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FAR > F1-F4 Topics > Flashcards

F1-F4 Topics Flashcards

1
Q

Formula for Income recognized in current year using Percentage-of-Completion Method

A

Contract Sales Price
- Estimated Cost of Contract
= Total Gross Profit

x % of Completion
= Gross Profit Earned

  • Income Previously Recognized
    = Income Recognized in Current Year
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2
Q

Order of Income Statement Items (Multiple Step)

A 
Revs (Operating) 
- Expenses (Operating)
= Income from Operations 
\+ Other Revs/Gains (Continuing/Non-operating)
- Other Exps/Losses (Continuing/Non-operating)
= Income Before Income Tax 
- Income Tax Expense 
= Income from Continuing Operations
-Discontinued Operations (NET OF TAX)
= Net Income
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3
Q

When is Net Concept and Gross Concept Used?

A

Net Concept = Non-operating Gains and Losses

Gross Concept = Operating Revs and Exps

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4
Q

When are current assets recorded and current liabilities recorded during CIP

A

Current Asset = When Cumulative Costs + Cumulative Estimated Earnings > Cumulative Billings
Current Liability = When Cumulative Billings > Cumulative Costs + Cumulative Estimated Earnings

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5
Q

Explain Forward/Call Option Scenarios

A 
Forward = Obligation to Repurchase 
Call = Right to Repurchase

If Repurchase Price < Original = LEASE
If Repurchase Price >= Original = FINANCING AGREEMENT

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6
Q

Explain Put Option Scenarios

A

Put Option = Obligation to Repurchase at Customer’s Request

Repurchase Price < Original

  • Repurchase Price > Market Value = LEASE
  • Repurchase Price < Market Value = A SALE W/ RIGHT OF RETURN

Repurchase Price >/= Original

  • Repurchase Price > Market Value = FINANCING AGREEMENT
  • Repurchase Price < Market Value = A SALE W/ RIGHT OF RETURN
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7
Q

Changes in Accounting Estimates

A

Affect only current and subsequent periods (PROSPECTIVE)
No adjustments to retained earnings
Income from continuing operations
‘Inseparable’ = To LIFO, Change in Depreciation Method

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8
Q

Error Correction

A

Adjusting beginning retained earnings net of tax (Prior period adjustment)
Restated, Offsetting adjustment NOT made
Non-GAAP -> GAAP

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9
Q

Changes in Accounting Principal

A

Cumulative effect reported net of tax as an adjustment to beginning retained earnings in earliest period (RETROSPECTIVE)

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10
Q

Other Comprehensive Income Items

A

PUFIE -> Equity/AOCI

  • Pension Adjustment
  • Unrealized G/L from AFS
  • Foreign Currency Items
  • Instrument-Specific Credit Risk
  • Effective Portion of CF Hedges
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11
Q 
Define:
Deferred Revenue 
Deferred Expense 
Accrued Revenue
Accrued Expense
A

Deferred Revenue = Cash received before revenue earned
Deferred Expense = Cash paid before expense incurred
Accrued Revenue = Cash received after revenue earned
Accrued Expense = Cash paid after expense incurred

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12
Q

Differentiate Recognized Subsequent Events vs. Non-recognized Subsequent Events

A 
Recognized = Existed @ B/S Date, Record JE and Disclose
Non-recognized = Did not Exist @ B/S Date, Disclose only
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13
Q

SEC Filers vs. Non-SEC Filers when it comes to disclosing SE evaluation period

A

SEC Filers = Not required to disclose

Non-SEC Filers = Required to disclose

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14
Q

Summary of Significant Accounting Policies may include…

A 
Measurement Basis used in preparing F/S and Accounting Principles 
Basis of Consolidation
Depreciation Methods
Amortization & Intangibles
Inventory Pricing 
Use of Estimates
Fiscal Year Definition
Special Revenue Recognition Issues
Criteria for which Investments are Cash Equivalents
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15
Q

How to determine FV of Non-financial Asset

A

Highest and Best Use (Fixed Assets)

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16
Q

Most Advantageous Market Vs Principal Market

A

Most Advantageous = Market with best price for asset

Principal = Market with greatest activity

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17
Q 
10-K
10-Q
11-K
20-F/40-F
6-K
8-K
Forms 3,4,5
A 
Annual
Quarterly
Employee Benefit Plan
Non-US Annual/Canadian Annual 
Semi-annual filed by foreign private users = Unaudited
Major Events
>10% Owners = NO F/S
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18
Q

Filing Deadlines Form 10-K vs 10-Q

A

Form 10-K

  • Large Accelerated = 60 Days (700M)
  • Accelerated = 75 Days (75-700M)
  • All Others = 90 Days (75M)

Form 10-Q

  • Large Accelerated = 40 Days (700M)
  • Accelerated = 40 Days (75-700M)
  • All Others = 45 Days (75M)
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19
Q

Converting Cash Basis to Accrual

Balance Sheet vs. Income Statement

A 
B/S:
Add Inc. A
Subtract Inc. L
Add Dec. L
Subtract Dec. A

I/S
OPPOSITE

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20
Q

Cash to Accrual REV

A 
Cash Basis Rev
\+ Ending AR
- Beginning AR
- Ending Unearned Rev
\+Beginning Unearned Rev
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21
Q

Cash to Accrual COGS

A 
Cash Paid for Purchases
\+ Ending AP
- Beginning AP
- Ending Inventory
\+ Beginning Inventory
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22
Q

Cash to Accrual Expenses

A 
Cash Paid for Op. Expenses
\+ Ending Accrued Liabilities 
- Beginning Accrued Liabilities 
- Ending Prepaid Expenses 
\+ Beginning Prepaid Expenses
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23
Q

All TURNOVER Ratios

A

I/S divided by B/S

B/S item = Avg.

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24
Q

All RETURN ON Ratios

A

Net Income Divided by Avg. B/S item

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25
Q

Partnership Creation Methods

A

Exact Method
Bonus Method
Goodwill Method

26
Q

Withdrawal of a Partner Journal Entries

A

Bonus Method = Capital Accounts Debited (SUBTRACTED)

Goodwill Method = Capital Accounts Credited (ADDED)

27
Q

Difference between Gross Method and Net Method - Discounts

A 
Gross = Records w/o regard to discount
Net = Records net of available discount
28
Q

Direct Write-Off Method

A

No journal entry until WO
NOT GAAP - NO ALLOWANCE

Write Off:
Debit Bad Debt Expense
Credit A/R

Collection:
Cash
Uncollected Acc. Recovered (Rev)

29
Q

Allowance Method (Contra Asset)

A

Inc. in Allowance
Debit Bad Debt Expense
Credit Allowance

Write Off:
Debit Allowance
Credit A/R

Collection
Debit A/R
Credit Allowance 
Debit Cash 
Credit A/R
30
Q

Factoring A/R

A

Without Recourse = Sale is final - Buyer assumes risk

With Recourse = Factor has option to re-sell any uncollected receivables back to seller

31
Q

Discounting a Note to bank = CASH NOW

A

Principal x original% x month/year = Interest
Principal + Interest = Maturity

Maturity x discounted% x time remaining = Interest to bank (DISCOUNT)
Interest - Discount = Interest to Seller

Total to seller = Principal + Interest to Seller
Paid by Bank = Maturity - Discount

32
Q

Lower of Cost and NRV vs Lower of Cost or Market

A

Lower of Cost and NRV (FIFO/WA)

Lower of Cost or Market
-Choose Middle of Replacement Cost, NRV, and NRV - Profit

33
Q

Periodic vs Perpetual Inventory

A

Periodic = 1 JE at time of sale, determined by physical count, COGS determined by plugging

Perpetual = 2 JE at time of sale, Inv. updated for each sale/purchase

Same results for FIFO

34
Q

Weighted Avg. and Moving Avg.

A

Weighted Avg.

  • Total Costs of Inventory Available/Total number of Units Available
  • Periodic

Moving Avg.

  • Weighted Cost after each purchase
  • Perpetual
35
Q

Dollar-Value LIFO - Price Index

A

Price Index = End Inv. @Current Year Cost / End Inv. @Base Year Cost

LIFO Level @Base Year Cost x Price Index = At Dollar-Value LIFO
Beginning Inv. + Layers = End Inv.

36
Q

Gross Profit Method

A
  • Quarterly/Interim F/S
  • Periodic

Sales - (1 - GP%) = COGS
Beg. Inv. + Purchases - COGS = End Inv.

37
Q

Property, Plant and Equipment Costs

A

Property:

  • Purchase Price
  • Broker’s Commission
  • Title and Recording Fees
  • Legal Fees
  • Swamp Draining
  • Clearing
  • Site Development (Grading)
  • Existing Obligations Assumed
  • Demolition of Old Buildings

Plant:

  • Purchase Price
  • Repairs neglected by previous owner
  • Alterations/Improvements
  • Architect’s Fees
  • Construction Period Interest

Equipment:

  • Invoice Price
  • (Cash Discounts)
  • Freight-In
  • Installation/Rearrange
  • Taxes
  • All related to acquisition/construction
38
Q

Capitalization of Period Interest

A
  • Based on WA of accumulated expenditures as part of cost of producing FA
  • Borrowed and Used*

Total Capitalization Cost cannot exceed actual Interest Cost (CAP)
Remaining = Interest Expense on I/S

Capitalized during term of construction/building decisions made/during ordinary delay

39
Q

Asset Retirement/Sold

A 
Debit Cash
Credit Asset (@Historical Cost) 
*Plug = Accum. Dep.
40
Q

Units of Production Depreciation

A

(Cost - Salvage) / Estimated Units per Hour = Rate

Rate x # units = Dep. Exp.

41
Q

Depletion

A

Depletion Base = Cost + Development + Restoration - Residual

Rate = Base / Estimated Recoverable Units

Depletion = Rate x Extracted

42
Q

Non-monetary - Commercial Substance

A

Debit FV of Given Up
Debit Accum. Dep.
Credit Asset @Historical
Credit Cash Paid

*Plug Gain/Loss
FV - BV of Asset

43
Q

Non-monetary - Lacks Commercial Substance

A

No Boot Received = No Gain
Boot is Paid - <25% = No Gain
Boot is Received - <25% = Proportional Gain
Boot is Received - >=25% = All Gain

Plug for Debit
Credit BV of Asset Given UP!

44
Q

Involuntary Conversions

A

“Sell” to insurance company
SP = Proceeds

Gain = Condemnation - BV

45
Q

Intangibles: Capitalized vs. Expensed

A

Purchased - Capitalized @Cost
Internally Developed - Expensed

Exception: 
Legal fees to successful defense
Registration/Consulting fees
Design Costs
Direct Costs to secure asset
46
Q

Franchising

A

Capitalize Given Up:

  • Cash
  • FV Asset
  • PV Note
  • FV Stock

Continuing Franchising Fee = Expensed

47
Q

Start Up Costs/Research and Development Costs

A

Start Up - Expensed

Research And Development - Expensed EXCEPT if have alternative uses

Not Considered R&D:

  • Routine Design Changes
  • Marketing
  • Quality Control Testing
  • Reformation of Chemical Compund
48
Q

Computer Software Development Costs

A
  • Exp. until tech feasibility established
  • Capitalize until released for sale
  • Amortize expenses

Amortization is greater of:

  • Capitalized Amount x (Current Rev / Projected Rev)
  • Capitalized Amount / Economic Life
49
Q

Impairment for Intangibles

A
  1. Undiscounted CF < Cost
  2. FV < BV

Restoration not Permitted for Held for Use
Restoration Permitted for Held for Disposal

50
Q

Investment in Debt Securities Classifications

A

Trade Securities

  • CF from Operations
  • Bought and held for purpose of selling in near term
  • All G/L on I/S @Fair

AFS

  • CF from Investing
  • Realized G/L on I/S @Fair
  • Unrealized G/L in Equity OCI @Fair

HTM

  • CF from Investing
  • Intent and ability to hold to maturity
  • @Amortized Cost
51
Q

Valuation @FV

A

Unrealized TS ->Earnings
Debit Unrealized Loss on TS
Credit Valuation Account

Unrealized AFS -> OCI (NET OF TAX)
Debit Unrealized Loss on AFS
Credit Valuation Account

52
Q

Impairment of Debt Securities

A

HTM
-Expected Credit Loss = PV - Amortized Cost (-)
Debit Credit Loss
Credit Allowance for Credit Losses

AFS

  • Gain = Unrealized Gain to OCI
  • Loss to I/S to extent of ECL
  • Excess Loss to OCI
53
Q

Sale of Debt Securities

A

TS: Selling Price - Carrying Value @time of sale
Debit Cash
Credit Realized Gain
Credit Trading Security

AFS: Selling Price - Original Cost
Debit Cash 
Debit Unrealized Gain *Reversed from AOCI*
Credit AFS
Credit Realized Gain
54
Q

Income from Equity Investments (FVTNI)

A

-Normal Cash Dividends
Debit Cash
Credit Dividend Income

-Liquidating Dividend (Dividend paid in excess of %RE = ROC)
Debit Cash
Credit Dividend Income
Credit Investment

55
Q

Equity Method Accounting

A

Record Investment:
Debit Investment
Credit Cash

Share of Earnings:
Debit Investment
Credit Income

Dividends:
Debit Cash
Credit Investment
Stock Div Memo entry only

56
Q

Consolidation Adjustments (CAR IN BIG)

A 
Common Stock, APIC, and RE eliminated = A - L
Investment in Sub eliminated
Non-controlling Interest created
B/S of Sub Adj. for FV
Identifiable Intangibles recorded @FV
Goodwill/Gain required *plug*
  • Legal Fees = Expensed
  • Registration Fees = Reduce APIC

Contingent Consideration = ADD estimate to Investment and CREDIT liability expected value

57
Q

Intercompany Bond Transactions

A

Debt Considered Retired
Gain/Loss Recognized
Eliminate Intercompany Interest and Amort. of Disc./Prem.

58
Q

Intercompany Sale of Land

A

G/L remains unrealized until land sold to outsider
Period of sale, eliminate G/L and adjust to original cost
Subsequent years: RE debited and land credited until sold to 3rd party

59
Q

Intercompany Profit on Sale of Dep. F/A

A

Unrealized G/L until asset sold to outsider

Eliminate G/L and adjusts asset and Accum. Dep. to original balance on date of sale

60
Q

Consolidation Rules

A

Assets/Liabilities: Include Parents and FV of Sub
Investment in Sub: Eliminate
Equity/CAR: Include Parents and Eliminate Subs
NCI: FV of Sub
Income/Expenses: Include Parents and 100% Subs after acquisition
Intercompany Transactions: Eliminate 100%

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