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FAR MC > F1 > Flashcards

F1 Flashcards

1
Q

If time between transfer of goods / services and payment exceeds one year, how measured?

A

Present value of future cash flows. If less than one year, not necessary

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2
Q

How is variable consideration measured?

A

Whichever is the best predictor:

Probability weighted (lots of options) or most likely (few options)

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3
Q

Inventory

A

Operating goods of the business, unexpired costs expensed as sold

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4
Q

Core biz

A

What is done all day / everyday

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5
Q

Call Option

A

Optional, option to purchase, “it’s your call”

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6
Q

Distinct good

A
  1. Separately identifiable (can be separated

2. Good or service can independently benefit customer (or when combined with customer’s available resources)

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7
Q

Working capital

A

Current assets less current liab.

Assesses risk

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8
Q

What are some variable consideration examples?

A

Penalties, bonuses, time val. of money, etc.

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9
Q

When to recognize revenue on bill and hold

A

Customer obtains control of product

  1. Customer requested arrangement
  2. Product is identified as customers
  3. Product ready to ship
  4. Entity cannot use customer’s product
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10
Q

Put option

A

Entity’s obligation to repurchase is at customer’s request,

“Customer can put you up to buying”

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11
Q

Bill and hold arrangement

A

Entity bills customer for product that hasn’t been delivered

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12
Q

What are the 5 aspects of a contract

A
  1. Agreement / Commitment
  2. Rights identified
  3. Payment terms identified
  4. Commercial substance - there will be future cash flows
  5. Collectibility is assured
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13
Q

Performance obligation is satisfied over time if (not just % of completion or construction)

A

Pick one

  1. Asset being created / enhanced already under customer control
  2. Customer receives and consumes benefits of entity’s performance as entity performances
  3. Asset has no alternative use AND entity has enforceable right to pmt
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14
Q

Loss

A

Non-operating,

funds that will never be used to earn income

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15
Q

What are unexpired costs?

A

Future costs - an asset

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16
Q

Difference between contract completion method and percentage-of-completion method

A

In contract completion method, gross profit is not recognized until contract is completed

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17
Q

put option for MORE than selling price

A

Financing arrangement unless below market price, in which case customer has little incentive to exercise right, thus account for as sale with right of return

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18
Q

How are incremental direct costs to obtain contract accounted for

A

Capitalized and amortized over life of the contract UNLESS contract period is < 1 year

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19
Q

Freight Out

A

Selling expense

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20
Q

put option for less than selling price

A

Account as a lease unless customer does NOT have economic incentive to exercise right, then sale with right to return

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21
Q

Right to return- how accounted for?

A

Only recognize revenue on what you expect to keep (not have to return). If the customer keeps it, we get to keep the revenue.

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22
Q

Repurchase Agreements

A

Two kinds

a. Sale with right to return and
b. Financing arrangement (I.e. Title of asset given in exchange for a loan)

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23
Q

Losses on contracts are recognized when?

A

Immediately on discovery, reverse previous profit

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24
Q

How should an overdrawn bank account be account for?

A

Liability unless there is an account @ the same bank that could offset the balance. Otherwise legal right to offset doesn’t exist

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25
Q

A warranty is a separate performance obligation if

A

Sold separately, covers a loooong period, is basically elected to be provided by the company

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26
Q

Transaction Price

A

What you expect to receive (not reasonably assured of collection)

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27
Q

Combination of contracts is an example of what Accting principle?

A

Substance over form

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28
Q

What JV is made for recovery of accounts written off?

A

AR
Allowance for Doubtful
Cash
AR

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29
Q

If the stand alone price changes after inception, how should it be reallocated to transaction prices?

A

Changes in stand alone selling price are NOT reallocated. The stand alone selling price reflects the price at the initial measurement date.

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30
Q

Financing Arrangement

A

Repurchase price is greater than original selling price (basically you borrowed money + interest)

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31
Q

Restrict cash on bal. sheet - how to classify? Such as sinking fund.

A

Non-current asset. Cannot be used in liquidity and current ratios, so must be non-current.

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32
Q

Put option for a price that is less than market price

A

No economic incentive to exercise right. Sale with right of return

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33
Q

Discounts when allocating transaction prices

A

Allocated proportionally

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34
Q

What line item is income before considering tax effect

A

Income (loss) from operations

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35
Q

Stand alone selling price

A

Price goods / services would be sold separately

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36
Q

Warranty MC usually are asking

A

Is the warranty a separate performance obligation?

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37
Q

Purchase Discounts

A

Contra Expense, reduces COGs

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38
Q

Forward

A

Obligation to purchase in the future

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39
Q

Agent vs Principal

A

Agents

  • are NOT primarily responsible to fulfill contract
  • do NOT have inventory risk
  • do NOT establish prices
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40
Q

Transaction prices: Consideration payable to customer - how to account

A

If entity is NOT receiving goods / services from customer:

Reduce transaction price and revenue

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41
Q

When should franchiser report revenue from initial franchise fees?

A

When all performance obligations of sale have been satisfied (even if the fees will be collected over 5 years)

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42
Q

Account for current investments

A

Short term investments

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43
Q

How are discontinued operations reported on a single step income statement?

A

Separate, same as multi step

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44
Q

Once pmt is received when can entity recognize the revenue?

A

Consideration is nonrefundable and performance obligation is met / contract is cancelled

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45
Q

Progress billings is a ____ account

A

Contra-inventory account

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46
Q

Percentage of completion requirements

A

a. Entity can Reasonably estimate profitability

b. Provide reliable measure of progress toward completion

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47
Q

Revenue may be satisfied at a point in time if

A

Transfer of control and entity has right to pmt

  1. Entity has right to pmt
  2. Customer has legal title
  3. Entity has transferred physical possession
  4. Customer has significant risks and rewards of ownership
  5. Customer has accepted asset
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48
Q

How are sales presented on IS?

A

Net of discounts and returns - one line item

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49
Q

Classified B/S

A

Separates current from non-current

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50
Q

ISTAR

A

5 step approach to recognize revenue

I - identify the contract
S - separate performance obligations
T - determine the Transaction price
A - allocate the transaction price
R - recognize revenue as each performance obligation is satisfied
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51
Q

What if there is an absence of reliable info used to measure job progress?

A

If entity expects to recover costs, can recognize revenue based on cost until reliable info is measurable

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52
Q

Refund liability

A

Amount entity does not expect to be entitled to receive and keep

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53
Q

Gains and losses are recognized gross or net?

A

Net

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54
Q

Is income (loss) from continuing operations gross or net of tax?

A

Net of tax! Is calculated by considering tax effect. If there are no discontinued operations, than this line item is simply “net income”

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55
Q

Single step income statement

A

All revenues less all expenses (including income expense) = net income

No subtotals

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56
Q

CIP is a ____ account

A

Inventory account

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57
Q

Incremental direct cost to obtain contract

A

Costs Occurred b/c contract was obtained (i.e commission)

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58
Q

Multi step income statement

A

Separates operating (core biz) from non-operating (auxiliary)

59
Q

What is the strongest indicator that revenue should be recognized?

A

Transfer of control to customer (customer takes risks and rewards of ownership)

60
Q

Noncash consideration is measured at

A

Fair value

61
Q

Freight In

A

Inventory cost

-> COGS

62
Q

A warranty is NOT a separate performance obligation if

A

The company is compelled to provide it due to law or because it comes with the product by default

63
Q

Unusual or infrequent items are reported on the IS how?

A

Separate component of income from continuing operations

Nature of item should be disclosed in (on IS or in notes)

64
Q

How is revenue recognized over time measured?

A

Input and output methods

Output = newspapers
Input = lawyers / CPAs
65
Q

Cost to fulfill contract

A

Labor / material / OH -> inventory and expenses into COGS as sold

66
Q

Financing Arrangement JV

A 
Cash
        Financing Liability
Interest Expense
        Financing Liability
Financing Liability
        Revenue (if option lapses)
67
Q

Completed Contract Method Requirements

A

Costs hard to estimate and

Short period of construction

68
Q

A component of a biz is …

A

A part of an entity that is clearly distinguishable both operationally and financially

69
Q

Nonprofit goal

A

Provide benefits to fulfill a purpose or mission

70
Q

Is the completed contract method permitted under IFRS?

A

No. If percentage of completion method cannot be used, use cost recovery method

71
Q

A biz component held for sale must meet which requirements

A
  1. Management commits to selling
  2. Component is available for immediate sale
  3. Actively searching for buyer
  4. Sale probable and expected to complete <1 year
  5. Unlikely that there will be significant changes to plan
72
Q

When component is held for sale, what must be tested?

A

Impairment

73
Q

When is something reported as discontinued operations?

A

When held for sale or sold

74
Q

What is a requirement that discontinued operations must have?

A

The disposal of the component must represent a major strategic shift that has a material impact on financial results and operations

75
Q

Earliest period that component can be reported in discontinued operations is

A

When it meets “held for sale” criteria

76
Q

Do discontinued operations include projected operating loss or estimated loss on disposal?

A

No, report only actual loss / gains from discontinued operations in period incurred

77
Q

Are losses on discontinued operations reported net of tax effect?

A

Yes, losses are netted with tax.

78
Q

An asset no longer in use and held for sale in the next 12 months is measured at …

A

Lower of book value or net realizable value

79
Q

Are PP&E a current asset or non-current?

A

NON-Current

80
Q

Are assets held for sale and no longer in use depreciated?

A

No, b/c there are no future economic values left

81
Q

What potentially 3 losses calculations must be done on discontinued operations?

A

1) is component impaired?
2) gain / loss on operations
3) gain / loss on sale

Reported NET of tax

82
Q

Changes in accounting estimates use what approach?

A

Do NOT restate, change -going forward-

83
Q

What to do with a change in accounting principle?

A

Restate

84
Q

What is a change in accounting entity?

A

Entity changes composition (consolidated / combined financials)

85
Q

What is a change in accounting principle?

A

A change from one accounting principle to another acceptable principle (GAAP to GAAP)

86
Q

What is the rule of preferability for accounting principle changes?

A

An accounting principle change may only occur one of two ways, either mandated by GAAP or if the alternative is preferable (more fairly presents info)

87
Q

How is a prior period error fixed on the income statement?

A

Adjustment to prior period financials if presented comparatively or adjustment to beg. Retained Earnings

88
Q

Prior period adjustment is presented how on financials

A

Adjustment to beg. Retained Earnings.

Occurs due to change in Accting principle or correction or error

89
Q

In a change of accounting principle to LIFO, how is the prior period adjustment calculated?

A

Not calculated because generally it’s impractical to derive the layers. In this case no adjustment is made and the veining inventory dollar amount becomes the first LIFO layer

90
Q

What two special cases are changes in estimates (I.e. Prospective)

A

Change to LIFO

Change in Depr. Method

91
Q

IFRS: When a restatement is made due to a change in accounting principle at a minimum, what must be presented in the financials?

A

3 balance sheets and 2 of all other financial statements

92
Q

Adjustments to beg. Retained Earnings must always…

A

Be net of tax

93
Q

What does IFRS call a change in accounting entity?

A

Nothing, IFRS does not include the change in accounting entity. It’s GAAP only.

94
Q

Any adjustment to retained Earnings must have this adjustment

A

Adjustments to RE must be NET OF TAX

95
Q

IFRS vs GAAP difference between when it is impractical to determine period specific effect of an error

A

Entity is require to restate info prospectively from earliest practical date. US GAAP does NOT have impracticality exemption for error corrections

96
Q

Relationship between prior period adjustments to inventory and RE

A

Adjustments to inventory always move RE in the same direction. Raises Retained Earnings because cost goes down

97
Q

Dividends are recorded when

A

Declared NOT paid

98
Q

How should a change in accounting principle that is also a change in accounting estimate be recognized?

A

When a change is both a change in principle and a change in estimate, the change in estimate supersedes and the change is accounted for prospectively

99
Q

How does the cumulative effect change of a prior period adjustment affect the current period income statement?

A

It doesn’t. Prior period adjustments do not affect the current income statement, they affect the retained earnings statement and cause any reported prior period IS to be restated

100
Q

When a company switches to IFRS how many of exact financial statement must they report?

A

3 B/S

2 of everything else

101
Q

True / False: Other comprehensive income includes net income

A

False

102
Q

Where is accumulated other comprehensive income reported on the financials?

A

In the stockholders equity section

103
Q

What is the purpose of reporting comprehensive income?

A

To summarize all changes in equity from nonowner sources

104
Q

Two choices for displaying statement of comprehensive income

A

Single statement (w/ IS) and two-statement approach

105
Q

Opposite of income tax expense

A

Income tax benefit

106
Q

Comprehensive income excludes what changes to equity

A

Investments from and distributions to owners

107
Q

If net income goes to retained earnings than OCI goes to

A

AOCI

108
Q

OCI can be defined as

A

Gains / losses not yet reported in income

109
Q

PUFER

A
  • Pension Adjustments
  • Unrealized gains / losses on avail. for sale DEBT securities
  • Foreign Currency Items
  • Effective portion of cash flow hedges
  • Revaluation surplus (IFRS only!)
110
Q

Revaluation Surplus (IFRS only)

A

OCI component, revaluation (gains) recognized when intangible assets and fixed assets are revalued. Not transferred to NI, but directly to RE

111
Q

Reclassification Adjustment (OCI)

A

Avoids double counting of AOCI items in the income statement

112
Q

Is comprehensive income required to be displayed in financials?

A

Yes - not only that but must be displayed at same prominence as other financials

113
Q

Does other comprehensive income have to be reported net of tax?

A

No - can be reported net or with tax expense / benefit as an aggregate total (like IS)

114
Q

Where must Income tax expense or benefit for OCI be disclosed

A

On the the face or the notes

115
Q

Required disclosures for OCI

A
  1. Tax effects of each component (PUFER)
  2. Changes in accumulated balances of each PUFER
  3. Total AOCI balance
  4. Reclassification Adjustments
116
Q

Disclosing Reclassification Adjustments of OCI is required for:

A

Changes in AOCI by PUFER for reclassification broken down by reclassification adjustments and current period OCI. Can be shown net of tax or gross as long as tax effect shown somewhere in financials statements or notes

117
Q

Does comprehensive income include discontinued operations?

A

Yes! Comprehensive income includes all changes to equity from non-owner sources

118
Q

Where is revaluation loss displayed on the financials?

A

Net Income, only revaluation SURPLUS is OCI under IFRS

119
Q

Where is the difference between the fair value of pension plan assets and accumulated benefit obligation displayed on the financials?

A

It isn’t in the financials - not in OCI

120
Q

Comprehensive Income questions - key

A

Make sure what they are asking about

Other Comprehensive Income
Comprehensive income - IS included
Accumulated OCI - b/s

121
Q

How is imputed interest become a payable / Receivable?

A

NOT recorded as interest payable / receivable but instead rolled into the carrying value of the note

122
Q

How is a change in estimate for depreciation calculated?

A

Carrying_Value / ( new_basis - years_depreciated_to_date )

123
Q

How is impairment loss calculated for discontinued ops?

A

Net book value less what management thinks they will sell the discontinued ops for (which should be based on fair value)

124
Q

Tax Accrual Adjustment Related to year 2 during preparation of year 3 IS - what kind of adjustment and what is the impact on year 2?

A

Change in Accounting Estimate - Prospective - no impact on Year 2

125
Q

Change to LIFO is a change in accounting ____ ?

A

Principle, even though it is treated as a change in accounting estimate

126
Q

Difference between retrospective treatment vs restate accounting periods

A

Correction of accounting error = RESTATE PRIOR PERIODS

Change in Accounting entity = RETROSPECTIVE

127
Q

What kind of change in accounting ____ is an adjustment of an contingency for loss on lawsuit after the verdict is decided?

A

It’s a change in accounting estimate, thus is adjusted for prospectively

128
Q

Is a change in accounting principle acceptable to simulate earnings and investment?

A

No - the change must either be required by GAAP or more fairly present the information

129
Q

Correction of error (restatement) JE looks like:

A

RE
Income Tax Payable / Receivable
Asset / Liability impacted

Or

Asset / Liability Impacted
RE
Income Tax Payable / Receivable

130
Q

Is contract asset / liability a current or non-current asset?

A

Current asset

131
Q

As the end of the contract completion method, what is the final JE?

A

Expense
CIP

Progress Billings
Revenue

132
Q

Roger is PC and material

A

Relevancy is
Predictive Value
Confirmatory value
Materiality

133
Q

CUT like a V

A

Enhancing Qualitative characteristics

Consistency
Understandability
Timeliness
Verifiability

134
Q

Primary Qualitative characteristics mneumonic

A

Roger is PC and material, he’s never on he FENCe

135
Q

Enhancing Qualitative characteristics

A

CUT like a V

136
Q

Are Dividends declared but not paid included in earnings or comprehensive income?

A

No

137
Q

Difference between earnings and comprehensive income

A

PUFER

138
Q

The FASB is not responsible for prescribing standards related to

A

Internal control

139
Q

Is inventory current or non-current?

A

Current asset. You can liquidate to pay off current liabilities and in theory expect to sell it within a year

140
Q

Is managerial accounting GAAP?

A

No

141
Q

Is there a min operating cycle?

A

Yes

12 mo.

142
Q

Primary users of financials EXCLUDE

A

Regulators

143
Q

The primary reason discontinued ops are reported separately from continuing ops

A

Predictive value

FAR MC (10 decks)

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