F2

Question 1

What is the size test for segment reporting?

Answer 1

10% of one of the following:
1. Revenue - The segment’s revenue (intercompany and external) is greater than 10% of the company’s
2. combined profits or combined losses - look at the total profit (income) without subtracting losses OR look at the total losses separately from profit. Do not consider the combined amount as a total for finding the threshold.
3. Assets

Question 2

What is the reporting sufficiency test?

Answer 2

75%. If the total revenue of segments is less than 75%, then additional segments should be identified.

Question 3

What are the reporting thresholds that determine when a company has to file? (large accelerated filer, accelerated filer, smaller reporting company)

Answer 3

1. large accelerated filer - worldwide mkt value of equity held by nonaffiliates of $700M or more
2. accelerated filer - between $75M and $700M
3. Smaller company - under $75m (or under revenue of $100m)

Question 4

How many days does a company have to report a 10K?

Answer 4

1. large accelerated filer - 60 days
2. accelerated filer - 75 days
3. Smaller company - 90 days

Question 5

How many days does a company have to report a 10Q?

Answer 5

1. large accelerated filer - 40 days
2. accelerated filer
3. Smaller company

Question 6

How does accrued expenses impact net income in cash basis vs accrual?

Answer 6

a decrease in accrued expense means cash paid to expenses is greater than the accrual basis. This makes a greater expense for cash basis and a lower net income

Question 7

How does A/R impact net income in cash basis vs accrual?

Answer 7

a decrease in A/R for cash basis means that cash collected exceeds revenue recognized on accrual. This makes a higher cash basis income than accrual basis for decreases in A/R

Question 8

How to find COGS?

Answer 8

COGS = Beg Inventory + Purchases - Ending Inventory

Question 9

How to find APIC at the formation of a partnership

Answer 9

APIC = FV of assets - FV of liabilities - common stock
DR Assets @ FV
CR liabilities @ FV
CR common stock (shares issued * par value)
CR APIC

Question 10

How are assets and liabilities valued at the formation of a partnership/addition of a partner

Answer 10

Assets = FV (less mortgage/loan)
liabilities = PV

Question 11

What is the exact method for the addition of a partner/formation? Determine the exact buy in amount for a new partner.

Answer 11

1. Purchase price = BV of capital accounts
2. use finger method for buy in $
   a. 25% interest for new partner = 1/4 interest
   b. 4-1 = 3
   c. current capital acct total of existing partners / 3 = new buy in $ for new partner

There are no excess amounts/allocations/AJEs for any partner. Each partner has the exact interest of their buy in amounts.

Question 12

What is the bonus method for the addition of a new partner/formation? Calculate the bonus amounts & allocations.

Answer 12

1. the buy in amount does not necessarily equal the % interest of each partner according to their contracts. Any excess paid over the % interest is allocated to the other partners as a bonus.
2. a. find the new total of the capital accounts with the buy in amount by adding the buy in amount to the existing capital accounts.
   b. new total capital * % interest of new partner = new partner’s capital account
   c. new partner’s capital acct (b) - new partner’s buy in = bonus. if new partner’s acct> buy in, bonus goes to existing partners. if new partner’s acct < buy in, bonus goes to new partner.
   d. existing partners split bonus based on the old p&l ratio.

Question 13

what is the goodwill method for the addition of a new partner/formation? calculate goodwill.

Answer 13

1. excess contributed capital of new partner is recorded a s goodwill & given to existing partners. There are no losses
2. a. Find the implied value. This is the new total capital balance. Implied value = buy in $ / % interest of new partner.
   b. book value = capital accts of existing partners + buy in $ of new partner
   c. implied value - book value = goodwill

DR goodwill
CR existing partner’s capital account

Question 14

In a partnership, what is the order of payments made to partners’ capital accounts from profit and losses?

Answer 14

1. Bonus - according to contract
2. Interest - according to contract
3. Salary - according to contract
4. remaining profit/loss - reduced by items already paid. negative balances are recorded as a loss.

*if there are not enough profits to cover a bonus, interest, and salary, then a loss will be recorded.
* The first 3 items will be paid according the contract. Profits will be reduced by these amounts.