F1 - FIN REP - 1

Question 1

GAAP RULES for Deferred Tax Assets & Deferred Tax Liabilities

Answer 1

These are Temporary Differences between tax basis of assets and liabilities and their reported amounts in the FS

Question 2

Any Gains or Losses from Discontinued Operations

Answer 2

Must be recorded according to order:

Income from Continuing Operations
Income Tax Expense
Gain or Loss from Discontinued Segment (after Tax)

Question 3

TRANSACTION GAINS/LOSSES

Answer 3

Related to Specific Transactions (sales, purchases)

Affect the Income Stmt, so like the net income

Question 4

TRANSLATION GAINS/LOSSES

Answer 4

Related overall FS of foreign subsidiaries

Affect OCI and are reflected in equity, NOT in Net Income

Question 5

Net Income

Answer 5

Includes
Revenues
- Operating Expenses
- Income Tax Expenses

Income from Continuing Operations
(Operating, Non-operating and income tax expense if using the multiple-step format) and discontinued operations

Excludes OCI Items

Question 6

Gains/losses on a Fair Value Hedge are reported in current income

Answer 6

Gains/losses on a Cash Flow Hedge are deferred and reported as a component of OCI until the hedged transactions impacts earnings

Question 7

Comprehensive Income MAY be ( NOT MUST BE ) shown on the face of a combined “statement of income and comprehensive income”

Answer 7

A separate section below net income, or in a separate “Statement of Comprehensive Income”

Question 8

COMPANY has the choice of reporting the components of OCI on either an individual net of tax basis

OR

Answer 8

Each component on a before tax basis with one amount shown after for the aggregate tax effects

Question 9

EPS FORMULA

& Disclosure - Required for all companies with publicly traded common stock or potential common stock:

Potential Common Stock:

Stock Options
Stock warrants
Convertible Securities
Contingent Stock Agreement

Answer 9

Basic EPS = Net Income - Preferred Dividends / Average Common Shares Outstanding

Question 10

Anti-Dilution Rule

Answer 10

Helps ensure that the reported EPS reflects a conservative estimate of a company’s earnings

If certain securities would increase the EPS rather than decrease it
The Securities is NOT included in the calculation of Diluted EPS

Question 11

“OUT OF THE MONEY” Stock options
Are anti-dilutive BC

Answer 11

IF exercise price exceeds the market price of the stock

Question 12

Form 10-Q
Large Accelerated Filer & Accelerated Filer must file within 40 days
Worldwide Market value of $700 million or more

Small Corps 45 days

Answer 12

Quarterly Reports - Companies must file every 3 months

IF the company has “NO SEASONAL FLUCTUATIONS” means that it just has to report the most recent fiscal year-end balance sheet along with the current quarter’s data.

Contains unaudited financial stmts

Question 13

The entire amount of a gain or loss from a sale of fixed assets

Answer 13

Should be reported during the period (quarter) incurred

Question 14

GAAP that was used in the most recent annual report of an enterprise

Answer 14

Should be applied to interim financial stmts of the Current year unless a change in accounting principle is adopted in the current year

Question 15

S-X Sets forth the form and content of and requirements

Answer 15

For interim and annual financial stmts to be filed with the SEC

Question 16

Any Prior year EPS data needs to be

Answer 16

Adjusted for stock splits occuring in subsequent years

Question 17

Components of OCI
PUFI

Answer 17

• Pension adjustments
• Unrealized gains & losses on available-for-sale debt securities
• Foreign currency translation adjustments
• I Instrument-specific credit risk

Question 18

RULE: Cumulative preferred stock dividends are paid on par value (not sales price) of preferred stock and

Answer 18

Have a “preference” over common stock dividends until all past preferred stock dividends are paid

Question 19

Dividends are not reported as a liability until

Answer 19

The dividends are declared

Question 20

The Sale of Treasury Stock at less than cost will result in a net increase in stockholders’ equity

Answer 20

The original cost of TS is credited;
An APIC - TS is debited
Any Excess over the APIC would reduce RE
BUT
The net impact to SE would still be positive as long as cash is received
from the sale of the TS

Question 21

Using Cost Method

Answer 21

Any excess to acquire the TS is credited to APIC - TS and does NOT affect Retained Earnings

If shares sold for less than their reacquisition cost, the loss can reduce RE only if there is not enough balance in the APIC - T/S account to absorb the loss

Question 22

RULE: Convertible Securities are recognized

Answer 22

When computing diluted EPS only if the conversion is dilutive

Question 23

RULE:
There is no requirement to appropriate RE for any purpose

Answer 23

RE may be set aside for future purposes by classifying a portion as “appropriated”

Question 24

Differences between Issued Shares & Outstanding Shares

Issued Shares - Total Number of shares that a company has ever sold to investors. Held by investors and held in CO Treasury Stock

Answer 24

Outstanding Shares - Subset of issued shares and refers specifically to the shares that are currently held by investors excluding shares that are in CO Treasury Stock

When TS are resold they are considered as outstanding

Question 25

When Stock rights are "issued" w/o consideration, NO ENTRY is required ONLY Disclosure by the "issuer" or the "recipient"

Answer 25

At the time the rights are "exercised" APIC would be credited if the purchase price of the stock exceeded the Par value RE is NOT affected bc this is a "capital" transaction not an "operations" transaction

Question 26

Know the differences between 'Other Comprehensive Income' & 'Comprehensive Income'

Answer 26

Comprehensive Income = Net Income + OCI OCI = Unrealized gains & losses on available-for-sale securities Foreign currency translation adjustments Pension Adjustments Instrument Specific Credit Risk - Like a bond or a loan

Question 27

The acquisition of Treasury Stock at a price less than their book value will:

Answer 27

1. Decrease SE in total, All TS transactions decrease total equity 2. Increase Book Value per share bc BV per share is based on outstanding common shares which means that when they are "repurchased" the overall number of shares outstanding is LESS, SO the numerator is reduced by the cost to purchase the shares Effect is an increase in book value per share

Question 28

Treasury Stock Method to Calculate the Dilutive effect of Stock Options To Repurchase shares in the market Its the difference between the # of shares in the market Issued vs exercised

Answer 28

of Shares - { # of Shares X Exercise Price / Average Market Price }

Question 29

When a company declares a Stock Dividend

Answer 29

Net effect on Stockholder's Equity is zero bc The Reduction in RE is offset by an equal increase in CS

Question 30

RULE: Stock dividends and stock splits are not considered income to the recipient

Answer 30

Investors do NOT record stock dividends at Fair Market Value Simply reallocate the investment account balance (under either method -- cost or equity) over more shares so that value per share decreases

Question 31

Reverse Stock Split

Answer 31

Reduces the number of shares Increases the Par Value per share BUT does not affect total par value of shares issued

Question 32

Contingent Shares (that are dilutive) are included in the calculation of basis earnings per share (EPS) if (and as of the date)

Answer 32

All conditions for issuance are met Stock options do not enter into the calculation of basic EPS

Question 33

If an entity reports a DISCONTINUED OPERATION

Answer 33

The entity presents the basic and diluted (if applicable) per share amounts for those items either on the face of the income stmt or in the notes to the financial stmts Basic and diluted per share amounts for income from continuing operations and for net income should be presented on the face of the income stmt with equal prominence

Question 34

Comprehensive Income

Answer 34

Net Income + Other Comprehensive Income An unrealized loss on a trading security will be recorded as a loss on the income stmt, which will reduce net income and then Comprehensive Income

Question 35

Accumulated OCI is a component of Stockholders' Equity

Answer 35

On the balance sheet

Question 36

Unrecognized prior service cost and unrecognized net gains or losses

Answer 36

Must be reported 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

Question 37

A property dividend from overstocked merchandise

Answer 37

A loss is recognized for the merchandise's carrying amount over its market value. Results in a reduction in income from continuing operations RULE: Dividends declared and paid in the form of assets other than cash are recorded by the distributing corporation at fair market value at date of declaration.

Question 38

Rule: A "liquidating dividend" is a return of capital (which decreases additional paid-in capital)

Answer 38

AND not a distribution of earnings (which decreases retained earnings).

Question 39

Comprehensive income includes Net Income and OCI Comprehensive is calculated as net income plus other comprehensive income

Answer 39

Net income will include gains and losses on discontinued operations, which means that comprehensive income will include this item as well.

Question 40

Earnings Per Share Data

Answer 40

Should be reported in Discontinued Operations (if entity reports it) Entity presents Basic and Diluted per share amounts for income from continuing operations and for net income and should be presented on the face of the income stmt

Question 41

Common Stock that contains an unconditional redemption feature

Answer 41

Should be reported as a liability on the date of issuance bc there is an obligation of a cash outflow in the future that the company has no ability to prevent

Question 42

Stock Dividends record as if they happened at

Answer 42

Beginning of the year

Question 43

Under the remeasurement method, currency gain or loss is included in the net income of the company.

Answer 43

Under the translation method, the gain or loss is included as a part of other comprehensive income. In both cases, the amount of the gain or loss is calculated as a "plug" amount necessary to make the financial statements balance.

Question 44

Rule: If stock dividend or a stock split (or reverse split) changes common stock outstanding, the computation of EPS shall give retroactive recognition for all periods presented using the new number of shares because the reader's primary interest is presumed to be related to current capitalization.

Answer 44

So like if they do stock split or stock dividend at Jan 1 AND They are issuing Financials of prior year then Yea you need to let READERS (Investors) know

Question 45

How are cumulative preferred dividends treated when calculating basic EPS?

Answer 45

* Only deduct the preferred dividends for one year (the current year's dividend amount), regardless of whether dividends were paid or unpaid in prior years. * Ignore any dividends actually paid or unpaid from previous years (arrears).

Question 46

How are NON-cumulative preferred dividends treated when calculating basic EPS?

Answer 46

* For non-cumulative preferred stock, deduct only dividends declared in the current period.

Question 47

Contingent shares (that are dilutive) are included in the calculation of

Answer 47

Basic earnings per share (EPS) if (and as of the date) all conditions for issuance are met.

Question 48

When collectability is reasonably assured, the excess of the subscription price over the stated value of the no par common stock subscribed

Answer 48

Should be recorded as additional paid-in capital (APIC) when the subscription is received.