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FAR OLD > F1 OLD > Flashcards

F1 OLD Flashcards

1
Q

Name the single source of authoritative U.S. GAAP.

A

The FASB Accounting Standards Codification (ASC)

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2
Q

What is the Private Company Council?

A
  • The Financial Accounting Foundation (FAF) created the Private Company Council (PCC) to improve standard setting for privately held companies in the U.S.
  • The goal of the PCC is to establish alternatives to U.S. GAAP, where appropriate, to make private company financial statements more relevant, less complex, and cost-beneficial.
  • Accounting alternatives for private companies are incorporated into the relevant sections of the ASC.
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3
Q

Who are the primary users of general purpose financial reports?

A

Existing and potential:
* Investors
* Lenders
* Other creditors

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4
Q

Name the fundamental qualitative characteristics of useful financial information.

A

Relevance & faithful representation

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5
Q

Name the three elements of relevance.

A
  • Predictive value
  • Confirming value
  • Materiality

what’s relevant? passing confirms money! PCM

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6
Q

Name the three elements of faithful representation.

A
  • Complete
  • Neutral
  • Free From Error

completly neutral and free from error

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7
Q

Name the enhancing qualitative characteristics of financial information.

A
  • Comparability
  • Verifiability
  • Timeliness
  • Understandability
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8
Q

Name the pervasive constraint on the information provided by financial reporting.

A

Cost Constraint:
The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.

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9
Q

According to SFAC #5, what should a full set of financial statements include?

A
  • Statement of financial position (balance sheet)
  • Statement of earnings (income statement)
  • Statement of comprehensive income
  • Statement of cash flows
  • Statement of changes in owner’s equity
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10
Q

List the 10 elements of financial statements according to SFAC #6.

[CREG and LALEID]

C REGL ALE ID

A

Comprehensive income
Revenues
Expenses
Gains
and
Losses
Assets
Liabilities
Equity (of net assets)
Investment by owners
Distributions to owners

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11
Q

Name the 5 elements of present value measurement per SFAC #7.

[EVTUO]

A

Estimate of future cash flow (expectations about timing)

Variations of future cash flows

Time value of money (the risk free rate of interest)

the price for bearing Uncertainty

Other factors (e.g., liquidity issues and market imperfections)

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12
Q

Describe the expected cash flow approach for present value computations.

A

Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted average, or “expected” future cash flow.

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13
Q

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

A

1) Cost of goods sold
2) Insurance expense
3) Depreciation expense
4) Amortization expense

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14
Q

Are gains and losses on the disposal of assets shown on a “gross basis” (i.e., where both the sale proceeds and the net book value of the disposed asset are reported) or on the “net basis” (i.e., where only the difference between the sale price and the net book value of the disposed asset is reported)?

A

Gains and losses are reported at their net amounts (i.e., proceeds less net book value).

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15
Q

How does a “multiple-step” income statement differ from a “single-step” income statement?

A
  • A multiple-step income statement reports operating revenues and expenses separately from nonoperating revenues and expenses and other gains and losses.
  • A single-step income statement’s presentation of income from continuing operations, total expenses are subtracted from total revenues without separation between operating and nonoperating revenues and expenses.
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16
Q

What is meant by a “classified” balance sheet?

A

A classified balance sheet distinguishes current and noncurrent assets and liabilities.

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17
Q

List the steps associated with the five-step approach to revenue recognition.

A
  • Step 1: Identify the contract with the customer
  • Step 2: Identify the separate performance obligations in the contract
  • Step 3: Determine the transaction price
  • Step 4: Allocate the transaction price to the separate performance obligations
  • Step 5: Recognize revenue when or as the entity satisfies each performance obligation
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18
Q

What criteria must be met in order to recognize revenue on a contract?

A
  • All the parties have approved the contract and are committed to performing their obligations
  • The rights of each party are identified
  • Payment terms can be identified
  • Future cash flows are expected to change as a result of the contract (commercial substance)
  • It is probable that the entity will collect substantially all of the consideration
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19
Q

What criteria must be met in order for a performance obligation to be considered distinct?

( X 2 )

A
  • The promise to transfer the good/service is separately identifiable from other goods or services in a contract.
  • The customer can benefit from the good/service independently or when comb ined with the customer’s own available resources.
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20
Q

Define the transaction price when recognizing revenue.

A

The transaction price is the amount of consideration an entity expects to receive in exchange for transferring goods/services to a customer.

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21
Q

What factors should be accounted for when determining the transaction price?

[ V S N C ]

A

the price should take in to account (if applicable)
* Variable consideration
* Significant financing
* Noncash consideration
* Consideration payable to the customer

22
Q

Describe how allocation works when a contract contains more than one performance obligation.

A

For contracts with more than one performance obligation, the overall contract transaction price should be allocated among each obligation based on the stand-alone selling price expected for satisfying each unique obligation (along with applying any discounts and/or variable consideration).

23
Q

Describe how revenue recognition differs when performance is satisfied over time versus at a point in time.

A

Revenue is recognized based on measuring progress toward completion using either output or input methods when the performance obligation is satisfied over time. In order to recognize revenue when performance is satisfied at a point in time, the customer must obtain control of the asset.

24
Q

Distinguish between the treatment of costs incurred in obtaining a contract as assets or as expenses.

A

If an entity expects to recover these costs throught the perfomrance of the contract, the entity will treat them as assets. If the costs are incurred regardless of whether the contract is obtained, they are treated as expenses.

25
Q

How do control and revenue recognition differ when an entity acts as a principal versus when it acts as an agent?

A

A principal has control over the good/service prior to transfer, and revenue equal to expected gross consideration will be recognized.

An agent does not have control, and revenue equal to the agent’s fee/commission will be recognized.

26
Q

Describe the accounting treatment for forwards and call options related to repurchase agreements.

A
  • Repurchase price < original price (lease)
  • Repurchase price > original price (financing agreement)
27
Q

Describe the accounting treatment for put options related to repurchase agreements.

A

Repurchase price < original selling price
* Customer has a significant economic incentive to exercise the right (lease)
* Customer does not have a significant economic incentive (sale with a right of return)

Repurchase price > original selling price
* Repurchase price > expected market value of the asset (financing arrangement)
* Repurchase price ≤ expected market value of the asset and customer does not have significant economic incentive to exercise the right (sale with a right of return)

28
Q

What criteria must be met in order for a customer to obtain control in a bill-and-hold arrangement?

A
  • There must be a substantive reason for the arrangement
  • The product is separately identified as belonging to the customer
  • The product is ready (in its current condition) for transfer to the customer
  • The entity (seller) cannot use the product or direct it to another customer
29
Q

Define a consignment arrangement.

A

A consignment arrangement exists when a dealer/distributor is tasked by an entity with selling the entity’s products to customers.

30
Q

Identify the indicators of a consignment arrangement.

[ 3 INDICATORS ]

A

Indicators of a consignment arrangement include:

 * The entity controls the product until a specified event occurs (such as a sale to a customer)
 * The dealer/distributor does not have an unconditional obligation to pay the entity for the product.
 * The entity has the authorization to require the return of the product or transfer the product to another party
31
Q

When is a warranty considered a separate performance obligation within a contract?

A

If a customer has the option to purchase a warranty separately or if the warranty provides a service that is beyond the assurance that the product will comply with agreed-upon specifications, the warranty will be treated as a separate performance obligation.

A portion of the overall transaction price should then be allocated to the warranty obligation.

32
Q

Describe refund liabilities and when it is appropriate to book them.

A

A refund liability represents the amount of money an entity does not expect to be entitled to receive. Refund liabilities should be recognized in situations in which customers have a right to return and the entity anticipates having to return a portion of the consideration already received from customers.

33
Q

Indentify two methods of revenue recognition for long-term construction-type contracts under U.S. GAAP.

A
  • Percentage-of-completion
  • Completed contract
34
Q

For long-term construction-type contracts, when are losses recognized?

A

Immediately when discovered, regardless of the method used for revenue recognition.

35
Q

State the formula for recognizing the gain/loss on long-term contracts under the percentage-of-completion method.

A

[Total cost to date / total estimated cost of contract] * [Total estimated gross profit] - [Gross profit recognized to date]

36
Q

What conditions must be present for a disposal to be reported in discontinued operations?

[ SS ME O&FR ]

A

A disposal of a component, group of components, business activity, or nonprofit activity is reported in discontinued operations if the disposal represents a STRATEGIC SHIFT that has or will have a MAJOR EFFECT on an entity’s OPERATIONS and FINANCIAL RESULTS.

37
Q

The gain (loss) from discontinued operations can consist of…

A

An impairment loss, a gain (loss) from actual operations, and a gain (loss) on disposal.

38
Q

How do we account for subsequent increases in the fair value of a discontinued component?

A

A gain is recognized for the subsequent increase in fair value minus costs to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.

39
Q

How is a change in an accounting estimate reported?

A

Prospectively

(going forward only)

40
Q

How is a change in accounting principle reported?

A
  • Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings blance of the earliest year presented.
  • Prior period financial statements are restated, if presented.
41
Q

What are the special exceptions to the general rule for the reporting of changes in an accounting principle?

How are these exceptions reported?

A

Changes where it is impracticable to estimate the cumulative effect adjustment, e.g., a change to LIFO from another method of inventory pricing under U.S. GAAP or a change in depreciation methods.

Such exceptions are accounted for prospectively, like a change in accounting estimate.

42
Q

Name the three types of accounting changes.

A
  • Change in an accounting principle
  • Change in an accounting estimate
  • Change in accounting entity
43
Q

Under U.S. GAAP, how is a change in accounting entity reported?

A

All current and prior period financial statements presented are restated.

44
Q

How are error corrections reported?

A

Reported as prior period adjustments to retained earnings and all comparative financial statements are restated.

45
Q

Define comprehensive income.

A

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

46
Q

Identify four items included in other comprehensive income.

[PUFI]

A

Pension adjustments

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

Foreign currency translation adjustments and gains/losses on certain foreign currency transactions

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

47
Q

List the two formats acceptable for reporting comprehensive income.

A
  • Statement of comprehensive income (single-statement approach)
  • Statement of income followed by separate statement of comprehensive income (two-statement approach)
48
Q

List some disclosure requirements for comprehensive income.

A
  • Tax effects of each component included in current “other comprehensive income”
  • Changes in the accumulated balances of components of “other comprehensive income”
  • Total accumulated other comprehensive income
  • Reclassification adjustments between other comprehensive income and net income
49
Q

Which four situations require adjusting journal entries in order to properly present financial statements on the accrual basis?

A

1) Cash is received before the performance obligation is met [deferred revenues].

2) Cash is paid before the expense is incurred [prepaid expenses].

3) Cash is received after the performance obligation has been met [receivables].

4) Cash is paid after the expense has been incurred [accrued expenses].

UNEARNED REVENUE & RECEIVABLES
PREPAID EXPENSES & ACCRUED EXPENSES

50
Q

What is the journal entry to record the EARNING of deferred revenue?
(entry to recognize revenue previously recorded as deferred revenue)

A

Dr Deferred revenue (liab) $XXX
Cr Revenue (income) $XXX

51
Q

What are the three rules for recording adjusting journal entries?

A

1) Adjusting journal entries must be recorded by the end of the entity’s fiscal year, before the preparation of financial statements.

2) Adjusting journal entries NEVER involve the cash account

3) All adjusting entries will hit one income statement account and one balance sheet account (at least one of each).

** pers note: an adjusting journal entry that hits only income statement accounts or only balance sheet accounts is most likely for the purpose of commiting FRAUD **

FAR OLD (9 decks)

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