F1 - BS, IS, & CI

Question 1

During a period, comprehensive income does not include changes in equity

Answer 1

resulting from owner investments & distributions to owners (dividends paid to stockholders)

Question 2

Define comprehensive income

Answer 2

Change in equity (net assets) that results from transactions and other events and circumstances from NONOWNER sources.

Question 3

Items included in other comprehensive income (PUFI):

Answer 3

Pension adjustments.

Unrealized gains and losses on available-for-sale debt securities and hedges.

Foreign currency translations adjustments and gains/losses on certain foreign currency transactions.

Instrument-specific credit risk for liabilities (using FV) and their changes in FV.

Question 4

What should you include in total revenues on the 2 single-step income statement?

Answer 4

all sales of goods, services, and rentals

Question 5

What are selling expenses?

Answer 5

Advertising, freight out, office rent of sales department, and sales salaries & commissions

Question 6

How do you quote the exchange rate by using the direct method?

Answer 6

domestic price equals to another currency (e.g. if a retailer in England, X amounts of British pounds are equal to 1 U.S. dollar).

Question 7

How do you calculate comprehensive income?

Answer 7

Net Income + Other Comprehensive Income

Question 8

Name the expense that each of the following unexpired costs turn into as they expire:
1. Inventory
2. Unexpired (prepaid) cost of insurance
3. Net book value of fixed assets
4. Unexpired cost of patents

Answer 8

1. COGS
2. Insurance expense
3. Depreciation expense
4. Amortization expense

Question 9

Describe Form 10-K and 10-Q

Answer 9

Form 10-K: Filed annually by US registered companies. Includes a summary of financial data, MD&A, and audited financial statements.

Form 10-Q: Filed quarterly by US registered companies. Includes UNAUDITED financial statements, INTERIM MD&A, and certain disclosures.

Question 10

what happens to written off recovery of the accounts?

Answer 10

It does not hit the revenue

Question 11

Unrealized holding loss from available-for-sale debt securities is….

Answer 11

a component of other comprehensive income, which is not included net income and would thus cause earnings to differ from comprehensive income.

Question 12

OTHER comprehensive Income (OCI) includes….

Answer 12

• The unrealized gains and losses are recognized in OCI until the investment is sold.
• Gains and losses from cash flow hedges.
• The remeasurements of defined benefit pension plans (Adjustments related to pension plans, reflecting changes in the PV and the FV of the plan’s assets).
• Changes in the FV of financial liabilities due to changes in the company’s own credit risk
• Foreign currency translation adjustments.

Question 13

Prior services costs NOT previously recognized as a component of net periodic pension costs….

Answer 13

is included in ACCUMULATED OTHER COMPREHENSIVE INCOME (or loss).

Prior service costs RECOGNIZED in the year of adjustment should be recorded to PBO and OTHER comprehensive income (or loss), which then becomes part of ACCUMULATED other comprehensive income (or loss).

The unrecognized prior service cost in accumulated other comprehensive income (or loss) is amortized to pension expense over the plan participant’s remaining years of service.

Question 14

Unrealized gains and losses on debt securities classified as available-for-sale are recorded….

Answer 14

in OTHER comprehensive income.

REMEMBER !!! The unrealized holding gain on available-for-sale debt securities is not a component of net income, but is included in other comprehensive income.
Comprehensive Income = Net Income + OCI

Question 15

The company has the choice of reporting the components of other comprehensive income on either…..

Answer 15

an individual net of tax basis or each component on a before tax basis with one amount shown after for the aggregate tax effects.

Question 16

Under U.S. GAAP, unrecognized prior service cost and unrecognized net gains or losses must be reported…..

Answer 16

in accumulated other comprehensive income, net of tax, until recognized as part of pension expense through amortization.

Prior service cost increases pension expense and is recorded as a debit to OCI.

Net gains decrease pension expense and are recorded as a credit to OCI.

Accumulated OCI is reported on an after-tax basis.

Question 17

What are two types of foreign currency transactions?

Answer 17

1. Operating transactions, such as importing, exporting, borrowing, lending, and investing.
2. Forward exchange contracts: agreements to exchange two different currencies at a specific future date and rate.

Question 18

Gain and losses from foreign currency transactions reported in…

Answer 18

income statement to determine net income for the period.

Question 19

The recording process of operating transactions in foreign currency:

Answer 19

1. On date of transaction, record original transaction at exchange rate or spot rate.
2. At balance sheet date, recalculate gain/loss on the transaction by using current or spot rate.
3. On payment date, compute gain/loss on the transaction by using exchange rate on payment date.

Question 20

Foreign exchange gains and losses are recorded at year end on uncompleted contracts:

Answer 20

The gain for Year 2 is the exchange rate change from 12/31/Year 1 to 2/1/Year 2:
($.22 - $.19) or $.03 x 250,000 pesos = $7,500 (gain)

Question 21

For the fiscal year ended September 30, Year 1, Safe Instruments Company (SIC) reported net sales, gross profit, and operating income of $375,000,000, $180,000,000, and $135,000,000, respectively. The company also reported net interest expense of $45,000,000 and had a tax rate of 40%. Other pertinent income statement items included a discontinued operations loss of $20,000,000, net of tax. If SIC had other comprehensive income totaling $3,500,000 during the fiscal year, what is the company’s reported comprehensive income for September 30, Year 1?

Answer 21

Operating income $135,000,000
Net Interest expense -$45,000,000
Income from continuing
operations before tax $90,000,000
Less Income Tax es 40% -$36,000,000
Income from continuing
operations $54,000,000
Loss on discontinued
operations -$20,000,000
Net Income $34,000,000
Add: OCI $3,500,000
Comprehensive Income $37,500,000

Question 22

“Freight-in” is a part of…..

Answer 22

“cost of goods sold.”

Question 23

If a company issues rights to its existing shareholders WITHOUT CONSIDERATION….

Answer 23

no entry will be made.
If the rights are exercised and stock is issued, then common stock by par value) and additional paid-in capital (by the difference of purchase price and the par value) will increase.