F1 - FINANCIAL REPORTING

Question 1

A Gain that is Unusual or Infrequent

Answer 1

Should be recorded in Income from Continuing Operations

Question 2

When Calculating Net Income

Answer 2

Get Income from continuing operations
Minus Income Tax Expense
= Income before discontinued Operations
ADD:
Gain or Loss from discontinued segment (after tax)

Question 3

Sales Revenue is an element of

Answer 3

Other Comprehensive Income

AND Remember what goes into it
PUFI:
Pension Adjustments
Unrealized Gains & Losses (Available-for -Sale Debt Securities & Hedges)
Instrument - Specific Credit Risk

Question 4

HELD FOR SALE CRITERIA

Answer 4

1. Management commits to a plan to sell the component
2. Component is available for immediate sale in its present condition
3. An active program to locate a buyer has been initiated
4. Sale of the component is probable and the sale is expected to be complete within a year
5. Sale of the component is being actively marketed
6. Unlikely that it will change or be withdrawn

Question 5

Gross Profit

Answer 5

Sales - COGS

Question 6

FREIGHT OUT

Answer 6

Is considered a selling expense

Question 7

Other Comprehensive Income

Answer 7

Reports Gains & Losses excluded from Net Income on the Income STMT bc they have NOT been REALIZED YET (UNREALIZED )

Provides a complete company picture of Financial Performance

Provides transparency in Company’s Financial Health

Complies with Accounting Standards (IFRS & GAAP)

Starts with Net Income

Show each component NET OF TAX

Question 8

RULE OF CONTINUING OPERATIONS

Answer 8

When a fixed asset is sold,
Gain or loss is recognized as part of income from continuing operations.

Proceeds from Sale - Carrying Amount of FA = Gain or Loss
Goes on Income from Continuing Operations

Question 9

Gains & Losses from changes in FV of Foreign Currency Transaction
HEDGES classified as FV hedges are accounted for in earnings as are other Fair Value type hedges.

Answer 9

**Gains & Losses from changes in the Fair Value of Foreign Currency transaction hedges used to hedge a net investment in a foreign operation are reported in Other Comprehensive income as part of the cumulative transaction adjustment

Question 10

Available-for-Sale Securities

Answer 10

Is an equity security and should be included in income statement

Question 11

Treasury Stock
“Purchasing Treasury Stock”

Answer 11

Means they are buying back the Common Stock

Question 12

Earning Per Share ( EPS )

Answer 12

Net Income - Preferred Dividends / Weighted Average # of Common Shares Outstanding

Question 13

When Do Stock Dividends and Stock Splits Occur

Answer 13

Treated as if they occurred at the beginning of the year,

Regardless of when they happened ( in the current year )

Question 14

BASIC EARNINGS PER SHARE

Answer 14

Preferred Stock is NOT included in the denominator

B- EPS focuses on how much income is available common shareholders

Non-Convertible Preferred Stock is NOT included

Dividends on Common Stock are also NOT included

(NI - Preferred Dividends) / Weighted Average Common Shares Outstanding

Question 15

Diluted EPS (Earnings Per Share)

Answer 15

Is calculated kinda the same as EPS, but accounts for ANY security that could convert into Common Stock, potentially diluting EPS

Question 16

Preferred Stock Dividends

Answer 16

Subtracted from net income in basic EPS calculations bc preferred shareholders get paid before common shareholders

Question 17

Stock Dividends and Stock Splits

Answer 17

Stock dividends increase the # of shares outstanding but not affect Company Value - When or if occurs apply it to START OF year

Stock Splits - increase the # of shares while decreasing the price per share, with splits treated as occurring at the start of year

Question 18

Convertible Preferred Stock

Answer 18

Treated as if it’s converted into common stock when calculating diluted EPS, meaning preferred dividends are added back to net income, and new common shares are added to the denominator

Question 19

Convertible Bonds

Answer 19

Calculating diluted EPS, the after-tax interest expense from convertible bonds is added back to NI bc the company will no longer pay interest after conversion

Additional shares from the bond conversion are added to the common shares outstanding.

Question 20

Antidilutive Securities

Answer 20

A security is antidilutive if its conversion or exercise would increase EPS rather than decrease it

If Stock OPTION EXERCISE PRICE IS HIGHER THAN MARKET PRICE STOCK OPTIONS ARE ANTIDILUTIVE - SO YOU DONT INCLUDE IN EPS CALCULATION

Question 21

SALE OF FIXED ASSET

Answer 21

RULE: The entire amount of a gain or loss from sale of fixed assets should be reported during the period (quarter) incurred

Question 22

Under US GAAP ( for reporting EPS )

Answer 22

Should be reported on

Discontinued Operations
AND
Income from Continued Operations

Question 23

When recording foreign currency transactions or translations

Answer 23

IF they are just issuing a Purchase Order
No entry is required

Question 24

JE for Repurchase of TS (Par Value Method)

Answer 24

TS is recorded at its par value
TO APIC goes (diff of par and Issued price, 1st one)
Plug for RE

Question 25

JE for Reissuance of TS (Par Value Method)

Answer 25

Par Value is Credited to TS the Difference of the reissue price (the DR to CASH) Goes to APIC

Question 26

JE for Repurchase of TS (Cost Method)

Answer 26

TS is recorded at the price for repurchase no needed Adjustment to RE or APIC

Question 27

Reissuance of TS (Cost Method)

Answer 27

TS is credited at its repurchase cost Gains are credited to APIC Loss Debited to APIC OR To RE if APIC is insufficient Cash is debited at the reissue price

Question 28

JE for Donated/Gift Stock to Corp

Answer 28

Record TS at FMV on the donation date Offsetting Credit to APIC - Resulting in no net change to SE equity

Question 29

Declaration Date of Dividend

Answer 29

A liability is created and RE is reduced

Question 30

Rule: A stock dividend (less than 20-25% of the stock outstanding) .

Answer 30

transfers the FMV of the stock dividend at declaration date from retained earnings to capital stock and paid-in capital. There is no effect on total stockholders' equity because all transfers take place within stockholders' equity

Question 31

Only changes in Other Comprehensive Income

Answer 31

Will impact the balances in Accumulated Other Comprehensive income (AOCI)

Question 32

When Treasury Stock is recorded under the "Cost Method"

Answer 32

AND resale of Treasury Stock exceeds its acquisition price, then none of the Treasury Stock transactions affected Retained Earnings

Question 33

How to report Components of Other Comprehensive Income

Answer 33

Company has a choice of reporting Net of tax basis OR Each Component on a before tax basis w/ One amount shown after for the aggregate tax effects

Question 34

For Interim Reporting Purposes

Answer 34

Costs that benefit multiple periods should be allocated equally to those periods

Question 35

Unrealized Losses in an available-for-sale equity securities portfolio

Answer 35

MUST be included in Net Income in the Quarterly Income Statment

Question 35

TWO-STATEMENT APPROACH FOR DISPLAYING COMPREHENSIVE INCOME

Answer 35

BEGINS w/ Net Income THEN Each Component of OCI After-tax-basis

Question 36

RULE: When a Fixed Asset is sold

Answer 36

Gain or Loss will be recognized in Income from Continuing Operations

Question 37

An error correction is accounted for

Answer 37

by adjusting prior period financial stmt to correct the error

Question 38

Convertible Securities are:

Answer 38

Recognized only if they are dilutive RULE: Convertible securities are recognized when computing diluted EPS only if the conversion is dilutive

Question 39

Stock dividends and stock splits

Answer 39

Are not considered income to the recipient

Question 40

When computing Basic Earnings Per Share

Answer 40

Convertible Securities are ignored

Question 41

REGULATION S-X

Answer 41

Sets forth the form and content of and requirements for interim and annual FS to be filed with the SEC REGULATIONS FOR THE FS PRESENTATION AND DISCLOSURE REQUIREMENTS

Question 42

At the times stocks are "EXCERCISED"

Answer 42

PROCEEDS in excess of stocks' par value is credited to APIC

Question 42

When services are paid with Common Stock

Answer 42

The value of the stock is equal to its Market Value

Question 43

REMEMBER CS - ANY TS

Answer 43

When they ask for dividends calculations or recording its Common Stock minus any Treasury Stock

Question 44

When stock rights are "issued" without consideration, no entry (only disclosure) is made by either the "issuer" or the "recipient."

Answer 44

At the time the rights are "exercised" (and the corporation receives a cash inflow), additional paid-in capital would be credited if the purchase price of the stock exceeded the par value (which is usually the case). Retained earnings is not affected because this is a "capital" transaction, not an "operations" transaction.

Question 45

Diluted Earnings Per Share will be = to Basic Earnings Per Share

Answer 45

When the stock options are out of money Out of stock options are anti-dilutive bc exercise price exceeds the Market Price of the stock

Question 46

LIQUIDATING DIVIDEND

Answer 46

Is a return of capital (decreasing APIC) and not a distribution of earnings (decreasing RE)

Question 47

ACQUISITION OF TREASURY STOCK

Answer 47

Decrease Stockholder's Equity Any treasury stock transactions decrease total equity Increase book value per share BV = Outstanding Common Shares NUMERATOR = BOOK VALUE Denominator = Income

Question 48

Accounting Treatment for cash dividend

Answer 48

Common stock - Treasury Stock Dividends are not paid on Treasury Stock bc CO is owning them

Question 49

Donation of Stock by a shareholder

Answer 49

There is NO change to SE on BS HOWEVER, # of common shares outstanding declines with a proportional increase in the BV per common share

Question 50

If they repurchase Treasury Stock

Answer 50

later in month, must calculate for the month of the year like all the other stock issued throughout the year

Question 51

Rule: The difference between book value and fair market value of the property dividend

Answer 51

should be recorded as gain/loss on disposal of asset.

Question 52

When calculating EPS

Answer 52

Careful!!! Prior year EPS needs to be adjusted for stock splits that happen in subsequent years This is only when the question is asking for prior year EPS