Ace FAR Flashcards
(60 cards)
In which cases should F/S of all prior periods presented be restated when there is a “change in entity”?
- Changing companies in consolidated F/S
- Consolidated F/S vs. previous F/S
What are the steps to compute gross profit earned for the current year of a long-term construction contract?
1) Compute gross profit of completed contract: Contract Price - Cost to Date - Estimated Cost to Complete = Expected Gross Profit
2) Compute percentage of completion: Total Cost to Date / Total Estimated Cost of Contract
3) Compute gross profit earned to date: step 1 x step 2
4) Compute gross profit earned for current year: Profit to Date - Profit Previously Recognized
How do you recognize a current liability at year end (construction contracts), if revenue is recognized over time?
Firstly, identify the current asset amount: CA = (Accumulated Costs + Estimated Earnings) / Related Billings
Secondly, remember a liability only exists when Progress Billings exceeds Costs and Estimated Earnings.
What must happen in order for a seller to book the sales transaction of a good as a financing arrangement, if the seller is obligated to repurchase the good?
When the repurchase price is equal to or greater than the original sale price and the expected market value, the seller can book the sale of goods as a financing arrangement.
What is the max number of days each of the three filer types have to file Form 10-K with the SEC after their company’s FY end?
- Large accelerated filers have floats > $700M and file 10-K within 60 days.
- An accelerated filer is identified as an issuer with a public float > $75M and has 75 days to file Form 10-K.
- Non-accelerated filers have annual revenues < $100M and must file 10-K within 90 days.
When is the filing of the 10-Q form with the SEC due for Large Accerlerated, Accelerated Filers, and Non-accelerated filers?
- Large Accelerated and Accelerated Filers are boh required to file the 10-Q within 40 days of the period end.
- Non-accelerated filers are required to file form 10-Q within 45 days of period end.
How is TS cost method treated for gain/loss?
- Gains and losses on treasury stock transactions are never recorded on the income statement.
- There are no TS gains, but are instead recorded by increasing APIC - TS.
- Losses are recorded by first eliminating any balance in APIC - TS and then decreasing retained earnings.
When do you translate exchange rates?
When the company is a U.S. company importing goods in euro payment, for example, its gains and losses will be recorded in U.S. dollars. Lastly, if the exchange rates are quoted in euros, they must be translated into U.S. dollars. This requires $1/euro rate from the two dates mentioned in the question (e.g., transaction date and balance sheet date), taking that euro rate difference and multiplying it by the euro transaction price.
When calculating the number of CS shares outstanding, what should you keep in mind for purchased shares, reissued shares, and stock splits?
Regardless of when shares are purchased or reissued, they are considered treasury shares and should be considered wholly outstanding the entire year. Similarly, stock splits are considered outstanding the entire year too.
How are issued stock dividends and stock splits calculated under the current year weighted average shares outstanding method for basic EPS?
They are considered to be outstanding the entire year, regardless of what date in the year they were issued. At each given stock dividend, issuance, or split, make sure to take the outstanding shares at that date and divide by two then sume those averages to get WACSO.
Explain in-the-money and out-of-the-money when it comes to comparing the average market price of a company’s stock against the strike price for warrants outstanding. How does this affect adjustments needed for diluted EPS?
- If a warrant’s strike price is out-of-the-money, this means the strike price is greater than the average market price of the stock. No adjustments for DEPS is needed.
- Inversely, when a warrant’s strike price is in-the-money, it means the strike price is lesser than the average market price of the stock. This requires an adjustment for DEPS.
How do you calculate the amount of dividends payable to C/S shareholders when there are fully participating P/S shareholders?
1) P/S shares x % of cumulative P/S x par value per P/S share
2) C/S shares x same cumulative % x par value of C/S share ([since P/S is fully participating and C/S doesn’t have cumulative %])
3) Whatever remaining declared dividends, use the total weighted relation of par value ([without cumulative percentage]) to find the C/S ratio
4) add 2 & 3
How would the purchase of TS affect S/E and EPS?
It would decrease S/E and the number of outstanding shares, thus increasing the amount of EPS.
How should Other Comprehensive Income (OCI) items be reported for tax reporting purposes?
OCI items can either be reported individually on a net of tax basis, or each OCI component can be reported before tax basis with one after-tax aggregate amount.
How do you adjust Beg. R/E for Year 2 upon discovering the unrecorded inventory for Year 1?
BI + Purchases - COGS = EI
This is an understatement of EI which results in overstatement of COGS which results in understatement of NI for Year 1.
To correct this understatment, you must add back the inventory not recorded (net of tax) to Beg. R/E.
What are the required footnote disclosures of concentration vulnerability?
- Concentration exists as of the F/S date.
- The concentration makes the entity vulnerable to the risk of a near-term severe impact.
- It’s at least reasonably possible that the vulnerable events that could cause a severe impact will occur in the near term.
What are the main subsequent disclosure diffreences between a company that files with the SEC and a company that does not?
An SEC filer does not need to disclose the subsequent evaluation date, and their evaluation period runs through to the F/S issued date.
A non-SEC filer must disclose the subsequent evaluation date, and their evalution period runs through to when F/S are available to issued (GAAP format and all approvals for issuance obtained).
What are common modifications made to caash basis F/S?
Modifications that should have substantial support (logical and equivalent like accrual basis) include:
1) Capitalizing and depreciating fiexed assets.
2) Accrual of income taxes
3) Recording liabilities for LT & ST borrowings with related exp.
4) Capitalizing Inventory
5) Reporting investments at FV and recognizing unrealized gains and losses
Formula to calculate days sales in AR.
End. Net AR / (Net Sales / 365)
Calculate days in inventory.
EI / (COGS / 365)
Formula for Credit Loss (ABD).
Beg. Allowance for Credit Losses (ABD) + Recoveries - Writeoffs + Credit Loss Exp. = End. Allowance for Credit Losses (AR - NRV of AR)
How do you calculate the proceeds from a bank loan at a discount percentage?
The discount is always applied on the maturity value. Start by identifying:
1. Face value of note
2. Stated Rate (consider the number months over 12 months)
3. Maturtity value equals the Face Value x State Rate
4. Discount Rate (consider the number of remaining months on loan over 12 months) will give you the Discount Monetary Value
5. Proceeds from the bank = Maturity Value - Discount Value
How is a negative cash value accounted for on the balance sheet?
As a current liability. This result is from a positive bank balance pending outstanding checks.
How do you determine the final fair value measurement of an asset, regardless of principal and/or most advantageous market?
- Firstly, always use the principal market’s fair value (FV) even if there is a more advantageous market.
- Secondly, the determination of the FV is the exit price (sales price or liability transfer) and you must consider costs to sale (transaction costs and transportation costs) to get the net amount.
- Lastly, if you are comparing markets to identify the most advantageous market, due to the abcense of a principal market, you must add back transportation costs the get the FV.
