable
3 must apply to entire instrument, not portion of instrument
189
Under fair value option, you report unrealized gains and losses in...
Earnings
190
Fair value option:
Classification on statement of cashflows, rules of FAS 95...
Apply
191
Fair value option, election dates:
The date an eligible item is...
First recognized
192
Fair value option, election dates:
The date an entity enters into...
A firm commitment
193
Fair value option, election dates:
When financial assets cease to qualify for fair value treatment due to specialized accounting rules, can elect to use fair value (ex. Equity method investments), therefor going from consolidation to...
Equity method can elect fair value option
194
Fair value option, election dates:
Percentage of ownership change and can...
No longer consolidate
195
Fair value option, election dates:
Modifications of...
Debt
196
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
The fair value measurement at the...
End of the reporting date
197
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
The level within the fair value hierarchy used, segregating...
The fair value measurements, which use levels 1, 2 and 3 inputs
198
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
The amount of any transfers between....
Level 1 and level 2 of fair value hierarchy and reason for transfer
Along with entities transfer policy
199
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
Transfers into and out of level 1 and level 2 are disclosed...
Separately
200
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
For fair value measures using significant other observable inputs (level 2) and significant unobservable inputs (level 3) a description of...
```
Valuation techniques is used, the inputs used to determine fair
Values of each class of assets or liabilities
```
201
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
If the is a change in valuation techniques, the...
Reason for the change must be disclosed
202
For fair value measurements using unobservable inputs (level 3) a reconciliation of the beginning and ending balance showing:
Total gains and losses for the period realized and unrealized, presenting gains and losses in...
2) and a description of where those gains or losses are...
Earnings and gains and losses in other comprehensive income
2) included in the income statement or in other comprehensive
Income
203
For fair value measurements using unobservable inputs (level 3) a reconciliation of the beginning and ending balance showing:
What 4 items are shown separately
1 purchases
2 sales
3 issues
4 settlements
204
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
For fair value measurements using unobservable inputs (level 3) the amount of total gains or losses for the period included in...
2) and the line item in the statement of...
Earnings from unrealized gains and losses for those assets and liabilities still held at end of period
2) income where gains and losses are recognized
205
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
For fair value measurements using unobservable inputs (level 3), a description of...
The valuation processes, the sensitivity of measurement and
| The relationships
206
For assets and liabilities that are measured at fair value on a recurring basis, the following disclosures are required for each major class of assets and liabilities:
For fair value measurements, a description of nonfinancial assets with a...
Current use differing from the highest and best use
207
For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:
The fair value measurement at the end...
Of the reporting period and the reasons for measurement
208
For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:
The level within the...
Fair value hierarchy, level 1, 2 and 3
209
For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:
For fair value measurements categorized within level 2 or level 3 of the fair value hierarchy, the...
Inputs and valuation techniques used to measure fair value
210
For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:
For fair value measurements using significant unobservable inputs (level 3) a description of...
Valuation processes
211
Valuation processes
Policies, procedures and analyses of change from period to period
212
For assets and liabilities that are measured at fair value on a nonrecurring basis, the following information must be disclosed in interim and annual period financial statements:
For fair value measurement a description of nonfinancial assets with...
A current use differing from the highest and best use
213
Report info about changing prices in...
Unaudited info, which is supplementary info
214
8Ks provide info on...
Material events
215
ABS
Asset backed securities
216
Regulation FD Disclosure
Everyone receives same information at same time
217
Large accelerated filer has a market cap...
Over $700 million
218
Accelerated filer has market cap...
2) all other filers have makes caps...
Over $75 million but under $700 million
2) under $75 million
219
Form S-1
Registration statement
220
OCBOA
Other comprehensive bases of accounting
221
Other comprehensive bases of accounting:
Financial statements may be prepared in conformity with a comprehensive basis of accounting other than...
GAAP or IFRS
222
4 types of Other comprehensive bases of accounting (OCBOA)
1 cash basis financial statements
2 modified cash basis FS
3 tax basis FS
4 regulatory basis FS
223
Cash basis financial statements
In pure cash basis financial statements the only asset is cash,
Revenue is recognized when cash is received
Expenses are recognized when cash is paid
224
The pure basis of cash accounting is...
Rarely used
225
Modified cash basis financial statements, define
with example of what's usually recorded in modified cash basis financial statements
Cash basis statements with modifications that have substantial
Support
Ex. Fixed assets, inventories and related liabilities are typically
Recorded in modified cash basis financial statements
226
Modified cash basis financial statements:
Modifications that have substantial support involve presenting items as they would be in...
GAAP financial statements providing that the presentation is not
Illogical
227
Modified cash basis financial statements:
As an example, an illogical modification would involve...
Recording inventories but not recording the accounts payable
| Related to the inventories
228
Tax basis financial statements: define
Statements prepared on basis of tax laws and regulations
229
Tax basis financial statements:
When financial statements are prepared on an income tax basis, the financial statements should not...
Simply repeat items and amounts reported in the tax return
230
Tax basis financial statements:
What 2 items should be fully reflected in a tax basis income statement?
1 nontaxable municipal interest
2 nondeductible portion of travel and entertainment expense
231
Regulatory basis financial statements
Regulatory financial statements are prepared based on rules
| Established by a regulatory agency
232
OCBOA financial statements should not included titles such as...
Balance sheet and statement of income, because they are reserved
For GAAP basis statements
233
OCBOA:
notes of financial statements should disclose...
Differences between OCBOA and GAAP basis financial statements
As well as other info normally included in GAAP FS
234
The liquidation basis of accounting is to be used when liquidation is...
Imminent
235
Liquidation is imminent
2) and if either of the following 2 conditions exist
Remote likelihood the entity will return from liquidation
2) a) approved liquidation plan with remote likelihood of being
Blocked
B) outside force imposed plan
236
Liquidation basis of accounting: measurement
Assets are to be presented at...
2) assets should include...
The amounts reflecting expected cash proceeds
| 2) sellable items not previously recognized under US GAAP
Ex trademarks
237
Liquidation basis of accounting: measurement
Liabilities are to be presented using...
Current US GAAP guidance
238
Liquidation basis of accounting: measurement
Accrue expected liquidation...
Period costs and income
239
Liquidation basis of accounting:
Disclosure 4
1 plan of liquidation
2 measurement methods and assumptions
3 expected liquidation period costs and income
4 expected liquidation time frame
240
SEC reporting requirements:
Unless exempt by regulation, companies with what 3 characteristics must have their securities registered?
1 Assets of more than $10 million
2 over 500 shareholders
3 securities that trade on national stock exchange or over the
counter market
241
Termed issuers
Companies with registered securities
242
Companies with registered securities (termed issuers) must...
Follow SEC rules and regulations
243
4 major securities regulations
1 regulation S-X
2 regulation S-K
3 regulation AB
4 regulation Fair disclosure (Reg FD)
244
Regulation S-X
Describes the form and content of financial statements filed
| With the SEC
245
Regulation S-K
Describes the requirements for information and forms required
By regulation S-X
246
Regulation AB
Describes reporting requirements for asset backed securities
247
Regulation Fair Disclosure (Reg FD)
Mandates that publicly traded companies disclose material
| information to all investors simultaneously
248
Companies with registered securities (termed issuers) must file the following 5 reports with the SEC
```
1 Form S-1/F-1
2 Form 8-K/6-K
3 Form 10-K/20F
4 Form 10-Q
5 Schedule 14A
```
249
Form S-1/F-1
Registration statement for US/foreign companies
250
Form 8-K/6-K
Information about material events for US/foreign companies
251
Form 10-K/20-F
Annual report for US/foreign company
252
A foreign registrant can omit reconciliation between US GAAP and home country GAAP if the...
Foreign based company follows IFRS as issued by IASB
253
Form 10-Q
Quarterly reports
254
Schedule 14-A
Proxy statement
255
Information statements (Form 8-K), provide information about material events that affect the company including...4
1 mergers and acquisitions
2 changes in directors or CEO
3 major changes in operations or status
4 changes in auditors
256
Form 8-K must be filed within...
4 business days of occurrence of events
257
How many 10 Qs does the company file each year? Why?
3, because 10-K contains 4th quarter
258
When are form 10-Qs due for large accelerated filers?
| Accelerated filers? Everyone else?
40 days after end of fiscal quarter for large accelerated and
accelerated filers
45 days after end of fiscal quarter for all other filers
259
When are 10-Ks due for large accelerated filers? Accelerated filers?
All other filers?
Due 60 days after end of fiscal year for large accelerated filers
Due 75 days after end of fiscal year for accelerated filers
Due 90 days after end of fiscal year for all other companies
260
SEC releases administrative interpretations:
Accounting and auditing enforcement releases (AAERs)
Announce enforcement actions of the SEC's reporting and
| disclosure requirements
261
SEC releases administrative interpretations:
Accounting Series Releases (ASRs) issued from 1937-1982
Are predecessor or financial reporting releases
ASRs still in effect are codified
262
SEC releases administrative interpretations:
Financial Reporting Releases (FRRs)
Update the SEC codification of financial reporting policies
| And Regulations S-K and S-X
263
SEC releases administrative interpretations:
Staff Accounting Bulletins (SABs)
Unofficial interpretations relating to accounting and disclosure
Practices
SEC staff follow SABs when administering disclosure requirements
264
SEC releases administrative interpretations:
Staff Legal Bulletins
Summarize the Commission staff's views related to SEC regulations
And federal securities laws
265
SEC releases administrative interpretations:
Staff no-action, Interpretive, and Exemptive letters, are published SEC Staff responses to...
Interpretation inquiries
266
SEC releases administrative interpretations:
3 that are not legally binding
1 Staff Accounting Bulletins (SABs)
2 Staff Legal Bulletins
3 Staff no-action, interpretive and Exemptive letters
267
SEC releases administrative interpretations:
3 releases that are legally binding
1 Accounting and Auditing Enforcement Releases (AAERs)
2 Accounting Series Releases (ASRs)
3 Financial Reporting Releases (FRRs)
268
Financial Statements of Trusts:
Trusts are entities formed to...
Hold assets for the benefit of beneficiaries
269
Trusts are administered by...
Trustees
270
Trusts generally present the following 3 financial statements
1 statement of assets and liabilities
2 statement of operations
3 statement of changes in net assets
271
Financial statements of a trust are generally presented...
2) and the assets are generally presented at...
On the accrual basis
2) at their fair values
