F1 Flashcards
(44 cards)
What should a full set of financial statements include?
Statement of Financial Position (the balance sheet)
Statement of Earnings (the income statement)
Statement of Comprehensive Income
Statement of Cash Flows
Statement of Changes in Owners’ Equity
Name the expense that each of the following unexpired costs turn into as they expire:
- Inventory
- Unexpired (prepaid) cost of insurance
- Net book value of fixed assets
- Unexpired cost of patents
- Cost of goods sold
- Insurance expense
- Depreciation expense
- Amortization expense
Are gains and losses on the disposal of assets shown on a “gross basis” (i.e., where
both the sale proceeds and the net book value of the disposed asset are reported) or
on the “net basis” (i.e., where only the difference between the sale price and the net
book value of the disposed asset is reported)?
Gains & Losses are reported at their net amounts (i.e., proceeds less net book value)
How does a “multiple-step” income statement differ from a “single-step” income
statement?
- A multiple-step income statement reports operating revenues & expenses
separately from nonoperating revenues and expenses & other gains and
losses. - On a single-step income statement’s presentation of income from continuing operations, total expenses are subtracted from total revenues without separation
between operating and nonoperating revenues and expenses.
The gain (loss) from discontinued operations can consist of…
an impairment loss, a gain (loss) from actual operations, and a gain (loss) on disposal.
How do we account for subsequent increases in the fair value of a discontinued component?
A gain is recognized for the subsequent increase in fair value minus costs to sell (but
not in excess of the previously recognized cumulative loss). The gain is reported in the
period of increase.
What conditions must be present for a disposal to be reported in discontinued
operations?
if the disposal represents a strategic
shift that has or will have a major effect on an entity’s operations and financial results.
State two types of foreign currency transactions.
- Operating transactions, such as importing, exporting, borrowing, lending, and
investing transactions. - Forward exchange contracts, which are agreements to exchange two different
currencies at a specific future date and at a specific rate.
Where are foreign currency transaction gains or losses reported in the financial
statements?
Foreign currency transaction gains or losses are included in determining net income
for the period.
For operating transactions in foreign currency, detail the recording process.
- Record original transaction at exchange or spot rate on date of transaction.
- At balance sheet date, compute gain/loss on the transaction by recalculating
using the current exchange or spot rate. - On payment date, compute gain/loss on the transaction by using the exchange
rate on payment date.
Define comprehensive income.
Change in equity (net assets) that results from transactions and other events and
circumstances from nonowner sources.
List some disclosure requirements for comprehensive income.
- Tax effects of each component included in current OCI
- Changes in the accumulated balances of components of OCI
- Total accumulated OCI
- Reclassification adjustments between OCI and net income
List the two formats acceptable for reporting comprehensive income.
- Statement of comprehensive income (single‑statement approach)
- Statement of income followed by separate statement of comprehensive income
(two-statement approach)
Identify four items included in other comprehensive income.
PUFI
- Pension adjustments
- Unrealized gains and losses on available-for-sale debt securities and hedges
- Foreign currency translation adjustments and gains/losses on certain foreign currency
transactions - Instrument-specific credit risk for liabilities (using FV) and their changes in FV
What is the basic formula used for calculating EPS?
Income available to common shareholders / Weighted average number of common shares outstanding
Name the potentially dilutive securities or instruments.
- Stock options and warrants and their equivalents
- Convertible securities (bonds or preferred stock)
- Contracts that may be settled in stock or cash
- Contingent issuable shares
Compare basic & diluted EPS
Basic: Simple capital structure (only common stock outstanding)
Income available to common shareholders /
Weighted average common shares outstanding
Diluted: Complex capital structure
Income available to common shareholders
assuming conversion of all dilutive securities /
Weighted average common shares outstanding
after conversion of all dilutive shares
What is the antidilution rule?
It keeps companies from making their EPS look better by including items that would help their numbers.
Any issuance that has an antidilutive effect (increases EPS or decreases loss per share) is not included in the calculation unless the shares have actually been converted/exercised.
Each potential common share is considered separately in sequence from most to least dilutive, with in-the-money (current stock price > option price) options and warrants generally included first.
List the reporting requirements for EPS.
Face of income statement, with equal prominence for basic and diluted per-share amounts, for both income from continuing operations and net income.
Per-share amounts for discontinued operations can be reported on the face of the income statement or in the notes to the financial statements.
Describe Form 10-K and Form 10-Q.
What level of assurance must be provided with
the financial statements submitted in these forms?
10-K: Filed annually
- Includes a summary of financial data, MD&A, and audited financial statements prepared using U.S. GAAP.
Form 10-Q: Filed quarterly
- Includes unaudited financial statements, interim MD&A, and certain disclosures
Define common stock & list the basic properties
Common stock is residual ownership interest
Basic rights:
- voting rights
- dividend rights
- rights to share in distribution of assets if corporation is liquidated, after satisfaction of creditor and preferred stockholders’ claims
List some common properties of preferred stock
- convertible, callable
- redeemable
- dividends can be cumulative and/or participating
2 alternative methods of accounting for treasury stock?
Cost method: Treasury stock is debited at cost of shares repurchased.
Legal (par value method/stated value method): Treasury stock is debited at par value of shares repurchased.
Remember, no gains/losses are recognized on the income statement.
Income and retained earnings may never increase by the transaction.
APIC—Treasury Stock account used to record “gains” and absorb “losses.”
Treasury stock is not an asset
Cash and property dividends are not paid on treasury stock
Stock dividends may be paid on treasury stock.
Summarize the cost method of accounting for treasury stock
- Recorded, carried, and reissued at reacquisition cost
- Any “gain” is credited to Paid-in Capital—Treasury Stock
- Any “loss” is charged against previous “gains,” then retained earnings
- Reported as a deduction from total stockholders’ equity
